If you own country or region mutual funds, click here. The ‘jockey’ is even heavier than we thought. (Thanks to Roy Gilbert for bringing this link to our attention.)
So you have the great bulk of your stock-market-money in index funds – the smart way for most people to invest in the stock market – but, in keeping with the notion I’ve suggested from time to time, you have a little of your money in a few speculative stocks . . . for three reasons. First, it keeps your blood going, just as a lottery ticket might. You are not made of stone, after all. You are descended from warriors! You fly through the heavens like Mercury, racing to Zeus with the news! Your middle name is adrenaline! All right, calm down. Second, if one of your little speculations hits big (and you have held it a year and a day), you can sell it for a lightly taxed capital gain, or use it to fund the next few years’ charitable giving. (Set up an account at the Vanguard Charitable Endowment Fund or Fidelity’s or Schwab’s.) Third, if one of the stocks tanks (as at least one surely will), you use the loss to offset up to $3,000 of ordinary income a year.
Speculative stocks are going to rise and fall far more dramatically than index funds. They will give you the sharp gains and losses that can help you minimize taxes. Index funds will give you the good long-term performance that will keep your stock-market performance well ahead of that of most of your friends and neighbors – even as you spend less time and worry doing it.
But which speculations?
Here are three I own, hoping they might be a lot higher in two or three years . . . but recognizing they might well tank: our old friend BOREF, which makes amazing claims on its website, trading back under $4 a share (valuing the whole thing at $20 million); CSPLF, a natural gas producer in Canada, also under $4; BMRN, a pharmaceutical company trading just above $4. All three could be zero three years from now. With luck, one might be higher.
But remember: you have no business being in the market at all if you still have any high-interest debt or lack a substantial rainy day fund. The stock market is only for your long-term money.
And remember: many stocks that seem cheap now, down 90% or more from their highs, will just fade away . . . while others, that may actually be cheap, are likely to fall further anyway, for two reasons. First, the mood has shifted. Where two years ago bad news was ignored and stocks were climbing irrationally higher regardless of value (‘value schmalue’) as everyone wanted to get in on the game, today fear has begun to overtake greed, as people lose stomach for the game and just want to get out, regardless of value. Second, there is likely to be a lot of tax-loss selling as the year wears on, and it will be concentrated most heavily on the stocks that have shown the largest percentage losses.
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Two things are infinite ... the Universe and human stupidity. And I'm not sure about the Universe.~Albert Einstein
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