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How I do Stocks Exchange? [Investing]
Mr Ray
Sarcasm sphereRegistered User regular
Sarcasm sphereRegistered User regular
So I have some money, right? Well, i'd like to take this money and put it in a place where it can become more money over a period of time. They actually have those and they're called banks, but I'm looking for something whereby I could generate a larger amount of money in a shorter amount of time, albeit with more input from myself and a greater risk of losing my initial outlay.
I want to start investing.
I know the basics of the basics of share trading, but that's about it. I know its better to cut out the middle man and pick your own shares than go with a broker, I know why index shares generally perform better than a managed portfolio, and I even think I know what a portfolio is. Oh and buy low, sell high. I heard someone say that this one time.
I also know that I need practice, and that there are "stock-market simulator" games out there that use real-world data, but fake money. I've since discovered that there are a butt-load of the above, and I don't know which one to go with.
Then of course there's the big one, how to I actually, you know, buy shares? Obviously there are hundreds of websites which allow me to do just that, but then I come to the same issue again... which one? I'm not looking for any help choosing shares; I want to cut the middle man out completely. At the same time though, I want to be able to invest 10 bucks at first and just see what happens; I don't want to have to put in a minimum of a bazillion dollars or my account gets suspended.
So basically I've got three questions:
- What is a good "game" to practice my stockmarketeering in?
- Where is a good place to actually invest, with the above factors taken into consideration (no minimum investment)? I'm in Australia, if it matters, but I'll be looking to invest in primarily American or European shares, given the market there is set to recover soon (maybe).
- Any other advice from people who actually have a clue in this area?
I want to start investing.
I know the basics of the basics of share trading, but that's about it. I know its better to cut out the middle man and pick your own shares than go with a broker, I know why index shares generally perform better than a managed portfolio, and I even think I know what a portfolio is. Oh and buy low, sell high. I heard someone say that this one time.
I also know that I need practice, and that there are "stock-market simulator" games out there that use real-world data, but fake money. I've since discovered that there are a butt-load of the above, and I don't know which one to go with.
Then of course there's the big one, how to I actually, you know, buy shares? Obviously there are hundreds of websites which allow me to do just that, but then I come to the same issue again... which one? I'm not looking for any help choosing shares; I want to cut the middle man out completely. At the same time though, I want to be able to invest 10 bucks at first and just see what happens; I don't want to have to put in a minimum of a bazillion dollars or my account gets suspended.
So basically I've got three questions:
- What is a good "game" to practice my stockmarketeering in?
- Where is a good place to actually invest, with the above factors taken into consideration (no minimum investment)? I'm in Australia, if it matters, but I'll be looking to invest in primarily American or European shares, given the market there is set to recover soon (maybe).
- Any other advice from people who actually have a clue in this area?
Mr Ray on
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I always thought of it like this: If you have money your comfortable withing losing and never seeing again play the stock market yourself. If not then have a professional do it. There are companies out there that have individuals who will take your money and invest it for you while only being paid a small fee and a % of the profit that you make. Essentially they are using your money as their own and will take good care of it. They will take into account all of your factors (how much $ you have, your risk, etc.) you can even tell them what shares you want to buy and why! If they say yes then great, if they say no then you can get into a great discussion with someone who probably knows more about the subject than you.
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$10 will about cover the broker's fee on a trade. Do you have capital that you want to invest or do you want a better return than a bank will give you?
If it's the latter, try something like sharebuilder. There's no fee and they allow you to put however little you want a month into purchasing stocks at your favorite companies. It's fine for playing the long game.
I'm gonig to assume you're in the US, so I can't really give you specific advice, but stay away from individual stocks and bonds. Your best bet as an new investor is to research mutual funds, find a bank/investment firm with a solid record, and give them your money. Let their professionals wrestle with the other professionals, don't do it yourself. It's a full time job, and it's worth the fee.
If you really must invest on your own, stick to index funds if at all possible. Those are very uber-cheap mutual funds that simply track a sector of the market. That will at least protect you from individual companies going belly-up by giving you a very wide set of investments. Also, to offset the trading fees, you're going to need at least a few thousand dollars to get started.
tl;dr, Don't invest on your own. Pay other people to do it for you. This is in the same vein as 'don't balance your own tires' and 'don't do your own surgery'. It's complicated stuff, and unless you have training it's a big risk.
