How To Know When to Buy and Sell Stocks

While browsing through my blog roll this morning, I noticed that someone had written (about themselves) that when picking investments, “I buy and sell at the wrong times."

It got me thinking about timing. When is the wrong time? When is the right time? How can we tell the difference? How can you truly know when to buy and when to sell?

In the world of investing, it seems it's not so much a matter of ‘how much’ as ‘when’; timing can be everything. When you get in, how long you stay in, and when you get out are emphasized. Like alchemists, traders feverishly scream 'buy, sell, hold!' in an attmept to turn lead into gold. But it’s not so easy to figure out when things are going to go down and when they’re going to go up.

Unless you practice insider trading, where you have privileged information about a company or a sector and use that information to your advantage when trading (which is illegal), the fact is that no one can accurately tell you when it's the right time to buy, sell, or hold. It’s all a guessing game, and comes down to trying to predict the future.

If you talk to a hundred investors, you may get a hundred different techniques of predicting the market and profits. Some rely on sophisticated computer programs and mathematical formulas to develop charts and analyze historic data. Some literally look to the heavens, believing that weather patterns play a role; they theorize that stormy weather puts a damper on investors’ moods as much as it does the corn commodities in Nebraska. Some study politics, checking in to see how the latest revolution or war on the other side of the planet may be influencing shipping routes and oil prices. There are even those who peer into crystal balls, analyze dreams, and seek spirit guides for advice. And, you all know my favorite: getting blindfolded monkeys to throw darts at newspaper stock pages.

The monkey with darts theory was inspired by Burton Malkiel’s book A Random Walk Down Wall Street. In 1988 the Wall Street Journal, inspired by the Princeton professor's theory, created a contest to see if monkeys throwing darts would actually work at selecting a profitable portfolio. They used WSJ staffers rather than monkeys due to liability insurance reasons; personally, I think not using the monkeys was disadvantageous. It was quite interesting, the findings were controversial and much discussed.

While some of these methods may be more scientific than others, there is still the element of uncertainty. The fact is that there are an infinite number of influences on the market, risk of loss can never be eliminated, and the unexpected should always be expected. Ultimately, no one can predict the future and, at best, we're all just making guesses. We can't clearly know when to buy and when to sell. Each person has to develop their own strategy with which they feel comfortable. Otherwise you will be constantly and anxiously looking at the market ticker, and never get a good night's sleep for the rest of your life.

The best method I've heard of so far comes from Warren Buffet who is a firm believer in the 'buy and hold' strategy. He is famous for ignoring the day-to-day rumblings on Wall Street and focuses less on 'when' to invest and more on 'what' to invest in. He has a very precise method for picking the types of companies that he puts his money into, and believes that if you pick good companies, you can get in and stay in for a long time without having to preoccupy yourself with timing.

I like this method and use it; however, I'm still known to fling darts at the newspaper stock pages on occasion.

Foreign-Invested Mutual Funds

CNN Money recently posted a listing of their opinion of the 70 best mutual funds that you can buy. I was very interested because I have an affinity for mutual funds as opposed to individual stocks and bonds, as an investment.

I think that mutual funds (a collection or ‘grab-bag’ of stocks picked by an investment professional, from companies that often are from the same sector or geographic area) are the best investment for my money because it allows me the opportunity to diversify without having to study hundreds of stock options and it allows me to invest in an area or industrial sector I feel confident about.

In the past I’ve shared how I’ve invested in mutual funds that are connected to the Asian and European markets. If you know me, you know that I’m partial to foreign funds. I think that many domestic investors avoid foreign investments because they believe that they can carry more risk that American investments, due to foreign government instability, world economic issues, and other reasons. I think that many Americans feel more confident and patriotic buying into good old GM, IBM, and Sears, than they do about companies from Asia or Latin America. However, being from a foreign country originally, I appreciate that fact that many foreign countries have stable governments, educated populations, valuable resources, and growing industries. Personally, I think that for maximum investment growth potential it’s better to invest in a foreign country. I was curious to see what CNN Money had to say about my choices and to see what other recommendations that had to make.

What was pleasing to me was to see that they listed my old friend American Funds EuroPacific Growth A (AEPGX); it’s got over 21% returns on a 5-year investment, and over 16% on a 2-year investment. Other items that caught my eye were American Funds New World A (NEWFX), T. Rowe Price Emerging Markets Stock (PRMSX), T. Rowe Price International Discovery (PRIDX), Vanguard Emerging Markets Stock Index (VEIEX), and Vanguard Emerging Markets ETF (VWO).

I recommend doing a Google search on these funds (see search bar convieniently placed below) and taking a look at their past performance and the areas and industries they’ve invested into, and compare them to domestic funds. You'll find that they meet or beat the competition every time. For me, as a younger investor with a lot of years to go before retirement, I can be a little more aggressive and speculative in my investment strategy. My philoposphy is that I should aim for high gains now while time is on my side, and then in ten years or so, start to pull back into a safer position. Although there will be losses, as is natural and expected, I guarantee (to me, not to you) that I'll be way ahead of the other guy. I have over 10K in AEPGX and REREX together and have experienced 20%+ returns so far, and some of these others seem promising as well.

Images: Mumbai (India), Kuala Lumpur (Malaysia), Shanghai (China)

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How To Save Money On Your Property Taxes

For many homeowners, property taxes are a great burden. They have risen at more than twice the rate of inflation this decade. This surge was understandable during the bubble when the market was hot and house prices were rising, as property tax is linked to home values. But now, when things have cooled off and property prices are actually dropping, some owners are still dealing with rising property taxes. If the value of your home isn’t going up but your property taxes are, you should file an appeal.

