Surfing the Internet. You Never Know What’s Out There?

Following one link to another, I found my self visiting, where I found this question:

"If you have small amounts of cash is it better to use it on penny stocks or options?"

I recognize that there are many people who have not yet learned anything about investing.  Many years ago, I spent a good deal of time in libraries and bookstores in an attempt to understand something about investing – before using real money.  I had seen my father buy mutual funds, to the benefit of his broker. [Hey, Tom Guella, are you still out there??]  And, not knowing any better, when I was still in school, I also bought some funds.

But times have changed and the Internet opens up a world of information.  I always find it sad when someone wants to get started (geez, I hope this questioner is first getting started), and is on a bad track.

Buying options or buying penny stocks.  Wow.  Neither is a good choice, especially when the investor doesn't have much cash.  Best is to begin a savings program until you have learned more about investing.

I extracted the following from a Boston Globe article by
Jonathan Stempel and Lilla Zuill (Aug 13, 2009).

"Warren Buffett's Berkshire Hathaway  underestimated the risks of falling stock prices to its billions of dollars of derivatives bets…

The derivatives contracts are tied to four equity indexes in the United
States, Europe and Japan, and are a big reason Berkshire's earnings
fell for six straight quarters. That string ended in the April-to-June
period as stocks rebounded…

Berkshire's Chief Financial Officer Marc Hamburg
told the SEC that last year's 30 percent to 45 percent declines in the
equity indexes 'are in excess of our volatility inputs.'

Buffett expects the contracts to be profitable and can invest upfront
premiums as he wishes. This is one reason the world's second-richest
person believes the contracts are unlike derivatives that are
"financial weapons of mass destruction."

Yes, the market was more volatile than pretty much anyone (Nouriel Roubini, excluded) could have anticipated, even Buffett. 


4 Responses to Surfing the Internet. You Never Know What’s Out There?

  1. Sigma Options 08/24/2009 at 12:19 PM #

    “Yes, the market was more volatile than pretty much anyone (Nouriel Roubini, excluded) could have anticipated, even Buffett.”
    I don’t know about that Mark. Pretty much anyone even loosely allied to the Austrian School thought it was only a matter of time before the economy blew up. There were legions of traders sitting at home in their pyjamas who were very very bearish all along.

  2. Mark Wolfinger 08/24/2009 at 2:11 PM #

    I agree with your statement. The danger signs were there; risk was present; and most people were oblivious.
    But, that’s not quite the same thing as seeing the market undergo many large up and down movements over a short period of time.

  3. Manshu 08/25/2009 at 5:11 PM #

    Gosh! what a questions! When I re-read that to make sure that I was understanding it correctly. I hope s/he uses some conservative “options” to use that money.

  4. Mark Wolfinger 08/25/2009 at 8:42 PM #

    Not likely.
    This person is looking to gamble, not knowing any better.