The Motley Fool Discussion Boards
Learning to Invest / Investing Beginners
|Subject: Re: stocks suggestions needed||Date: 9/2/2012 1:14 PM|
|Author: trader2012||Number: 26173 of 28042|
A big problem with such a small amount of principal is that even if you invested all of that in just one company so as to incur just one commission charge, the $10 in fees would eat up 3.3% of your principal. That's unacceptable. You wouldn't want that commission to be any more than 1%.
Why are you advising him to worry about commissions? If the trade is worth doing, then the cost of doing it is the least of one’s concerns. Getting the direction and timing right are far more important.
Let me give you examples of real trades (i.e., some of my currently open positions) in which the cost of putting them (aka, the commission) was greater than your threshold of 1%. The first column is the commission I paid (typically, $10) expressed as a percentage of the purchase-price. The second is my current P/L . The third is the original commission expressed as a percentage of the current, market value of the position. The fourth is the YTM. The fifth is the name of the issuer. (Yes, obviously, these are bond positions, not stock positions, but that doesn't change the logic of the argument.)
Yes, a small account is an inconvenience, just as commissions are an inconvenience. But neither of them matters as much as getting the trade right. That’s what beginners need to focus on. Understanding and applying Quillnpenn’s methods (or similar) is where all of a beginner’s attention needs to be focused, not on minor bookkeeping details.
In time? Yes, once an investor has achieved a track record of consistent profitability, then he or she can begin to worry about small details like the impact of commissions. But first, he or she needs to learn how to get the trade right and to do it again and again and again, and even $300 bucks is p