Here is this week’s Carnival of Investing, bare and unadorned. I haven’t been able to commit the time needed to do what I wanted to do with this Carnival coordinating thing, so it is in the process of being transitioned to Fat Pitch Financ…

I’ve learned and found my ways by trials and errors through investing for 10 years, to know the importance of those 4 important theories/topics. You can save 10 years of errors and start on the right steps.

I will write more about investing. But I often write on different subjects besides investing to draw a wider audience to my site. By that pace, there are MANY important things that I want to write about, and yet haven’t reached them yet. For new investors, I recommend reading the following three books (I haven’t finished all of them due to my lack of time, but I’m pretty certain on their quality): two books that I recommend in My Advice in Preserving Your Wealth in 30s to 50s. And one more is The Intelligent Asset Allocator by the same author of Four Pillar. More specifically, these 3 books deal with 3 most important investing concepts: Efficient Market Hypothesis (Four Pillars), Efficient Frontier (Intelligent Asset Allocator), and Economic Cycle (Active Asset Allocation). For traders, there should be one more book on technical analysis. There is a very good book by the same author of Active Asset Allocation for technical analysis. If you’re interested in investing for the long term, you should definitely read all those books. I will have a page for the best books that I recommend. But I’m still too busy to reach that point. And I never want to recommend anything that I don’t finish reading it. So it will take a long time before you see that page from me. But you can get a head-start, if you finish those books before I do.

And as for the average down, I would think it’s ok if it’s ok to buy when the market is low if it’s from a mega corporation such as Microsoft right? I mean, they will most likely not go out of business, and with time the price will only go back up. What do you think about this? Is it entirely wrong?

(I’ve just gotten into the Personal Finance field a month ago, so there is much to learn. Thanks in advance. Your site is great!!!

I checked out both of your links, and the demo calculator. I did not find it very useful. Again, the very first assumption for doing averaging is that eventually the stock comes back. But that’s simply not true. You can easily have your money all tied up, and then 5 or 10 years may pass during a big bear market, and you still won’t see a dime of profit.

As I said in my other posts, anyone who claims a consistent trading profit of more than 30% is most likely not true. A 30% compounded for 20 years give you a factor about 200 (190 to be exact). Now if you just started $50K, 20 years later you can have $10 millions. With such terrific black magic, you (and combining any subscribers) won’t be starting with $50K, but instead $50 million, and 20 years later, you can have $10 trillion dollars, pretty much buy up the half of the USA or any major country.

Since I’m sure no one will own that much money, I’m even more certain that 30% annual return is unachievable and bogus.

It’s true that very few traders can be successful. But even among all good traders, no one can grow the money exponetially on an unlimited basis.
Maybe there is one, Warren Buffet, but after 65 years of investing, he has just some $50 billions. Granted that he started small, but that still doesn’t mean that Berkshire Hathaways can devour the entire Earth after another 20 years to reach $10 quadrillions.

Thanks for your thoughtful comment & useful pointers.
I am speaking from my own experiences and from what I’ve seen. Too many people try to average down all way in the 2000-2002 bear market in the high-tech stocks. Stocks like CSCO, you could buy it $80, and then $60, and then $40, and then $30, etc. Each time you would be simply losing more money (the more you buy, the more you lose), while keep skewing your portfolio to be more heavily weighted in a single stock. And there were so many tech stocks like that.

I suggest that one should simply get allocated and be done with it. If you have picked the right stock, time will prove you right. If not, better look elsewhere (and different sectors too).

Averaging down (educated guessing)is not a viable method to attempt to resurrect a stock that happens to be in the downward portion of its NORMAL trading pattern- buying calculated amounts of additional shares based on an awareness of mathematical relationships is. It is, in fact, the essence of the word “trading”.

A very, very small number of investors actually know exactly how to trade. Most people, brokers absolutely included, simply pull a number out of the air and call themselves “traders”. Guessing is nearly always going to be a formula for disaster.

When certain governing rules are in effect, such as (as you mentioned):

a cap on the the amount that will be committed to a particular stock,

stock vehicle selection being determined by participating with reputable stocks in no realistic danger of going bankrupt,

a longer term participation attitude…

buying low and selling high nearly always make sense.

The key is to always be mindful of the the mathematical implications of how numbers actually work and thus be able to know exactly how many shares to trade, if any, in every new situation.

To find this out, so that you can operate (or recommend to others)an investing program based on mathematical law rather than by reliance on so-called “conventional wisdoms” (everybody swallows them because they don’t realize alternatives exist), outright guesswork or prayer, go to

http://www.howtotradeyourstocks.com

and its linked site

http://www.crestinvestingsolutions.com -

Use the demo calculator (there’s no learning curve required)and spend a few minutes to contemplate how this changes everything.

Keep up the good work- I know your heart is in the right place.

Rick