Newbie and some questions

[abk33139]

Hi everyone - my name is Alison and I'm new to the group and I live in the Washington DC area. I'm interested in playing a bit in the stock market. I decided to take $3,000 or so from my 401k (since my investments there weren't doing much) and see what I could do with it. I have a few questions, and Mr. Market told me this is a great group with lots of smart folks, who could help me out. So, here goes:

1. In order to buy stocks with my 401k money, I set up a separate account. Each time I do a transaction (which I know means buying and I assume also means selling), I have to pay a $14.95 fee. If I have a lot of transactions per year, that price will drop. Because it will cost me around $30 to buy and sell a stock, does that mean I shouldn't buy small amounts of stocks because I'll lose so much of my profit to the cost of the transaction? I had originally thought I'd buy 5 or 6 stocks and on some of the higher per share items only buy 25 shares or so, but then I have to make a larger percentage to absorb the fee. Should I concentrate on 2 or 3 stocks and buy more shares?

2. What does everyone think about Sirius Radio (SIRI) stock? I'm very interested in that one to invest in over a longer period of time because I believe in the product and its potential.

I think that's it (for now). Thanks in advance for your help and sharing your wisdom.

Take care,
Alison

[Karel]

Hi Allison,

that is a hefty fee, these days. Anyway, $15 per transaction amounts to 5%-6% per round trip with 6-5 stocks. I think that is an awful lot. I prefer to be under 2% per round trip, which is what I started with. (It's under 1% now.) In your case that would translate to a position size of $1500, or 2 stocks. But I think that is not enough for MrMarket stocks. 6 would be my minimum. I started with 8 myself. (I have more now.) Why? Because you need some activity in your positions to remain happy. I know I do. Sitting on 2 stocks that you know/hope may turn around sometime is no fun. And one of them might even be a lemon.

Of course, you might not specifically be interested in Mr.Market's style of stock picking, but you could do worse.

OK, what to do? Free more money? Look for a cheaper broker? Try 4 stocks? Take your pick.

Good luck!

[abk33139]

Karel - thanks for your reply. Unfortunately, I can't use a different broker. Because I'm using 401k money, I have to pay their fee. I could free up more money for this type of investing. Maybe I'll do that. I could go with a few less stocks, but you're right - its riskier to do that.

One more question - do you automatically sell when you hit the 15% target?

Thanks,
Alison

[Karel]

One more question - do you automatically sell when you hit the 15% target?

My broker has non-expiring limit orders for no extra charge, and I enter my sell order right after I bought the stock. So: yes! I follow the lead of the Huge One. The model turns up new stocks every week, if not every day.

regards,

Karel

[MEA_1956]

As Karel has stated, the more the better is they way to go if you plan on tuneing in every day to see how things are going. Investing into different sectors will also help lower the pain on down days. You may also think about delaying your investments ( not all at once ) for you may have a change of heart in where you really want to place your bet. On the norn., it takes about two to three days before I place my orders. Yes time is money but time is also your friend becuse haste makes waste. ===> MEA

[scifos]

Indeed, $15 can be a lot (reguardless of how many transactions per year), depending on what you get for it. If your broker helps you pick stocs/manage your port, then it isn't bad. But if you are doing all the legwork yourself it is a bit high. Like Karel, I try to keep my overhead (commissions+fees) to under 2%. Its near impossible to diversify with several stocks and stay that low. Have you thought about Exchange Traded Funds (ETFs)? There are becoming a very popular investment choice.

Personally, I think SIRI's price is overextended. I'm not interested in it, but there could be a lot of money to be made in it if you play it right. I just think it would be hard to play, and I wouldn't be comfortable with it, espically if it is 1 of 3 stocks in your port.

[Websman]

I've been in SIRI for about 7 months and am holding a profit. I would have to say that SIRI has great, long term potential, but if I wanted to buy it now, I would wait for an entry price of around $3.50.

As far as having to use a certain broker...I feel your pain because I am forced to use sharebuilder, which has high fees. The advantage though is that I'm trading tax free! I have a 457 account which is about the same as a 401K.

