Author Topic: Buying low because of the Fiscal Cliff  (Read 5471 times)

cbr shadow

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Buying low because of the Fiscal Cliff
« on: December 14, 2012, 08:48:25 AM »
There has been a lot of talk about buying low with the fiscal cliff concern going on right now.  I have some extra money that I'd like to take some risk investing. It's not a lot (about $1500) but it would be fun to play around with it right now in the stock market.  Is this reasonable?
I've read a bit about Safebulkers (SB) and I notice they're WAY low right now.
http://finance.yahoo.com/echarts?s=SB+Interactive#symbol=sb;range=3m;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Thoughts?  Anyone else doing something similar?

arebelspy

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Re: Buying low because of the Fiscal Cliff
« Reply #1 on: December 14, 2012, 08:59:27 AM »
I've read a bit about Safebulkers (SB) and I notice they're WAY low right now.
...
Thoughts?

Value Trap
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iamlindoro

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Re: Buying low because of the Fiscal Cliff
« Reply #2 on: December 14, 2012, 09:01:23 AM »
Buying in while things are on "sale" is a great idea.  Since it sounds like you have no other investments in the stock market, however, I would strongly encourage you to choose an index fund as your first investment.  The reasoning being, there is no guarantee that a given stock will respond favorably to a resolution of the fiscal cliff, as you are still subject to the vital signs of that particular company.  The market as a whole, however, *will* rally after a fiscal cliff resolution, and will continue to grow ever upward over the long term.

SWTSX, VTSAX/VTSMX , etc. are excellent total stock market funds which allow you to own a broadly diversified "share" in the whole market.  This means that unless the market itself disappears, your shares don't disappear.  Plus, this is a strategy that is verifiably MMM-Approved (tm).

cbr shadow

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Re: Buying low because of the Fiscal Cliff
« Reply #3 on: December 14, 2012, 09:07:02 AM »
Thanks for the replies so far.  I hadn't heard of the term Value Trap before, but I get your point.

I'm 29 yr old and have about $25k in the stock market right now with my 401k (Vanguard 50 yr retirement) and a Roth IRA that I started this year ($5,000 in VTSMX).  I sold some old random consumerist products last week and thought I'd use it for "fun money" investing.

So the point above about a Value Trap is that it's possible that instead of buying stock that's just "discounted" right now that I may be buying shares in a dying company, right?  I guess I need to research further.
What are some companies that are looking good right now to everyone else?

James

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Re: Buying low because of the Fiscal Cliff
« Reply #4 on: December 14, 2012, 09:20:06 AM »
If a stock is looking good right now to everyone else, that will be factored into the price of the stock so it won't be any better deal than one that is looking less good.

Having said that, if you want to buy an individual stock I have no problem with that, just two suggestions.  Buy what you know and know when you will get out.

COguy

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Re: Buying low because of the Fiscal Cliff
« Reply #5 on: December 14, 2012, 09:30:10 AM »
cbr_shadow.  If you want to learn how to pick stocks, I would recommend reading everything Joshua Kennon has written and the books he recommends.  He does a great job of showing how one would pick stocks without giving stock picks.  He is not selling anything and I believe he truly has an interest in passing on his knowledge. 

He has a personal blog

http://www.joshuakennon.com/category/investing-articles/investing-strategies/value-investing-strategy/

and is the author of about.com's investing for beginners section

http://beginnersinvest.about.com/

If you just want to gamble and skip all the learning, just keep the amounts very small and go for it, but realize you are gambling and not investing

tooqk4u22

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Re: Buying low because of the Fiscal Cliff
« Reply #6 on: December 14, 2012, 09:30:48 AM »
Small company, capital intensive, highly leveraged, poor trends, recent dividend cut. It could and probably will bounce back but you are gambling and not investing with this one.

cbr shadow

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Re: Buying low because of the Fiscal Cliff
« Reply #7 on: December 14, 2012, 09:38:36 AM »
Thanks for the links and information everyone.  I'll read these this weekend for sure.

arebelspy

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Re: Buying low because of the Fiscal Cliff
« Reply #8 on: December 14, 2012, 10:57:49 AM »
So the point above about a Value Trap is that it's possible that instead of buying stock that's just "discounted" right now that I may be buying shares in a dying company, right?  I guess I need to research further.

Bingo.

For example, one counter argument for buying SB from this article: http://www.fool.com/investing/general/2012/11/20/3-stocks-ignoring-the-dows-bounce.aspx

Quote
Safe Bulkers is another stock that's had multiday drops in value, and its shares are off 28% since last Wednesday after cutting its dividend in the wake of a charter market that's just not holding up. The dividend has been slashed from $0.15 per share down to just $0.05, despite having beaten top- and bottom-line estimates.

Prices in the industry have plunged even more than Safe Bulkers' stock, and it noted that Panamax ships are losing value, which is creating a huge hole it has to plug. It has 24 such ships in its fleet and estimates they lost $150 million in value. It's not going to get any better, either, as it's called 2013 another possible "lost year" and figures the world financial crisis isn't instilling any confidence either.

Maybe it'll bounce up.  Maybe not.  Investing like that is quite often akin to gambling.  Hoping your gut is right more than the market has lost a lot of people a lot of money.

Whichever way you go, I wish you luck.
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Sekk

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Re: Buying low because of the Fiscal Cliff
« Reply #9 on: December 15, 2012, 11:27:37 AM »
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Maybe it'll bounce up.  Maybe not.  Investing like that is quite often akin to gambling.  Hoping your gut is right more than the market has lost a lot of people a lot of money.

