Advice To A Friend Getting Started

As anyone in finance will tell you giving advice to friends and family is a double-edged sword. 

After the jump is an excerpt from a conversation I had with a friend in December. The advice is being posted here because the product explanations and basic portfolio allocation thoughts are relevant to almost anyone who is doing some investing for the first time. 

Some bullet points:

- ETF's are the way to go for the lion share of the novice investors portfolio. The concept can be difficult to grasp/explain for first-timers but is important. 

- "Buy low and sell high" is wrong. Companies making new highs present some of the best investment opportunities. 

- Invest in what you know. Your specialty, line of work, and personal experiences are an edge you bring to the market.


The indiviudal stock picks discussed since:

Wed, Dec 23, 2009 at 10:35 AM

Friend: hey _ ____

 NwWlth: hey, what’s new

 Friend: im trying to think of any stocks to put into

  i would have to know what the company was i think

 NwWlth: ok, so you are a fundamental investor

 Friend: i suppose

  im thinkng about alternative energy is a ig thing

10:36 AM NwWlth: solar

 Friend: any good companys you think?

 NwWlth: the big dog is FSLR

  and they have been taken to the woodshed lately

10:37 AM but there are ETF's (they trade just like stocks) where you could get exposure to an index of

  solar/green alternative energy stuff

  i like tech more

 Friend: hmmm

  so theyre not publically traded?

 NwWlth: the 4g / mobile / smart phone build out

 Friend: yeah

 NwWlth: no you buy them just like you bought Royal

10:38 AM this is one of my favorites

  http://www.vaneck.com/index.cfm?cat=3192&cGroup=ETF&tkr=MOO&LN=3_02

  PLUS, the ticker is kind of cute

10:39 AM on that site you can see top holdings or download them to excel to see all. basically everything levered to the production of food

 Friend: so you just invest in this compnay van eck who then invest elsewhere

10:40 AM NwWlth: yeah they own an index and the ETF, which trades under the ticker MOO represents the value of that basket of stocks

10:43 AM NwWlth: yeah you want etf's

 Friend: send some recommendations

  i would appreciate that

10:44 AM ill probably be looking to hold on to something for like 6 months

10:46 AM NwWlth: I like the nasdaq 100 index you get exposure to these names http://dynamic.nasdaq.com/dynamic/nasdaq100_activity.stm

  just in google finance type in nasdaq 100 and a list of the funds should auto populate off top of my head there is ticker QQQQ, and QQEW

10:47 AM Friend: so any one of those?

10:49 AM NwWlth: yeah these companies compete for market share but a lot of them put out similar products there are slight varitions prob. over your head at this point but for example we talked about alternative energy and solar

10:50 AM there are prob. at least five different solar ETF's on the market, all attempting to provide exposure to that sector/industry

 Friend: sure

 NwWlth: if you narrow down to what you specifically want i will look at them and tell you my opinion of what best one out there is

10:51 AM the holdings differ slightly (how they match up with index / weighting in each company)

  the expenses differ slightly

  and liqudity can be issue so I generallyjust pick the largest ETF in the space and go with them

 Friend: what about breaking technology like fel cells

  fuel

10:52 AM NwWlth: individual companies

  there are some speciality ETF's that try and do that shit but I think its not a space you really would want to own an index

 Friend: sure

10:53 AM its too risky maybe as well

  that agribusiness has been doing well

 NwWlth: i like that name

10:54 AM NwWlth: maybe u could work for them after your travels are over, any finance company will take time to teach a good salesperson on the industry

10:55 AM Friend: im sure they would

10:56 AM NwWlth: majority of finance companies dont care about major all that much, you would just have to pay your dues

10:57 AM NwWlth: so to recap, if you got an alternative energy etf, agribusiness,etf, the nasdaq index

i would recommend an international etf (EEB) and broad market index (IWM) and i would say your set

10:58 AM like to just leave it there

  and forget about

 Friend: does money direct cost anything?

 NwWlth: huh

 Friend: to get money sent to your account from scottrade

  i don think it does

 NwWlth: no i think maybe when I set mine up

10:59 AM if ACH is established it wont

  unless they suck but I doubt scottrade does that

 Friend: ok

  and you dont know anything about art companies?

11:01 AM thanks for th ehelp buddy

 NwWlth: ?

 Friend: like art stocks

 NwWlth: oh

  hmm

 Friend: fine art

11:02 AM NwWlth: ticker symbol BID is the best i can do off top of head

11:03 AM NwWlth: MOO, IWM, EEB, TAN, QQQQ

  is my allocation for you

11:04 AM NwWlth: %'s: 15 30 20 10 25

 Friend: thanks

11:05 AM Friend: i see

  BID is the highest its been ever in like 5 years

 NwWlth: really?

  no way

11:06 AM anything high-end should have been hammered

  no way they are doing as well as they were in boom years

they are cyclical as it gets i would think

11:08 AM alright im gonna work for a bit peace

 Friend: like % of my folio?

11:09 AM NwWlth: right so take whatever $ amnt you have and put that % in each ticker

  and you'll be fine to just leave it there

11:10 AM Friend: thanks man

  i think ill wait for BID to drop a bit as well

  I knkow for a fact that art sales have been consitently rising more than our companies expectations

  and we follow sothebys alot

11:11 AM NwWlth: kool-aid

  company kool-aid

 Friend: art is what i know man

 NwWlth: not saying its not true, just dont forget to think for yourself

 Friend: right

11:12 AM art and cruising is my life

 NwWlth: if i sold art, i would say art sales were at the largest tipping point in history and that over next ten years the business would explode and anyone smart to get in was going to be filthy fuck you rich

11:13 AM because the kool-aid exists for a reason

  gotta drink it

11:18 AM just looked at BID

11:19 AM pretty awesome chart

 Friend: art is on the up

 NwWlth: yeah you know 'buy low and sell high'

 Friend: right

  GEX i think looks better than TAN

11:20 AM NwWlth: i agree its got wind, so technology companies in that space, and adds to the international exposure

 Friend: sure

  i like that one alot actually

  thanks for that

 NwWlth: im huge bull on China, that international ETF is brazil/russsia/india/china

11:21 AM but FXI is, I think, a no brainer with your time-frame. its like the dow of china

  i think its 25 largest companies.

11:23 AM Friend: really

11:24 AM you ahve FXI?

 NwWlth: right now no I will be buying it again sometime in the future, i like BIDU as china exposure

11:25 AM its chinese google, they have 42x as many ppl, they protect the content those commie bastards thus blocking GOOG from pushing their own companies out, and oh out of the 2 billiion ppl there only 1/5 have internet now

11:26 AM which already is equal to 300 million users, as many ppl in entire states

 Friend: right

  that one bidu has been real strong

NwWlth: chinese google really i mean the story is great, but the numbers are backing it up which is why im still for it

Friend: right

  it might take a plunge soon though

  its pretty much the highest its ever been

NwWlth: i never finished, about buy low and sell high that saying is hogwash for the overall market, sure, like march of this year, but that only happens once every ten years or so the point is you should be buying things that are going higher not lower, scan the all-time highs list as one of the first places you get ideas. think about..

Friend: right

NwWlth: the companies you really could have made something out of, names that could have changed

Friend: right

NwWlth: Microsoft & Cisco throughout bull market of the 90’s. Wal-Mart through the 80’s. For a decade they were at all time highs