I Would Like To Start Trading Stocks Online But I Don’t Anything About Stocks Or Shares. Some Advices?
Sunday, June 14th, 2009 at
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If you don’t know anything about stocks, I don’t think it would be a good idea to start actively trading stocks. In fact, even if you do know a lot about stocks, research has shown that active stock trading is generally a poor return on your money.
The reason is complex and has been very heavily studied, but basically boils down to this: The stock prices are normally “fair”, in that they basically reflect the prospects and risks for the company. In other words, yourself, a professional money manager, and a blind monkey are equally likely to pick good stocks and avoid bad ones. Actively trading stocks does not increase your chances of a good return, but it certainly piles on the fees which eat away at your return. There have been repeated examples of dogs or bubble head models beating professionals in a stock picking contest. This is a painful truth for some, as many money managers make their living attempting to appear to know the unknowable. The only thing that affects stock prices are future events, which are not known today. For an expanded definition, I recommend you look up “efficient market hypothesis” under http://www.wikipedia.org.
This is not to say that investing in the stock market is a bad idea, far from it. Most stocks go up over time, so even people who have no idea what they’re doing will likely pick more winners than losers, which tends to (falsely) increase their confidence that they know what they’re doing. The point isn’t whether you make money or lose it, but whether you make more money (or less) than the market as a whole, what some people would call the market average. Note that 75% of PROFESSIONAL money managers do not beat the market average in any given year. Over the long run (10+ years), the percentage of pro’s that beat the market average drops to a percent or two (there have been repeated studies showing this).
So, what should you do if it’s so hard to beat the market average? Well, if you can’t beat it, it’s best to just accept the market average, which has returned about 11% per year from 1929 to present. Now, to a lot of people 11% doesn’t sound real exciting, but there’s a mathematical approximation called the “rule of 72″, which states that if you divide your return into 72 you’ll see how many years it takes for your money to double. So, say you average a 10% return, your money will double in 7.2 years. In 14.4 years, you’ll have doubled again, or 4 times your original investment. In 21.6 years, 8 times your investment (on the average).
Whether you should invest in the stock market, and if so what you should invest in, depends on three primary questions: 1) What is your tolerance for risk? 2) What is your time horizon (how soon will you possibly need this money)?, and 3) what are your goals?
If you won’t need the money for awhile, i.e. if you’re young and this is for retirement, or you don’t think you’ll need the money for 7+ years, the stock market may be an appropriate place for your savings.
I would recommend, if you want to invest, a diversified stock fund with fees as low as you can find them (studies have shown that the best funds over time have the lowest fees). Index funds, i.e. unmanaged funds, have the lowest fees and thus average higher returns. Some companies, such as Vanguard (vanguard.com) are known for their extremely low cost funds. If you do invest in a fund, I HIGHLY recommend you invest for the long run, and don’t jerk your money back and forth between various funds based on last month’s or last year’s returns. This is a fool’s game (called fund chasing or market timing) that has been repeatedly documented to reduce your returns over time.
A good low fee diversified fund would be Vanguard’s STAR fund (VGSTX) which is actually a fund of several stock and bond index funds, or if you wanted 100% stock (riskier and more volatile but with higher average returns) the Vanguard Total Stock Market Index Fund. If it’s for retirement, I recommend a targeted retirement fund.
If possible, however, nothing beats educating yourself. Not having to rely on the opinions of slick salesmen who may be more interested in what’s best for their family (i.e. funds with high fees and thus good sales commissions) than for your family (minimizing the number of people taking a free ride off your investment).
So my recommended reading would be reading about the following terms in wikipedia.org, “efficient market hypothesis”, “mutual fund”, and “index fund”. I HIGHLY recommend going to the website of Index Fund Advisors (www.ifa.com) and going through their 12 step program (which starts at http://www.ifa.com/12steps/step1/). Good books include Burton Malkiel’s classic “A Random Walk Down Wallstreet”, William Bernstein’s “The Intelligent Asset Allocator”, though the math is somewhat tough if you don’t have a statistics background (though you can skip the math and still learn a lot about funds).
If you want to gamble, go to Vegas. If you want to invest, buy diversified funds for the long run, don’t jerk your money all over the place based on the latest headline or market movement, and you’ll beat 95% of the people out there, including most of the “pro’s”. Oddly, this strategy seems to be extremely difficult for men to accept, who prefer to think of the stock market as a game to prove their worth, rather than a tool to maximize their family’s security. It’s no fun going to the gym and saying to your buddies “I’m invested in a widely diversified fund with extemely low costs, I don’t intend to make any moves for about 10 years other than to keep making monthly contributions” (how boring and un-manly). Far more exciting to talk about your brilliant stock picks (and conveniently forgetting the busts) by saying “Did you see Amazon last week? I made a ton” while conveniently forgetting about that big Enron “opportunity”.
Remember that stocks go up dramatically over time, but over short periods can go down considerably, perhaps as much as 35-40% in a year or two. You have to know, and accept, that these years will come if you invest, and you have to have the fortitude to keep your money in and don’t move it, if you want to maximize your gain. As you get closer to needing your money (say closer to retirement, if that’s your goal), slowly move, over time, your money away from riskier investments (stocks) towards less risky (bonds and large cap value stocks).
Hope this helps. FYI, I have a M.S. Finance and have read considerably on the topic.
