Bush, Bernanke Give Markets A Push
Aug. 31 - Wall Street finished the week on an upswing after President George W. Bush and Federal Reserve Chairman Ben Bernanke reassured investors they will act to contain the subprime problem. The Dow rallied 119 points to 13,357. The S&P 500 rose 16 points to 1,473. The Nasdaq gained 31 points to 2,596.
Techs Edge Higher Ahead of Bernanke
Aug. 30 - Technology stocks nudged higher, but the rest of the market languished as traders await a key Friday speech from Federal Reserve chairman Ben Bernanke. The Dow lost 50 points to 13,238. The S&P 500 dipped 6 points 1,457. The Nasdaq rose 2 points to 2,565.
Stocks Rally 2%; Apple Shines
Aug 29 - U.S. stocks enjoyed broad-based gains on Wednesday as investors went on a shopping spree and speculation about a product announcement from Apple boosted tech stocks.The Dow rallied 247 points to 13,289. The S&P 500 rose 31 points to 1,463. The Nasdaq gained 62 points to 2,563. Crude oil prices settled well above $73 a barrel.
Renewable Fuels Becoming Reality
Aug 27 - Earlier this month, the Ford’s Fusion 999 hybrid reached 207mph on the track, lending support to the view that renewable fuels are here to stay.The Bush Administration’s “20 in 10″ renewable fuel research initiative is yielding fruit in the private sector. The Department of Energy is working with many of the major car companies for the “20 in 10″ initiative introduced in this year’s state of the union address. President Bush says he wants to see U.S. oil consumption decrease by 20% in the next 10 years, back to about 1996 levels.
Ads On YouTube Now
YouTube has started to post ads on their website. Not too long ago, my friends asked me why Google buy YouTube. I figured they must have some insane idea to make money off YouTube, since Google paid $1.65 Billion for the takeover. I bet that YouTube will have ads on their website soon, and they will most likely come up with an interactive way to display the ads. Yesterday, I saw ads for the first time, right next to the video (see screenshot). The ads only appear in certain videos now, not all the videos, but I think it’s only a matter of time before ads are used more frequently in the YouTube site. YouTube is a shortcut in the main screen of the iPhones and has become the favorite site for many people. YouTube has become so popular now, the advertisers are going to pay a premium to advertise their products/brands.
Editor’s Choice in Carnival of Personal Finance #114
My article, Understanding Stock Market Risk Tolerance: Big Ships vs. Small Ships is posted and picked as Editor’s Choice in the Carnival of Personal Finance #114.
Thanks to Trent from The Simple Dollar for picking my article.
What Do You Do With Your Coins?
I usually prefer to pay by credit card when possible to avoid carrying loose change in my pockets. But once in a while I cannot avoid it and receive loose change from paying change. I normally empty my pockets when I get home and store all the loose changes in a jar. I only store coins less than a quarter. I find it easy to spend quarters so I keep quarters outside the jar.
I also have a coin box on my desk at work. I leave the quarters outside the box and use them to buy breakfast. Sometimes when I have a huge stack of quarters, my coworkers would exchange them for bills. They need the quarters for laundry.
I use to like counting coins when I was a kid. Now, I’m past that stage, and I think it’s a waste of time. I would need to use the Coinstar machines when my coin jars are full. I remember during last winter Coinstar had a deal where you can exchange the full value of your coins for an Amazon certificate. That would be a nice deal.
Understanding Stock Market Risk Tolerance: Big Ships vs. Small Ships
My cousin wanted to invest some money in the stock market. He had previously opened a brokerage account and traded highly volatile penny stocks and lost most of his investments. It wasn’t a lot of money but it put a huge dent in his confidence and forced him to close his account and withdraw from the stock market.
The main reason for his loss in the stock market was because he concentrated only in penny stocks. He was one of those people that eyes the largest percentage gainers and hopes to get in and ride the stock to enormous gains. In reality, he always bought the pennies stocks at the high and sold them after the stocks has gone south.
He reasoned that the only way to make money was through penny stocks, because they can run up very quickly. I quickly added to his statement that penny stocks can run down very quickly as well. There is tremendous risk playing with penny stocks, especially with over the counter stocks.
After a period of avoiding the stock market, he wanted to get back in. So he asked me what to invest in. I replied that I would need to know more about him as an investor. Generally I start with these three questions to get an idea of the person:
1. What is your investment time horizon?
2. What is your risk tolerance?
3. What is the size of your investment?
The investment time horizon is the length of the period of time you are planning to hold your investments. There is obviously a difference between investing for a house you will buy in two years as opposed to investing for retirement thirty years down the lane. The risk tolerance is to determine how much risk you can stomach. Basically, how much money can you lose without losing sleep? The size of your investment will determine how diversify you can be. Generally, the larger the investment, the more diversification you should take.
My cousin said that his goal is to buy a condo in five years. He has saved up about 20K, and since this money will go towards his down payment, he cannot afford to take much risk. So this gives me a very good idea of which investment path he should take.
Five years is a long way to go and if he invests his money wisely, he could use this period of time to help himself towards achieving the goal.
But first, I have to explain to him about risk tolerance. It is very important to understand the level of risk you can take. I came up with an analogy to talk about the stocks and the stock market. I told him to think of the stock market as the ocean and stock companies as ships. Imagine you’re sailing in the middle of the ocean. Would you want to sail on a big ship or a small one? A big ship in the ocean is like a blue chip in the stock market, and a small ship is like a small company. The big ship is more stable; it generally moves slower but is less responsive to big waves. The small ship, on the other hand, can move a lot faster but can be swallowed by a big wave. Which size ship would you be more comfortable riding? How much excitement do you want? That all depends on the individual investor.
Just like the ships at sea, the companies in the market are susceptible to market waves.
Small companies, like small ships, carry a high risk in the stock market and are more volatile. While investing in small company stocks, or small caps, can double your money, a single bad news can tank the stock. Big companies, like big ships, do not move as fast in the stock market but they are generally less responsive to the daily market fluctuations.
I would advise new investors to start with big company stocks, or large caps. I suggested to my cousin to put his money in large caps if he doesn’t have the time to do his own research. Large caps are less volatile and carry lower risk, which are good points, because he would use this money as a down payment. If my cousin has extra money that he can afford to risk, then he can use the extras to buy small caps. With most or all of his money in large caps, he does not have to lose sleep over his investments. Another point is, you have to be comfortable with your investments so that you can sleep at night. If you’re constantly worrying about a stock’s performance, then you should either reduce your holdings or don’t invest in them at all.
The key is to find your own comfort zone. Once you know your comfort zone then you are on your way to investing. If you are not sure about how much risk you can stomach, start with safer investments, like large caps and move slowly towards higher risk stocks. Even if you can stomach huge risk, it is always good to diversify risk. Have at least one foot on the big ship, so even if there is a huge wave coming, you’ll know that at least one foot will be safe.