The Stock Market

[toasterwater]

I just recently started playing the stock market... okay, so by that i mean that i opened up an ameritrade account, and without knowing a whole lot about the process, ive started investing. I've read decent amount about it, but I honestly dont know exactly what I'm doing. I figured the best way to learn would be to jump in and experience it first hand.

I put $3000 into an ameritrade account, and i invested a little over 2k in General electric stock. I chose them because they are a company i suspect to be a good long term investment, and i figure they will be a good stable foundation for the more conservative side of my portfolio. The other thousand i plan on playing with. Yep, thats right, im going to treat it like monopoly money, and just try to figure out how to play "the game".

I have a simple hypothesis on short term trading. Basically, after looking at graph after graph, i have noticed that stock prices will go up, and they will go down. Simple conclusion. I also figure that a stock of low value, maybe less than $10 per share, has a greater potential for high percent gains than an already expensive stock. This is because if a $2 stock increases in value by $1, you make a 50% profit, but if a $20 stock increases in value by $1, you only make a 5% profit. Lastly, i have found that highly active stocks, stocks that trade alot of volume, tend to increase and decrease in value more rapidly than others, plus they are easier to buy and sell due to the high volume. Using these principals, i derive my hypothesis- Choose the lowest priced stocks off of the most active list, and invest in them, because they are bound to go up and down at a semi predictable rate (if youve ever looked at a graph of a stock of this description, youll notice its basically a zigzag line) just buy at the bottom of the zig, and sell at the top of the zag.

Now, Im sure that someone is reading this and thinking "this guys retarded"... well, maybe i am, and maybe im not, i guess ill find out soon enough. The cool thing is that with this Ameritrade account, I get 45 days of free trading. That means that any money i make off of a trade, no matter how small the amount, is profit. Ill play with this idea and hopefully develop a decent game plan by the time my 45 days are up. If anyone has any questions, comments, advice, etc., please post them. Im also willing to share what i learn, and i will try to keep you up to date as my experiment progresses.

[Dave Kaminski]

Try to make your posts more readable, that's extremely difficult to read. Try to break it up into 3-4 line paragraphs. Otherwise it's extremely hard to skim.

[helgi]

Sorry if this is offtopic -- I'm also interested in learning by doing, but don't really have any money to spend on it. Have you tried any of the online stock exchange simulators available, and if so would you recommend any of them over the others?

[pi11]

Originally Posted by helgi

Sorry if this is offtopic -- I'm also interested in learning by doing, but don't really have any money to spend on it. Have you tried any of the online stock exchange simulators available, and if so would you recommend any of them over the others?

I am in the middle of a year long stock market simulation game with my friends at work. We are using Yahoo Finance's portfolio feature to track everything. It is not completely automatic, but with a little manual work, it works out very nicely. And you can't beat the price.

[richie]

i have just started playing those stock exchange simulation but may need to stop because of lack of time , hey toasterwater keep us updated on how things go

[mattinglot]

The whole buy at the bottom of the zag and sell at the top is the whole trick of course I've only done short term trading with fake money as part of a competition, it's too time-consuming and risky for my blood (I leave it to poker to provide risk-fueled excitement). I found very quickly it was extremely difficult to predict in reality where the bottom and top were. By pure luck I made more than I started with in the end after having a very rough plummet 1.5 months into the two month competition. You really have to be willing to accept volatility.

All this being said I'm very interested in hearing about your results. You've already acknowledged that you may lose the entire $1000 so there's absolutely nothing wrong with experimenting with your theories and having some fun with it.

[Henry]

I'm a turtle. I just invest in all stocks via index funds. In fact, I haven't checked on it in a month. I'll do that now...

[toasterwater]

Okay... well, i guess ill kick this off the right way.
Ill start by letting you know that i live in a time zone that is 14 hours ahead of EST. That means that trading hours are from 1130pm to 6am for me. This will make things interesting .

Day one. The transaction to buy $2000 (actually $2031.16) worth of GE (General Electric) stock went through in the morning, and over the course of the trading day, it grew .71%. My GE stock is now worth $2045.66, or $14.50 more than what i bought it for. Good news. But thats the boring news, GE is my safe stock.

