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First day rookie strategies

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Posted by spshapiro on March 22, 2012 (06:18PM)

Rarely do I differ with Mark, but here’s two things. First, of anyone, someone in Joe’s position can least afford to lose. Mark and I are old enough, well off enough that we could lose a little ‘gambling’ and not see a big hit to our life style. I can’t speak for Mark, but my notion of gambling can be summed up “The next dollar I lose in a casino, will be the first dollar I lose in a casino.” Joe, please look up the old thread “Maria, farewell”. Bad early experiences can ruin your career.

Second, you and all the other newbies will do yourself a big favor to stop thinking in terms of making X% in X period of time. First, you haven’t done it long enough for there to be a reasonable time frame to measure. When they used to post a ‘leaderboard’ on Tk, I frequently railed that it was never over a long enough time period. The absolute minimum to look at is yearly, and what you do over a decade might be good enough to make some projection into the future.

I am not saying profits (and of course losses) don’t matter. Just that is not what you should concentrate on. You want to figure out what investment seems to make sense and then assess whether it is doing what you thought it would do or not, and whether you think that may continue. Profit and loss, percentages will enter the picture at some point, but not as the primary focus. Should you sell AAPL at 300, just because you bought it at 37, or should you wait to see if this new fangled Iphone will catch on? There are no absolute numbers; it is always contextual. Okay, it ain’t contextual when they put the lid down on the box.

Other than that Mrs. Lincoln, it was a great piece, Wolfy.    
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Posted by PUDGEROOO on March 23, 2012 (10:53AM)

Joe,
    I once had that fire in the belly - gonna make a million in a month, how hard can this be fever.  I got caught up in commodities and after reading two books, I figured I had the stuff to do, so I went long 2 Soybean contracts on the MidAmerica Exchange.  Lo and behold, I was a winner.  $700 in a short time.  And that simply whetted my appetite for more.  I was hungry and that made me careless.  Kept trading - some times a little  up and sometimes  a little down until I made the Yen trade and didn't get it closed on Friday like I should have.  By Monday open, I was down
5-K.    And that pretty much soured me on trading commodities and futures.  I tell you the story because it is easy to dream big.  I'd also say that a little success can breed a ton of over confidence, so be on guard against that.  Lastly, when you trade, remember that one can never go wrong taking profit off the table, or cutting your losses quickly.  Don't hang until the last sock is hung on the line.
    I have a little sign posted on the top of my computer -  it puts things in perspective for me.  Maybe it can help you as well.   "Pigs get fed; hogs get slaughtered."
    Good luck to you my friend, and happy trades always.
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Posted by atticusd on March 23, 2012 (11:21AM)


I started with about $300 and now an up to a couple grand. However, this took a good year, multiple cash deposits, some good stocks, some bad stocks to learn from, etc.
I would quickly learn, OPM. Other peoples money. Someone will always tell someone else how to use their money. There is never a shortage of that. Listen to what others have to say, but don't accept that as the right thing.
I'd learn how to read balance sheets, learn how about technical analysis, learn about sectors, def learn about economics.
And...if you do pick a bad stock, you pick a bad stock. Learn from that mistake, because you will most def lose money. In my supremely rookie opinion, you just want to gain more money than you lose....

Good luck sir, and get to cracking those books open!
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Posted by Buster01 on March 23, 2012 (11:45AM)

One of my biggest issues when I started and still now to some extent, was that I tried to NEVER has a loss.  Even if I knew I made a mistake, I would hold to the position and try to at least break-even.  As you might has guessed, this caused my losses to keep on growing and growing.  It's almost like a gambling mentality, I'll sell if it just goes up a little bit from where it currently is, and that mindset keeps going on and on as the stocks drops.  But then as soon as the stock has a minor rebound greed kicks in and you think it will go all the way back up to your original entry point.

