Investing is not gambling. When you decide to invest your hard-earned money into the stock market, realize that you are doing just that: investing, not gambling. Even though some people make money daytrading some times, they also lose money at other times, with the net result that it all averages out over the years. Our first principle is to invest with a long-term horizon in mind.

Why the long Term?

A long term horizon smoothes out the peaks and valleys that are so characteristic of the stock market. You could try to time the market, "buying low and selling high." Some people succeed sometimes. No one succeeds all the time. The end result: your wins and losses average out! We believe that you can save your mind and body a lot of stress by researching financially solid companies with good growth potential and then investing in them for the long term. Same result -- minus the ulcers. In fact, you could end up with better performance than the frequent traders when you factor in the broker commissions and taxes on capital gains that you have to pay for frequent trading.

You and the professional fund manager

There's a lot of academic research that has been done that shows that you, the individual investor, do as well as, if not better, than the professional fund manager. That's right, the money you have invested into various funds where professional fund managers trade frequently trying to maintain a decent return on investment (ROI) might sometimes seem to do well. When the management fees are factored in though, those returns drop drastically. So make sure you factor commissions and other management fees in when you look at the return figures. Some funds report excellent returns in the short term, but these also have bad as well as good years, and so it all averages out again.

This is to say that there is no reason why you cannot do your own investing -- after you have learned some of key principles. Instead of leaving your money in the hands of professional fund managers (most of the time, you have no idea in which companies they have invested in), you can learn about investing and have some fun in the process, too. We are not talking about a major commitment (though at first it might take you some time to get all the concepts clarified), but then probably not more than the time you spend deciding which funds to invest your money in. At first you might spend quite some time learning the ropes. After a while, you might be content to spend an hour or so a year researching a promising company and checking on your investments to ensure that nothing fundamental have changed in those companies you are invested in. We will cover these in more detail in the other Pig Files.

What do we mean, long-term?

Before we answer practical questions like, "How much money do I need to start investing in the stock market," we need to make sure you really understand this concept of long-term investing.

By long term investing, we mean that it's money that you do not, and will not, need for the next 10 years. It is not money that you have set aside for paying off debts (do that first before even starting to invest), or to buy a house, pay education, etc. in the next couple of years. You might want to invest those monies into stocks and you may reap a handsome profit from them in the short term -- or you may not. That particular decision is up to you as you learn more about investing and its risks and rewards. We certainly do not discourage you from investing those monies, but it's your personal decision. We neither encourage nor discourage that course of action. But, as far as we are concerned at The Pig Files, we are talking prinicipally about money that will stay invested for at least 10 years -- maybe it's retirement money, or maybe you are starting quite young and in 10 years, you might want to use that money for going to university. The idea is that this is not money that you are gambling on, hoping that it will grow before the 10-year horizon. It's a long-term investment. It's money that you can afford not to touch for the next 10 years.

This is such an important principle that we cover it first, and spend enough time to clarify what we mean. All our other principles build on top of this foundation. Without this long-term horizon, applying the other principles might well not work at all. In fact, we know they won't work for sure. Learn our principles well--then, invest. There's still no guarantees, but we believe these principles will equip you with the knowledge you need to become an astute and careful investor.

The time effect of compounding

We hope the above clarifies what we mean by long-term investing. If you only have a few years to retirement, this will not be the best and wisest course of action. Starting young, whether by yourself or by investing for your kids (and grandkids, bless these grandparents!), you give yourself enough time to allow your investment to grow and compound through the years. Time is really your greatest ally when your money is invested in financially solid and growing companies.

Compounding Equation

Future Value of SImple Cash Flow = CF * (1 + r) to the power of t

where, CF = Cash Flow now, r = Discount Rate, and t = holding period

Ok, no need to panic! CF is simply the money you are investing now, r is the average interest rate over t years.

So, let's assume you want to invest $1000 each in the stock market abd Treasury Bonds. Here are the returns for different values of t, assuming an average of 12% for stocks and 6% for Treasury Bonds:

Where would you prefer to invest your money, and for what time horizon? Let's try the same thing for an initial investment of $10,000:

You get the idea. (You can try yourself with different values of r.) The insight to draw from this is that a high r, combined with a long-term horizon, and the "miracle" of compounding = a successful investment. This principle of compounding is the basis for all financial success used by all financial institutions. There is no other (legal, ethical, honest) way to make money, period. And only the stock market consistently gives you a high enough average return. So that's why we emphasize investing in the stock market for the long-term.

Ok, so our secret is out! It's that simple, childishly simple. It's in fact the principle of piggybank investing: start saving early. The earlier you start saving, the greater your investment grows into. The numbers speak for themselves. Is it too late for you to invest for the long-term? How about for your kid(s)? Better still, how about for your grandkid(s)? There's no better gift, in our humble opinion!

