TimmyBoy
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alphieb said:
So far (not meaning to brag), I have a pretty good track record of investing in the stock market. I am not rich by any stretch of the imagaination, because riches don't come instantly or overnight and not to mention, had to use some of the money to pay for college education without having to take out any loans. I made money before, during and after the September 11 attacks from the stock market (you can make money whether the stock market is going up or down).
Few people have a good track record when it comes to investing in the stock market. Few mutual fund managers can beat the S & P 500. The smartest people who invest in the market acknowledge they don't know anything, don't try to beat the market and invest in cheap index funds. By acknowledging they don't know anything, they become smart and in the long term, make money from the stock market by investing in index funds because index funds merely mirror the performance of the market and in the long term, the market goes up in value, despite temporary downturns in some years. I don't buy into index funds, the strategy I pursue in my investments towards retirement goals is generally diversify myself into Large Cap, Mid-Cap, Small-Cap, bond funds and an index international fund and at times buy into a sector fund in a sector that I believe is undervalued. I buy mutual funds that buy stocks that are considered value buys, where a company's stock price is being sold lower than what it is really worth, these mutual funds that buy these kinds of stocks are called value funds.
Generally, before buying into a mutual fund, I will look at their top holdings, do some research on some of their top holdings and then look at the mutual fund's overall technical indicators. I think the three most important ratios are the Price Earnings ratio, the Price to Sale ratio and Return on Equity. I prefer to buy stocks and mutual funds that have a PE ratio below 10 and a Price to Sales ratio under 1.0. That is the ideal situation. Sometimes, the stock market becomes over-valued and it becomes hard to find good buys and PE ratios will be very high (which is a bad thing). People like Warren Buffet or Benjamin Graham (when he was still alive) will then become inactive in the stock market, because their is no value buys and stock prices are selling higher than what the shares are really worth and these sort of master investors will then resort to buying up private companies that they believe are under-valued and selling at a lower price than what they are really worth.
Warren Buffet and Benjamin Graham have never diversified as much as most people. It is one of the reason why they made so much money, because they made excellent, sure stock picks and poured alot of money into them. The Buffet's and the Graham's philosophy is that diversification is a protection against ignorance and their is nothing wrong with diversification, but, they say, it will get you average returns. However, I have been able to achieve above average returns while diversifying and I think it is because I make good sector bets and I buy value stock after extensive research. My philosophy, unlike Buffet's, is that everybody is ignorant to some degree and some degree of diversification is the best bet while investing in the market.