We're talking long term though. You can't sell until you retire. However, your money is only taxed once this way. Buying stocks or funds means your money is taxed when you are paid, and then the profit is hit with a capital gains tax when you sell a stock. That means your return needs to be pretty high to make up for those penalties and fees.
An IRA is the only way I will personally dabble in the market, because you need years for the market to (un)reliably normalize itself instead of being crazy every day. The potential for return can be great.
Let 'em eat fucking pineapples!
Yes, This is 100% true. If you go into the market, you're against me to start, and I do it 12 hours a day, every day of the week. And I'm the sucker at the table. I did a stream of consciousness rant in another thread about the basics of investing on your own. I would recommend you read it as a starting point, and then start doing your own research.
If you want to practice or to backtest, the portfolio manager in google finance isn't bad. I use it to backtest when I'm not at work.
OP, sharebuilder works. As do brokerage accounts like trading through thinkorswim (Toronto Dominion's platform). As does a managed mutual fund. If you want to leave it alone, feel free to dump a ton of money into a fund run by PIMCO or if you have 10k, Fairholme. Most mutual fund managers can't beat the S&P500, but even then, you can get some pretty good returns, especially if you hug dividend yielding stocks.
EDIT: yes please look into the benefits of a retirement account.
Below is spoilered for clarification on what an investment banker does, as it's a pet peeve of mine that the term has become conflated with anyone who works at a large bank.
MDs at bulge bracket banks after bonuses do. But they don't touch the stock market. Most compensation at a bulge bracket bank at the top end is tied up in deferred company paper anyway.
Actual investment bankers assist in the buying, selling and restructuring of companies, certain kinds of debt issues, and getting new shares on the markets. You probably mean proprietary traders, OTC derivative traders and members of the client facing groups. Those are the guys who can move the market on the sell side. Most traders are just market makers, even, making money being the middleman. Sorry, pet peeve.
The OP has to also face the collective fund managers and hedge fund managers of the world and believe you me, they get paid cash money...because they win (or because their AUM can feed huge management fees!).
Oh really? I didn't know this about you... I might need to give you a call sometime :P
How do I buy shares? E-trade, places like that. They charge you for each transaction, typically between 5-10 dollars. Might be different for accessing the ASX, since that ties into the second question.
How do I know what to buy? Well, how do you pick lotto numbers? If you're an amateur, the same principles apply, essentially. Otherwise, you buy a company that you use regularly or are familiar with, with the assumption that if they're doing well enough that you like them they are probably doing well enough for others to like them. For people who do this as a job, they evaluate earnings, balance sheets, industry news, CEO details, conferences, etc. etc. etc.
How do I make a good decision? If you're looking to do this for fun, you've already made a bad decision. You would have more actual fun if you went to a casino, with pretty much similar odds. As in, at the end of the day you'd be down but would have had a good time doing it. At least casinos have flashing lights, conversation, often free drinks, and the results are nearly instantaneous.
For "home traders," unless you're programming hedge fund software, the saying about "what has the best odds in Vegas" holds true -- the change machine.
If you're doing this to earn money, what you do is you give your money to an investor and let them do it. If it's a retirement account they usually just buy an index fund and a couple bonds and let it sit there until you retire. If you're looking for quick money tomorrow, you need a loan shark, not a stock.
The quick calculation I tell people is that if you have $110 dollars to invest, it costs you $10 to buy a stock (so you're already down to $100). The stock needs to then get above $120 before you buy another stock or even cash out, since selling is a transaction. If you earn 10% a year (which is pretty good), at the end of 2 years you would break even. The more you trade, the higher % you must earn to make up for the transaction costs. In other words, there is no point for you to do this on your own.
While I agree with the sentiment in your post, this passage is really misleading. If you're talking about $1,000 or $10,000 instead of $1,000, the $20 in trading costs are far less significant, and don't require such a steep return to recoup.
That said, you're right. An individual trading in individual stocks is folly for anything more than fun.
You are not going to beat any of the firms out there trading on a short to mid-term basis. Unless you're looking to hold a position for longer term (a year or so), I wouldn't recommend it. Transaction costs and taxes will eat up most of your profit or even put you slightly negative.
Here's what I do, personally.
I don't trade individual stocks, most people I know in the industry don't have individual stocks, unless they were part of their compensation. And they tend to liquidate them pretty quick. There's a reason everyone's bonus in trading firms is entirely cash and not stock.