Overall lesson, the market could care less where YOU entered or what you basis is.  As I've learned from people here, you need to reevaluate positions on a daily basis (options would be multiple times a day) and consider the follow questions at a minimum:

1) If your underlying decision or hypothesis to enter the position still holds true.
2) What variables have changes how does this affect the position long-term.
3) What is the logic of the person on the other side of the trade. ***Important***
4) Will any other variables affect your position (including press releases, competitors, media, countries, sectors, global issues/economy etc.)

That is not an all-inclusive list but it is what I use to evaluate my holdings.  Best of luck*!

*Good investing should minimize luck to the greatest extent possible and not count on it to make money.
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Posted by Joe Greenwood on March 23, 2012 (11:55AM)

@SunnyOne, thanks for writing, some good tidbits there that I will return to many times ...  encouraging to hear when others have started with small amounts like me.

@spshapiro, thanks for suggesting the Maria post ..  I did read it, and all of the replies ...   it made me realize that even though I am approaching this as a small-time hobby, it is not a game ..  and even something begun lightly with optimism can turn very serious very fast.  I believe I will remember that post for as long as I am a trader/investor.  As I browse these forums I find many references to that post.

@PUDGEROOO, thanks for relating your story ..  I see myself throughout your entire post.  Thanks to your sharing (and the previous posts in this thread) I can be wary of naive overconfidence.  Regarding your mention of taking profit off the table ...  I keep wondering why treeHamster doesn't do that, as I look at his ledger ..   here is a text I received from my father last night:  "Rookie mistake: bought DowChem at 8. Had plan to sell at 40. Hit 40 and didn't sell. Went down to 23, now at 34. Pro would have sold at 40 and bought back in at 23 and made a double killing. I was greedy hoping it would go to 50. Remember: hogs get slaughtered!" .............    in my very first inklings of 'strategy' earlier this week I had a vague notion of taking profit off the table.  I am a simple kid with a humble family in an old small house in a tiny North Dakota town, and $10K is a huge amount of money to me.  I see myself, and I pray I have the self-control to stick to it, taking profit off the table regularly.  But then again I have yet to develop an overall long-term strategy (retirement? not sure I should use this stock trading stuff for that yet ...  I do have 401k and IRAs).

@atticusd, thanks for sharing ...  if I can do as well as you in a year I now realize I can consider myself successful so far.  Thanks for the encouragement.

Thanks again to everybody.  My first $100 deposit is settled and ready to use today.  I think I'll pick a simple inexpensive stock over the weekend to buy on Monday and hold it for a while.  You've successfully quenched that 'fire in the belly' over-eagerness in me that thought I could win the world quickly ...  now it's a calm pace, one foot in front of the other.  First step Monday.  Thank you all!  :)
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Posted by Joe Greenwood on March 23, 2012 (12:07PM)

Buster, thanks for the advice ...  to be able to cut losses seems to be a recurring theme ...   I am training my mentality right now to expect and accept losses, and take care to learn how to limit them before I even get started.  And yes, the market caring about anybody ...  what's that called when we project human personality/emotional traits to inanimate objects?  I learned it in Anthropology 101 ...  yeah, anthropomorphism ...  http://en.wikipedia.org/wiki/Anthropomorphism  ...   as if this giant collective known as 'the market' could have sympathy!

Your four questions are good ...  thank you for illustrating how you keep a close watch on things.  As a beginner, part of the learning curve is discovering the scope of awareness required for adequate participation.
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Posted by Joe Greenwood on March 26, 2012 (02:55PM)

I ended up buying 10 shares of NOK at $5.30 today, just to get my feet wet.  I realize the fees will eat up a large chunk of potential profits, but I just want to get a horse in the race and a feel for the action.  I'm now going to save up for bigger buys.  I've been reading A LOT and would like to start working some low-risk options before year's end.  Thanks again everyone.  I also found the recent rookie thread started by umfan92 which has some good discussion.
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Posted by Bayou Steve on March 26, 2012 (05:55PM)