Toward the end of the trading day (or it might have actually been after hours... im not sure off the top of my head) I purchased 250 shares of LU (Lucent Technologies) worth a whopping $615. The stock did not change value after i bought it (this is why i think it was after hours).

After reflecting on this, I decided that $600 of my $1000 of play money was too much, so i put in several orders to fix this problem. I put in an order to sell most of that stock, and purchase several other small amounts of stock from other companies. I want to keep my risky stuff diversified, so ill leave it around $100 per venture to start.

I also decided to put an additional $1000 into my ameritrade account... this may go toward a safe stock, or into the play money, i havent decided yet.

Thats all for now, the trading day starts in 1 minute.

[JiriNovotny]

toasterwater,

You should probably go to the casino with your money instead, it is very likely that you will lose it if you have no previous experience. This is the worst way how to learn investing.

Reasonable investors start with virtual money. There are even great webapps made just for trading with virtual cash (Like the simulator at Investopedia). It is insane to risk your real money if you haven't traded before.

Why don't you trade with virtual money for a few months before you invest the real cash? If you can make stable profits with your virtual money, then go ahead and invest real cash. It is probably not that exciting, but you don't want to lose your money, do you?

If I were you, I would sell all these stocks ASAP and learned investing first. Also, devoting 60% of your money one stock is really unwise - have you read something about diversification?

[RT Wolf]

I believe that the best returns are gained over the long-term, usually with holding periods of a year or more. We're having a conversation about this stuff over in the thread called Any Value Investors in here?

The Stock market is a fickle mistress, I would recommend getting as much knowledge about it as you can. If you treat her like a casino, that's how she'll be. But if you treat her right, she can make you rich. Read lots of books and the internets, find out about different investing strategies and pick which one sounds good to you.

If you'd like a quick primer on the stock market (to just give you an idea of what's out there), lemme know.

Edit: The reason I recommend learning about different styles/strategies for investing is that you get different views. For you, though, is this all your investment money? Do you have other investments? A sound financial strategy is the key to never having to worry excessively about your money again.

[toasterwater]

JiriNovotny:

I appreciate your concern, but im gonna have to stick to my original plan for a while. I dont give up that easily. Besides, its just money right?

How about this. Instead of trying to discourage me from taking unneccessary risks, (and don't get me wrong, i understand your rational, logical thinking)lets use this as a challenge. For those of you out there who know something about investing, give me all the advice you can give in a relaxed, cheerful and positive manner, and for the rest of us, well, we can go with the intention manifestation model.

"I intend for toasterwater's experience with the stockmarket to be a lucrative learning experience, so that others may learn from his actions, and so that one day he may reinvest this money and knowledge into the bettering of humanity for the greatest good of all."

Sound like a decent intention to put out there?

Well, thanks again for all of the advice, and encouragement. Ill be sure to keep you posted.

[helgi]

I'm trying out both VSE from MarketWatch and the Investopedia simulator mentioned above. Like them both so far, but will probably try to stick with one of them.

edit: oh, and good luck with the trading toastwater. It's not the end of the world to lose a $1000 -- just head on over to I am Facing Foreclosure .com for perspective

[toasterwater]

Okay, this is the last post for the next few hours at least, i have to get some sleep... i do still have a full time job to tend to . anyway, im goint to sleep the proud owner of 8 companies. 1 of which is GE, with over $2000, and the other 7 are each just over $100. And as i go to sleep, my initial $3000 investment is currently worth 3,037.27. Goodnight everyone... hmmm well, i guess its just night for me. Either way

PS RT Wolf:
I would very much appreciate any knowledge you would like to pass on to me. Just post it on this site for all to see, and ill check it out later.

[Fusebox]

toasterwater, I'd be interested to see how you go in the upcoming weeks and months. Keep us posted.

[b__p]

Originally Posted by JiriNovotny

toasterwater,

You should probably go to the casino with your money instead, it is very likely that you will lose it if you have no previous experience. This is the worst way how to learn investing.

