Dismiss Notice
Join Physics Forums Today!
The friendliest, high quality science and math community on the planet! Everyone who loves science is here!

Short term investments

  1. Aug 3, 2009 #1
    I want to make short term investments (currently, stocks I believe). Currently, I don't have any investment knowledge so wanted to know if stocks are better or forex?
    (edit: learning about them in next few days)

    I found this website:
    http://individuals.interactivebrokers.com/en/main.php
    If there is any better website or if this is appropriate for small short term investments (few weeks to a month max or to a year at max)?
     
    Last edited: Aug 3, 2009
  2. jcsd
  3. Aug 4, 2009 #2

    tiny-tim

    User Avatar
    Science Advisor
    Homework Helper

    how much can you afford to lose??

    Hi rootX! :smile:

    How much can you afford to lose??

    If at least getting your money back is important, then you should invest in a fund, not an individual stock.

    Even then, it's not guaranteed.

    And investing for only a few months is really a bet rather than an investment. :redface:

    (and what sort of profit are you expecting? i hope it's not more than a few percent)
     
  4. Aug 4, 2009 #3

    Pengwuino

    User Avatar
    Gold Member

    Do NOT trade currencies if you do not know what you're doing. Currencies are far more complicated than stocks. You have to look at entire economies instead of single companies or single industries.

    Stocks are a gamble at the moment as the economy is way too unstable. If you're going short term, remember that it'll be a gamble if you don't know what you're doing (and if you do, you probably wouldn't invest in the first place right now), and any gains are subject to fairly heavy taxation.
     
  5. Aug 4, 2009 #4
    Re: how much can you afford to lose??

    Currently, about 10K $ (max) and 4 K $ (min) and I would still be able to continue living my normal life without them.

    Anything that's above my saving account.
     
  6. Aug 4, 2009 #5
    A lot of banks are having some pretty good deals on CDs right now. If you can scrape another five grand together ($15K) you can probably get one at an annual maturity and a good interest rate.

    Like stated above, stocks are VERY unstable right now. Thats not to say that there is no money to be made but since you have no investment experience I would stay away unless your looking to have some fun. My stocks right now are all over the place. I've got one making over 200%(doubled my money) and one that is down 98% (worthless).
     
  7. Aug 4, 2009 #6
    Forex have high predictably high volatility and low cost to entry, making them an well suited for intra day trading. This is not investment, it's a form of gambling, and I don't suggest you even try it without knowing why you have an edge.

    With stocks, the volatility is less predictable and the movements are more susceptible to market trends and obviously are linked to the actual performance of companies. If you do enough corporate research, this may give you an edge.

    However, bottom line is that both markets follow a random walk in the short term. In the long term, the stock market is up-trending, hence the concept of a long term investment. A short term investment, on the other hand, doesn't really make sense unless you have some special outside information so that your decisions will be better than everyone elses -- which is doubtful.

    Also, note that you need to have a lot more than $10k available to invest to actually play either market. It doesn't mean you need to be willing to lose more than $10k, but you do need to have more than that invested so as to make a profit on market moves without losing money due to fees.
     
  8. Aug 4, 2009 #7

    Vanadium 50

    User Avatar
    Staff Emeritus
    Science Advisor
    Education Advisor

    With months, I would go with CD's.

    Stocks are bad short term investments - they are too volatile. Additionally, right now the P/E ratio for the S&P 500 is 17.3. Over the last century, it's averaged 13-15, although in the last 20 years the average (excluding the tech bubble) is more like 20. It's difficult to make the argument that stocks are undervalued now, and that in weeks to months the market will correct this. This is gambling.

    Fees are also important to consider. If fees and such allow you to trade foreign currency at 2% off of mid-market rates, and you buy and sell 4 months apart, that means your investment has to grow at 12% per year for you just to break even. Mighty few investments are guaranteed to do this well.

    Finally, I think you need to consider your expectations. A 1 year CD will earn $200 or so, with no risk. If doubling the yield gives you a non-trivial risk of loss of principal, is this really a good way to make an extra $200? That's what were talking about - a few hundred more.
     