Joe,
I try and do research most of the week on what industries are hot and what stocks are hot in those industries. Takes a lot of time. I believe that you should try (if only for one month) to do just that on a paper account. You would think that gosh, best stocks in hottest industries, what could go wrong? Make sure the stocks cost more than $1.00 per share and trade in excess of 100,000 shares per day. That would buy you a little more protection. Find 5 industries and choose only 2 stocks per industry and only invest in 2 stocks at most per industry (you can include ETF's if you like). If a stock moves positive 50% sell it and replace. If a stock drops 10% from purchase price, sell it and replace. Only replace stocks when the market looks like its got legs(will continue to move higher). If the market decidedly looks like a steep sell off, cash out as soon as you can and then wait until the market bottoms and rises for a couple days, repeat the process of selecting the hottest industries and best stocks when you are buying.

I have been doing something close to that during this last market rise we are experiencing. I have been right 45% of the time although I have not counted today yet, some pics might have changed. The good thing is since I started this more conservative approach in late January, I am up about 11%. That is fine for me.
BTW, by my way of thinking, a significant market drop happened 5 times last year. We are way overdue.

This will give you a real good 30 days of trial, and you can come to the forum and tell us how its going. Shap, TH Inky and the rest can help you like they have helped me.

I will give you a head start:
Retail Department stores are a nice industry right now and Macy's and Dillard's seem to be holding there own. Find out why investors like them. 

  
  
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Posted by rek on March 26, 2012 (06:48PM)

You might want to think in terms of per share cost and dollar cost averaging.

Purchasing 10 shares at $5.30 means your cost was $5.80 per share ($0.50 commission per share). To break even, you would need to sell at $6.30 per share.

However, let's say your next purchase was 20 shares at $5.40. Your cost would be $5.65 ($0.25 commission per share), and the average cost for your 30 shares would be $5.70. Your average cost would be going down (commissions would be spread over more shares, making commissions cheaper) even if your per share stock price was more expensive.

Once you get to 100 shares in NOK, you can start selling covered call options on a cash account against those options. Those calls, if they don't get assigned, could lower your per share cost even more, or if the strike price is higher than your break even, hopefully it would be, you would make money if your stocks are called away from you. The nice thing about NOK is that the stock has enough trading volume that you can sell covered calls on it.

Keep in mind that when people are talking about trading options, they are may be doing it from a margin account, which potentially involves a lot more risk, experience, and money ($2500 minimum, I believe.)

edit: I'm a little foggy on the last bit about margin accounts, as I've only done covered calls to date.

Joe Greenwood said: I ended up buying 10 shares of NOK at $5.30 today, just to get my feet wet.  I realize the fees will eat up a large chunk of potential profits, but I just want to get a horse in the race and a feel for the action. 

 
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Posted by SunnyOne on March 27, 2012 (11:25AM)

That might have not been the best play, but hold onto it and see.  The Size suggest that many more people are attempting to sell at that price than buy.

Remember not to look at stock price, look at the charts and underlying fundamentals.   One share of AAPL would have made you more than 100 shares of a lower priced stock. 
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Posted by MoreDiv on March 27, 2012 (02:14PM)

...buy low, sell high?  :-) Said millions of times but there is much wisdom there... since it tends to go against human nature.

I started pretty much as you did and was a bit reluctant to comment since I still consider myself a rookie as well, but... here is what I have learned so far from my mistakes or reading...

In addition to advice already presented (play a sim/game for a few months -practice stocks and options buying-writing, > 1k in brokerage acct, research, research, research, read some books, learn about stop loss, limits, etc) :

Invest half into IRA/ROTH. (Vanguard funds is my recommendation there - low expense - most are pretty well managed). Keep this moderate risk. (for your age). Treat this as a brokerage account in so far as "buy low" (on down-swings) if possible on your fund(s).