Jiri,
There are millions of investment strategies out there and he happened to pick one that works for him from a risk perspective. Every single strategy out there will have losing trades at some point so is his method really more risky? No one can answer that question since we don't know what the market will do next.

Newspapers and magazines routinely do bits where they put a stock market expert up against a monkey or a baby or someone throwing darts at the stock pages. Quite often, the expert makes less or even loses money.

toasterwater seems to have accepted that he may lose every cent he's put into the market so we shouldn't knock his methods because they don't conform to a strategy we see as less risky.

[pedrotn]

I guess I should start off by saying that this is my business. I am a RIA (register investment advisor). My job is to build portfolio's for my clients and help them manage their investments.

Assuming you are going to play the stock market with $3,000.00 there are number of ways to go that might give you a better return than what you are going for.

So far you have placed a 2k order to buy GE as your safe play. You would be much better off with a 2k large cap value blend fund. Buy it and forget it type thing. This will give you the diversification of not being tied simply to GE. GE will be held in the mutual fund you pick most likely. This also gives you the advantage of having a investment vehicle that will move. GE is a lumbering giant that takes alot of effort to move on a consistant basis. Since 2004 it has been stuck in a 32-36 range and it is near the top of that range now. Where as a fund like Mairs & Power Growth Fund "MPGFX" ( this is a no load fund) has had the following returns:

YTD 7.24%
3 yr 11.46% (annualized)
5yr 10.35% (annualized)

thats just an example, there are other funds as good or better but it comes to mind quickly

Then for your play money of 1k. I would not make $100.00 purchases. Ameritrade is charging you at least 7.99 per trade. thats 7% in the hole already before you start. You would be better off choosing one or perhaps 2 stocks and playing with those. Personally I would do one, as you would have a great return potential (and of course greater risk).

Also when dealing with stocks that cost under $10.00 it is extremely important to do you research first. Just because something is at the bottom of its current range doesn't mean it has to go back up. Tuesday Morning is a good example "TUES". It has a 52 week range of 28 - 12. However its been mostly a down hill ride so for awhile there everyday was a new low. I know alot of people who bought it at 20 because it was at the low of the range and now look at them. It has just in the last few days gotten back to 16.

I hope this advise helps. Please remember that it comes with no understanding of your current financial situation and I can neither recommend the above strategy or not recommend it without knowing more about you.

Peter

[JiriNovotny]

b__p:

Basically I agree with what you are saying. I've read a lot of books and some of these mentioned the "monkey" experiment. If I remember correctly, it has lead to one conclusion: diversification.

Do not forget that investing is all about chances. If the GE stock is meant to be the safe investment, yet is riskier than a diversified fund, and has the same ROI potential, there is no reason why he should be holding it. I am with pedrotn on this one.

Also, if I were him, I would run some virtual accounts on the side as well anyways, to try different strategies, or to trade with larger sums of money, etc.

I am not afraid to risk, I just won't do so if I don't have to. Trading with real cash when I can learn it first using virtual cash is a common sense to me.

I've invested in an Indian index fund and made a great profit, but I know that I was a bit lucky and it was a part of my diversified portfolio, so even if I would lose money on that one particular investment I would still be in plus. Sure, I could've put all my money into that Indian fund, but I also could've put it to some other fund where I would lose it. Too great risk for me.

However, I think that there are two types if risk: Risk to make a profit and risk that you can avoid. Getting GE instead of diversified fund is risk that you can avoid. Learning to trade with real cash instead of virtual cash is risk you can avoid.

Just my 2 cents. It is quite possible that toasterwater will make much more than two cents! I am sorry if I've sounded too discouraging.

pedrotn:

I think that he has 45 days of free trading, so he can make these $100 investments. But I do not know how exactly does this free trial works.

[Daniel Terhorst]

While it's not exactly glamorous, I think Henry's got the right approach. After a fair bit of research into the subject myself before opening my Roth IRA, I had come to the same conclusion: index funds.