I think the best way to learn about the stock market is to first see what the best traders are buying and selling and why. You can find this information at http://www.top10traders.com – this is a free site that lets you create a portfolio of stocks with $100,000 in “play” money. Each day the site ranks the best performing portfolios, so you can see how your picks perform compared to other investors. You can read posts on investing from the best traders, as well as share your own investing ideas. There is a charting feature, so you can see how your portfolio performs compared to the S&P 500. Also, you can create your own “group” so that you can see how you are doing compared to your friends.
Here are this month’s best traders:http://www.top10traders.com/Top10Standin…
Good luck.
Investing shares of real companies is very exciting and full of promises…
Some people beleive that stocks are always priced fairly, but remember that investors who also invested money have emotions (fear and greed!) and when that happens, they stop acting rationaly, and this is the hard part to predict. The company might be a good investment but you have to be prepared to see the stock price drop unexpectedly. However, in general, over the longer term, stocks price will move up if the company earns more and more money.
To start learning, first you need training and time to observ the markets and stocks. You will have to be very disciplined to take the time to learn and to apply what you have learned, and the best way is with virtual money (like monopoly money). This will save you from loosing real money by taking too much risks and not controlling your emotions. Your own emotions are probably what will make it the most difficult for you to behave rationally.
See the sites listed below for information and ressources. To practice, there is a free site (listed in ressources of http://www.online-investing-review.com ), hosted by MarketWatch, where you will be issued some starting money and will place your own buy and sell orders over the internet. Each day, you will see your virtual portfolio account value increase and decrease. In their Research section, you will even find some free training tips to get you started!
So, even if you have taken a trading courses or read a few books about online trading, be careful and trade virtually for a few months. For each trade you make, always keep a log of why you bought and how you will exit that trade. When you close each trading position, review the record for that trade and evaluate your performance. After that, have a look at your trading record and decide then if you are ready to invest with real money.
With time and techniques, you may find you are able to make good profits, but take your time .
Go to Sharebuilder.com They are the best to start with because they require much lower dollar amounts, have “how to” tutorials and make it all quite easy for the beginner. They actually specialize in new comers to the stock and bond world.
Open a brokerage account at TD Ameritrade and then drop me a line.
Top 4 Answerer.
If you do not know anything, then you need to begin doing some serious research. It is easy enough to trade stocks on line, but the big trick is to make money in the process.
I could give you some advice but it would probably go in one eye ball and out the other. But I will anyway. Start with “Investing for Dummies”. Not trading but investing.
The basic premise of the stock market is to trade shares of stock in such a way as to make a profit. You buy shares of stock in a company that you believe will perform well in the future. If it does, the price of the shares will go up. You can then sell the shares of stock for more than you paid for them, and keep the profit for yourself.
You might want to try a free stock simulator program online before you start using real money. You can lose a lot of money in the stock market if you’re not careful.
I’m pretty new at this stock trading thing myself, But the people at Fidelity have really been helpful. They were very polite and patient. I suggest You get a hold of them, or check out there web site. Also you might want to research “Goldmark inds. inc.” ticker GDKI . Some analyst think it’s a buy, and it’s cheap. It has gone from $25 Down to 15 cents. If it goes back to $25 ( long shot I know) $150 initial investment would be worth $25,000. Do the research and make your own decision.
You could try going with a Transfer Agent such as, The Bank Of New York. Every company has a Transfer Agent and these companies have Global Buy Direct plans (some companies such as Pepsico, General Electric, Xcel Energy, Consolidated Edison, Colgate-Palmolive, Del Monte Foods, etc.). These Buy Direct plans let you purchase shares direct from the company via the Transfer Agent. Transfer agents, like Bank of New York, will hold the stock electronically for you and at your request, if the company offers a re-investment plan you can have all earnings go back into the company to purchase more stock. Another bonus to Transfer Agents is that there fees for sales and reinvestments are around 3 to 5 cents. Yes $0.05 (cents) Some brokerage companies will charge 30%-40% of your proceeds.
Take a look http://www.stockbny.com
under “company facts and forms” (along the top)
Look at the “company list” (there’s about 2500 for BNY)
They all have toll free numbers and you can call the Transfer Agents to help you manage your account. From personal experience it is by far the best way to start investing.
You can make initial purchases on-line as well and mange your account yourself. It’s great.
p.s Computershare Trust Company is another large Transfer Agent
Trading online is the easy part. Just contact any of the online brokers (etrade, scott trade, etc). If you’re starting to trade, I would suggest reading couple books. The easiest book is “rule #1″ by Phil Towns. His method is based on value investing (warren buffet’s strategy)
4 things you need to know about how to choose the right company to purchase their stocks.
1. meaning- do you want to own the company, the products are something you care about.
2. moat- does this company have a ‘unfair’ advantage, that no other company can mimic, or compete
3. management- is the management (CEO) responsible, does he/she take blame when things don’t go as planned, and will be able to admit guilt and come up with solutions (fluffing is for porn stars)
4. margin of safety-if all these goes well, calculate when to jump into the market with a margin of safety, such that if the stock doesn’t do well, you atleast break even.
Don’t buy into diversification. if you are well diverse, basically you’ll just stay status quo. if one sector does well, while another does poorly, you end up even.
I would suggest visiting http://ibooyah.com – search for “getting started”, there is a nice write up about how to get started there. Good luck.
ive lost thousands and thousands of dollars gambling and messing with buying and selling stocks. You should leave it to the professionals. It will save you money and stress.
TD Waterhouse are very good and offering two months commission free trading… no strings attached. If not happy with them at least you enjoyed trading for free, otherwise check E*Trade as well.
Have a look at my blog http://jamesfowlkes.com We plan to offer educational investing products very soon. Stay tuned.