Put other half in a regular brokerage account. Use this account to trade higher risk stocks (or options). Gamble more with this account.. use options only if you're completely confident about how they work. Trade lower priced growth stocks at first. ($10-50 range if possible) till you build some money. Buying 1 or 2 shares of apple may get you a daily gain (or the opposite) of $5-20 bucks, but you will make more money at first if buying lower priced (and lower valuation) growth stock and sitting on it for a bit. (Of course I wish I had done that exact thing when I started my account: (AAPL @ about $370 - Nov'11). Hindsight and all that...) My first buy was GE @ $15.54 in nov'11. I still hold this stock (+28% gain at the moment). I thought I was being conservative and would see slower growth (a dividend stock as well). Nope. So even a big name like GE got better "growth" then some tech "growth stocks". Just making a point: don't eliminate a stock simply because of name or size/cap.

Continue to put money towards both accounts. I started with $1k and now "play" with a 10k TK account for my growth and keep reinvesting realized gains (my sells). I am currently @ (14%+ of initial investment) and beating S&P YTD on my growth stocks (after many, many mistakes!). Haven't touched options -  Still practicing those on sim game. I feel I haven't learned enough and want to build on my initial 10k a bit more before I even start. (Oh and reinvest your money from any realized gains!).

Hope this helps.
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Posted by MoreDiv on March 27, 2012 (02:24PM)

Sorry if I was redundant with any of that. Didn't see page 2 till I posted!
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Posted by Joe Greenwood on March 30, 2012 (01:31PM)

rek, thanks for posting that suggestion .. I had seen your post in another thread mentioning covered calls and so I've been looking into figuring out how they work.  Also thanks for the dollar cost averaging suggestion, I've heard that mentioned before too and it makes sense. 

Bayou Steve, thanks, that is a lot of sound sensible advice. For all my curiosity about different strategies and doubling my money in a week and stepping into options I don't understand ..  your approach is actually more where I'm at realistically.  Steady rationalism.  Thanks also for the retail departments suggestion ....  hadn't thought of them.

SunnyOne I know it's not a huge moneymaking move, but gets me started on a small scale so I can learn the ropes. I also violated another common rule by buying emotionally -- I've had a Windows Phone for about a year and absolutely love it, so I'm hoping NOK's moves will help popularize the OS.

MoreDiv, thanks for the tips .. that's awesome that you've had such growth in only half a year!  I do have part of my pay going into an IRA ...  and yeah, lower priced stock and sitting on it for a while ...  that's my pops's recommendation.  He says I have to hold for 12 months to qualify for capital gains rate.

Thanks everyone, lots of great feedback.  For all the good sense in this thread I still gotta admit I'm trying to figure out how treeHamster's long call options work...  not saying I'm ready to try it, just that I'm curious..  like that one cat, whatever happened to him? :)
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Posted by MoreDiv on March 30, 2012 (01:55PM)

Don't be afraid to take/lock-in profit though.. regardless of gains tax. Profit is profit. If you're just doing some investing outside retirement acct def hold for at least a year so you get close to the Romney rate ;) if possible. Especially if you have high yearly income rate...
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Posted by sublimevotum on April 01, 2012 (01:24AM)

This is a good thread that seems to have some good advice.  I'm a bit concerned though Joe with your trade.  You said you made a trade and that "I realize the fees will eat up a large chunk of potential profits, but I just want to get a horse in the race and a feel for the action. I'm now going to save up for bigger buys."

You admitted that this wasn't a good idea, but you made the trade anyway!  Try to be disciplined from day one.  Know your limits.  As a beginner, its probably best to make far fewer trades; wait until you feel confident about a trade.  Until then learn and save.  Be patient and "detached" from your trading.  If you are just itching to go then you're letting your emotions guide you, and its probably best for you to decide that you won't make any trades while you are feeling like that. 

Every trader/investor has heard many times to not get emotional, to not let greed and fear drive you, but this is so much easier said than done. 

