reading

Investing in the Stockmarket: Simple Guide to Beginners

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E*Trade has been one of the top online brokers for stocks & shares since well before the dot com boom of the 1990’s. Now ANZ Share Trading has partnered with E*Trade to bring online dealing to the Antipodean marketplace. Attractive pricing, top quality research and tools make it easy, perhaps too easy, to enter the stock market.

etrade-anz

I was intrigued by some of the tools that E*Trade offers its Australian customers, including a popular education center. Though the basics are well covered in terms of actual trading, it’s likely that unless the new investor is tempted towards ETFs, Sharepacks or Managed Funds, she will need to learn and study some of the basics.

Why? Because prices do go down as well as up. And shorting stocks can be the fastest way to send your account to $0. Especially if you’re using borrowed funds! So I’d like to offer readers my how-to guide on getting started in the stockmarket.

Tip #1: Do your reading

Read about the market in general, get a feel for the general situation right now; find out what sectors are doing well and badly. Look for top tier companies that seem, even in adverse situations, to be doing the ‘right’ thing. Don’t buy anything.

Tip #2: Listen to the Pundits

It’s important to have some idea what people in-the-know are talking about these days, what they’re concerns are, what the buzz words are. But don’t let them influence your choices.

Tip #3: Choose a few companies

Choose a few companies, and start to follow their progress in the newspapers, on TV, and online. Check out their accounts, find out if you can read their public documents. If you can’t, start to study them. Find out what they’re doing, and check for the important numbers: EPS, Book Value, etc. You need to know these.

Tip #4: Start Paper Trading

That’s right. Simply trade on paper (or on Excel). Buy imaginary lots in your head, write it down, and see how it feels. Follow the news, chart the progress, and check the dividends. See how you feel, if you can cope with the ‘ownership’ and risk.

Tip #5: Build your watchlist of companies

That’s that simple. Build a watchlist of companies that you are interested in. But don’t buy or sell. And don’t be afraid of missing out. This fear alone contributes to enough mistakes I’ve made.

Tip #6: Get a grip of your finances

That simple. If you are eager to invest, can you answer these three questions positively? Do you have a 6 month emergency fund? Do you think you can afford to not have access to the month for more than 3 years? Do you think you can bear it if you lose all the money?

Tip #7: Choose your broker carefully

Now it’s time to choose your broker carefully. Read the reviews, check the tools and see if you can try the demo accounts. Perhaps you’ll be lucky and find that you can set up fantasy portfolio!

Remember once you start trading, keep your calm, don’t trade more than you can afford, and try not to churn your trades. If you’ve been a trading investor for a few months, you’ll likely find that you can win and lose money. But remember, never invest all of your cash in one stock… just in case.

Please note: these are personal comments, and as such do not represent investment advice. Do your study carefully, make your own choices. And remember, you can lose far more than you intend to in the stockmarket. It may not be a suitable place to invest for your personal life. Consult a specialist if you’re unsure or don’t understand anything about the stockmarket.

Now if you’ve been investing for a while, what do you wish you had known before you go started? Share with us!

Buzz: ManyBooks dot net – really does have many books!

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I recently stumbledupon this interesting website called ManyBooks.net that I thought I would give a quick buzz posting because of the wealth of information on it. With the increasing amount of restrictions being placed on media, including movies, music, on the Internet; and the serious likelihood that books, magazines and newspapers will eventually be similarly limited by IP restrictions. The recent Amazon innovation called Kindle increases the possibility that books may go digital as CDs already have.

manybooks

I love websites like this that encourage books and literature to become global as an educational resource for people everywhere.  I particularly like the multi-format that is encouraged, including the new Kindle format, PDFs and many others.

In fact, for the version of “20,000 Leagues under the Sea” there were more than 20 different formats, and an AudioBook version. Much of the work for this website comes from the well-known Project Gutenberg.

So, if you’re stuck with nothing to read on your PDA, Blackberry, iPhone or whatever… you might want to read a few classics, essays or more recent innovations.

Rookie: About to get rooked?

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I am a rookie investor who doesn’t know much about stocks, etc. I want to invest a small amount, maybe 3000 USD (100,000 NT) or so. I am willing to take medium risk, but don’t have much time to research or deal with this investment everyday. I just want to put it somewhere for like half a year or a year, forget about it, and come back and hopefully it’ll make some money for me.
So now the questions are:
1) Are mutual funds the best choice in this scenario? If not, what do you suggest?
2) What are the chances of losing money with a fund?
3) I realize that there are many types of funds. Which type is suitable for me? I don’t want to be super conservative, I am willing to take some risk. But of course I don’t want to lose money. Is there a fund that generates over 30% in one year, that’s got acceptable risk levels? I understand you can never know…but what about your past experiences? What’s the most you’ve made or lost in a 1 year period with funds?

I wrote

Truthfully, Tycoon’s advice is pretty good. 

Don’t waste your time in MFs… The expense ratios will KILL your investment over the short-term. The medium term isn’t much better due to a tendency to average performance. So, only in the longer term, there’s a chance that your MF will be okay. But remember about 80% of MF underperform the market…! Hah!

Upfront charges will likely eat into your funds, leaving you underwater almost immediately. Anyway, many MFs have minimum amounts to invest, typically $2500-5000.

#1 Why not just simply open a broker account with $7 to $10 trades, choose a few ‘safe’ ETFs (maximum three, to keep your costs under control), your expense ratio would be about 1% for purchase, and hopefully less than 1% for sale.

#2 Then do some basic research here http://finance.yahoo.com/etf

#3 Then purchase a couple of broader market funds, like DIA or QQQQ or Spiders, then one with the exposure you want.

Do NOT trade this account. Only add money regularly to make sure that the balance is appropriate. Ignore it otherwise.

#4 Then start reading. It is really boring, there are no guarantees, but it will limit your cost structure.

Lastly, beware the risk of currency exchange, you may not want to exchange all your money at one time, but trickle feed it into the fund, so that any improvement in the exchange rate will be reflected in your exchange at least partly!

Good luck, don’t forget the reading!

Kenneth