US stock market valuations

[wasCB14]

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@iced wrote:

Watching what WSB has been doing to GME, BBBY, and other stocks in the last week is very concerning. They're playing a dangerous game, and at this point I think if they move into any of my positions (unlikely since I'm mostly larger cap) I'll break my own rule of never selling under short-term gains to vacate a position before they poison it.

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I looked at GME about a year ago and thought the company looked like it would eventually go out of business. I figured that physical games were inferior to digital games as they can't be damaged (like stepping on a CD) or stolen/lost. And if somone can't download a big game due to a slow internet connection, he or she probably can't play that game online with friends, anyway.

But one thing I learned is that many companies can die very very slowly. Short squeezes can happen and puts can expire. So I took no position.

I looked at buying puts on GME today. Those may possibly be the most expensive options I have ever seen....but I can certainly understand.

Still no position in GME. Spectator only for this drama.

[Revelate]

I honestly fail to see how shorts benefit the market, wish we'd just prohibit it as the "liquidity" argument doesn't hold weight in my book.  

I dropped a stop limit order in on my TSLA shares and, of course, unlike the rest of my portfolio they went up, again.  4.03% upside on my biggest holding and my entire portfolio was down 1.03%... which goes to show you what kind of day it was, getting sort of tired of the wild volatility on some stocks and that's even after I got out of the feast or famine that is biotech.

[Citylights18]

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@sxa001 wrote:

I'm just a working man.  Just bought a house so my cash reserves are down.  Pretty much everything is in my 401k but have been doing a little gambling on Robinhood.  Up about $150 on VYNE and OCGN.  Penny stocks that I bought for fun while I learn.  May get into ETFs or something once my cash reserves build back up and we aren't putting as much money into the house. 

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That is the problem I was finding with real estate; just to close with a conventional 5% mortgage it was like 8%-9% with closing costs where I live in a high tax area. Money that once you pay you can't get back. 

I can find a bank to write a HELOC to bring that cash back but into my checking account but then I'm paying interest on my own money if I do that. So while it gives you more in the reserves I would be forced to pay a couple of hundred dollars of interest for doing it.

Trading with small amounts is not bad particularly with low comissions. There are so many plays that I see that I pass on because I don't want to add risk. If you can take a "house money" approach where you start with $1000 and just flip that same money that takes a lot of risk off the table. Don't even bother to take profits until it hits 10,000+ That way if the bottom falls out of the market all you can lose is house money.

I'm only trading 10% of my account and keeping the remainder in cash. Cash I believe is better than to roll the dice on something like Tesla which could crash 40% on a correction. You're completely immune from the market in cash. The 10% I regularly keep is for defensive purposes, meaning it will fly when the correction is. 

When you're all cash you can always take advantage of the market conditions and put an option on something that is easy money. I could have easily doubled my money on an option position with AMZN, FB, AAPL ect the day before the inaguration. Wanted to play it safe though and wait for earnings week. The big move however was last week even though all 3 are reporting today. NFLX soared with a big beat and sometimes as one of these stocks go them all but I think in the case of AMZN/FB/AAPL they probably popped early and will drop a few percent after earnings.

One of things that a lot of people do which I don't advise is the strategy of putting all of your account into a couple of stocks to leverage up the gains. That can backfire big if you are wrong and/or have an opportunity cost if you could of have invested into something else. Secondarily it takes time for stock sales to settle while an option clears that night. Options take a while to get comfortable with however. You'll want to practice in a paper account.

[Citylights18]

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@Revelate wrote:

I honestly fail to see how shorts benefit the market, wish we'd just prohibit it as the "liquidity" argument doesn't hold weight in my book.  

I dropped a stop limit order in on my TSLA shares and, of course, unlike the rest of my portfolio they went up, again.  4.03% upside on my biggest holding and my entire portfolio was down 1.03%... which goes to show you what kind of day it was, getting sort of tired of the wild volatility on some stocks and that's even after I got out of the feast or famine that is biotech.

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On a side story I had a co-worker walk into my office in 2019 telling me to short TSLA. The company is doomed so you must short it now!

My response was TSLA was a popular retail stock and that you are betting against bulls with a stock like that. Sure enough anyone who thought like him and shorted helped to cause a short squeeze on the stock moving it up.

