Interested in buying stocks, can someone help? Beginner - I know NOTHING.

[mat420]

Hello, I'm 19 currently going into community college. I have around $30,000 I have saved over the past few years (saved hard) and would like very much to invest in stocks. I was wondering if you guys could help me get started buying stocks. Theres a specific stock I want to buy and I'm just completely lost on how to go about it..I also want someone (stock broker i guess?) that I pay to invest my money in stocks. I cant decide if i want someone who gets comission or someone who gets a flat rate per hour, commission makes me think they'll work harder at making me money. As far as I understand so far I have to go shopping for a good stock broker to do anything...I want to invest in this one particular stock ASAP but im not in that much of a hurry to find someone that chooses which stocks to invest in. I have no idea how to go about finding a good stock broker, my grandparents who possibly use one live too far, meaning their stock broker is probably too far also (hour away, easily). Should I try Merrill Lynch? Theres one close by me..I have no idea what to look for though such as hiddeen fees and even stuff as simple as what is good for them to be charging me. I don't want to get ripped off and I feel im an easy candidate considering I have noooo idea about any of this stuff. Can you help me out? Thank you so much!

[aquaswim47]

Originally Posted by mat420

Hello, I'm 19 currently going into community college. I have around $30,000 I have saved over the past few years (saved hard) and would like very much to invest in stocks.

Congratulations. Invest in wisely. Take a look at Mutual Fund Education Alliance -- Home Page to learn all about mutual funds. Look at Investopedia and learn about investing. I wish you well. You may also want to look at finance.yahoo.com/etf

Originally Posted by mat420

I was wondering if you guys could help me get started buying stocks. Theres a specific stock I want to buy and I'm just completely lost on how to go about it..I also want someone (stock broker i guess?) that I pay to invest my money in stocks. I want to invest in this one particular stock ASAP but im not in that much of a hurry to find someone that chooses which stocks to invest in.

Your missing one very important point, suitability to your financial situation. A financial professional (broker, financial planner, or CPA) can help you with that. There's a great guy called Bob Brinker who hosts a show called MoneyTalk on Saturdays and Sundays and he's very good. You might want to listen to his show. You can Google his name and consider listening to it online or find a radio station near you. He's been on the radio doing MoneyTalk since 1981 and started his weekend show on SuperBowl Sunday, 1986. He suggests Vanguard as a great broker as they have very low fees and expenses. For example, their VTSMX fund has a 0.19% expense ratio. If the market fell 47% as it did from 2000 to 2002, how would you feel? If the market feel 70%, like the Nasdaq did during the same period, how would you feel? If the market dropped 40% in one week as it did in 1987, how would you handle that? If the market dropped 80% like the Nikkei did from 1989 to 2004, how would you handle that (in excess of a 90% drop when adjusted for inflation)? If the market fell over 90% like it did from September 1929 to July of 1933, how would you handle that? That's why suitability is so important. It implies that you have enough resources that you can accept the risks of the market. You saw the 10% correction that we just had. Be careful!

I think that people take for granted that the market will go up. While it averages 10% per year, it's highly risky and you can lose a lot of money in the market. For example, it wasn't too uncommon for a $30,000 portfolio in 2000 to be worth $4,500 (or less) in 2002.

A reasonable fee for someone to manage a portfolio is 1%; that fee should include all costs, including transaction fees. Typically, they require a portfolio of at least $50,000. You should not pay more than 1.25% for a mutual fund. Also, if you hire the assistance of a financial planner, it typically costs between $500 and $800 for 1 year of unlimited service. Moreover, you can also take an hour's time with a CPA as well. One of these financial professionals may be able to help you on how much you need of an emergency fund, how much you should invest in an individual stock, how much should be invested in index funds, and how much should be invested in bonds, if any. I don't know your expenses so I cannot give you an exact figure. However, I'd have an emergency fund of at least $10,000 shall anything unexpected come up. The actual figure may very well be more or less depending on your personal financial situation. For example, you may see a bump up in tuition and fees costs, you might have increased housing costs, you might consider you want to buy a car, you may want to put a down payment on your primary residence, etc. Most likely, if you begin at your state university, you will pay a lot more than you are currently paying at the community college.