-- Daniel Terhorst

[Abhey]

Don't equate luck with skill, with your current strategy you will in the long run lose money (I'll bet you a 1000 dollars that you'll lose money with that strategy if you keep it up for a year.) Try reading some books on trading I'd recommend Jack Schwager's New Market Wizards and Nicholas Nassim Taleb's Fooled by Randomness. Abhey

[toasterwater]

I've noticed alot of mixed reviews on my current strategy with the stock market. Let me get something straight here... the reason I'm trading the way i am is because im under educated on the subject. I know, your thinking "then go read about it!". Thats just it, i have read about it- on and off for a couple of years (more off than on) and if i continue down that path, i am doomed to have all of my money collect dust in my savings account. By diving headfirst into the stockmarket, I am forcing myself to learn. If i lose some money in the process, thats okay, because the knowledge i pick up from the experience will earn me much more in the end.

So for those of you with advice, i really do appreciate it, and keep it coming (except for the "get out now!" advice... i want advice on how to do well now). Ill continue to keep you all updated on my ventures.

By the way, I had a post about 3 times as long as this one explaining more background on my financial situation, but my internet went down, and i lost it . But ill just have to fill you in on the rest later.

[helgi]

About the trading simulators, I've decided to go with VSE instead of the Investopedia simulator. Much easier to use, the server seems to be more reliable and it looks more exciting.

I have no idea what I'm doing btw., but it's fun though!

[Yynatago]

Originally Posted by toasterwater

By diving headfirst into the stockmarket, I am forcing myself to learn. If i lose some money in the process, thats okay, because the knowledge i pick up from the experience will earn me much more in the end.

Great idea! I was going to say the same thing, but you beat me to the punch Researching the stock market, learning investment strategies and playing in simulations are all good, but theres nothing quite like experiencing your money out there in the wild. Just so long as you start small and increasing your investment only when you've gained the experience and knowledge to match.

Regards,
From Shannan

[birger]

My first advice about the stock market, or any other investment involving risks is don't try it if you can't afford to loose the money! If you get a bad stomack and a headache when your stocks go down 50%, don't do it!
Nothing is worth risking your health for.

I started out much like you did, read on and off about stocks for a year, and then decided to dive head first in it. I put around $1500 in my trading account, and invested in one company. I'm speaking about the norwegian stock exchange here, but I guess it's pretty similiar over there.

At the stock exchange the broker is responsible for selling and buying stocks, and all stocks are realized in "round lots", wich are roughly equal to $1500 (it may well be $1000 in USA, but the same logic applies) worth of stocks. These are generally easier to realize than bying in "odd lots", some brokers don't even bother to sell or buy "odd lots"... So my second advice is to stay with "round lots." I'm not sure what 45 days of free trading equals, but usually there's a fee when you buy and sell. So you may buy lot of "free" $100 lots now, but you'll have to pay a fee if you sell them after 45 days I guess?

Over the last two years my trading accounts value has increased something around 22% annually. You may be lucky and find a fund that gives you better ROI and less risk, but it sure beats the bank, and it's way more exciting!

And last but not least, I wish you good luck toasterwater, I look forward to seeing how things progresses for you!

[Stephen]

HI Guys

I have been advising people on financial planning for ten years now and I would just like to share afew of 'my' truths with you.

#1) Regular self disciplined monthly savings over the medium to long term almost always beats short term rashness.

#2) Ther are zillions of way to invest: Value Investing, Growth Shares, High Yield Shares, Out of Favour shares, etc etc. The easiest and by far the most successful is simply not to try and beat the market (S&P, DJ, FTSE) but just BE the market. If ten percent averaged out per annum is not enough for you (figures over the past 100 years) then possibly a reality check is in order.

#3) Never gamble your money by taking a tip (a professonal one or otherwise). Do you own research.

#4) When the market is on the decline, if you can, invest more.

#5) Adopt a long term buy and hold strategy. This avoids charges and ulcers.

#6) Warren Buffett is a unique case. If you dont want to follow the market, then consider him. He has consistently outperformed the market over the long term.

#7) Never invest what you cant afford to lose.

#8) Always invest with at least a medium (5 year+) term outlook.

#9) Day trading is gambling.

