Investments and commodities trading

[kingrat]

My father died in 1972. He left me a bit of money. Not a lot, but some. My mom invested this money, and it's value reach about $40,000 by the time it was turned over to me in 1993. I had some shares in Microsoft, and some investments in mutual funds offered by the American Funds Group. I used the mutual funds to pay for some of my college expenses, and I forget what else. I didn't touch the Microsoft stuff. By 1999, my Microsoft stock was worth over $200,000. Then they lost their monopoly case. Today, my Microsoft stock is worth something like $70,000.

Why do I bring this up? Diversification. Everything was in one basket and when that basket went down I went from well-off to large savings. It could have been worse.

I've been making a point to invest my Expedia stock option dollars differently. Mostly I have it in exchange traded funds (E.T.F.s, tradeable mutual funds). Some in E.T.F.s for international stocks. One is a junk bond E.T.F. One is a real estate E.T.F. Three U.S. index E.T.F.s (S&P smallcap 600, Dow Jones, Amex Intellidex). I only have three individual stocks. The Microsoft, Schering Plough, and some IAC (which is the parent company for my employer). A lot of my co-workers got their stock options and converted it into Expedia stock. I sold most of it and spread it out. Basically, it'll take the entire market as well as the Asian markets going down for me to drop. I lose out on the possibility of buying into the hot stock and seeing my money go up 300% in one year, but I also don't have to worry about IAC getting caught in some sort of Enron/Worldcom/HealthSouth/Adelphia/Qwest/Tyco problem and me losing all my money.

I've been looking at oil recently and gas prices. Demand is going to grow, and world oil production is near capacity. And building up new production capacity takes time. Years. Which means oil prices are only going to go up for a while. So how do I get in on that? Could invest in oil companies. There's a couple of commodity based mutual funds as well. So I'm doing something like that. My broker pointed out the Rogers Raw Material Fund which buys commodities futures, with something like 40% of the commodities being petro. It's not a mutual fund and not regulated like one, so I'm a bit worried about that. But the mutual funds cheated despite regulation. This one is an unregulated limited partnership. I spent two days reading the prospectus and the partnership agreement, trying to decipher all the stuff. Nothing horrible, though they do dispense with some arms-length requirements that would be in place in a regulated environment. For instance, rather than go with the cheapest subscription manager, they use Uhlmann Price Securities which is owned by a manager of the fund. The prices they pay to U.P.S. might be cheapest, they might not. Don't know. I know the limits of the fees the Rogers Fund charges. So I'm covered in that respect. Was looking for the fund to do things like funnel trades through affiliated brokers who give them kickbacks. That's not allowed in the agreement.

Anyway, as I said, it's an attempt to diversify from stocks. But it's relatively risky. I feel like a day trader, or like i'm investing in a hedge fund or something. I stopped at my broker's office this morning to sign the paperwork on it. One of the items in there is something to verify that I am able to take on the risk inherent in a hedge fund or other alternative investment. You can't invest if you are putting in all of granny's nest egg, for instance. On the one hand, I want to run back and get my money back cause it's stepping into something that's not safe. On the other hand, I feel like a big shot investor for stepping into this world.

Comments

[the1pony.livejournal.com]

Financial stuff like that always boggles my poor little brain. Good luck, I hope it turns out to be a really good thing for you.

[machine-logic.livejournal.com]

When I was in high school, I was part of the investment club. (Yes, we had one, and I actually earned a letter for it). Diversification was one of the items our teacher/leader/whatever would stress the most. She wanted us all to become day-traders, but knew that wasn't realistic (as most of us had specific careers in mind by that point, and wanted to learn how to properly invest money only to secure our financial future, not necissarily to become multi-billionaires). So anyway, I still find it almost insane to do the "Buy low and hold on to it forever" method of investing in the stock market, as the potential returns from day-trading options can be so incredibly lucrative.

Heh, all this, coming from a guy who makes less than $24,000 a year (which means take it with a grain of salt).

[kingrat]

Yeah, and you can lose all your lucrative gains just as quickly in daytrading. Most did.

[machine-logic.livejournal.com]

Which is where diversification comes in to play.

[superleanne.livejournal.com]

The whole day trading can sound like a quick buck, but it is basically gambling. Better to have a balanced portfolio that you have time to let grow. Trying to time the market only works really well for a few.

I am in the process of getting my broker's license. Talk about a headache. Margins and Options and Puts-OH MY!!!

[machine-logic.livejournal.com]

I'm well-aware of the risks - like I said, I spent a lot of time learning about this. I'm certainly not an expert, but I realize the risks.

[superleanne.livejournal.com]

I was more responding to the buy low and hold forever aspect seeming insane part of your post. For most of my clients-I would only recommend getting into stock or mutual funds if it was a long term investment. The gains when the market was good were insanely good, but that is not the norm.

[machine-logic.livejournal.com]

It's certainly not insane; I'm commenting on the instant gratification that seems so important in American society. It's a good way to make a quick buck (as long as you make educated guesses - doing it blindly is insane).

[superleanne.livejournal.com]

Totally-If I had some extra money to invest right now I would be alot more active. But you really have to commit the time and research to do really well. The thing I would recommend for anyone is the get a Roth IRA started. No tax deduction but the EARNINGS are tax free. Can't beat that.

It's nice to talk about this stuff since I spend two days every week studying it and will be taking the Series 7 test in August. Way back in 1997 I got my Series 6 and 63 license which meant I could do some investment sales. But the Series 7 is alot more information and very intense.

[machine-logic.livejournal.com]

Actually, Leanne, I'd like to talk to you a bit more about this. My debts should be paid off in just a few months (finally), and I'd like to invest some of my extra money at that time. YOU'RE the expert - I'm just relatively well-read on the subject.

[superleanne.livejournal.com]

Cool. I can help you make a game plan. It helps me that you are well read on the subject.

[tiff-seattle.livejournal.com]

Yeah but what if the political climate changes and OPEC decides to increase production?

[kingrat]

They can't. They are near the limits of what they can produce right now.

[tiff-seattle.livejournal.com]

My understanding was that OPEC's production quotas were based largely upon political concerns and attempts to regulate the price of oil rather than actual production capacity.

[kingrat]

Correct. But O.P.E.C. nations have more or less been exceeding their quotas for a while, and have started to run close to their capacity.

Re: resources

[node.livejournal.com]

What did cars/etc run on in India? Around here, a lot of people install CNG conversion kits for their cars. Most rickshaws run on LPG.

Re: resources

[kingrat]

C.N.G. in Delhi. Gasolline everywhere else that I went. From what I hear Mumbai and Kolkata also use C.N.G.