The (stock and other) Markets...A waste of money and time?

[Pete Letkeman]

It appears as though, like or it not, the stock market, currency markets and other markets have been around for decades and they appear to be staying around for many more years.
Do you pay attention to any of these markets? If so how would you start? I have a few family members looking to try their hand in crypto-currency markets e.g. Bitcoin.

It does kind of seem like if you are interested in this sort of thing then you really need to do your research.
Not only that very often your are playing around with hundreds if not thousands of dollars.
Add to that the fact that some markets or stocks are very volatile and if you are not paying enough attention you can loose your a majority of your investment in hours or in a day.

However many of the people on this site do spend many hours a day programming or learning/reading programming.
What if you took the effort that you spent learning programming and put that into learning investing, would you be okay?

You can always 'play at investing' with your own money, yet most computer programming jobs end sooner or later.
So maybe becoming learning the Markets is a good thing? Or maybe it's a waste of time?

I'm curious as what what your thoughts are on the Markets and investing.

[Paul Clapham]

It depends on what your goals are. For example I'm 68 years old and one of my goals is to not be living in a cardboard box when I'm 90. So yes, you might find it surprising, but more than half of my retirement fund is invested in various stock markets. But it's invested on my behalf by a financial manager who understands my goals and invests the fund accordingly, and these days that means investing in a variety of funds.

But if you're young and you have money to burn, then by all means invest in risky things like stocks or more risky things like crypto-currencies. Like my daughter who several years bought a few thousand dollars worth of Apple stock and made a lot of money. But the rule is, don't invest in those markets unless you don't mind losing some, or most, or all of that money.

It seems to me that it must be possible to understand how various money markets work, because those guys are investing my money for me with a good degree of success. But it also seems to me that it would take a fair amount of time to become good enough at it that you could quit your day job. I'm not sure that it's even possible to become a professional crypto-currency investor, but I'm sure it's possible to do that for fun. Just as long as you consider losing money to be fun as well.

[Stephan van Hulst]

For a long time now I've wanted to get my hands dirty with stock trading, but mostly because I think it's a useful skill to have. I haven't had enough interest in the whole thing to actually get up and get started with it. I guess it takes a long time to actually understand how things influence market fluctuations, and I can't be bothered to make time to understand it.

[Campbell Ritchie]

I think it has become harder and easier in recent years, both because of developments in IT. It has become harder because automated trading means large amounts of investment (to use a non‑specific word) are bought and sold very quickly and a few milliseconds can make the difference between profit and loss. It has become easier because “stagging” has become easier. There are traditionally three animals in the market:-

1: Bulls. They buy shares hoping to sell them later at a higher price; they thrive when the markets are rising.

2: Bears. They sell stocks hoping to buy them back later at a lower price. They are active on a falling market, and can make a profit when the market rises again.

3: Stags. They buy newly‑issued shares hoping to make a profit later on.

Remember that shares do not simply change value. They also pay a dividend; buying a share means one owns part of the company which pays part of its final profits as a dividend. The shareowner can take those dividends as an income or reinvest them by buying more shares. Note that repeated rapid trading would disqualify the trader from dividends; it is necessary to hold the shares at the “ex‑dividend date” to be eligible for the forthcoming dividend.
In recent years a new way of buying newly‑issued shares seems to have arisen. It isn't called stagging any more, but crowdfunding.

Remember the jargon varies from country to country. So does the legal framework for owning shares.

A healthy profitable company will invest part of its earnings in modernisation, so it will continue to pay dividends, which dividends make the shares attractive and maintain the prices. Even if the market falls generally, those dividends may mean the investment continues to turn a profit despite the falling prices. I look on that as, “Owning shares means paying the directors of XYZ Ltd to make the company work well, and they have to pay that back in the form of dividends.” As Paul C says, there is a risk of losing money. But there is also a good chance that many shares will recover if you wait long enough, maybe ten years. Also, as Paul says, diversify. Don't put all your eggs in one basket, so if you gain on the swings and lose on the roundabouts you can still make a profit. Also as Paul says, there are different riskinesses of investments. Straight shares are riskier than unit trusts (funds) and BitCoin is much riskier still. But the high‑risk investments can make faster profits. Also remember that buying shares in a particular company entitles you to visit the company, elect directors, and query how they are running the company.

[Jesper de Jong]

Nowadays, if you let your money sit on a savings account, it's only losing its value because the interest rate on savings accounts is almost zero.