Well, sometimes that's to prevent frontrunning. If I could, I would load up on the stuff I work with, but I think the SEC would penetrate me with a chainsaw pretty damn quick.
Also, OP, avoid commodities ETFs. They get so chopped apart by cantango that you really don't the relationship you'd like with the spot price. Remeber, anything being pimped by a major broker dealer is probably going to blow up at some point soon. In general, I'm starting to lean against the notion of diversification and broad portfolios as a successful strategy, eschewing it for a more concentrated approach. But that's me and my money is OTM, so take my advice with a bag of salt.
Again, I recommend value investing in dividend yielding stocks, but that takes patience patience patience, near superhuman emotional control and intense research. There's a reason the number of people who claim to be value investors on Wall St. versus the actual value investors is so skewed, it's the antithesis of a quick
buck. Most who do are trying to play the "guess the 3Q earnings deviation from street/company guidance" game.
Kako's suggestions are extremely sound though.
I like to use $100 because it seems to be the amount many people want to start with to "get their feet wet." The more money you have, it seems the less likely you are to try the stock market "for fun." But I will admit that the fees become insignificant once you get closer to 6 digits.
And some of those tickers would be? :winky:
Pink sheets. The big money is in the penny stocks. On margin. :twisted:
I'm not responsible for any losses stemming from this advice.
The SEC won't let us trade anything we make markets in or take customer orders in. Back when I did work for market makers, any and all personal trades I made had to be sent to the compliance department.
I have a friend who made about $500k that way in 3 weeks or so. Not that I recommend this, but it is possible.
On the...?!
I just...
what.
Let 'em eat fucking pineapples!
ANC, buy all the ANC you can! Also, I hear Teldar Paper and Bluestar Airlines are going places.
Also, LEHMQ, clearly. That company is really going places.
Disclosure:
Blue Horseshoe loves LEHMO.
I've just actually come to ask, aren't there a few virtual trading sites? Places where you can follow the live market with virtual coin?
Seems that would be the best way to really see what you're in for. Start with a million just for fun.
There are plenty of those sites. In my opinion, they don't really teach you anything useful that you can't learn on investopedia or by looking at historical data, it just leads to you thinking woulda/coulda/shoulda and bothering your coworkers (like me) with asinine insights like, "Man.... if I had only bought *obvious stock* in Q1 09 like I did in my simulator..."
Yeah, sims are good to practice trading under short time frames, which you should never do as a novice and without a large financial backing and a lot of training. They're an effective option to backtest ideas and to resolve arguments with your coworkers.
The one thing I recommend sims for is testing hedging strategies under market conditions to see if they have offered sufficient systematic risk protection.
I meant more just to see how bad an idea it is and how quickly your money goes away. If you can't afford to drop it in a slot machine, you can't afford the market as a private trader from home with no experience.
Pattern day traders are curious beasts. Hell, any retail "investor" who plays short term is just asking to get killed. You're basically stuck with your positions if you want to make money, so good stock selection becomes much more important than overall strategy and composition, relative to say, an institutional investor.
As I've said before in another thread, reading even the cliffs notes (much less the whole thing) of Seth Klarman's "Margin of Safety" will be an excellent start and should be a mandate before investing for real.
Pattern day traders have specific margin requirements. Unless you have $25,000 in your margin account, you're going to get your account frozen if you do too many day trades. Some exchanges are starting to move into different fee structures for their "professional customers" also.
Usually, you're going to need at least $2000 bucks or so to open up an account at an online brokerage. More if you want to avoid yearly maintenance fees. $5000 is enough for some of the discount brokerages.
Yeah, it's pricey.
Especially when it only costs 10000 to get Bruce Berkowitz over at Fairholme to pick your stocks for you and do quite well.
What are Teldar and Bluestar? I can't find those. Or was this a joke?
I would recommend finding a couple of DRIPS. You give them $X a month and they invest it for you in partial shares. Also recommend reinvesting any dividends.
You can find these without going through a broker. The #1 thing you need to remember is that all brokers are crooks. they dont care about you. The only reason they want you to make money is so they can take more money from you. But even if they lose your money, they still get money from you.
They're fake companies from the movie Wall Street. Not the new one, the one that was good.
If you want to trade stocks for cheap read about "Dollar Cost Averaging" and "Dividend Reinvestment". That's probably what you are looking for.
