Starting in stocks with $500

Ok Guy's...

i was going to post $200, but i thought 'heck' you cant do much with $200? So ammended it to $500.00

If you had $500 to invest (and most people could 'scrounge' $500 together)

How would you enter the market and trade?

And why?

What 'strategy' would you have to build your funds?

I'm intersted in the various replies from everyone here, as we all have different viewpoints and ways of tackling the same problem...

REDWING.

PS- why Tigger as my Avatar, he 'Bounces' up and down all day long  ;D

Redwing,

You're asking for financial advice. Nobody can give you that here. Read this page:
http://www.asic.gov.au/fido/fido.nsf/byheadline/share+tips+and+general+advice?opendocument

But one can show you some options.

First, how much do you know about investing in shares?
I have a feeling that you don't have much experience at all. Therefore read this:

http://www.asic.gov.au/fido/fido.nsf/HeadingPagesDisplay/Shares?OpenDocument

With $500 I'd say it depends much on what you can afford to lose. If this is money you need then by all means consider putting it in a high interest account (ING, St Gerorge, Citibank, Suncorp, AMP and others) with 5.25 or 5.5% interest and watch it grow slowly, maybe adding some more every month.

To sum it up:
You can't invest $500 or $5'000'000 without having some knowledge about how this whole thing works. Currently the Australian market is booming and it's at record levels. Buying shares right now is a big task as you have to find a bargain and they are rare these days.

Put the 500 bucks aside, do some reading up and get smart.

If you're a gambler, then put the $500 into some high risk shares and hope for the best. Mind you that you might just as well go to the casino in this case...

This might not be the answer you've been looking for,  but believe me there is no answer to your question. There are too many factors to consider and each case is individual.

Have a nice weekend

Stefan

hi Stefan..

posted your link to my favourites and i'll read through it shortly.

I didn't expect specifics or advice for my personal situation, was rather hoping to get some insight into the strategy of the individual people on this forum, aremost people here daytraders? Or in the market for a longer time (holding the stocks longer i mean)?
Or take the profit when you can?


With a paltry sum such as $500, say a tax return or such, what would you do?

Would an option be to buy and trade with a paltry sum on speculative stocks, learning the market?

Would an 'option' be to build up your savings untill they reach a couple of thou' then Margin lend, with additional regular monthly payments ?

Would another option be to watch the market and play with something like the ASX's 'sharemarket game, untill you get a 'feel' for it?

Basically, there are so many strategies and theories out there, what would you suggest for a 'newbie'?

REDWING

With $500 I will spend all of it to buy books, posters and charting software/EOD data. That way even though I spend all the $500, but I will gain a lot of knowledge and references in the near future.

While I am spending my $500 above I will continue to save more money so when I am ready with skills and knowledge I can jump in with confident.

It is very easy to speculate, but it is not easy to make money if you don't have the skills required.

Good luck and I know you can do it through share trading/investing...

May the best man win....ie. redwing

With $500 I will spend all of it to buy books, posters and charting software/EOD data. That way even though I spend all the $500, but I will gain a lot of knowledge and references in the near future.

Jet, While I agree that reading and learning is the first thing to do, I don't agree on spending all the money for it. There are plenty of free ressources out there including charting tools and even end of day data for beginners. Surely you dont' need spend 500 dollars for that. A book or 2 would be a good idea but they don't cost the world. The rest can be found on the internet. Chances are you get the better idea this way than by buying somebody's book who will only show you one method or trading style.

Happy trading

Stefan

Stefan,

$500 sound a lot for books, but really if it cost $25 per book on average. You only can buy 20 books.

I bought 4 books by Louise Bedford and it cost $39 each. I also bought her poster pack (it is not a good buy, I must admitted) it cost $140 for the three posters. As you can see it already cost $296 and you only got $204 left over. If you want to educate yourself you got to spend some money to build your knowledges and skills.

And there are books about psychology of trading, motivation books and many other that you can buys.

The reason I bought it because I like to keep it as a references. If you want everythings for free just go to your local library and there are thousand of books out there that you can borrow and build your skills. Before I bought those books I read a lot of books from my local library, but when I want to refer back it is not on the self. Which meant read as much as you can from your local library and only bought the one that interest you.

I agreed with you that there are plenty of resources out there that you can get it for free. Just to make it simple if you can learn everything from ASX website it will be sufficient enough to trade and will make you money.