There are many different ways to invest money in stocks. A relatively safe and easy way is to buy from a fund, which is a collection of stocks that are managed by whatever company or bank manages the fund. (I'm not sure if I'm using the right terms here, I'm not an expert either). About two years ago I did this and since the stock market has done very well in the past year, it's now up about 12% since when I bought it. My intention with this money is to keep it for the long term (I'm a freelancer and have to take care of my own pension, I don't have an employer to puts money in a pension fund for me).

If you really want to trade stocks of different companies directly, then yes, you would have to do a lot of research and learn how to follow the market and understand how to make decisions for buying and selling.

I bought Bitcoin for a few hundred euros a few weeks ago. Not as a serious investment, but just to see what would happen. Bitcoin went up more than 10x last year so it would be nice if my few hundred € would be worth a few thousand € in a year, and it's not so much money that if I'd lose it, I'd be seriously distressed. (The past week the Bitcoin fell quite a bit because different countries have announced they want to regulate cryptocoins more strictly, so right now I'm at a € 150 loss).

[Liutauras Vilda]

Jesper de Jong wrote:I bought Bitcoin for a few hundred euros a few weeks ago. Not as a serious investment, but just to see what would happen. Bitcoin went up more than 10x last year so it would be nice if my few hundred € would be worth a few thousand € in a year, and it's not so much money that if I'd lose it, I'd be seriously distressed. (The past week the Bitcoin fell quite a bit because different countries have announced they want to regulate cryptocoins more strictly, so right now I'm at a € 150 loss).

In Oct, 2017 I bought XRP (by Ripple), it is the opposite idea of a problem this cryptocurrency trying to solve comparing to what other cryptocurrencies offer. Technology they offer looked to me most trusted at that time, mainly they are targeting financial institutions to serve as a bridge to do international payments across the parties of interest.
I've putted 250$ (minimum amount I was able to in some trading platform, partially because of ardor and partially because did a course about the blockchain and cryptocurrencies, so wanted to get closer to that), and before Christmas the profit were over +3200$ (out from 250$), BUT, for the reasons (presumably, there could be more) Jesper mentioned, within past 2 weeks all these profits got shrunk to +800$ as of now of writing this post. It is important to understand, you have no real profit unless you close the trade and money goes to your virtual account (later there is a process to cash them out). So only technically you make profit, but as many guys mentioned here, market is very volatile (directing to cryptocurrencies) due to many things. Prices going UP and DOWN every second. But since I decided to go for it for a long term, I decided not to spend time in it by closing orders at a relatively high price, and open again at a lower in which case I could either get direct earnings in cash, or increase the amount of units of cryptocurrency I own. I might will do that if I have more time. Only holding trades opened is kind of useless, nothing happens that way so you need to do one of these what I mentioned in order to have cash flow balance changed either +/-.

Theoretically, let's say I have 1000 units of cryptocurrency bought at 0.10$, which is 100$. So when the price of the unit goes to 1.10$, your profits are +1000$. Let's assume you decide to do something, so you have 2 options (will mention 3rd at the end): 1. close the trade and take +1000$ profit 2. close the trade wait until price goes down let's say to 0.55$, so you can buy this time 2000 units - that means you doubled up your coins. Now let's assume you were holding that and price got shrunk, so you technically come back to where you was at the start 0.10$, that means, you own same amount of units and you have same amount of money you have invested (that's not true: less than that, because buy and sell prices differ).

Since I've putted only 250$ in that, I'm not too worried with that markets volatility, but there are people who invest tens of thousands of money, you can imagine how people brains react when prices drop, yesterday all cryptocurrencies dropped around -40%. This night some of them jumped +20%.

Stocks of the companies are much more stable based on what I was observing, but up's and down's are also less significant there. You need to invest much more money in order to see some more significant profits (in case of that), loss is also less significant.

It takes good amount of time in your own research if you want to try to do some projections backed up with some data and try to predict what could happen in near future, so you could act accordingly.

[Campbell Ritchie]

You need to buy $10⁹ worth of BitCoin. A purchase that large will put the price up, and when you sell out an hour later only having only made $2×10⁸ profit, the price will come down to 80% of what it was when you made your first purchase
Then you buy $1.2×10⁹ worth of BitCoin and the price goes up because of such a large purchase...




