Investment risk

England · #1 (**permalink**) 01-08-08, 11:11 PM

I've decided to take a big risk in the stock market. I'm going to put $1000 into Apple, yet wait to see if it gets really low first. For example, under 130, if lucky under 100...pushing it, I know. I feel by doing this while the market is heading into recession, I can make a huge, if not good profit once the recession is over and stocks start to come back. This is what I want to do, but I rather get a professional opinion before doing this. With the current money I have in the market, since it is the recession (assumption), I'm going to place the current amount of money I have now from my portfolio, into CD's and let it build interest. Since I also won a free blackberry phone ($449 value), I'm going to sell that on Ebay and put money into CD's or the market.

The main thing is about the Apple question, and getting your opinion. Thank you.

Airelon · #2 (**permalink**) 01-08-08, 11:47 PM

Well, this is what I do - but I'm not sure I'd term myself 'professional'. I mean, I guess in a way I am, but I think I've learned enough to know to say that a) I'm not licensed and b) always do your own research and employ money management principles . . .

The first thought that came into my head mate - is that if we are truly entering a bear market right now - if we head lower than 1370 on the S&P, or we stay lower than current levels on the DOW? Then beware of value investing. I'm a firm believer in value investing. But it can be very discouraging, and very expensive when trying to do it in the beginning of a bear market.

But that's assuming we are in a bear market. Right now, there's now way to know. All I see is bad news as far as fundamentals, and the markets are not clearing their highs, but they are making lower lows. I saved myself some grief by not buying when we were at support. At this point for myself? It's wait and see.

But that's just me.

England · #3 (**permalink**) 01-09-08, 12:45 AM

So overall, just wait and see what happens. You may not be a professional, but you are very experienced in the game.

Airelon · #4 (**permalink**) 01-09-08, 08:12 AM

Well thanks. I guess it's that sometimes when I hear "professional" - my mind turns to money managers.

Something that I do if I am thinking of buying a stock at a valued price, but I'm worried about the broader market? I sometimes wait until the broader market confirms congestion. Some times I call it buying on cofirmation of a double bottom, or even a 1-2-x pattern.

I'll wait for the broader market to rebound a bit. In other words, wait until it makes a LL (lower low) then come up off that low. Then I watch it head back down again. If it doesn't, however, break below the previous LL? Then I look to buy the stock I'm looking at when the broader market starts trading at a higher area, than the previous days high.

If that makes any sense.

Stocktrading101 · #5 (**permalink**) 01-14-08, 05:45 PM

Sounds like buying into momentum to me! I like that strategy, it can be very tough catching a falling knife correctly. I think the saying goes something like, "the trend is your friend, so go with it."

Airelon · #6 (**permalink**) 01-14-08, 06:01 PM

Indeed. Precisely why I only use those sort of entrances on value plays.

Otherwise - I enjoy going with the trend.

Novice Investing · #7 (**permalink**) 01-15-08, 09:08 AM

I would always use the concept of fair value. If risk free treasury bond is yielding 4%, you want your shares to yield more than 4%. Let's say 7%. This correspond to a P/E value of (1/7% = 14.2). This means that for every $ 1 of profit, a company is fairly valued when it trades at $ 14 per share. At $ 100, does AAPL yield 7%? Ok there is earning growth which needs to be factored in. Do many simulations you want and see at which point would AAPL be @ fair value.

Oh yes. This is only the fair value. To profit from stocks, you would want to buy it below fair value. The lower below fair value, the lower your risk is.

Airelon · #8 (**permalink**) 01-15-08, 09:10 AM

What you have to worry about there though, is the broad sector. I found out (the hard way) in 2001, that even stocks that are priced fairly? Can still suffer from the broader market. I was buying fair value, but they were still suffering from broader market downturn. DCA (Dollar Cost Averaging) helps mitigate the risk from the broader market in truly good stocks - but that is geared more towards investors, than traders.