Investing in Shares for the complete novice

Hi Mark,

I love this quote. A jewel in a big pile of 'diversification is essential to reduce risk' rubbish.

This too.... gold...

Mark

 

Hi Mark,

Another one:
Some very smart people think the stock market is going up. Some other very smart people think the stock market is going down. Since I don't have a clue what the stock market is going to do I totally agree with both opinions.

 

Hahahaha! I think I'll go with you on that one too Tropo!

Mark

 

was your advice 2000$ worth of each?

 

what do you think?

 

2 to 4 k.

So how much did he spend getting a parcel of 30 shares?

How much growth will the share price need to have to overtake the transaction cost?

(I see why 2 to 4k is a better option )

 

You must add brokerage (buy and sell) to the share price.
Also you still need to keep in mind that if you sell your shares with profit you have to pay tax on it.
Also:
Basic capital formula allocation if you do have at least $20K trading capital is:
Blue chips $11K-12K (2 positions max).
Green Chips (small cap stocks) $5K-$6K (no more than two positions)
Speculative stocks $3K (single position)

 

I read books, attended a few seminars, and as my main strategy (for the moment) is income, with a little growth on the side I highly recommend a full service broker, fully versed in Options, Warrants and Margin Lending. I don't have the time to do all the research that he has at his fingerprints, but do know enough to understand the shares that he recommends for me.

Cheers
Mel

As for the amount I 'started' with - the first time it was around $10K. The latest 'foray' with much more knowledge I've gone the whole hog, and recently refinanced my properties and put that in the market too - unfortunately about 2 weeks before the 'correction', but as my aim is income, that's remained good, and I have time for the shares to come back in value

 

"I don't have the time to do all the research that he has at his fingerprints, but do know enough to understand the shares that he recommends for me."

What kind of research you are talking about if I may ask

 

Oops. I meant fingertips. Was dealing with fingerprints at work, so guess it got stuck in my head!!

Anyway, the research is all the fundamental info on the companies that the broker's analysts and research guys get from whatever it is they do - company statements, reports etc. etc. I guess. As I said, I don't know. For example, a company like Jubilee Mines - I've got about 6000 of those in warrants, and my broker is a 'bit concerned' about what they are doing now, and their future prospects. I guess I could have got the same knowledge he has to be concerned by trawling through various websites, but I've got probably 10-12 different shares/warrants at the moment, and to do that amount of research, still do my job and have a life would be, er, rather challenging.

Cheers
Mel

 

Your trading approach on position sizing may work for some. But please don't dismiss other's approaches if they are working for them. I certainly don't have a monopoly on successful investment or trading approaches and neither do you I suspect

Camel has taken a positive step towards gaining the skills and experience to build his wealth. Surely it can't be that long ago that you still had your trading training wheels on?

Cheers
N

 

Nigel,

Correct position size is a very important part of a investing/trading system. Position size tells you how many shares per position you should buy, and can be a key factor whether your gains are big or very small.
I think it was Van Tharp who tested few different position sizing models using same trading system.
One model based on the minimal amount of shares (60 or 80) delivered less than 1%/year. Other models delivered around 20% (from memory).
As you can see difference is huge. If you add brokerage to the cost of purchase very small position, it's not worth your effort.

I have got still trading training wheels (4WD) on.

 

Happy Trading.

 

Dunno if you're being sarcastic, but it sure as heck is working for me

I've returned about 20% income this year.

 

What makes you think that way?

 

Apologies if you were not. The written word can be interpreted many ways - guess I took the sticking tongue out thing in a bad way.

 

Hey.... do not worry about it...Keep $$miling - be happy !!

 

What do you think of this "Trade Size Calculator"..I've used it in the past

wise-owl.com

• Amount ($) you are prepared to risk
• Share Price (in dollars):
• Stop Loss / Profit Stop ($):
• Trade Size (number of shares):

 

Yeh...i guess you can use it as a guide.

Below is basic formula how to do it:
Say ... your total trading capital is $20 000 and you are using 2% risk rule, so 2% of $20000 = $400.
Assumption : closing price of a share is $15 and stop loss is set at $13
In this case loss per share is $2 ($15-$13).
If you divide $400 by $2 you'll get amount of shares you can buy. In this case 200 shares.
Multiply 200 x $15 (entry price) = $3000 (position size).
If you divide $3000 by $20 000 and x100% you'll get % of the total capital that can be spent on this position =15%.
Make sens ??
PS- If you risk 2% of total capital on each trade it would take approx. 195 consecutive losses to blow sky high all your money.

 

How would you use the above approach if instead of having trading capitol saved up, you had $1200 to $2400 to spend each month. Would you ING it (to use later when you had 20k trading capitol), throw it in navra for quarterly distribution goodness (to use later when you had 20k trading capitol Deja Vu!)), or just suck it up and buy your favourites stocks in $1200 to $2400 parcels and wear the extra transaction costs?

Its lunch time... I choose to be verbose!