    Last edited: Aug 5, 2009
  9. Aug 4, 2009 #8

    chroot

    User Avatar
    Staff Emeritus
    Science Advisor
    Gold Member

    The first rule of investing is to never lose capital. Since you're apparently totally new to the stock market, it's pretty much a given that you will lose money. The deck is stacked very heavily against you, because nearly every share in the stock market is owned by some institution or another, staffed by rooms of people and computers who are faster and smarter than you are. These same institutions are also able to throw their tremendous amount of money around as necessary to create the impression of market movements when no legitimate movement exists, and are extremely good at taking money out of the hands of novice investors. It is a shark tank of the worst possible kind, and the chance that you will survive it on your first attempt is virtually zero.

    The statistics are available everywhere and they are dismal. I'll leave it to you to find statistics that you trust, but the general consensus is that roughly 85% of day traders lose money. The stock market is difficult to play over long time horizons, and is virtually impossible to play over short ones. You might be one of the lucky or prodigal few, but I wouldn't start trading with that kind of arrogance.

    If you're serious about the stock market, you need to do the following things:

    1) Open an account on wallstreetsurvivor.com and use fake money to practice. In the meantime, put your real money in a CD and consider yourself fortunate to have it in the first place.

    2) Survive at least a few market cycles (at least six months) without losing any (fake) capital.

    3) Read every journal article you can find. Read Investor's Business Daily. Read the Wall Street Journal. Read Weldon's every day. Read books. Read more books.

    4) Distrust every shred of everything you have learned. Remember that you are competing against people (and computers programmed by people) who have read every scrap of everything you have read. They know everything you know, and have spent their entire adult lives learning to outsmart people like you, yet you must find ways to outsmart them. There are very few.

    5) Work like a good gambler (if such a thing can be said to exist). When you're up, take your capital off the table. Cut your losses quickly and without emotion. Don't invest just for the sake of investing. Don't get lured into investing all your capital at once. Don't get lured into buying on margin.

    Honestly, if you're coming on PF and asking whether or not you should dump your $10k into stocks or forex, you are so poorly prepared for investing -- much less day-trading -- that you might as well kiss your money goodbye. I wish you the best of luck, though. The market is an cerebral thrill-ride, but a costly one.

    - Warren
     
  10. Aug 4, 2009 #9
    So true..nobody really wants to share their full wisdom, which means everything you ever read is all just half-truths, some of it half-false intentionally, and even more of it half-false due to other peoples' ignorance. The funniest thing is all the books with catchy titles that are filled with complete BS. But you've got to keep reading through this junk to assimilate knowledge, you just need a really good filter!
     
  11. Aug 4, 2009 #10
    Thanks, all the responses were very helpful.

    I think I will go with the CD option. I have about >10K in my saving account which I am not hoping to touch any time soon so I wanted to make sure that I am not missing on stocks/other short term investments.
     
  12. Aug 4, 2009 #11

    chroot

    User Avatar
    Staff Emeritus
    Science Advisor
    Gold Member

    Absolutely. There's a huge inherent conflict of interest involved in producing books or TV shows on investing. It has been shown time and time again that all of the books and TV shows which bill themselves as small-investor advocates (Mad Money, CNBC in general, for example) are really selling snake-oil, encouraging novices to play a game which they cannot hope to win.

    It's very instructive to remember that short-term movements in stock prices have absolutely nothing to do with the underlying company. When you make short-term investments, you are choosing to compete directly with other investors in a very abstract way that has nothing to do with how good or bad a company is or might be in the future. It's just a symbol on a screen.

    Investment firms spend ridiculous amounts of money developing computer systems which allow them to covertly move vast quantities of money through the market, trickling it through thousands of small orders placed through market makers around the globe. They do this to simulate "real" market movements. All it takes is a few million dollars to literally make any stock go up or down at will. They have access to vast amounts of statistics that allow them to see quite plainly when the stock has been oversold or overbought, and they can act instantly to take advantage of that knowledge, turning a bump of a few pennies in a stock price into a windfall, when multiplied by millions of shares.