As the amusing lymerics to the left attempt to demonstrate, there are basically five types of investors: those who buy penny stocks in hope of a quick gain, the day-traders who buy and sell frequently (buy "low" / sell "high"), those who buy only on hot tips, those who invest in indexes (such as the NASDAQ 100 Trust - QQQ), and those who do research into solid, promising companies and invest in them for the long term. Which of the five piggies laughed all the way to the bank? At The Pig Files, we cover investing from A to Z (pronounced the Canadian way, "eh 2 zed". Since we are a Canadian company, this sounded quite appropriate, eh?), and our beliefs (suported by many years of academic research) are that the last two piggies went laughing to the bank. Oh, don't get us wrong, the first three piggies could very well have earned a higher return--but at what cost? We teach investing, not gambling. And we believe anyone should be able to earn a good return from the stock market without the daily worries and ulcers that accompany the first three types of investing. To prove our poin (or disprove it and fall flat on ourfaces publicly)t, we start a portfolio following our own principles of investing for all to see, comment on, criticize, and learn from. We do not believe it is the only or correct way to invest, but we believe its chanes of working are better than most investing styles. Share your thoughts in our message boards.

This site is not affiliated with any investment brokers, but we draw our inspiration from The Motley Fool investment site.  As such, you will find many of their ideas espoused by our writers. We feature articles and news based on our own and our readers' experience written in a style geared for the new investor. However, where appropriate, we will also not "reinvent the wheel"; instead, we will link to articles from many other sources.
 

CNET EDITORS' CHOICE

By far the easiest Linux implementation for the desktop, Corel Linux is now free for download. Read the CNET Review. Download.

 

If you want something that is almost as easy to install as Corel Linux and which includes more software, try Caldera OpenLinux.
 
 

OK, so you need all the power of Linux and want to run it on a server (Corel Linux is for the desktop only). The people wearing the red hat might have just what you are looking for.

We are all pigs!  Face it, as a new investor, the primary reason you want to start investing in stocks is because of all the fantastic returns you read about in the newspapers. Starting with $10,000 and investing judiciously in a few "undervalued" stocks, you might just win the jackpot. Well, some people have done it. It can be done. Your coworker is doing it. So, now, you want a piece of the action. You are a pig (small "p").

You have come to the right place. At The Pig Files, we do not promise you fantastic returns--overnight, that is. But we do teach you about investing for the long-term--you know, the way of investing that does not cause ulcers, and have you glued daily at your TV set tuned to CNBC or the  financial pages of your newspaper. It is a style of investing which still leaves you time to do your work, spend time with your family, engage in hobbies--with the peace of mind that you have invested your hard-earned money into companies that will still be around in ten years, and will have grown your portfolio into a handsome nest egg. This is the way of the Pig ("capital "P").

The Pig Files consist of a number of "files" that our writers have unearthed from pig stys around the world. They have laboriously translated the contents into the language that you understand. Here you will not read about technical stuff that you don't understand, do not want to understand, and do not need to understand (unless you want to, of course). To take the example of the automobile, you don't need to understand what goes under the hood to drive one.

So, enough talking, and take a tour of our site.

Over the Christmas weekend, some users of Microsoft's free e-mail service, Hotmail, were unable to access their accounts. This is easily the funniest story of the year because it was a Linux developer named Michael Chaney who took it upon himself to fix the problem for the mighty $600 billion software giant -- by simply making a $35 missed registration fee payment to Network Solutions for rights to the Internet domain name passport.com, which verifies user names and passwords for Hotmail and other services.

On Slashdot.org, Michael posted the following:

Saturday December 25, 11:58AM EST
Hey, I paid it for them. Merry Christmas, Microsoft.

December 26
Folks, it's 6:00AM CST and Hotmail is again accessible. passport.com is finally resolvable again: [root@dialer /root]# nslookup passport.com Server: localhost Address: 127.0.0.1 Name: passport.com Address: 207.46.198.16 By golly, I think I fixed it. 

Microsoft, caught with its pants down again, said it would refund Chaney the $35: "On December 28, 1999, I received a call from a Microsoft employee who is apparently in upper management of the Passport project. He has acknowledged that I did, in fact, fix the problem, and offered their gratitude, and reimbursement." $35 for saving them potentially $$$$? Makes you wonder who is in charge of PR at the company!?!???

Not All Linux IPO's Are Created Equal
Why is the Linux Community all up in arms against LinuxOne? You be the judge.

LinuxWorld
Slashdot
Technocrat.net
The Register
UserFriendly
LinuxOne

Y2K Bug Strikes...

Linux Today
Take it with a grain of salt -- since apparently the story was posted 1 hour beforemidnight.

2600.com
It's funny. Since they will probably have removed it by the time you get around to check it, here is the (Y2K fool's) message:

Internal Server Error

The date specified (01-01-1900) is impossible. If you have forced this error condition, you may be in violation of state, federal, and/or civil laws. Those outside the United States should check with their respective governments concerning their country's extradition treaty. Dissemination of this error is also strictly prohibited.

If you believe you have received this message in error, please reload the page and try again. 

Happy New Year (not really the new Millenium, which officially starts January 1, 2001)!