With all that being said, I do wish you the best of luck on your first trade! 

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Posted by Joe Greenwood on April 03, 2012 (03:03PM)

Thanks sublime ...   yes, I made the trade despite knowing the fee costs.  But consider this -- I used TK's stock screener to find NOK ... based on % above 12 month low, dividends per share, and price ..  I followed this up with research on where they've been, what they're facing, and the upcoming catalysts.

Of course I did this before buying and could have left it at that and gone to paper.  But I will say that my focus and attention and the learning experience was more deeply ingrained by making it 'count', by 'playing for keeps'.  This is arguable and maybe not the same for everyone, but I learn best by doing it on my own for real.

A secondary element of what I needed to learn was the mechanics and timing of actually making a trade.  I had never ever done it before.  So I used TK's web interface to set a buy of 10 shares once the price hit a lower limit of $5.30 which I figured would be the day's low based on recent trends (it was like $5.38 at the time).  Within twenty minutes of me setting that, it hit $5.29 and my buy was executed pretty much right away, instantaneously as I refreshed my account page.  That was the experience that was unknown to me and I felt I needed for future bigger plays.  You could have told me the definition of 'limit' ten times but until I employ it in practice it will remain unclarified in my mind.  Now I know how it works, and this was definitely worth the fee cost to me.

Anyway based on my understanding, NOK looks like a good buy to me.  Following my analysis, my old man bought shares in NOK.  As I read around the news and outlooks, other intelligent people feel NOK is a good one to hold.  I wish I could have bought 100 shares myself.  Maybe I'll go set a sell limit for when it hits $12.

Anyway. I appreciate all the comments and advice, especially sublimevotum's words on discipline.  I just want to point out that I did some homework on this buy and am happy with it and I learned the things I set out to learn even though it cost me trade fees.  Go long on NOK and do yourself a huge favor by dumping your iphone for a Windows Phone (I have HTC Trophy for about a year and don't even bother clunking around with wife's iphone .. looks so ..  outdated).
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Posted by kiddo on April 16, 2012 (12:02PM)

how're things going?
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Posted by treeHamster on April 18, 2012 (02:24AM)

I would like to respond to rek. You don't need a margin account to trade long options, just to short them in most situations (cash secured puts are the exception). In fact, trading options on a cash account is probably the better idea because unless you have the full $25k (or more) to qualify as a PDT, under SEC regs after using up your 3 day trades in a margin account, you account gets frozen for 90 days just as if you sold a position that is secured with unsettled cash. The great difference with options is that it's the T+1 rule instead of the T+3 rule which means you can intraday trade your full balance one day (liquidating all positions by close) and have the full balance settled and ready to use the next morning.

A friend of mine was using a margin and trying to day trade options but ended up being limited to how many trades he could make. So I told him to drop the margin and now he's trading with no hindrances.

I will also state that you don't need $2500 to trade options effectively, however I would put a minimum at $500. Anything below that is VERY difficult as you limit what positions you are allowed to buy into and your commission/contract ends up being quite high unless you can get an account at Lightspeed or Interactive Brokers (both of which require $10k to open an account which makes the exception moot). Everyone here knows I started a portfolio base with only $77 and built up to $20k relatively easily but what it doesn't show in that ledger is how difficult it was early on to make money as your underlying equity pool was quite small due to contract prices. Therefore it takes more time of waiting for an opportunity to make enough to boost you to the point where you can exit what I call the commission barrier (which is around $250). This is the point where you have enough cash to guarantee you can access enough positions and can get the optimal outcome for the following equation:

( commission cost ) / { (contract price) * (shares per contract) }

In that equation contract price is not the price listed for the contract on a quote, it's the price it would cost you to buy it (normally it's 100x the quoted price as most contracts are for 100 shares). The lower your number, the better your choice, as it represents a ratio of your cost percentage to your position's initial value (which assumes the price you pay for the position is the immediate market value, even though we know this isn't actually true).
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Posted by Joe Greenwood on April 18, 2012 (04:27PM)