First things first, learn how to read a balance sheet or just stick with index funds or broad-based ETFs. It's important! Knowing the cash-flow statement is pretty intuitive. The income statement is where most of your financial ratios come from but its the cash-flow statement and balance sheet that dictate if you want to invest in the company. An income statement may indicate the future cash flows of the company as we learned in accounting. However, there's no guarantee of that as receivables might not be collected, inventory might be sold at a greatly reduced price, and depreciation expenses may be overestimated or underestimated. How do you know the stock is good if you cannot read a balance sheet and related notes of an annual report? You should let us know what stock you are thinking about buying so maybe we could provide insight on whether it might be wise to put $500 to $1,200 in the stock. It's your hard-earned money. Don't blow it!

Investopedia.com - Your Source For Investing Education
http://finance.yahoo.com/etf
Zecco.com - Free Stock Trading & Investment Community
Bob Brinker's Land of Critical Mass : bobbrinker.com Marketimer © Moneytalk Bob Brinker

In the mean time, I'd invest only $500 in the stock you're interested in as that would allow you to have a 5 stock portfolio totaling $2,500. You need to make sure that you have no more than 20% in any one sector and you want your individual stock portfolio to only make up 10-15% of your assets so that's 2-3% per stock. The reason, only 18% of individuals or actively-managed mutual funds beat their passively-run companions that invest in index funds. That would be 12.5% of your stock portfolio ($20,000 x 12.5%). The other $17,500 should be invested in index funds, exchange traded funds (ETFs) or mutual funds. In no uncertain terms should you invest more than $1,500 in your stock (5%) as than you have too much of a holding in one stock. Bob Brinker gives you a 4% rule and I endorse that. Even if your stock was the AMZN IPO and it went up from $20 to $700 per share, I'd still think you were a fool for not being diversified as it dropped sharply after reaching $700 per share. Be careful!!!!

Fidelity has great service. If you are nervous about your portfolio at 3AM, they are willing to talk with you about it. They have a Portfolio Advisory Services that might (or might not) be able to help you. Vanguard is another option. Lastly, if you like ETFs, I'd go with Zecco. Consider starting a Roth account (if you are earning money). A Roth account with Zecco will run you $30. Fidelity charges no fee as long as you have at least $2,000 in the account. T Rowe Price might be another option given that you have $30K. Scottrade has ValueLine Funds that I really like.

[Airelon]

I trade and invest for a living. That's what I do. I got my start almost 12 years ago. And in my opinion mate? You need to do something before you proceed any further.

Read aquaswim's post again. Then when you are done re-reading it? Read it again. Print it out. Keep it with you. Read it again. Think about it.

The reason I say that, is I learned all of those lessons the hard way when I first started out. The hard way? Is losing that money that you worked so hard to save. I burned through $15,000.00 and some, precisely because I did not know, think about, or apply what aquaswim talked about in his post. Heck, I lost $2,500.00 once in less time that it took you to read this sentence.

My account size was only $5,000.00.

His first point was a good one. Education. Educate yourself as to the markets. What's a mutual fund? What's an ETF? What are dividends? Educate yourself as to the different styles of investing and making money in the markets. What's the difference between investing, and stock trading? What's a swing trade? What is dividend investing? What is seasonality? What technical analysis? What is fundamental analysis? Why should you engage in both? Read about Chart patterns. And please understand that no matter what you read? Each of those is only a small tool. Not one of those aspects is 'the holy grail' of trading. There is no holy grail of investing and trading - that will make you money 100% of the time. It doesn't exist. However, all of those are great tools to assist you. If you're anything like me? Learning about investing and trading isn't boring however, it's quite fun.

2nd point he brought out? Understand that there is risk. If we understand this, then we can try find ways to mitigate that risk. Which leads to the next point he made.

Above all, learn about money management principles. Aquaswim talked about this in his post. I knew a guy who re-financed his house to put money into Google. Your first thought would be "dumb", and you'd be right.

But why are you right?