If you want to short something try a volitatlity ETF or a 3x leveraged ETF which had just popped. In those situations you've got a high probability of making good money on a short because over the long term those instruments head toward zero. Generally speaking a short is a tough bet against the bulls, especially large cap. Even if a Tech stock dips below its moving averages it doesn't stay down there for long. If you were lucky enough to time the beginning of a correction that lasted for a couple of weeks (conditions you only get every quarter or two) then you might be able to take a slight profit on a pull back. But a low will be in and soon the stock will grind back up to where it was before.

[wasCB14]

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@Citylights18 wrote:

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@sxa001 wrote:

I'm just a working man.  Just bought a house so my cash reserves are down.  Pretty much everything is in my 401k but have been doing a little gambling on Robinhood.  Up about $150 on VYNE and OCGN.  Penny stocks that I bought for fun while I learn.  May get into ETFs or something once my cash reserves build back up and we aren't putting as much money into the house. 

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That is the problem I was finding with real estate; just to close with a conventional 5% mortgage it was like 8%-9% with closing costs where I live in a high tax area. Money that once you pay you can't get back. 

I can find a bank to write a HELOC to bring that cash back but into my checking account but then I'm paying interest on my own money if I do that. So while it gives you more in the reserves I would be forced to pay a couple of hundred dollars of interest for doing it.

Trading with small amounts is not bad particularly with low comissions. There are so many plays that I see that I pass on because I don't want to add risk. If you can take a "house money" approach where you start with $1000 and just flip that same money that takes a lot of risk off the table. Don't even bother to take profits until it hits 10,000+ That way if the bottom falls out of the market all you can lose is house money.

I'm only trading 10% of my account and keeping the remainder in cash. Cash I believe is better than to roll the dice on something like Tesla which could crash 40% on a correction. You're completely immune from the market in cash. The 10% I regularly keep is for defensive purposes, meaning it will fly when the correction is. 

When you're all cash you can always take advantage of the market conditions and put an option on something that is easy money. I could have easily doubled my money on an option position with AMZN, FB, AAPL ect the day before the inaguration. Wanted to play it safe though and wait for earnings week. The big move however was last week even though all 3 are reporting today. NFLX soared with a big beat and sometimes as one of these stocks go them all but I think in the case of AMZN/FB/AAPL they probably popped early and will drop a few percent after earnings.

One of things that a lot of people do which I don't advise is the strategy of putting all of your account into a couple of stocks to leverage up the gains. That can backfire big if you are wrong and/or have an opportunity cost if you could of have invested into something else. Secondarily it takes time for stock sales to settle while an option clears that night. Options take a while to get comfortable with however. You'll want to practice in a paper account.

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Income real estate can take a long time to pay off as an investment. In the Los Angeles area, people will pay crazy prices for homes...far in excess of what local incomes would suggest. In the early years, especially if inflation is low, a property can generate a tiny trickle of income only. It's not good to bid against people willing to overpay.

If you're 90% cash and/or broadly diversified it can be hard to really "move the needle" in your overall returns. A 200% gain on a 2% position is a 4% return for the total portfolio. I concentrate in just a few stocks, though they are lower-risk.

[Citylights18]

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@iced wrote:

Watching what WSB has been doing to GME, BBBY, and other stocks in the last week is very concerning. They're playing a dangerous game, and at this point I think if they move into any of my positions (unlikely since I'm mostly larger cap) I'll break my own rule of never selling under short-term gains to vacate a position before they poison it.

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Gains harvesting is something you've always got to be concerned with in a buy and hold strategy.

In Relevate's situation this might be a good year to sell a long term gain in between jobs and with periods without income. That way the overpayment to your taxes while working will offset the capital gains.

If you don't have an offset and you've gone all in on stocks except for what you sold then you're in a situation where you'll have to liquidate even more positions to pay for your gains. Of course you could liquidate in 2021 to pay 2020 taxes then pay taxes in 2022 on that liquidation.

In a cash oriented approach the cash should always be there to pay off capital gains without have to worry about liquidating current positions.

[Citylights18]

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@wasCB14 wrote:

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@Citylights18 wrote:

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@sxa001 wrote:

I'm just a working man.  Just bought a house so my cash reserves are down.  Pretty much everything is in my 401k but have been doing a little gambling on Robinhood.  Up about $150 on VYNE and OCGN.  Penny stocks that I bought for fun while I learn.  May get into ETFs or something once my cash reserves build back up and we aren't putting as much money into the house. 