Thanks for asking, kiddo ---------   as you probably know, NOK is down ---- I got in at $5.30 and now we're around $3.98 ------  it's been interesting watching the launch of Lumia and all the discussions about Windows Phone software ---  I've had an HTC running Windows for about a year and absolutely love it -------- but it's an AAPL world and an uphill climb.  Anyway, I'm still optimistic for NOK ------  my money is on it exceeding $10 sometime mid-2013.  Right now I'm balancing my finger on the trigger of acquiring another 10 shares (LOL -- yes, my initial investment was only 10 shares) because the cost is so low (compared to where I think it will be in a few months) ....  I am considering setting a buy stop or whatever it's called for $3.50 or so ...     BUT ---  isn't there some advice around here about not doubling-down on a declining holding?  I hear it echoing in the back of my mind.

Meanwhile I am adding the occasional Benjamin to my available investment monies ..   my old man and I are looking for other securities to invest in around June.  He suggests a quarterly investment frequency, and I think that makes sense ---- gives me time to save up a little more cash to make a buy on a better (higher priced) stock.

Also I am a student of treeHamster .....  I get confused on options trading by reading the articles on TK, so have hopped over to http://www.investopedia.com/university/options/default.asp to try to get a grasp on the basics.  My dad keeps telling me to stay away from options, says the fun of this hobby is to research companies and enjoy smart investment decisions, and even though you can make a few bucks on options why risk it just to make a few quick bucks.  I agree with him.  But I am also more of a wild child and even if I don't make a full go of it, I still am intrigued by the mechanical theory and do indeed hope to put a few coins in the slot one of these days to see how it feels.  I know I know, not wise ----  but I'm talking small time bucks and dabble dabble --- like buying a ticket to a show or something.  Anyway.  Investing is what I'll be doing in real life, trading is what I would like to do for some fun. Sorry Dad.
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Posted by Lonestaralaskan on April 18, 2012 (05:02PM)

Joe,

I also own an HTC windows phone (Titan) and I love it.  The WP7 OS is grossly underrated, partly due to the terribad OS of previous Windows phones (unfortunately), and the lack of Apps currently available.  I expect that to change with the release of WP8.

Here's Nokia's current problem (as in, this week)- Microsoft refuses to confirm if current smartphones will have access to the Windows 8 upgrade.  If not, this will be a huge hit to Nokia- it will make their current product (the Lumia) obsolete in less than a year.  Let's hope Microsoft will finally address the question with a firm yes to upgrades.

Now let me comment on buying small amounts of stocks because I have done this in the past and there's really no way to make money buying 10 shares at a time.  Let's walk through an example.

Let's say you buy Nokia at $4.00 per share, and you buy 10 shares.  So you pay $40 for the stock, and $4.95 for the trade.  You will pay another $4.95 to sell, so let's assume a total fee of $9.90.  So the actual cost of your trade is $49.95.  Divide that by 10 shares, and you see that the price of your stock must increase to at least $5.00 just to break even.  That's 25% of the value of your original stock price.

Now let's say you buy 200 shares of Nokia at $4.00 per share.  You spend $800, plus the same fee of $9.90 (round-trip) to trade the stock.  That's a total of 809.90.  Divide that buy 200 shares and you'll see that you only need a .05cent increase on each share to cover your cost.  This sets you up to make considerable more profit.

Its hard waiting while you save up the money - I know.  But its so worth it.  While you're waiting you could paper trade and watch the market daily, getting a feel for the cycles of a short list of stocks that you're interested in. 

As an accountant/financial analyst, that's my recommendation, but I'm a new stock trader myself.  Whatever you do, don't get discouraged.  Come up with a solid game plan - one that you know can make you money - and stick to it.

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