#10) Always invest religiously 'x' amount of your salary/income every month, through thick and thin. The benefits of long term compound interest along with Dollar Cost averaging cannot be emphasised enough.

[toasterwater]

Okay, heres what my portfolio looks like before entering my 3rd (i think its the 3rd day) day of trading.

Symbol_Qty_Last___Change_Mkt Val__Maint Req___Cost___Gain($)_Gain%

GE_____58__35.54__0.27___2,061.32_618.40___2,031.1 6__30.16__1.48
LU_____42__2.50___0.04___105.00___105.00____103.32 __1.68___1.63
NOVL___20__6.50__-0.12___130.00___50.00_____129.80__0.20___0.15
SUNW__19___5.47__0.16___103.93___47.50_____101.65_ _2.28___2.24
F______13___8.73__0.07___113.49___39.72_____112.45 __1.04___0.92
INTC___6____20.80_-0.0175_124.80__37.44_____126.53__-1.73__-1.37
CSCO___5___24.84__0.16___124.20___37.26_____124.60 __-0.40__-0.32
Q______13___8.84___0.11___114.92__34.48_____114.76 __0.16____0.14
HQI____4____28.69_-0.61____114.76__34.43_____117.16__-2.40__-2.05
WIN____8____13.68_-0.02___109.44___32.83_____110.16__-0.72__-0.65


For those who dont know, i started with $3000 and then added an additional $1000 that i havent invested yet.

My total account is worth 4,034.42 now, which means that all in all, ive made $34.42 .

Sorry about the crappy chart, but i there isnt much room to play with in here. I love your feedback, keep it commin. And let me know if there is something you dont understand up there, or some more knowledge you want (except for my account info and password )

[turbosaab]

Toasterwater, I'll second what someone else said - it's knowing when's a peak and when's a dip that is the challenge. Day traders do this professionally using all kinds of mathematical formulas, starting with simple things like moving averages and other things I have no clue about. Check out this introduction or browse Investopedia if you want to learn a little more.

I don't mean to discourage you, what you described you are doing sounds like a reasonable way to jump in and start learning first hand. The suggestions to use simulation money were wise, but I can see how using real money makes it more interesting.

You might also check out 321gold, a site I read daily. For me, gold and commodities are where it's at.

Stephen's advice is spot on as the best way to build savings and wealth. On the other hand, if you are looking for a hobby (with potential for profit - or loss), trade early and trade often!

[yoopersmith]

I like that attitude...just dive-in, that rocks!!!

I have a couple of questions before I dispense my "advice":

1 - How's Okinawa? I've been all over mainland Japan, but never been there.

2 - Are are all your trades "commission free" for 45 days? Just to be clear.

Ok on to advice. First again, congrats on jumping in, that takes courage. Next, as you are playing around with the stock market and learning your lessons and getting experience, I offer some things for you to think about.

1 - Taxes. I don't know where you pay your taxes, but if you pay american income tax, you need to be aware that you are taxed on all gains that you get in the stock market. Long Term sales (stocks that you hold for 1 year + 1 day) are taxed at a lower rate then short term sales (any stock that you sell after holding any time period less than 1 year + 1 day).

2. For some fun and insightful lessons on the stock market, you might want to check out Fool.com: Investing, Stock Research, and Personal Finance and search on "Fool's School". This is where I learned everything about money and investing.

Have fun, and let us all know what you learn and how much you earn!!!

[Stephen]

Originally Posted by yoopersmith

I like that attitude...just dive-in, that rocks!!!

I have a couple of questions before I dispense my "advice":

1 - How's Okinawa? I've been all over mainland Japan, but never been there.

2 - Are are all your trades "commission free" for 45 days? Just to be clear.

Ok on to advice. First again, congrats on jumping in, that takes courage. Next, as you are playing around with the stock market and learning your lessons and getting experience, I offer some things for you to think about.

1 - Taxes. I don't know where you pay your taxes, but if you pay american income tax, you need to be aware that you are taxed on all gains that you get in the stock market. Long Term sales (stocks that you hold for 1 year + 1 day) are taxed at a lower rate then short term sales (any stock that you sell after holding any time period less than 1 year + 1 day).

