i posted it under the stocks for kids and got no response.so trying it hereMy 17 yr old son earned some money this summer and has given me $300 to invest.I am thinking about stocks he is familiar with coke, pepsi, disney, Mcdonalds, under armour, ralph lauren. Apple and google are expensive.Any ideas/I was thinking about direct investing to avoid the trading cost. he does have a custodial account at Td ameritrade. This will be long term.thank youusha
Usha,First thing we are going to is get some education and read several books that have to be read first then learn how to read charts.http://boards.fool.com/1moredave-the-following-is-for-all-be... please read this for all newbies, grasshoppers and beginners.http://www.swing-trade-stocks.com/store.html peruse the book store and find "How to Trade".http://www.swing-trade-stocks.com/swing-trading-basics.htmlhttp://www.swing-trade-stocks.com/learn-swing-trading.html then persuse the Beginners: Learn the basics.Since I see he has TD Ameritrade as a broker, you guys can down load for FREE the Thinkorswim (TOS) software of which I use as a Swing Trader.Pick up a copy of the IBD Investors Business Daily (IBD) monday edition every saturday to research on the weekends.or peruse http://www.investors.com/default.htm just peruse for information and current events to get use to the language and jargon used every day by traders and investors.http://stockcharts.com/freecharts/http://stockcharts.com/h-sc/ui?s=ELLI&p=D&yr=0&m... a night time chart in only buy stocks whose 13expotential moving average (ema) crossing over the 50ema.http://stockcharts.com/c-sc/sc?s=elli&p=15&b=9&g... this chart says to nothing but have a nice day and see you II morrow or until the next xover occurs to sell the stock and then wait to buy back in. http://stockcharts.com/h-sc/ui?s=ELLI&p=D&yr=0&m... a day time chart (default).http://stockcharts.com/h-sc/ui?s=MITK&p=D&yr=0&m... this stock has to do with your IP smartphones.Being a Swing Trader is the safest way to invest be it Stocks, ETF's or CEF's. Werks the same for Futures or Forex in protecting your ASSettes all times. Bare in mind there will be some speed bumps in losing a few bucks along the way. Investing is a business and must be treated as such.http://stockcharts.com/c-sc/sc?s=qqq&p=15&b=9&g=... bought QQQ as the bread and butter stock and July 2nd.to find some stocks as a sample in his price range http://www.stockfetcher.com/ right side click on the Technical tab left click on the ticker 3 times to show a chart or click on View results at the bottom of the group. Once the stock hit the xover we ride the wave or bang it for a few bucks and out.one thing we avoid stocks below 5 bucks. http://boards.fool.com/charlie-you-may-recall-our-friend-sim... this is a long term project for your son if he would like to ba millionaire when he retires. It is setup wheather it is a bull market or a bear market using the Tetter Totter Principle. Using the 13/50emas, he will not fail the journey.He can start off slow with just a pair with a few bucks, compound the monies at each sale. He has plenty of time on his side.His next project to be involved is in having a Perpetual Income for life folder with just a dozen stocksat the top in the search box type in Perpetual Income coming for life Quillnpenn and click on search.http://boards.fool.com/re-dividends-charlie-what-kind-of-div... here is a sample of the findings and only look at Group I for now.Usha, I hope some of the above mess can help your son starting off with a yellow legal pad and write down a Business PLAN.Quillnpenn - a poor church mouse scratching for a living as a Professional Swing Trader.ps avoid Direct Investing. To much administrative paper work. http://www.usatoday.com/money/perfi/columnist/krantz/2007-10...