Then you have to sell the lot to pay your tax bill

[Liutauras Vilda]

Some other things, many cryptocurrencies don't have direct exchange with fiat currencies ($ £...), but rather you can buy them for Bitcoins or Ethereum, so what does that mean. That means, that you need to go through the long chain of exchanges and not to lose your earnings, i.e.:

Let's assume you decided to buy hypothetical cryptocurrency named "GGG" which can be bought only for Bitcoins. That means, you need to buy Bitcoins first at relatively low price and expect it go up afterwards, so you could buy GGG. Now let's say your GGG went up significantly so you decided to sell them. Now you need to be careful, because you need to sell them when the Bitcoin again is relatively low (not higher than when you bought GGG), and in order to get real cash in one of fiat currencies, you need to wait until Bitcoin goes up so you could sell it on some of exchanges. AND, you still need to take into account seriously BUY and SELL prices, because you buy at a higher price and sell at a lower every time you do exchange between: $$$ <-> Bitcoin <-> GGG <-> Bitcoin <-> $$$. In short - you need to calculate and record buying and selling prices.

If one or all of these parts in this chain works against you, you might significantly lose money, even though you sold GGG at a much higher price than you bought them.

[Campbell Ritchie]

It jsut goes to show how risky that sort of investment can be. But don't worry Liutauras: if you lose $10⁹ because of other flucutations, somebody else will have gained that money, so they will be better off.
That is the difference between shares and currency speculation. In the case of shares, the profit is because the companies have traded profitably, so everybody involved is better off.


. . . Or at least because they are perceived as trading profitably; if that perception isn't true you might get a bubble like the dot‑com bubble of eighteen years ago.

[Liutauras Vilda]

Campbell Ritchie wrote:if that perception isn't true you might get a bubble like the dot‑com bubble of eighteen years ago.

According to financial experts (couldn't back up my saying with articles now, but I read in various places), that cryptocurrencies definitely growing up to some kind of bubble which undoubtedly going to blow up drastically, which in turn will make people lose most or all of their money, of course, those who putted or going to put all. Essentially what we are talking here... crypto coins have no real value, it is an "air" whose price is caused by the market demand and nothing else, there are no commodities, goods, or some kind of real estate behind which could be touched. Instead, only the output from the hashing algorithm e320b6c2fffc8d750423db8b1eb942ae710e951ed797f7affc8892b0f1fc122b (sometimes you don't get even that, because there is a term CFD, google).

So, I agree with Paul. There are to somewhat safe level investments in stocks or funds, with some calculated reasonable risk, and presumably continuous gains, or there are nowadays "psychosis" which can make you fairly quickly either very rich or a very poor man.

Interesting stuff is, that if you'd give a million of $ to some standard individual who knows little how to manipulate money - there is a bigger chance than not, that in few years time they'd end up with having nothing or having less than they have had before - so it is risky to become rich very quickly comparing to gradually and based on made logical decisions gains.

So, are markets waste of money? Nope, but to non experienced person it is more of a lottery or casino roulette, where you could put money either on red or black, and everybody knows that chances to win aren't 50/50, but slightly less, because there is 0 - when the casino wins

[Campbell Ritchie]

I don't think it is fair to compare stock markets to lotteries, even though both can be unpredictable. Remember, with stocks you are buying part of a company, and all you really buy with a lottery is a bit of adrenaline on Wednesday night.

Oh, is that what mining means? Creating object which have that hash code? No wonder it is supposed to be dreadfully energy‑intensive.

[Liutauras Vilda]

Campbell Ritchie wrote:I don't think it is fair to compare stock markets to lotteries

Please let me take my words back, I don't think that way too, but it was a nice intro to a casino roulette stuff. Lottery I'd change to "luck" for non experienced.

Campbell Ritchie wrote:Oh, is that what mining means? Creating object which have that hash code? No wonder it is supposed to be dreadfully energy‑intensive.

Yeah, if we were to go into more details, there would be more worse things to mention. I'm not sure where all this stuff going to end up. Soon we'll fight not with global climate warming, but with insufficient funds of electricity. Cities with trams could be seen as potential offenders in that case.

[Tim Cooke]

I work for a financial exchange company, and there are many positive reasons why this particular exchange has been in existence for 150 years, so to suggest that there is no value in it holds no water. Markets serve customer needs.

As for crypto-currencies, the current market is very volatile which creates opportunity for great gains in a short time. For example, I bought a small sum of a currency a couple of weeks ago which has now quadrupled in value. However, with high volatility comes high risk as that same currency could just as easily be worth nothing tomorrow. As with trading in any market the key to success is understanding the commodity you're trading. Actually making trades is easy, making the right trades at the right time is where you make money.

