How I Invest in Stocks

I am not a licensed investment adviser and so cannot give financial advice. However, I have, for decades, been a successful investor without any advisers and with minimal effort or stress so I thought you might find it useful to know what I do. As they say, do your own due diligence, for example, consulting a trusted professional adviser before making any investment.

It's very tough even for pros to beat the market so, every time I have an extra $1,000, I don 't try to time the market but simply put the money into a low-cost mutual fund. That gets me diversification at low cost and I automatically end up buying more shares when prices are cheap. That's called dollar-cost averaging.

Among mutual funds, I particularly like the Vanguard All-in-One Funds. They are available in various risk-tolerances or for specific goals (for example, saving for college, retirement in X years) and they automatically rebalance so whether the market is up or down, the fund's investments always match my risk-tolerance. And they are indeed cheap to own--less than 1/5 of 1 percent per year. That's 1/7 of what Vanguard's competitors charge. (Of course it's possible to lose money in all mutual funds and stocks but at least the cost of investing through Vanguard is low.)

Those All-in-One Funds invest mainly in U.S-domiciled large companies. But because those companies are very involved worldwide, an investment in those companies actually is an international one. But because I believe this is China's century, I have invested additional money in the iShares China Large Cap exchange-traded fund (symbol: FXI) which is a market basket of  26 leading China companies, the equivalent of our Dow Jones Industrial Average. 

I also periodically buy shares in a couple of individual stocks. My philosophy is to choose a "category killer," the best in its category and where it would be very tough for another company to displace it. So I own shares in Amazon and Toyota. I buy them at the CapitalOne/Sharebuilder brokerage where trades are just $6.95.

I am pretty-much a buy-and-hold investor. Because I'm buying marketbaskets of pretty blue-chip stocks, not volatile high-flyers, I feel okay about holding those stocks until I need the money, often decades. I'm willing to bet, for example, that companies like Amazon and Toyota, which have a big edge over their competitors and attract some of the best and brightest employees, will do well in the long run. I believe that if companies like that do poorly, most companies will. Of course, I could be wrong but not worrying about stock prices' weekly ups and downs certainly lowers the stress of investing.I do look at the prices of my stocks every so often but unless there was a dramatic drop, I'm inclined to sit tight.

I also have a theory, which I have not actually implemented: to short fashion stocks that are fading or faded. For example, on January 22, 2014, I sent a friend a list of stocks I'd short: Abercrombie (ANF), Aeropostale (ARO), American Apparel (AAP), Bebe (BEBE), and Lululemon (LULU). I also added Twitter (TWTR) that day. I also wrote him that if Underarmor (UA)  or Facebook (FB) dropped below their 50-day moving average, I'd short them. I haven't calculated but if I had actually shorted them, I estimate I would have made about a 15% profit in just the two weeks since then. 

Disclosure: I own the above stocks (not the shorts) and funds but no entity has paid me to endorse any investment.