Charting tools/software are free for beginner and I am using it at the moment. But if you want to start trading you got to have the tools that suit you and you enjoy using it.

If you want everything for free just open a lot of account with a lot of different brokers. It will be plenty of informations for you.

Eventhough I have $10k sitting around I still consider it is not enough to start trading comfortably.

If I would have spare $500 and I am newbie then probably best option for me would be investing in managed fund with savings plan. Probably I would go for medium risk funds like property trusts. Online only, without advisers so I will save on entry/exit. May be I will apply 50% gearing from Smith Barney (cheapest so far - 7.6% pa and it is comparable to home loan rates). There no much risk on property trust, generally it performs over 7.6% pa. $500 investment not so big and in case of lossess it would not hurt too much (anyway margin lending will not allow to have serious losses). I would set additional investments at $100 per month geared at 50%. I would not change an amount of additional investments before expiration of 5 years just because fund performed well/not well last year.

Good thing about such type of investing - one will get real taste of investment. Completely different to simulation trading. In addition it teaches to make an investments in disciplined way.

PS: Do not take it as advice

Hi Guys,

quite agree on educating yourself, but as for cost for books, it can get very pricey... trust me i have a whole library....  :'(

something i urge and really suggest is, buy some cassettes or cd's on psychology, IMHO i highly recommend this... use the internet websites and forum as a learning curve.... and interview different full servcie brokers, if you decide to go that way...

Hi JetDollars,

very much agree, also have Louise Bedfords, poster pack about the trends and indicators, but will admittly admit its pretty lousy, compared to her books.

Cheers,
sis

Hi Redwing,

currently if your trading with e*trade at the moment, they are giving 4 weeks free subscription to Huntley's weekly news letter report (Huntley's reports have been around for such a long time now, i remember, my old man, usta recieve their reports, and was a subscriber with them for many many years) also recently there were giving yearly subscriptions to fatprophets, to members who frequently trade...

ive tried this company ************, but personally i dont like them, there good though, because they give a share suggestion, but they dont give, any entry, stoploss, or profit target.... but makes you put on your thinking cap... yet once you subscribe to their report, they are constantly calling you up, to join their mentor program.... (not too good, and from what modules they have available, is more of what the class attendees want to learn, or need more information about in there mentor program...

its definetly cheaper to buy some good books... personally i have not done there mentor program, but have been more self taught... from the school of hard knocks...  :-[) and trying to surround myself with people, who are active traders, or who have been trading for many years...

Cheers,
sis

Stefan, i'm reviewing some of P.Spann's CDs and material at the moment and learning-slowly..

Good to hear, Redwing. I still adivce against any expensive courses or mentor programs. First you need to be up to speed and have a basic understanding. Why? You won't be able to judge what these programs or courses are trying to tell you. You will take everything for granted because you don't know how to ask critical questions due to lack of knowledge. The most important thing when reading somebody's books or path to make a fortune is to be able to judge and analyse the statements made by this person. The more independed news you get, the better.

Happy trading

Stefan

Hey RedWing,

Stefan and the guys are right, it really is a matter of educating yourself and deciding yourself. Don't take it too harshly but you (or I) could lose $500 in the blink of an eye! So it's worth doing the hard yards even if $500 may not seem much. I certainly think it's considerable sum to 'gamble' but that's just me.

I do understand that you were just after different perspectives so note the following:

There are some other threads discussing various books and resources on the basics of investing/trading (including trading plans and approaches). I'm a beginner myself and found these books very useful, each has its own perspective:

1) The Intelligent Investor by Benjamin Graham (at least read the first few chapters, the 4th ed is good enough)

2) Technical Analysis of Stock Market Trends by Edwards and McGee (Divided into two sections, see the Intro).

3) Stock Market Wizards by Jack Schwager (also The New Stock Market Wizards) (Contains fascinating interviews with top traders and investors).

You could always go down to your local library or bookstore and browse through the finance books.

All the best,
RichKid

Thanks Guy's..

recieved an e-mail re:

THE NEXT PERTH MEETING WILL BE HELD;

Date: Sunday the 19th of September
Time: 9.00am start
Location: ACACIA HOTEL - 15 Robinson Avenue, Northbridge (near cnr of William St.)
Charge: $10 to cover costs.