usha,A good first lesson for him might be that $300 is not enough money to start investing in public stocks just yet. Does he have a cash emergency fund established yet? Does he have a high yield savings account set up yet that he's regularly adding to? I'd get those things going first if not. At 17 he may need money for college within a year, so the stock market might not be the best place for extra money he's earning anyway. 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%. If your son is set on investing the money instead of putting it in a savings account, a good stretch goal for him would be to increase that $300 to $1,000 to get that commission down to 1%, and use the time to research some companies that interest him. $1,000 is a lot of money to a typical 17 year old. He should want to take his time so as not to lose that money!These are all great lessons for him to learn, even if it means not buying a stock just yet. Knowing when it's appropriate not to invest and why is just as important as knowing why a company is a good investment.Mike
and I agree with Quillnpenn about avoiding the direct investing. It'll be a headache later when you have various tiny accounts scattered among different companies instead of all at one broker.If the small commission charge at a discount broker is so large compared to your principal that you're thinking about direct investing it's probably a good sign that you need to build your principal up rather than go the direct investing route.Mike
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%.Mike,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.) Initial P/L Effective YTM IssuerCommish Commish1.9% 39% 1.3% 14.6% Albertsons1.4% 51% 0.9% 10.0% Alcoa2.3% 126% 1.0% 23.5% AMD1.1% 50% 0.7% 8.6% AOL2.4% 48% 1.6% 5.7% Cabco3.1% 41% 2.1% 5.9% Cabco2.7% 30% 2.0% 5.6% Cabco1.1% 37% 0.8% 7.3% Caterpillar1.0% 36% 0.8% 7.7% Caterpillar1.4% 75% 0.8% 11.8% CBS1.2% 56% 0.7% 8.8% Dow Chem2.1% 112% 1.0% 23.9% E*Trade1.8% 57% 1.1% 5.9% FICO1.5% 35% 1.1% 4.5% FICO1.5% 34% 1.1% 4.6% FICO2.8% 66% 1.6% 5.5% FNMA1.6% 86% 0.9% 12.0% Ford1.2% 45% 0.8% 11.4% Ford1.3% 71% 0.7% 8.8% GE1.5% 52% 1.0% 10.0% GE1.5% 51% 1.0% 9.9% GE1.4% 36% 1.0% 8.0% GE1.6% 60% 1.0% 17.4% Gibraltar2.3% 144% 0.9% 21.4% Hanson1.6% 31% 1.2% 21.5% Hovnanian2.1% 52% 1.3% 5.1% Israel1.8% 72% 1.0% 11.4% Jefferies1.5% 61% 0.9% 12.3% Masco1.4% 49% 0.9% 10.6% Mead1.6% 28% 1.3% 5.6% Merrill2.7% 126% 1.2% 70.4% Network1.5% 36% 1.1% 12.4% RBS1.8% 98% 0.9% 17.4% Seagate1.7% 30% 1.3% 19.0% SHLD1.5% 27% 1.2% 10.0% SLM1.6% 26% 1.2% 9.9% SLM1.4% 58% 0.9% 14.2% Smithfield1.8% 88% 1.0% 2.2% Time Warner1.8% 77% 1.0% 7.6% Trinity2.9% 91% 1.5% 5.3% TVA2.1% 53% 1.4% 5.3% TVA2.4% 34% 1.7% 5.4% TVA1.5% 74% 0.8% 11.1% WY1.4% 56% 0.9% 10.3% WY1.3% 34% 1.0% 12.3% Zions1.3% 33% 1.0% 12.0% Zions1.3% 30% 1.0% 11.3% Zions1.9% 91% 1.0% 18.1% Zions 1.4% 44% 1.0% 12.0% Zions 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 plenty of money to begin with. Then, once he or she has proven that they can pull more money out of markets than they bring to them, he or she can begin to worry about the enhancement to profits that comes with being efficient about account size and transaction costs. Beginners need to learn how to play the investing game successfully (and most never will, as the Dalbar studies --linked below-- document). Then they can worry about becoming more efficient about minor bookkeeping details. Charlie------------------------------- www.qaib.com/public/downloadfile.aspx?filePath=freelook...pd...
Initial P/L Effective YTM IssuerCommish Commish1.9% 39% 1.3% 14.6% Albertsons1.4% 51% 0.9% 10.0% Alcoa2.3% 126% 1.0% 23.5% AMD1.1% 50% 0.7% 8.6% AOL2.4% 48% 1.6% 5.7% Cabco3.1% 41% 2.1% 5.9% Cabco2.7% 30% 2.0% 5.6% Cabco1.1% 37% 0.8% 7.3% Caterpillar1.0% 36% 0.8% 7.7% Caterpillar1.4% 75% 0.8% 11.8% CBS1.2% 56% 0.7% 8.8% Dow Chem2.1% 112% 1.0% 23.9% E*Trade1.8% 57% 1.1% 5.9% FICO1.5% 35% 1.1% 4.5% FICO1.5% 34% 1.1% 4.6% FICO2.8% 66% 1.6% 5.5% FNMA1.6% 86% 0.9% 12.0% Ford1.2% 45% 0.8% 11.4% Ford1.3% 71% 0.7% 8.8% GE1.5% 52% 1.0% 10.0% GE1.5% 51% 1.0% 9.9% GE1.4% 36% 1.0% 8.0% GE1.6% 60% 1.0% 17.4% Gibraltar2.3% 144% 0.9% 21.4% Hanson1.6% 31% 1.2% 21.5% Hovnanian2.1% 52% 1.3% 5.1% Israel1.8% 72% 1.0% 11.4% Jefferies1.5% 61% 0.9% 12.3% Masco1.4% 49% 0.9% 10.6% Mead1.6% 28% 1.3% 5.6% Merrill2.7% 126% 1.2% 70.4% Network1.5% 36% 1.1% 12.4% RBS1.8% 98% 0.9% 17.4% Seagate1.7% 30% 1.3% 19.0% SHLD1.5% 27% 1.2% 10.0% SLM1.6% 26% 1.2% 9.9% SLM1.4% 58% 0.9% 14.2% Smithfield1.8% 88% 1.0% 2.2% Time Warner1.8% 77% 1.0% 7.6% Trinity2.9% 91% 1.5% 5.3% TVA2.1% 53% 1.4% 5.3% TVA2.4% 34% 1.7% 5.4% TVA1.5% 74% 0.8% 11.1% WY1.4% 56% 0.9% 10.3% WY1.3% 34% 1.0% 12.3% Zions1.3% 33% 1.0% 12.0% Zions1.3% 30% 1.0% 11.3% Zions1.9% 91% 1.0% 18.1% Zions 1.4% 44% 1.0% 12.0% Zions