It's the old addage. Never put all of your eggs in one basket. Though we would never consider refinancing our homes to invest in the stock market, the same principle could be true of anyone else. In your case as well. Why put all of your $30,000.00 or even a majority towards one thing? Wouldn't that be like gambling, rather than engaging in business?

Most professionals rarely put more than 3% towards any one investment. His advice regarding the company you're really interested in was very sound. To start off, put a very, very small fraction of your investment account towards the company you're interested in. Say 1%. Just to get your feet wet. There will always be further opportunities. Other companies will come along. Just keep your eye out for lower risk, high reward possibilities. Because that is the name of the game. Some of the full-service brokerages he mentioned will offer their brokers to help you out.

Making money investing? Has more to do with spreading your money around and not putting 'your eggs in one basket'. As he mentioned, that even extends to 'sectors' of the market. A sector, is say, like the 'tech sector' - stocks that have to do with I.T. and technology. You could have a few different companies, but if they are all, say, in the Utilities sector? Then if that sector takes a hit, then your entire portfolio takes a hit. It's the old addage regarding diversification.

Hope this helps, and please ask any questions you may have. When it comes to making or losing money, there is no such thing as a dumb question. I hate to see people go through when I first went through, when I got involved in this business.

[mat420]

thank you guys SO MUCH. the stock i was told to invest in is nymex..suppose to be a billion dollar business soon or something?
i really really gotta get on this, i jsut dotn know what im doing, i was sick all day today. gotta find out how to buy at least that stock..idk abotu throwing a grand on it though..whatcha guys trhink?

anyway thanks soo so much, im gonna reread everything im sure ill have more questions. i gotta get this stuff on craigslist tho.

[mat420]

read everything again, thanks so much for taking ur time to sit and "talk" with me. i really appreciate it. as soon as u guys, or anybody gets a chance..the stock is NMX NYMEX, which i learned, wasnt an oil company haha. im going to see a financial advisor really soon she said shes gonna pull up some stuff on NMX and ill see what she says about it if you guys dont respond by then..wel i guess i will eitehr way cuz thats part of what she plans to talk about. see thats the thing, not only do i not really like to read, but reading about investing and stuff comes off to me as really boring. i wish i could somehow interest myself, i LOVE money and would love to get into stocks and everything hard but...i dont know maybe im lazy, i struggled just to read through the mutual fund thing at the Mutual Fund Education Alliance -- Home Page, which i felt like i read, but like learned nothing from. not sure i read the right part...maybe idk was kinda short. i cant take stuff in sometimes when i read, especially if when im reading i dotn want to be (probably) idk what my problem is..i need to straighten up though so i can get through school and learn how to invest my money..
hope to hear from s someone soon its been a few days now.

[mat420]

maybe a teacehr can make this more interesting.. would a business class teach me about thsi type of stuff? maybe i can try to get business in also as well as the computer repair

an idea..

[Airelon]

I make my living on the markets.

But what I 'am'? At my very core? Is a teacher. It's something I've discovered about myself over many years. Teaching is what gives me contentment. It's what fills me with purpose in life. It's what I do, and do very, very well. I do not intend to be immodest? But I'm very good at teaching in a public setting. Very, very good.

When you mention that "but reading about investing and stuff comes off to me as really boring. i wish i could somehow interest myself" what I thought was this. Is investing and stock trading to you boring? Or is it the way that it is presented?

In other words - do you enjoy looking and the feel, and the ambience and the ebb and the flow of the markets? But when people start using these wierd words like: "PEG Ratio of 3.9 in conjunction with a Forward P/E that is too far positive of current earnings . . ." your eyes sort of glaze over, and that's when you find it boring. In other words . . . is it the markets that bore you? Or is it the wierd terms that people use - and no matter how they try to explain them to you - it just doesn't make sense? Because those are two different things.

Forums and the internet is such a hard place to learn a topic. When I teach publicly? I use my eyes, my expression, my face, visual aids. I gesture, I use illustrations, I interact physically with my audience, I use conversational tones. I use a host of methods that just cannot be done with the internet. But I've learned something. If you do well with a 'structured' class? Awesome. Maybe a business class would help you. But in my experience? They do not teach you in business what you need to know in these markets.