My top piece of advice if you want to dabble with crypto-currency is be absolutely, 100%, prepared to lose everything. Don't invest money you can't afford to lose. I have some investments live today which may come to something, but may also come to nothing. I hope they work out, but I'm fully prepared to lose the lot and I'm not going to be homeless if that happens.

[Paul Clapham]

Jesper de Jong wrote:If you really want to trade stocks of different companies directly, then yes, you would have to do a lot of research and learn how to follow the market and understand how to make decisions for buying and selling.

There's a mathematical basis for how stock prices change over time, and most of the automated stock trading systems use various (proprietary) algorithms based on it. You could study up on that math, but if you don't apply it correctly you could lose a bunch of money. And if the high-volume trading algorithms aren't applied correctly, then we have something like the 2008 financial crash.

[Campbell Ritchie]

Paul Clapham wrote:. . . There's a mathematical basis for how stock prices change over time, . . . .

How accurate are those algorithms? I have come across the concept that there are complicated systems and complex systems. In a complicated system, the algorithms are very big and (would you believe?) complicated, but a big enough computer with an i999‑Core processor can accurately model it. A complex system remains unpredictable irrespective of the amount of effort used to predict its behaviour; indeed attempts to monitor its behaviour in real life can alter that behaviour unpredictably.
I think share prices count as a complex system as opposed to a complicated system. The algorithms only give an approximation of prices' behaviour.

I thought it was earlier crashes that were caused by automated selling, e.g. the dot‑com bust of 2000.

[fred rosenberger]

back up a moment...

do you want to INVEST, or do you want to SPECULATE?

Investing means you're in it for the long haul.  You invest in a retirement account.  Your money is going to sit in the account and grow for 10, 20, or even 30 years (or more, if you are smart and start early).

Speculating is buying/selling stocks in the hope of turning a quick profit. This has the potential for much greater returns, but also much greater losses.

Personally, I invest.  I put most of my money into an index fund - specifically one pegged to the S&P 500.  There's no real fund manager who's salary has to be covered. There are no decisions about when or where to move the money around. The fees are incredibly low.  And it just sits there and moves with the market. As i get older, I start shifting more of my money into bonds, which are safer but offer a lower yield. The closer I get to retirement, the less risk i can tolerate.

[Tim Holloway]

Markets haven't been around for decades, they've been around for centuries.

Contrary to popular belief, financial instrument and commodities markets aren't gambling casinos. And the major stock markets overall are one of the better ways to accumulate wealth. You simply need to follow some basic and well-published rules and determine what sort of goals you have. Based on your goals, you adopt a strategy. Your best chances for success are to be consistent in following that strategy, although goals (and hence strategy) may change throughout life.

Perhaps the most basic rule of them all is that the bigger the payout, the bigger the chance that you'll lose some or all of your investment. So if you expect to retire in comfort, don't grab at every get-rich-quick scheme that comes along. It's a good way to make a small fortune - assuming you started with a large fortune.

Investing is very much a bootstrapping process, Which means that if you can't afford a pair of boots to begin with, look elsewhere. If you have to tap your investments every time you need new soles, you'll lose. You do have to have money to make money and you need to be able to make your decisions on your own schedule, not someone else's. The people who got wiped out in the Crash of 1928 were not the ones who kept their investments, they're the ones who sold. In many cases, they had no choice but to sell, since conditions at the time led too much buying on margin and banks who had a vested interest in being stock brokers. The long-term holders saw their investments dip, then slowly return to (and mostly0) exceed) pre-crash values. Some companies failed, but the AT&T's, General Motors, and so forth didn't. The truly wealthy had diversified portfolios so a few failures were a mere annoyance. The day-traders and hot-tip investors ended up in the bread lines.

Incidentally, I once had over 1000 shares of a popular and now-defunct airline named Air Florida. Lost every penny. On the other hand, I bought Cisco, held onto it for 10-15 years and sold it to pay off the mortgage on my house. I also bought Red Hat not long after it went public

One of the biggest mistakes you can make is to buy into fads. Markets stampede. Once something like BitCoin gains general public notice, everyone rushes in, pushes valuations to absurd levels, the realists cash out and the accelerating sales cause prices to crash. Assuming that the market in question doesn't completely collapse, that's when the more cautious (and successful) investors like Warren Buffet move in, buy up and wait for prices to recover.
Don't try to "time" the market. It's enough to recognize trends. I sold Cisco when it had stopped growing and lost its early fire. I don't think I ever owned Microsoft or IBM directly (since I also invest via funds, what they do is up to them).