Charlie,If the trade is worth doing, then the cost of doing it is the least of one’s concerns.It's all a matter of degree, and a 3%+ commission bite (and that's assuming he only buys one stock, not several) or jumping through hoops to directly invest to avoid the commission does not seem worth it just yet, at least to me. If nothing else, your son should at least be aware of the headwind he's creating for himself when the principal is small relative to the fees incurred.Mike
If nothing else, [he] should at least be aware of the headwind he's creating for himself when the principal is small relative to the fees incurred.Mike, Why do people like Bogle focus so much on the costs of transaction? Because it's such an easily identified factor compared to the far more elusive ones like understanding how to evaluate and manage risk. Run this thought experiment. Take two investors, one a beginner and one an experienced hand with a proven track record of achieving better than average returns. Give each the same-sized account. But reduce the beginner's transaction costs to zero and that require that the experienced hand pay a 5% commish on every trade. No matter the asset-class chosen, no matter the time-frame, the odds are 17:20 that the beginner will go bust but the experienced hand will break even or better. Yeah, commish is a headwind better avoided. But inexperience will kill an account faster than transaction costs. That's what beginners need to focus on, acquiring experience as fast as they can, all the while not getting themselves thrown out of the game before they've had a chance to learn the game. Commissions aren't going to kill a beginner's account as fast as putting on an ill-conceived trade and then not knowing what to do when prices move against it. You need to look no further for evidence of this that the idiots who bought FB at its IPO but failed to trail a stop. Even with just $300 buck to work with, any beginner could set up a training program and do the dozens of trades they need to before they begin to understand that success in the investing game isn't about the minor junk like commissions, but a matter of picking trades with a favorable expectancy and then never letting prices move against them further than their pre-set loss-limits. Yeah, commissions are a headwind, but really so only for those who target the excessively low rates of gain that merely average investors achieve. E.g., If you're paying 3.3% per side, (or 6.6% per round trip) but pulling the 20% to 40% out of the market per trade that Quill often reports (or that I often achieve), then commissions are a nuisance, but a tolerable one. OTOH, if you're doing no better with your investing than the so-called "average investor", i.e., typically not even making 60% of your benchmark, as Dalbar documents with its 20-year studies, then, yeah, reducing commissions from 3.3% down to 1% (or less) will have a significant impact on net-profits. But those kinds of investors have far more basic things they should be worrying about, namely, their tiny, not-much-better-than-cash, 5%-8% profits. And they call themselves "investors"? That's a huge part of the reason why the median net-worth (all assets) in this country is an underwhelming $77,000 and three-quarters of pre-retirees have less than $34,000 in their 401ks. They have followed Bogle's advice to chose low-transactional investments. But they ignored the more important part of the equation, namely, learning how to achieve decent-sized profits in good markets and bad. In the hay days of the late '90s, even dart-throwing achieving gains in the range of 20%-30%. But how well have those same investors done in the past decade? After taxes and inflation, they haven't even achieved a real rate of return. Why? They ran out of luck. Pair 'luck' with 'zero transaction-costs' and what will you get? Exactly what now you're seeing that investors are achieving, because, for the most part, transaction costs have fallen to nearly zero, but their skills haven't improved. How many hundred of ETFs can be traded commission-free? How many brokers offer half-cent per share stock commissions? Costs aren't what a beginner needs to worry about. Getting the direction of prices right and timing the exit is what matters most. Everything else is minor details. $300 bucks, if spent wisely on executing actual trades, would buy a lot of market experience, maybe even enough to begin to learn the game. Charlie
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