I have a mantra as a teacher.

There are no boring subjects. Ever. Only boring teachers.

A good teacher can make ANY subject come alive. It's just left to the skill and art of the teacher to make the subject come alive.

Sort of reminds me of my family dentist. Dr. Johnson. Guy is amazing. Absolutely fantastic - and I hate having my mouth messed with. But Dr. Johnson is awesome.

Well, his son went into business with him. My Dad was talking to the father one day, and Dr Johnson, the dad made the comment: "Yeah, he went to school for Dentistry? But working with me? Here he will learn to be a dentist."

I have found this to be true in many cases. Schools, Colleges - while giving you a slip of paper that can mean something? Very often do not give you practical experience in what the business is truly like.

So you have to ask yourself. Is it the markets themselves that bore me? That's ok. There are some markets that I've tried out? And I just can't get into them. I've tried Forex trading. I didn't lose much money. I just don't like it. I don't feel the markets ebb and flow. There isn't the same 'ambience'. That's what I love about the markets. So is it the actual trading that you don't enjoy? If not, then perhaps a different venue will assist you to make money. Or, is it just the unfamiliar terminology that ones use - that sort of turns you off. If so? Then that's ok. You just have to find a way to make the subject 'fun'. Don't feel bad that it's boring. That's not your fault. It's the teachers.

[Fredledingue]

Airlon and Aquaswim said very good stuffs worth re-reading even for old traders/investors.
One very important thing (beside everything above) is to avoid being too sentimental on your investment and on your money.

The first time you lose 50% on a bad pick (and don't worry that will come quickely) you think that you had just bad luck. Then you lose 90% on an even worse one and you still think you have been especialy unlucky. NO.
This business as usual: Stocks do fall 20, 50, 90 and 99% regularly. Sem even go to zero.
Almost every stock have fallen at least 25% at some point of their history.
Fallling by 50% or more is common occurence. And it's not because you bought a stock that it's anything special.

The next bad thing is that when you have a stock which is falling because a bad new was first released 3 days after you bought it, you only have two choices:
Sell but then the stock recovers and go up
Hold and the stock plunge even further.
It's always like that. ...except when you have learned to read and understand what you read as Aquaswim explained. And even so it's not obvious.

I tell you that so that you be prepared psychologicaly to what will more than certainly happen with some of the stocks you will buy.

Yes, reading abstract numbers is boring at first, but by the time, these numbers will sound more and more appealing to your hearth.
When you read "a P/E of only 6.5" (simplified example) it's immediately arousing for investors who watch stock for a few years already while for you, at the moment, it's still just another boring number. Apetite comes when eating.

About how to manage your money you have to know whether these $30.000 are the money you allocate for stock trading (and you do have other assets, savings or income aside)(case 1) or all the money you keep for general financial investment (other than professional, housing etc investments) (case 2). Also very important to know is whether you will need this money in a few years for some reason. (case 3)

In case 1, I would invest gradualy, buying one or two stocks for $1000 each, as Aqua said, to test the water. Then 3 months later buy another one and so on. Take your time don't fire all your matches at once. If it take 2 years to plce your money and build you portfolio it's fine.
Stock trading is a long term business.
I don't agree with buying for $500 because transaction fees will eat a big chunk of your profit. On-line brokers charge $7 to $25 for each transaction, that means $14 to $50 for one buy-and-sell.
Physical or on-the-phone brokers charge even more.
It's difficult to make money with less than $900 per trade. So i suggest buying, in your case, from $900 to $2000 each. Not more because you will burn all your cash. The key is to keep cash because who has cash is king.

In case 2: Same as case 1 except that you have to invest at least half into something safe, in one word: not stocks. it can be bounds or a bound fund, an ultra stable fund, or another product for "preservation investment". Talk to your banker about these products. They will give you just a little bit more than a depo, between 4.5% to 15% per year, but at least you'll be safe. Play with the rest of your money. With $10.000 you can start a normal portfolio.

In case 3: Don't invest in stocks at all. Because one invests in stocks only the money one doesn't need.

Now about NMX, are your sure you want to trade the stock or do you want to trade futures (oil, gold ect)?

HTH