Whichever way you go, I wish you luck.

That's not entirely true in all cases.   What about the housing market in 2008?  Yeah it was going down the tubes, but are you implying that just because there were a bunch of panicked investors taking all their money out of the market that people would stop buying houses 5, 10, or 20 years down the line?  That it'd never recover and children would just live with mom and pop for the rest of their lives?  That's not to say it'd have been smart to buy any one housing-related stock back then.  But an index fund concentrated on housing market assets would have been perfect regardless of the mentality of many panicked investors.

chucklesmcgee

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Re: Buying low because of the Fiscal Cliff
« Reply #10 on: December 15, 2012, 04:22:05 PM »
Quote
Maybe it'll bounce up.  Maybe not.  Investing like that is quite often akin to gambling.  Hoping your gut is right more than the market has lost a lot of people a lot of money.

Whichever way you go, I wish you luck.

That's not entirely true in all cases.   What about the housing market in 2008?  Yeah it was going down the tubes, but are you implying that just because there were a bunch of panicked investors taking all their money out of the market that people would stop buying houses 5, 10, or 20 years down the line?

No he's not saying that a market will never recover. His point is you can't time the markets. That a stock has gone up a lot or has gone down a lot recently doesn't let you predict where it will go in the future. That's not to imply that the housing market can never be expected to recover. But it's quite possible that you could have below average returns compared to the market at large, and the fact that the housing market collapsed in 2008 didn't automatically mean that it was a good idea to put your money into it.

tooqk4u22

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Re: Buying low because of the Fiscal Cliff
« Reply #11 on: December 15, 2012, 05:31:31 PM »
Quote
Maybe it'll bounce up.  Maybe not.  Investing like that is quite often akin to gambling.  Hoping your gut is right more than the market has lost a lot of people a lot of money.

Whichever way you go, I wish you luck.

That's not entirely true in all cases.   What about the housing market in 2008?  Yeah it was going down the tubes, but are you implying that just because there were a bunch of panicked investors taking all their money out of the market that people would stop buying houses 5, 10, or 20 years down the line?

No he's not saying that a market will never recover. His point is you can't time the markets. That a stock has gone up a lot or has gone down a lot recently doesn't let you predict where it will go in the future. That's not to imply that the housing market can never be expected to recover. But it's quite possible that you could have below average returns compared to the market at large, and the fact that the housing market collapsed in 2008 didn't automatically mean that it was a good idea to put your money into it.

The housing analogy is not correct when we are discussing a single stock, it might be an acceptable analogy when if talking about the total stock market.  A single stock that is down may recover, stay the same, or may go bankrupt - for it to be analogous to a house it you would have to say that I bought a house that was in disrepair - the house might get fixed (recover), it might be minimally maintained (stay the same), or there may be no maintenance done and it falls further in disrepair (BK).

Sekk

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Re: Buying low because of the Fiscal Cliff
« Reply #12 on: December 16, 2012, 09:38:41 AM »
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The housing analogy is not correct when we are discussing a single stock, it might be an acceptable analogy when if talking about the total stock market.  A single stock that is down may recover, stay the same, or may go bankrupt - for it to be analogous to a house it you would have to say that I bought a house that was in disrepair - the house might get fixed (recover), it might be minimally maintained (stay the same), or there may be no maintenance done and it falls further in disrepair (BK).

I agree with the single stock part.  Of course it'd have been too risky to invest in any single housing-related stock back in 2008.  But the market as a whole would undoubtedly recover from the unreasonable, panic-fueled lows it had reached in 2008.

Admittedly, if the trend of reducing the average amount of babies per family continues in the United States, average returns on the housing market in the long run may decrease.

AlexK

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Re: Buying low because of the Fiscal Cliff
« Reply #13 on: December 19, 2012, 09:45:45 AM »
I like to invest small amounts in individual stocks. It give me a reason to check them often, investigate the company and hopefully learn something about investing in the process. I have the vast majority of my stock investments in diversified funds but I have about 5% in individual stocks.  I get my stock ideas from people much smarter than me, and then I research each company before investing. I read conference call transcripts, check all financials, read SEC filings before investing.

I own some Safe Bulkers. I like the fact that they own some Capeclass ships which, by their huge size and economy of scale have the lowest cost per ton of cargo to operate. SB also has a history of keeping operating costs very low. That is why some of their competitors are not profitable now and SB is. When the economy makes a comeback SB is in a position to come back very strong.

Another one I own and like is QLGC.

smedleyb

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Re: Buying low because of the Fiscal Cliff
« Reply #14 on: December 19, 2012, 10:08:59 AM »
I like to invest small amounts in individual stocks. It give me a reason to check them often, investigate the company and hopefully learn something about investing in the process. I have the vast majority of my stock investments in diversified funds but I have about 5% in individual stocks.  I get my stock ideas from people much smarter than me, and then I research each company before investing. I read conference call transcripts, check all financials, read SEC filings before investing.

I own some Safe Bulkers. I like the fact that they own some Capeclass ships which, by their huge size and economy of scale have the lowest cost per ton of cargo to operate. SB also has a history of keeping operating costs very low. That is why some of their competitors are not profitable now and SB is. When the economy makes a comeback SB is in a position to come back very strong.

Another one I own and like is QLGC.

One thing I've noticed is that you like to buy somewhat obscure companies at very depressed prices.  I think that's a very dangerous game to play,  IMO.

That said, the greatest trade I ever pulled off was in QLGC back in 1999.  I doubled my money in a matter of weeks (and used margin to do it).  That stock will always have a special place in my heart!