Fewer than 1 in 50 homeowners try to appeal assessments, even though up to 60% of properties are overvalued by assessors, according to figures cited by the National Taxpayers Union. Remember that the assessors work for the county; it’s in their best interest to assess your home for as high a price as possible as they receive the taxes you pay on it.

You actually stand a pretty good chance of success in getting your taxes lowered. Here’s a process that could potentially save you hundreds or thousands of dollars each year:

Understand Your Local System

Different tax authorities use different methods to calculate home values. Some looks at recent sales of similar homes, others estimate cost to rebuild, and others may do something entire differently. Call your assessors office and talk with then to clarify exactly what method they use.

Look At Your Assessor’s Evidence

Speak with your local assessor about your particular property and ask for the evidence or documentation used to value your home. Make sure that details about the characteristics of your property are accurate. The assessor’s file should have a worksheet that the appraiser filled out with the addresses of homes that he or she used to compare with yours. Make sure that the others house are in fact similar (built around the same time, similar square footage, number of rooms, add-ons). This may seem a bit pushy, but it’s your home, time, and money we’re talking about.

Get Your Own Evidence

You may have around 60 days or less from the time your annual tax assessment was mailed (typically during summer) to file an appeal. Prior to this you need to do your own research and arm yourself with recent comparable sales or assessments of similar homes that were sold or appraised for at least 10% below your own. Get at least five to ten examples. Actually drive out to the properties, take photos of the exteriors, note any similarities or difference, and put together a listing of your findings.

Present Your Case

Meet with the assessor and go over the evidence you’ve found. He or she may agree with your findings, which makes the rest of the process easier. If he or she does not agree, find our why. Make careful note of these reasons as this is what your need to counter during the formal appeal.

File A Formal Appeal

Get the paperwork and file a formal appeal with your local county board. Be prepared for a wait/response time of weeks, perhaps months. In the meanwhile, attend another hearing to get accustomed to the process. Prepare presentation materials (photos, visuals) and rehearse what you want to say. Keep it brief and allow time for questions.

With reason and a bit of luck, you may have a decision in your favor and a few extra dollars in your pocket.

An Audit You Want

They say that there's global warming. Lately, I haven't been feeling it. It doesn't snow where I live, but it's been getting pretty cold. That means that my heating bill has been getting heftier and I'm not liking it.

To save a little we've installed double-paned windows, wrapped our water heater in a fiberglass sleeve, keep the thermostat at a reasonable setting, sleep under heavy blankets, and close vents to rooms that we're not in often.

Yesterday, we decided to get an energy audit done of our house to see if there was anything that needed to be done with the actual building to help save money on heating now, and cooling in the summer later this year. We'd been putting it off for a while, because of busy schedules, but last week we finally decided to schedule it and yesterday the guy came out.

Where I live the local utility company is managed by the city and offers energy audits for free. The guy spent about an hour at the house and found that most things were in order, except that we didn't have nearly enough insulation in the attic crawl space and our cooling/heater units badly needed to be cleaned. Because the city manages the energy company, they offer incentives for homeowners to make their homes more energy efficient. We were able to get a $250 credit toward getting our cooling/heater units cleaned professionally. We were also able to get a credit toward the cost of having insulation installed.

The cooling/heating company guys came out this morning and spent about two hours cleaning and tuning up the units. The bill came up to $242, so there was no cost to us. Just at they were leaving, the insulation guys came and spent about another two hours putting in insulation. It ended up costing $900 for the insulation and labor. But, becasue the city gave us a credit for 100% of the first $500 spent and 80% of the rest of the cost, we ended up paying only $70 out-of-pocket for almost $1200 in goods and services!

Because of this experience, I definitely recommend calling up your utility company today and find out about getting an energy audit. They will probably also be able to tell you about credit programs that your local state, county, or city government offers for homeowners. It's worth it, for a few hours of your time, to save hundreds (and eventually, thousands) of dollars.

What's Your Salary?

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It's supposed to be rude to ask someone how much money they make. And most people don't typically share this information. I've heard that people are more comfortable talking about their sex life, past drug use, criminal history, and medical issues than about how much money they make.

I think that it has something to do with self-esteem and competition, and the idea that your salary can be perceived by others (and maybe yourself) as a representation of what you're worth. Obviously people don't want to feel less important than anyone else. Or maybe people refuse to acknowlege what they earn to avoid judgement of others who may think that they live beyond their means (especially if the actually do).

In direct opposition to this tradition of secrecy, I'd like to share the following information:

According to Forbes, in terms of actual job salaries, anesthesiologists made the most with an average of $184,340 per year while fast-food workers make the least with an average of $15,230.

According to the U.S. Census Bureau (August 2007), the average household (not individual, per capita) income in the United States was $48,201.

According to the Bureau of Labor Statistics National Compensation Survey, white-collar earnings averaged $21.85 per hour, blue-collar earnings averaged $15.03 per hour, and service occupations averaged $10.40 per hour.

Racially, Blacks households had the lowest median income ($31,969) while Asian households had the highest ($64,238).

Gender-wise, on median men ($42,261) earn more than women ($32,515).

In terms of immigrant status, households maintained by foreign-born non-citizen individuals had the lowest median income ($39,497) while those maintained by foreign-born US-citizen individuals had the highest ($51,440). Households maintained by native-born US-citizens fell in between ($49,074).

Geographically, median household income inside of metropolitan areas was $50,616 while those outside was $38,293. Also, households in the Northeast ($52,057) and the West ($52,249) had the highest incomes while those in the South had the lowest ($43,884).