Thursday, January 7, 2010

What do you think of investing in . . . ? Fill in the blank.

I got an interesting call today. An American friend called to tell me that he had just bought some shares of Citigroup. It was a steal at under four bucks. He wanted to know if I thought he had done the right thing.

Now, this person has shown some smarts when it comes to stock picking and going against the prevailing wisdom. He bought some Ford stock when it hit a dollar. Mind you, this only averaged the book value of his Ford holdings down. He had bought lots earlier at a far higher cost.

So, what did I think. Nothing good. I confess that I have bought some stock. O.K., I confess that I have bought lots of stock. But looking back at how my stock picks have performed, I can't say that I have been brilliant - lucky maybe, but certainly not brilliant.

Stocks seem to be like potato chips: I bet you can't eat but one. And so if Citigroup and Ford perform well, chances are that something else in the stock portfolio won't do as well. For me, I've found that when all is said and done my index-based ETFs or mutual funds outperform my mix of stock picks.

Being that this fellow is in his early 50s and American, I would have gone online and checked the Vanguard - Retirement Insights page. There is lots to read and it is very clearly organized.

Then I would have checked out the Vanguard - Core funds. Why? With interest rates so low at the moment, I am not keen on having too much money in funds heavily into bonds. I'd take my chances with a mix of core funds with the intention of shifting more into bonds in a few years when interest rates have recovered. That is about the extent of my market timing action.
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I looked up Citigroup (C-N) using GlobeInvestor. Its rating on a five star scale is one. One star!

Yet, despite its having but one lonely star, it does get a buy suggestion. (My rule is to wait for the strong buy suggestion. Too many stocks, in my estimation, get the buy flag waving.)

Cramer loves Citigroup and sees it as a great speculative play. But there is that word - speculative. And the last time I checked, Cramer does not do all that well when all his picks are considered. Indexes often beat Cramer. I know how he feels.

I wish my friend luck. He's probably made a good move, this time. Now, can he stick with but one.

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