A look at the stock market

Some of us are taking a closer look at the stock market than we did a year or so.

By Morf Morford

Tacoma Daily Index

Some of us are taking a closer look at the stock market than we did a year or so ago.

One of the first principles of the stock market is that a better way of looking at it as a “market of stocks” not a single market or financial entity.

That means that any given individual stock may rise or fall precipitously while other stocks, even in the same industry, may rise, may fall or may not be impacted at all.

I have been paying attention to the stock market for many years, but primarily from a 30,000 foot level.

As with every other area of life, being directly involved is very different from observing from a distance.

One relatively new avenue to participating in the stock market is the rise of services that have no-fee trades.

There are many companies from the little known, like Robinhood – https://robinhood.com/us/en/ or Alpaca – https://alpaca.markets/ or you could use one of the more widely recognized companies like Charles Schwab – https://www.schwab.com/stocks? or TD Ameritrade – https://www.tdameritrade.com/home.page. You can see more choices here – https://www.nerdwallet.com/best/investing/free-stock-trading.

I have been using one of these services for several months now, and, to put it mildly have found it an educational – and occasionally harrowing experience.

A regular feature of these services is what is called a “paper account.” This is where you are given an account to practice with, sort of a test-driving opportunity.

This allows you to use “money” to buy, sell, short or set terms for buying or selling on your own. And, with these free services, you are on your own. There is no guidance, no protection and no guarantees.

Even if you don’t actually invest, these “paper accounts” are fun to play with. You see your profits and losses highlighted on the screen.

Even after doing this, stepping into “live trading” can be a heart-stopping experience. These are real dollars, your dollars, flashing red or green across the screen.

Greed, fear and panic become either your companions or the veil you break through to make better use of your assets as the ultimate tool in the landscape of capitalism in motion.

Yes, fortunes (large or small) can be made – or lost – or recovered – or lost again within minutes. Knowing when to invest, when to retreat or when to bail entirely is the realm of experts, hucksters and sheer luck.

There was one stock that I bought at about three dollars. For some unknown reason it quickly shot up to over fifteen dollars. It went up to about twenty and then down to about twelve, and then fifteen, and then about ten, and then…..

In other words the price flopped around like a crazy fish out of water. Will it be a good investment? It all depends when I pull my money out. But should I ?

I only bought ten shares at first and then when it went up, bought a few more, and then sold some.

But that’s only one example.

You may have heard about Kodak stock. After sitting at about two dollars a share for years, it jumped to about ten. I looked at it at that price, and wondered where it would go.

The next day it hit almost thirty dollars. And then it went down again to the teens. Where I bought a few shares.

And it stalled and staggered.

I only bought about ten shares so I’ll just hold onto them and see what happens.

The trick to individual investing is avoid selling at a loss – which may take some time and some courage. The impulse will be to sell – either to cut your losses or take a small gain while you can.

It’s a crazy game, but as long as you keep your wits about you and don’t get overwhelmed by the gut reactions, you can manage it.

To put it mildly, it is not for everyone.

Unfortunately the cliché is largely true, the stock market is not far from a casino – the same principles hold true – only play with money you can afford to lose, yesterday may have little or any relevance to today. And who knows what might happen today. Or even ten minutes from now?

Many traders buy and sell the same stock multiple times through-out a trading day attempting to catch the swings in value.

I can’t imagine doing that. But the big investors do it, using micro-second timing to shave off a few cents profit on thousands of shares.

I’m more interested in the smaller trades, in fact, I’m interested in the smaller stocks – those under ten dollars or so.

The cheaper stocks, known as penny stocks, (under five dollars) can be an enjoyable – and not so frightening place to get a feel for the whole process.

I bought several stocks for under a dollar. Some doubled, tripled, even quadrupled. Some floundered or barely moved. Others died on the vine.

More established stocks are not so liable to huge swings – but they do happen.

To maintain your sanity, I highly recommend looking at the long term. Unlike casinos, the market as a whole tends to grow and expand over time. Most stocks will grow over time, but not all of them.

Those that do not grow may wither slowly – though some – due to catastrophe, a scandal, untimely death of a key person or even an internet rumor could speed up the process.

If you invest over time, which you should, and it is the most practical way to move into the market.

A key principle is “dollar cost averaging.” This is a typical example of the industry-specific jargon you will need to learn.

“Dollar cost averaging” is one of those simple principles that to me at least made little sense – at least until started actually doing it.

Again, if you invest for the long term, you will also add to your investment over time. This is where “dollar cost averaging” comes in.

Here’s a simple explanation, your cost of any specific stock will change day by day, even moment by moment. If you add to your investment on a monthly basis, the cost of that stock may be different – even very different than it was the previous time.

For example, a stock that cost ten dollars one time and eight dollars the next, has cost an average of nine dollars.

Stocks go up and they go down – they are the ultimate moving target. Attempting to hit the highs and the lows will make you crazy – and probably accomplish nothing.

Dollar cost averaging is a good solution. You may lose some money for a while, if your stock goes down – but that just means you get more for your dollar at that time.

The question to ask is, if something costs less today than it did yesterday, should I buy more of it today or should I sell it before it goes down any more?

Many years ago, when I was first teaching introduction to business courses, I had a guest speaker who was a stock broker. His major point was that the stock market is 95% psychological.

Products, markets and sales are important, but, for better or worse, how those things – and the future of those things – are perceived is the real maker of profit and loss in the market.

There are no facts, only interpretations, someone wrote long ago. It’s true in relationships, politics and certainly the stock market.