2. For some fun and insightful lessons on the stock market, you might want to check out Fool.com: Investing, Stock Research, and Personal Finance and search on "Fool's School". This is where I learned everything about money and investing.

Have fun, and let us all know what you learn and how much you earn!!!

Hi yoopersmith

I think 'diving right in' in some areas of your life are good, but believe me I have seen it a million times, diving right in buying shares without proper research is a sure way to lose money.

You only need to posit the question- Why did I buy that share?- To understand how little many people know what they have done with their money.

Do they understand the cash position of the company? Its cash flow? Its order book? Its industry outlook? Its board or owners? Its market share? Its price eranings ratio? Have you looked over the company accounts etc etc

If you havent done all of these and more then throwing a dart at the stcok listings in the Financial Times is about as good a strategy as any!

[RT Wolf]

I'll try to make this quick. You're getting some great advice on both personal finance and stock investing. Off the top, I would recommend getting some personal finance books as well as any advice you can get on it. Personal finance is about managing your money while stock investing is just about a method for growing. Arguably, it's a good idea to be at least a little diversified in terms of what assets you hold. The major categories for that diversification are physical assets (land, houses, rental property, etc), equity (stocks and options and so forth) and debt (bonds, debentures and so on).

The second thing to realize is that there's no real "accepted convention" about investing. Largely though, there's three kinds of investing strategies:

Passive: I mean completely passive, buy it and forget it sort. Mutual funds and index funds fall here. When buying mutual funds, recognize that most of them don't even match the market. Index funds match teh market and have very low expense ratios. So, in this category, either an excellent mutual fund or index fund is your best option. If you don't feel like doing the research to buy the right mutual fund, then just buy an index fund. It's a perfectly acceptable strategy to hold your entire investment fund in index funds.

Mechanical: These are strategies that are just as they're called, mechanical. The Dogs of the Dow, the Magic Formula (outlined in The Little Book That Beats the Market by Joel Greenblatt, highly recommend it) and a simple low P/E strategy fall into this category. Most of these are buy a few stocks according to certain characteristics, hold for a year, sell and then buy the new best stocks. You can find more information abuot each of those by googling them. Generally, those few have beaten the market.

Active: There's a whole lotta strategies in here. This basically means you pick your own stocks and do your own research. There's a few "styles" of investing here, including day trading, momentum investing, value investing, contrarian investing and so on. I suppose the two biggest ways to research stocks is fundamental analysis (looking at hte numbers of the corporation to determine if it's a good company and a solid buy), and technical analysis (looking at the stock price of the company to recognize patterns in the stock price).

Two terms to look out for, as well, "speculating" and "investing". Speculating is just that, speculating that by buying a stock, you'll make lots of money and the stock will rise for little or no logical reason. Investing involves work (that's why not everyone is a stock market millionaire). I'd say you're speculating right now. There's nothing wrong with that, considering it's your money. I would suggest keeping close track of your investments at the end of the year and then comparing them to standard metrics, such as how well the S&P 500 did, etc. Might change your mind.

There's really no "right" or "wrong" way to invest, it's pretty much whatever makes yuo the most money. I strongly believe value investing is the best way to invest, using fundamental analysis. Even a simple low P/E strategy has done phenomenally well over the long term (beating the market), and buying a few choice companies promises to get even more returns.

Just a quick overview, value investing is you're looking for unrealized value in a company. Say, the stock of a company is trading for 5 dollars and your calculation of its intrinsic value says that its worth 10 dollars a share, in this case, I have a 50% margin of safety from my calculation of intrinsic value. 50%s are pretty rare in this market, so I would pretty much put all my chips down. I'm also with Buffett when he says diversification is for those people who don't know what you're doing.

Value investors also have a different idea of risk. If I purchased the above stock and the price promptly fell to $2.5 dollars (so I've lost 50%) I would mortgage the house again and buy as much of it as I could. Which is contrary to what most people would do, because I'm thinking that the stock is gotten cheaper, kinda like something you really want going on sale.

I'll prolly make a mindmap and post that soon, to try to show the relationship between it all.

HH

[RT Wolf]