Guest Speaker
The guest speaker this month is John Duggan from Forex Pacific.
This is the final FOREX presentation for the year before we refocus
on general trading practices and the ACTVEST/ACTTRADE systems. (Alan Hull)



As i live in Perth, may be interesting, also the money show is here on the 10th

Stefan,
As a fellow who doesn't usally comment about trading, afraid some one will steal my system, why would you read anyone's books on trading? Imagine if we all read the same books and copied the author's recommendations. We would all be the same. Isn't trading about individuality? Isn't it about out doing every other trader?
As some one who is feeling their way, I don't know if this is correct.Please advise. Thankyou.

bruham. :confused: :confused: (twice)

$500,
Except for penny dreadfulls, mining stocks, I couldn't think of anything worth the effort of spending that amount of money on stocks. Even worse, after brokerage fees are removed.

bruham.

Hi Bruham and others..

on the flipside then, what would be the 'minimum' you would invest?

Someone said to me a while back they invest $8000-10'000 min as a rule, so as to make a reasonable profit when the stock moves.. he was atrader rather than buy and hold..

REDWING

what a lively discussion - i do luv the mul references - for mine the less a new trader knows about mul the better.
anyway one 'option' for a small amount like $500 is...tradeable options. for those not aware, they are a promise to find further funds at a later date to convert the 'promise/option' to normal shares. they trade at a heavy discount to the shares because of this need to find extra funds to convert them. they have an expiry date, meaning they need to be converted prior to that date, or they are worthless. as an example, i hold some expiring dec, 2010, so any time between now & then my 'options' are:
1. find the additional funds to convert them
2. sell the promise/option to someone else, in the same way they were bought.
i'm sure a few of you out there may disagree with these thoughts, but i find them a useful way to expose my portfolio to some high risk stocks in numbers that have some merit without having to commit to an 'all up front' payment.
now leave the penny dreadful mining stocks alone and go pick on MULletheads instead..........cheerio

bruham,

why would you read anyone's books on trading?That highly depends on the kind of book. If one is new to the market, then you have to start somewhere. You can get all the information on the net these days so spending money for a book may not be needed. Others still prefer to read a book instead of sitting in front of their screen so a generic book about the stockmarket may well be an option.

Imagine if we all read the same books and copied the author's recommendations.Lol... There are so many books out there, we'd hardly ever come to one conclusion on how to become a successful trader.

As you may have seen from my previous comments, I'm not at all an advocat of seminars and "hot to REALLY do it" books. They just never work because they don't consider the reader's personal situation. (Why would they, anyway.) As a new trader you are in danger of being sucked in by somebody or something because you don't have the knowledge to analyze what's behind the story. This is the main goal of a seminar. It's about brain washing people by throwing lots of charts and expressions at them which they don't really understand. Don't give them a chance to think for themselves. Keep going and at the end, make them buy the books and tapes you placed right at the exit. It's a dirty game and I've seen way too many people wasting their savings on these guys.

Anyway, long story short, get smart! Look what others hav to say, but don't take it for gospel. There is no such thing as the key to glory. The only way to get smart is to read lots of different things. Don't become narrow minded.

The information is all there. It's up to you to sort it out. If you can learn from other people's mistakes then there's a chance that you don't have to make them yourself. The problem is that most people only mention their glorious moments, especially when they put it into a book.

Happy trading

Stefan

G'day Stefan,
The only book that I read was ,of course, that of Warren Buffett.
"How To Pick Stocks Like Warren Buffett" by Timothy Vick.
The book was enjoyable, but didn't teach me much at all. Really it was plain common sense. Buy shares that you know and in companies that you would like to own,etc.
Never would I go to all those seminars that keep appearing in the newspapers.
As I said, my trading is going well, so I don't want to do anything to change my system.

Redwing, the minimum trade has to be worth your effort. You must make a reasonable return, or you just waste your time. Especially after broker's fees and stamp duty.
My absolute minimum quanity of shares is five hundred. Due to them being expensive.And I've only traded in five hundred lots twice. Usually I do one thousand shares. Costs could be $6,000 to $26,000.
At the moment, I seem to be in a flat spot,were I can only find one company's shares that suit me. So next trade could be two thousand shares
and double the costs. $12,000 to $50,000. Never above this figure just yet.