To sum it up...I consider it a trade off. I pay high fees, but I don't have to pay taxes.

I'm in the process of saving money for a Sharebuilder account. When I get it open, I'll prbably throw my 457 money back into mutual funds or ETF's.

Good luck!

[abk33139]

Wow, $3.50 for SIRI? I hope it doesn't go down that low. I do think its has long term potential, so I'll stick with it (although I should have bought it today instead of last week).

I guess the fact that I'm trading tax free is a big benefit. That does take the sting out of paying the fee, but I still have to draw the conclusion that buying 25 (if its alot per share) or 50 (if its a low priced stock) shares of stock doesn't pay when you are paying that kind of fee to trade. I guess I have to stick with larger purchases to make it worth while and not have my profit eaten up by trade fees. Unless I can manage 20% per trade.

OK, what is a ETF? Can someone educate me?

Thanks for all the feedback!
Alison

[Websman]

I usually don't talk about the # of shares I buy, but I will tell you that I have about 1700 shares of SIRI. For every penny SIRI goes up or down I make or lose $17.

If you only have $3,000 to trade with, I would not hold more than 2 positions at a time. If you buy only 25 shares versus 100, it takes a larger move to make a profit.

It's a good plan not to take large positions until you get a feel for the market, but once you get a little better feel for things, I would try to buy larger positons. I usually buy no less than 100 shares of anything and prefer 300 or more. All of this is just my personal views, Someone else here may tell you something different.

Hopfully IIC or Spikefader will give you some advice. They have a lot more expertise than myself. And I can also tell you that Mr Market is a great guy, and has influenced me a lot.

[Michaelk005]

This post goes out mainly to Websman.. If you are so sure about SIRI, take a look at some Digital cable companies,, they will have quite a large growth potential as well..

[IIC]

Welcome...Money seems to be a concern...I remember when I used to have to pay a couple hundred dollars per transaction...then in the 80's I was so happy to pay 35 bux each way w/ Quick and Reilly.

But anyway, I would recommend a $2,000 account min. And if that is all you have...then only one stock at a time.

You have to build it up. Commissions will make it harder at first...maybe a couple of years...but be patient...If you compound and add $$$ as you can, the commish will become almost meaningless when it's a fixed rate.

My best advice...take it slow, be patient...AND COMPOUND!...Best, Doug(IIC)

Wait...maybe my best advice would be to read what others have to say...you will soon realize who has something to say that may be of interest to you...but Don't EVER EVER EVER buy something because so and so said so...and I include myself...weigh the info and do your own research. There are some sharp people around here...but you have to do what you are comfortable doing...For example, I have a very high tolerance for risk...you may not???

Also, I buy varying amounts depending on my feelings on a stock...some light...some heavy...you may not realize something like that if I happen to tout a stock...maybe I bot 5 grand...maybe 50 grand...it would make a big difference to me in how I trade it and how much room I give it.

Welcome...and Best Of Luck...be observant and be patient...and I think you will do well in the long run.

One last thing...Don't let mistakes get to you...it will happen, believe me, I've made plenty and still do...reflect and learn...but then just go on to the next thing

[IIC]

Oh...one more thing...try not to buy odd lots...It is best to buy 100, 200, 300 etc shares at a time...if not possible then OK...but your order may get filled in an alternative market on odd lots and you may get slammed on the price...IIC

[mrmarket]

Allison...hope your head isn't spinning yet! Commissions are the "silent killer" for start up investors, but soon enough they will become a smaller and smaller factor in your investments.

I like to carry a portfolio of 10 - 14 stocks. This way I can afford to ride out some big losses if I have to.

Good to see another Springsteen fan on the board!

[scifos]

I learn something new each day. I thought odd lots were mostly on the open market.

IIC is right about mistakes. Don't let them get you down, and remember; if you learn from them your mistakes will actually save you money down the road.

[stenzrob]

Mistakes?
I've made a few, but then again, too few to mention.
I did what I had to do
And saw it through without exemption.

I planned each charted trade;
Each careful step along the buy&sell way,
But more, much more than this,
I did it my way.