Craig Gibbons' Lifeblog lifeblog://tri.eat.net

5May/090

Stocks, Bonds and other things I don’t fully understand

Lately I’ve been dabbling a bit in the markets. Following the deepest darkest stock market declines since the great depression, I figured if I bought some stock and just held onto it, sooner or later I’d come good and in the mean time I might even experience what it feels like to receive a dividend or two. As it turns out, I didn’t have to wait very long. By virtue of some expert picks (read: sheer luck) my selections took off almost immediately, with pretty much everything gaining somewhere between 5% and 60% over the past 2 months. The experience has been eye-opening. While I will in no way pretend any of this was anything other than, as I said, luck, I have nonetheless sought to increase my understanding of all things financial and now have a modicum of knowledge in the area, or just enough to be dangerous, as we say in the technology world.

Much of the commentary is seriously perplexing. For almost every viewpoint, it is possible to find a contradictory viewpoint as vigorously expounded. For every broker recommendation, others are lining up to discredit the research and cast confusion and doubt. What then is an amateur, or even a total beginner to do? In the past, I bought into some funds. These funds had been the top performers in categories for the past few years and seemed pretty safe. Clearly they were bought at the wrong time, but they tanked just as hard as anything else when all the people with million dollar houses on minimum wage across the pond stopped making their mortgage payments. Maybe, I thought, funds are not necessarily the way forward. What about gold? Well, after watching the gold price fluctuate between $800 and $1,000 an ounce, I decided there is not in fact “gold in them thar hills”. Oil? Smart play if you want to lose money quick. Those long on oil (betting on an upward movement) would have found themselves dead broke now as the oil price tanked (no pun intended) from a high of $147 last July (’08) to around a third of that now. Defensives I hear you cry! Sadly that way is danger too. Pharmaceuticals got high on their own supply, auto makers got a flat, miners dug themselves a hole and the banks, well, enough said about banks!

In the end, any (every) market participant needs to know something about what they’re actually buying and about the company, sector and economy, domestic and global, as a whole. Some investments are inherently safer than others and I’ve tried to diversify into those. Whatever happens from here, the learning experience has, at least, been well worth it.

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