I lost money buying managed funds.Never ever again.The funds publish their percentage profits, but you get nothing near their figures.To me they are for the lazy and uneducted(in the markets).

bruham. :D

Hi Guys,

this is an interesting topic, and really should be adding my 2 cents here, personally for me, and any trade position i usually do, is invested into bluechip stocks, where margin lending is 60% and above, but in all honestly personally for me an average trade will be between 50k - 75k per a stock holding and usually this will be around 10,000 - 20,000 units being bought at a time

....the reason being for this is, if i can buy in a stock that is moving in an uptrend and the stock can fluctuate 10 - 20 cents... a trade like this will normally give profit of about $1000-$2000, and will only be a day to a weeks holding position, but the profit side is very much more achievable to the days, when i was stingy and only buying $5000 worth of a $5-$7 stock...

also in a position like this i dont use stop losses at all, but i protect my stock holding, by hedging my positions in the case of a downside if the technical analysis is showing me that there is a potential downside in the very short term...

since using this strategy and margin lending, my profit return on my own money, after the margin facility has been taken out of consideration, has been returns of 20%+ above in very, very short time frames.

eg... AMP purchased in at $6.15 (30% down 70% LVR) sold out at 6.95 in total 10,000 units

total purchase for the amount of units (10,000) $61,500 + $300 brokerage
sold for 10,000 units at $6.95 ($69,500) + $300 brokerage

profit $8000 - $600 brokerage = total profit of $7400.00

$18,450 (30% deposit) $43,050 (70% LVR Margin Lend)

return on deposit $18,450 / $7400 = 40% return

if the position is not looking healthy, a simple hedging positions of buying puts and on selling them, is then in use to protect my holding position and any downside, but to also to make profit from a short fall.

though if hedging i will buy a sufficient amount of contracts to protect the position, though, because i trade options on a daily basis, option positions are normally bought in $5k intervals and average up, as the strike price nears, i will begin to sell, when the option price is at the money and is at a few ticks in the money already, or depending on the position, i would instead, take my capital back out and leaving my profit only at risk, and allow it to run... and sell, when downside starts to occur.

though, i have ever only done a $500 once trade before, im still holding onto that position, the reason being is, that the profit to me is personally small and due to my brokerage, i would be at loss and worse off position...

Cheers,
sis

Great post and thanks SiS

Glad you've gained knowledge in the options market- still complex to me.
Reading about them is and some other techniques is one thing and putting them into practice and achieving a profit is another thing..

REDWING

Still in School,
That's an amazing post. The more I read it, the more I now know that I know nothing. There's no way I could duplicate anything in your post.
Not in the near future, at least.
I make my profit on a rising market. Which is easy.
As Stefan has already noted. Any fool makes money in these conditions(me).
Hey Stefan, today I bought two books. Thanks to you. You were right!!!!
Book 1. How to Beat the Managed Funds By 20%. by Dale Gillham.
Book 2. Trend Trading By Daryl Guppy.
Now I have too find time to read them.

Still in School,
your post, I have to print that one out and pin it to my wall board.

bruham. : iamwithst and :iamwithst

Hi Guys,

this is an interesting topic, and really should be adding my 2 cents here, personally for me, and any trade position i usually do, is invested into bluechip stocks, where margin lending is 60% and above, but in all honestly personally for me an average trade will be between 50k - 75k per a stock holding and usually this will be around 10,000 - 20,000 units being bought at a time

....the reason being for this is, if i can buy in a stock that is moving in an uptrend and the stock can fluctuate 10 - 20 cents... a trade like this will normally give profit of about $1000-$2000, and will only be a day to a weeks holding position, but the profit side is very much more achievable to the days, when i was stingy and only buying $5000 worth of a $5-$7 stock...

also in a position like this i dont use stop losses at all, but i protect my stock holding, by hedging my positions in the case of a downside if the technical analysis is showing me that there is a potential downside in the very short term...

since using this strategy and margin lending, my profit return on my own money, after the margin facility has been taken out of consideration, has been returns of 20%+ above in very, very short time frames.

eg... AMP purchased in at $6.15 (30% down 70% LVR) sold out at 6.95 in total 10,000 units

total purchase for the amount of units (10,000) $61,500 + $300 brokerage
sold for 10,000 units at $6.95 ($69,500) + $300 brokerage

profit $8000 - $600 brokerage = total profit of $7400.00

$18,450 (30% deposit) $43,050 (70% LVR Margin Lend)

return on deposit $18,450 / $7400 = 40% return

if the position is not looking healthy, a simple hedging positions of buying puts and on selling them, is then in use to protect my holding position and any downside, but to also to make profit from a short fall.

though if hedging i will buy a sufficient amount of contracts to protect the position, though, because i trade options on a daily basis, option positions are normally bought in $5k intervals and average up, as the strike price nears, i will begin to sell, when the option price is at the money and is at a few ticks in the money already, or depending on the position, i would instead, take my capital back out and leaving my profit only at risk, and allow it to run... and sell, when downside starts to occur.

though, i have ever only done a $500 once trade before, im still holding onto that position, the reason being is, that the profit to me is personally small and due to my brokerage, i would be at loss and worse off position...

