Ph.d and the Stock Market

Thanks guys.

Yes, mutual funds are definitely a good option. but i wish i can have more control over the kind of investments i want to make. with a mutual fund, i dont know what is their idea of risk. i might not be comfortable with their choices .

REITs are also an option. i probably need to study these other investments more. So, none of you guys invest?

Thanks

You CAN control mutual fund by selling your shares in it... You also can run a regression on the stock index and see, whether mutual fund performs better or worse than it claims (if const in regression, which is called Jensen's alpha, is positive, then you should definitely buy its shares).

Regression is simple:

RMF = alpha + beta*(RMarket-Rrisk free).

R here means return.

Where to get the data? You can just find them on the internet if this info is free. Or buy a database of funds data.

Ofcourse I do invest in the stock market, but if you are like me, you will have a limited corpus to invest. One idea which is time tested is the concept of averaging. You keep buying a blue chip stock over a period of time say 2 years ofcourse in small quantities, and sell it when the average price exceeds the cost by your desired return percent.

aah, see, thats not the control i am talking about. i am talking about a steady investment that i can rely on for four-five years. i can obviously sell, but what if the mutual fund goes under... With Mr. Eliot Spitzer on the move, i have waited and waited for the bad news to stop. first investment banks, then mutual funds, then insurance companies.. aah.. corporate governance.. where art thou? I am waiting now for the fed meeting eight days from now... lets see what happens to the indexes.

Regression? Pardon my ignorance, i am trying to learn a bit here. thanks for your patience. We would have to assume a linear relationship between the variables. Also , we will have to chart the Index like that too. If there are a lot of fluctuations in the mutual fund price and the index , the regression model might not be the best option. no?

Thanks Emmanuel
Praet

ok, let me try to understand

So after 2 years, on any give day ...if
Price on Day n - Average Cost > Expected ROI.. then sell..
Pn - [ P1*Q1 + P2*Q2.../ P1+P2+....] > ROI.... then its nice to sell

I am ready for more info. what kind of P/E ratio and debt to equity ratio do you guys look at when you invest?

I find it hard to even look at stocks like ebay, walmart , intel... their P/E ratios scare me. I mean.. its not a wise thing to purchase at any price..
what criteria do you use before you decide to invest in a stock?

Thanks
Praet

CAPM model says that the relationship is EXACT between expected returns, but we estimate it with the linear regression.

Of course, CAPM assumptions (frictionless markets, etc.) can cause problems. But generally coefficient beta should be meaningful and statistically significant.

Preat

Even after 13 years of investing I consider myself still a learner. With each
investment, I learn new lessons.

As for as P/E for the American blue chips, they are way above the norm --
the norm is 15. In simplistic view, I could not find even a single stock --
not an exaggeration -- that is worth considering at this moment.
I find comfort in Warren Buffet view of the stock market. He is sitting
on huge pile of cash and has not made any major investments in the
past two years. You might ask, where to invest? I've run out of options
at this time. I thought shorting the market might help. As Government
intervening the market every day, it may not be the right option to short –
which I was and am doing.

One piece of advice, I read some time back is worth mentioning....
There are times, one need to go for return on capital and there are times
one should think about preserving capital and now is the time to
think about preserving.

PS: I'm not a financial advisor. Please use prudence while investing.

Welcome back kpadma.. long time Yeah, what you say is true.. the other things is that with blue chips, the change in share price per year is very less ...for example, Microsoft has hardly changed in the past one year or two... given the kind of money it has and almost zero debt... so a big increase in share price in such companies will take a revolution in their industry..

Warren buffet only invests in industries that he understands and that are selling for less than they are worth.. its a pretty cool principle..

What do you guys think of investing in IPO's?

See the problem with CAPM, SML , Characteristic line etc., is that they assume a linear relationship between the variables. Jensen's alpha is too simplistic.

I am an advocate of the fundamental analysis approach. The EIC approach is more feasible as there is lot of info readily available on the net. Warren Buffet says to understand the business and the quality of management, that's easier said than done , but that's why he is one the richest guys around and we are still aspiring for Ph.D.

See th PE and D/E ratio would vary from industry to industry, but yes the IT industry companies are overvalued in most cases. with limited capital my risk profile doesn't allow me to touch them with a barge pole, Oh God the volatility in their prices!

Let me recommend a website for the basics of stock market, though it is an Indian site but good for learning the basics.https://www.outlookmoney.com/scripts/stk001c1.asp

Do tell me if anything more interests you.!

Thanks promothesh.

Here is something i recently read. i have posted this on the blog. Its written by mark cuban, owner of a basketball team and an entreprenuer.

https://gmatclub.blogs.com

Regards
Praet