---

That is the problem I was finding with real estate; just to close with a conventional 5% mortgage it was like 8%-9% with closing costs where I live in a high tax area. Money that once you pay you can't get back. 

I can find a bank to write a HELOC to bring that cash back but into my checking account but then I'm paying interest on my own money if I do that. So while it gives you more in the reserves I would be forced to pay a couple of hundred dollars of interest for doing it.

Trading with small amounts is not bad particularly with low comissions. There are so many plays that I see that I pass on because I don't want to add risk. If you can take a "house money" approach where you start with $1000 and just flip that same money that takes a lot of risk off the table. Don't even bother to take profits until it hits 10,000+ That way if the bottom falls out of the market all you can lose is house money.

I'm only trading 10% of my account and keeping the remainder in cash. Cash I believe is better than to roll the dice on something like Tesla which could crash 40% on a correction. You're completely immune from the market in cash. The 10% I regularly keep is for defensive purposes, meaning it will fly when the correction is. 

When you're all cash you can always take advantage of the market conditions and put an option on something that is easy money. I could have easily doubled my money on an option position with AMZN, FB, AAPL ect the day before the inaguration. Wanted to play it safe though and wait for earnings week. The big move however was last week even though all 3 are reporting today. NFLX soared with a big beat and sometimes as one of these stocks go them all but I think in the case of AMZN/FB/AAPL they probably popped early and will drop a few percent after earnings.

One of things that a lot of people do which I don't advise is the strategy of putting all of your account into a couple of stocks to leverage up the gains. That can backfire big if you are wrong and/or have an opportunity cost if you could of have invested into something else. Secondarily it takes time for stock sales to settle while an option clears that night. Options take a while to get comfortable with however. You'll want to practice in a paper account.

---

Income real estate can take a long time to pay off as an investment. In the Los Angeles area, people will pay crazy prices for homes...far in excess of what local incomes would suggest. In the early years, especially if inflation is low, a property can generate a tiny trickle of income only. It's not good to bid against people willing to overpay.

If you're 90% cash and/or broadly diversified it can be hard to really "move the needle" in your overall returns. A 200% gain on a 2% position is a 4% return for the total portfolio. I concentrate in just a few stocks, though they are lower-risk.

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I'm mixing the ocassional option play in with the cash to make up for not having the larger equity percentage.

50% on 5% of my cash every month is a 2.5% return monthly. Compound that in one year its a 34.89% return. You've completely avoided  the risk of a stock market correction while doing so.

Then the money is piling up trade by trade like an extra paycheck rather than a large abstract sum that only has value to you once you tap into it someday. Consistent income wins over sideways buy and hold where you can be forced into draining it down during emergencies.

[iced]

I never did really understand the appeal of shorting stocks. When you short, you have limited upside (it can only go down so much) but potentially unlimited downside, as some shorts on TSLA and GME are learning.

Contrast that with the traditional buy-and-hold approach. Your downside is loss of original investment and that's it. Upside is potentially endless:

So, other than impatience to wait out market growth and just having to squeeze blood out of a dying stone, what's the appeal for shorting?

[Anonymous]

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@iced wrote:

I never did really understand the appeal of shorting stocks. When you short, you have limited upside (it can only go down so much) but potentially unlimited downside, as some shorts on TSLA and GME are learning.

Contrast that with the traditional buy-and-hold approach. Your downside is loss of original investment and that's it. Upside is potentially endless:

So, other than impatience to wait out market growth and just having to squeeze blood out of a dying stone, what's the appeal for shorting?

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Well, for professional shorters, it's not a one time thing.   I can make say 2% in a few days shorting this, 5% shorting that etc.  If I think I know what I am doing, this is generally better than waiting out broad market growth.    And of course sometimes it turns out I don't know what I am doing, same as a buy and hold on a small number of stocks.

[PullingMeSoftly]

Is today's drop just a sell-off or the sign of a longer term correction? I'm still trying to reign in my emotions on days like this. My Roth is mostly S&P and extended market index funds, and I realize that the long term strategy is time in the market. But man, this is a kick in the teeth today. Any words of consolation?