ETF vs. stock.

[WestCoastWilson]

Hello Everyone,

In my research, I have come across tips to invest in Exchange Traded Funds (EFTs). I was wondering if there are any pros and cons trading or investing in EFTs vs. stocks? Or are the risks and losses and or gains are about the same? :confused:

Wilson

[mjl3434]

ETFs allow you to have all the advantages of a mutual fund with lower costs. They are bought and sold like regular stocks. They allow you to diversify your investment, if the fund is made of several stocks in the same sector, without having to pick individual stocks, because that's all done for you.

Of course there are much better explanations of all this at www.investopedia.com

[wallstreetsedge]

the risks are about the same except an ETF is basically a basket of stocks so you end up getting an average.. the only issue is how the basket is weighted and imo using technical analysis on an ETF is more difficult

[LongArm]

ETFs are less risky in that bad news isn't likely to immediately chop it in half like can happen with a stock. On the other side of the coin, good news isn't likely to double an ETF as quickly as can happen with a stock, either. That's not to imply that you can't make some very nice gains with some ETFs.

I've traded ETFs a lot and my humble opinion is that they "tend" to trend better than individual stocks, on average. So if you're of the trend-follower persuasion, that may be something for you to consider.

[aiki14]

ETFs allow you to have all the advantages of a mutual fund with lower costs. They are bought and sold like regular stocks. They allow you to diversify your investment, if the fund is made of several stocks in the same sector, without having to pick individual stocks, because that's all done for you.

Of course there are much better explanations of all this at www.investopedia.com

I am going to disagree slightly, in that I believe that a good manager can make a mutual fund better than an ETF. Show me an ETF that outperforms CGMFX over the 1, 3 or 5 yr time frame. Give me a Ken Heebner, Chris Davis, or Bob Doll and I'll gladly pay the additional 12b-1 fees.

[Horsefish]

I am going to disagree slightly, in that I believe that a good manager can make a mutual fund better than an ETF. Show me an ETF that outperforms CGMFX over the 1, 3 or 5 yr time frame. Give me a Ken Heebner, Chris Davis, or Bob Doll and I'll gladly pay the additional 12b-1 fees.

I'm glad that you added "disagree slightly" and 1,3 or 5 yr time frame. Just consider almost all of the ultra short ETFs since January. Crushed the market all the way around.

I will agree that the great performance of those short ETFs is about to end. Soon may be the time to begin nibbling on the the other side.

[ZaNoob]

Just be careful what ETF you get and avoid those that produce a K1 (I think that's the one) or you might get a tax bill larger than your gains.

[WestCoastWilson]

WOW!!! What a terrific response! Thanks Mjl3434, Wallstreetsedge, Longarm, Aiki14, Horsefish, and ZaNoob!


Horsefish, you are certainly correct when you said "I will agree that the great performance of those short ETFs is about to end. Soon may be the time to begin nibbling on the the other side." As a matter of fact, ALL of the ETFs that I picked over the weekend did exceptionally well on Monday and Tuesday. Today ALL of them are deflating like mad. I was shocked that SKF dropped over $44 today! GASP!!! :confused2:

One thing that I noticed is that the ETFs that I picked out were all getting pretty close to their 52 week high and I somehow felt that ‘something’ was going to cause them to fall in value before they reached their 52 week high. Just what on earth caused my ETFs to drop like a lead balloon today??? Especially since the market closed on the positive side today. Since I am a Newbie, I know that I need to do a lot more home work on my stocks in general, yet it seems like one thing that I have noticed is that when the majority of my stocks get near to their 52 week high, 99% of them inevitably start to plummet within a few days BEFORE reaching their 52 week high . . . in the rare cases where they actually go over their 52 week high, it is usually a day or two before the stock plummets back down. Can anyone offer me any clues as to why this keeps happening to my stock picks?

Right now, I am only paper trading, yet can someone please enlighten me on ETFs that produce a K1. I have never heard of anything like this before, yet since I am just learning about ETFs, I have a lot to learn, yet I don’t want to have any surprises when I start playing with real money one day.

Thanks Everyone!!! :top:

Wilson

[mjl3434]

This is going a bit off topic compared to what you asked but hopefully you'll find some use out of it.

I don’t want to have any surprises when I start playing with real money one day. I'm a newbie too but I think that there will always be surprises, meaning no matter how good you are sometimes your trades will go bad and you will need to be disciplined in order to know when to pull out.