Secondly, to reduce your fees you'll want to get a DRIP (computershare.com good) or a service like Sharebuilder.com (think it's $12 per month for 12 trades). I think vanguard also offers something like this. Depending on company/service, normally this can be done for about $50 per period. That ain't no big deal. Just pay it like a bill. REINVEST all dividends. If you take em out you got to pay taxes on it. Plus your stock won't grow as fast.
Of course all this advice assumes you've already heard the standard disclaimer about how it's bad to trade stocks, you should be in low cost/load funds, how you need to max your IRA, 401K, etc, first, etc, etc
So if you're interested in trying to get a better return then your crappy savings/cd rates then that means it's a bad time to enter the market? What are you trying to say here?
Sounds like you're advocating market timing.
I'm saying it's a bad time to enter the market if your time horizon is between 2 and 6 months, if only due to the QEII announcement on Nov. 3. Severe volatility and high prices on a entire sectors makes things tough. Of course, if interest rates come up (they pretty much have to), the credit market will do some hilarious things to bondholders.
Also, retail investors or small time players tend to arrive late to the party, when asset prices are already high, right before the bottom falls out. You can see it in Tech, Housing (with the actual purchase of homes), junk bonds etc. I can't really give super much information for professional reasons on why now isn't necessarily the best time. But suffice to say, it ain't good because quant easing represents a ton of uncertainty.
And yeah, I am recommending market timing to a degree. The issue with classical market timing is that it's impossible to say whether or not the market will go up or down within a specific time frame. But with some good observation, it's pretty doable to say a major market shift is coming. Mostly because the last rally was a bit of a suckers' rally and QEII is really one of the few things propping up the US market for equities. Always be cautious when a lot of people flock to something, especially when they aren't particularly experienced. Of course, the market can stay irrational longer than any of us can remain solvent.
Naturally, value investing is not as effected by this, as a value investor doesn't go out and buy shares of AAPL at 315.55 on 10/18. Mostly because the stock is just overvalued.
Then read this: Security Analysis also by Benjamin Graham. I prefer the 5th edition to the sixth edition.
Being a poor student, I have no capital to invest. But having read Graham, I'm completely sold on value investing as a investment strategy. Just be prepared to play the long game. Warren Buffet, the most successful value investor of all time was once quoted as saying that his ideal investment horizon was forever.
Don't day trade, and don't pay too much attention to the market highs and lows. If you do your fundamental analysis correctly and you find that the share price is undervalued relative to the actual business or profits of the firm, then buy and hold. Repeat ad naseum.
Good luck.
What do you think of the Fama-French three factor model? Would you recommend a combination of small caps and high BM stocks?
If you have some cash you want to invest (a good thing!) and you are willing to spend some years (at least 5-10) getting a better return than any bank or CD will give you -
Research and invest in an Index Fund.
Index funds are similar to mutual funds in one way. Both allow you to automatically diversify (since either type of fund is a holding in many, many individual stocks).
The big difference is that index funds generally seek to simply match market growth, while mutual funds tend to be "managed" - in that there's a team of "geniuses" (and I use that term sarcastically) that pick stocks from day to day.
You might think that would make mutual funds better - "hey, they're SMART managed!" But they have two big strikes against them.
First, the mutual fund managers charge a fee for their services. This is usually reflected in either what they call a "management fee" or the expense ratio. This can be from 1%-3% typically. So whatever returns they claim, subtract 1%-3%. Index fund management is typically significantly lower. Usually less than 1%.
Second, they just flat-out fail to beat index funds on return. The smartest guy in the room tends to do worse than index funds, historically. Even on the rare cases where a mutual fund manages to beat the market in return for a short time-frame, the expense ratios and management fees tend to make it a wash.
If you are the type of single-stock investor looking for the next Apple or Google -- well, good luck to you. You might hit the next big thing. But the odds are against you. And IMO, fuck, just call it gambling like it is. And at that point I'd rather just play poker - you see the returns (or losses) in minutes, not months and years. Hell, poker is probably less risky.
Fixed that for you. Some players consistently outperform the market. Most players in asset management do not have a sufficient incentive structure to outperform their benchmark, so they hug the S&P. Napoleon once noted that there is no direct way in which to measure a general's skill that can't be attributed to luck. Barring a way to observe skill, the best method to find it is to find a general that is consistently lucky.
Truth is, I don't tend to trust academic portfolio theory as much as I did when I was back in college. Mostly because academics tend to have a poor showing in finance.