    The high-profile, poster-boy stocks like AAPL, MSFT, etc. are actually those which violate the efficient market hypothesis most egregiously. They are, quite simply, the most manipulated stocks. It is not coincidental that these poster-boy stocks are the most attractive to novices.

    Day trading, as an individual, is a fool's game.

    - Warren
     
  13. Aug 4, 2009 #12

    chroot

    User Avatar
    Staff Emeritus
    Science Advisor
    Gold Member

    Good idea. You might also want to consider finding a credit union or internet bank, etc. that offers an interest-bearing checking account. Often, these rates are as good as CDs, without requiring you to lock up your money.

    - Warren
     
  14. Aug 4, 2009 #13

    Pengwuino

    User Avatar
    Gold Member

    One thing that might be an idea is to get a real broker. They are knowledgeable and have an incentive to make money for you. Then again, brokers these days are telling people to stay out of the market in the first place.

    @chroot: I wouldn't exactly say that nearly every share of stock is being controlled by "the big boys". For example, microsoft has only 60% institutional ownership. Private ownership got a boost earlier in the decade when there was a push towards joe schmo to start investing in things. Not sure how that all panned out though haha.
     
  15. Aug 4, 2009 #14
    All that you say is true, Warren, except that the market is still not perfectly efficient. The big companies may spend millions on their software, but they do not benefit from all of the world's smartest minds..and their algorithms are not so dynamic as to be able to work perfectly efficiently at all stocks and all time scales simultaneously, or robust enough to not make mistakes. They are also incredibly low risk, which leaves a good deal of money to be made by people with slightly higher risk tolerances. I know of several full time day traders who make a good living off of this.
     
  16. Aug 4, 2009 #15
    The market is organic, no number of expert people or algorithms are 100% accurate in predicting the market, of course this depends on which market we are talking about but holds true to most markets. It particularly does hold true for forex and the stock market, sure there maybe some manipulation, but with practice, skill, and good knowledge one can see this false trend in price very easily. Actually you could even make a system which can be successful 75% of the time and would lessen your chances of falling into such traps.

    Those that say not to use your money because it is a recession are people afraid of risk. There are strategies you can learn to manage your risk and risk then becomes a friend rather then a enemy. Personally, I have done best in bad economic times when the market is volatile in making the highest return on my money. I do not prescribe to the buy and hold strategy, or standard, that is foolishly given to those starting to place money in the market.

    Also I suggest that people know the difference between investing and trading. What I think the OP is saying is he wants to trade, which is rather short term, and just because it is a zero-sum game it does not mean that it is gambling. Most of the time when I here such statements I think to myself that this person does not understand risk. Remember there is risk in every venture and ultimately every action you take for reward and gain in almost everything you do in life.

    On that note I say participating in the market I believe is always good because you add to the liquidity of the market and the economy, but one should know what they are doing. Also remember that no amount of practice with fake money will guarantee success when you use your real money because real emotions will be tied in then. I believe if one wants to be successful at the market they must really learn to control or even separate their emotions from their actions.
     
  17. Aug 4, 2009 #16

    Ivan Seeking

    User Avatar
    Staff Emeritus
    Science Advisor
    Gold Member

    Or you could just donate your money to the Ivanwantstoflyamig fund.
     
  18. Aug 4, 2009 #17
    Short term investment=saving money for diseases
     
  19. Aug 4, 2009 #18

    lisab

    User Avatar
    Staff Emeritus
    Science Advisor
    Gold Member

    Wait...what?
     
  20. Aug 4, 2009 #19
    You mean "wait" as in "wait a sec" or as in "what am I waiting for" ?

    <edit>It takes me some time to blend and correct my statement, sorry I still owe you.
     
    Last edited: Aug 4, 2009
Know someone interested in this topic? Share this thread via Reddit, Google+, Twitter, or Facebook




Similar Discussions: Short term investments
  1. Investing (Replies: 17)

  2. Investment forums? (Replies: 11)

  3. Investing in science (Replies: 8)

Loading...