Also I think there's a big difference, emotionally, between paper trading and using real money. When my money is in for real I find my emotions tempt me to change my plan. Plus when you screw up you learn your lesson a lot better when it's real money =)

The K1 issue was covered in detail already you could have searched for it or you can find it here (http://www.onlinetradersforum.com/showthread.php?p=116072).

[wallstreetsedge]

This is going a bit off topic compared to what you asked but hopefully you'll find some use out of it.

I'm a newbie too but I think that there will always be surprises, meaning no matter how good you are sometimes your trades will go bad and you will need to be disciplined in order to know when to pull out.

Also I think there's a big difference, emotionally, between paper trading and using real money. When my money is in for real I find my emotions tempt me to change my plan. Plus when you screw up you learn your lesson a lot better when it's real money =)

The K1 issue was covered in detail already you could have searched for it or you can find it here (http://www.onlinetradersforum.com/showthread.php?p=116072).


i agree with you on this...

first a problem with paper trading is a trade has to actually execute in order for it to show in your paper trade account, so i think paper trading is a bit useless unless youre papertrading highly liquid stocks like msft and csco

also another big problem is that a lot of people find one way of trading, one program, one newsletter, or one person to follow and think they found the goose that lays the golden egg... but what a look of people should realize... nothing is 100% BUT there are ways to increase you're chances to be pretty darn close

[WestCoastWilson]

Hey there Mjl3434. Thank you very much for your additional input. Well since I know how volatile the stock market is, I know that there is no guarantee when it comes to trading. Yet in my last posting, when I said "I don’t want to have any surprises when I start playing with real money one day." Mainly what I meant to say was that I want to be aware of some of these very elementary aspects of trading so I can lessen my Newbie trading mistakes. Oh for sure, I agree with you when you said "I think that there will always be surprises, meaning no matter how good you are sometimes your trades will go bad and you will need to be disciplined in order to know when to pull out."

Since I have been diligently taking notes and trying to work on several trading strategies (for when I start playing with real money), I have often heard there's a big difference, emotionally, between paper trading and using real money. Right now I can not imagine how intense playing with real money might be, however I must say that I have really been grieving over my paper trade stock picks over the past 4 week since the market was declared a ‘bear’ about 3 weeks ago. ALL of my stocks have sunk like a lead balloon 8O and still have not recovered. MAJOR FROWN!!! Thus far, I gave myself $20,000 of play money to invest. When the market turned into a ‘bear’ (about 3 or so weeks ago), I ended up initially losing $11,500. As of the market closing today (07-25-08), I am currently at a loss of $9,750. Oh sure, I see the value of my stocks going up a little each day, yet figuring if I had a $9,750 loss with real money, I would not be able to buy any stock again until the value of what I bought goes at least back up to the value I bought it at to try to break even. I still think I am too stubborn to ever sell stock at a loss. I ‘may’ change my mind once I start playing with real money. LOL!!! I am sure that once I start playing with real money, I will be a basket case. LOL!!! Yet right now, I am trying to work on a new plan of what to do when I am holding onto stocks in a ‘bear’ market and my stocks are plummeting in value (i.e. below the value of what I originally paid for them. For sure, I also agree with you when you said "Plus when you screw up you learn your lesson a lot better when it's real money ." Yet right now, I am trying to be logical and work out my crises with my paper trades as they happen right now, so I can "hopefully" make better trading decisions once I start playing with real money. Thanks a million for the link on the abundance of information on K1. Your help is greatly appreciated. :top: Uon reading about K1, it sounds like something that every first time investor should know before they begin trading or investing. Since I am a Newbie, K1 was a big surprise "to me", yet I think K1 is something I should have known/learned about a long time ago. Yet I am sure that the majority of intermediate and professional traders know all about K1.

Wallstreetsedge. I also appreciate your additional input. I was talking with an Internet friend of mine several weeks ago and we got on the topic of how do you decipher the trading/investment advice and stock picks provided via the abundance of free and paid e-newsletters out there . . . because they all can not be right (since it seems rare to get any two e-newsletters to agree on the exact same stock to buy in the exact same sector). So it gets easily overwhelming and stressful 8O trying to take the advice and stock picks recommended by 20 or 30 e-newsletters. So I think I have pretty much learned that there is no magic bullet or a failure-proof trading system out there. Yet I do agree with you 100% about either finding or learning those ways to come out ahead when it comes to trading or investing. For sure, you can not rely on one or two or three types of ways to trade, because I know what worked OVERLY successfully yesterday or last month or last year may be a complete failure and flop today or tomorrow.

Wilson