Cheers,
sis

SIS,

You are shortchanging yourself by not trading the US markets...you should come and join the nightshift.

With your capital you can margin almost the whole exchange(s) @ 75% with a ton of optionable stocks....

A lot of options actually have liquidity too!!!!.....So you are often trading with other traders rather than the %@!#*%! market maker. You will generally see tighter spreads.

Added to that, there are a lot of US stocks that will move one hell of a lot more than anything optionable on the ASX.

Check it out!

Hey WayneL,

SIS is hard headed.. LOL i've already tried convincing him to join the dark side...

Cheers,

J.

Thanks Waynel & PositiveCashflow,

i have been thinking about trading US market at night time, but i honestly can see mysleft trading almost 24 hours a day... and lol... it tempting...

though, i will give it a shot in the near future, unless... if we see the australian market begin to slow down and US market speed up, i will definetly change markets...

Thanks Guys,
Cheers,
sis

Posted this elswhere however..any thoughts on the below..

In the Financial review-

Credit Suisse private Investor- small Companies fund 1yr= 46.47%

Maquarie Master- Property securites fund 1yr= 28.78%

Perpetual Investor choice fund- small cost share 1yr= 27.77%

Sorry, dont have the 3yr returns on hand..

How about stocks such as

General Property Trust
Centro Properties
Westfield Group
Perpetual Trust Aust ??


How about Streve Navra's Fund?

Any Thoughts??

REDWING

For the beginner would you recommend..

Looking at the top 15o Companies
NewsCorp
BHP
National Australia Bank
Commonwealth
ANZ
Westpac
Telstra

etc and buying into these companies that have market strength and learn from buying here, possibly selling when aa profit target you set is reached..

would this be better than buying a speculative stock than say Great Reef Mining and hoping it rises to the occasion, or possibly find a share that has a regular pattern of rises and falls and begin trading here..

The more books you read the more confusing it gets..


What, in your opinions is the best course of action for a beginner (after paper trading)

REDWING (the curious)

Hi Redwing,

IMHO, i wouldnt personally worry to much about the property trust sector or shares... the one there that might be good you mentioned is GPT, but overall i would try to stick away from them...

the stocks below that you mentioned.

NewsCorp
BHP
National Australia Bank
Commonwealth
ANZ
Westpac
Telstra

in all honestly, i would prefer to trade the options on these shares, the reason being is, because these companies are large blue chips, and theres plenty of price flutation each day (.10 cents - .40 cents and above), blue chips stock like this, have a predictable, forecast trend... that can be easily identified in the chart pattern... but can be well profited from intraday trading options to long dated LEAP options...

Stocks, like AMP, AWC, FGL, LHG... stocks under $7.50 more personally for me, usually you will find they are either ranging or trending... but because the prices of these stocks are much lower, on the violatility scale, it can be sometimes harder to profit from on options... (where as $10 or $20 stocks, might have .10 cents - .40 cents movement in a day, there violatility is much higher)

though the new stocks, just mentioned, and because there the cheaper blue chips, theres just more volume of money being traded in them, and again they have great liquidity... (in a market, where playing with volume, and margin.... (and for me... lol, staying in some, very solid blue chips, in a fast moving market) blue chips, may make sense....

....but its the margin and gearing effect that you get, compared to buying speculative stocks... that could double your money... though, with specualtive stocks, theres, just not that margin leverage you can get... (though depending on your broker, you could though again, be able to do this)

eg.. (will say $30k, easier for me to do the maths)

lets say you have about $30k in trading capital... and both examples are going to give you a 10% return in 10 days

Trading Capital VS Capital + Margin

and for the sake of this, will use SRA and MTT (too stocks on my radar and trading at the moment)

SRA - currently trading at .20 cents
MTT - curretnly trading at 3.12

SRA @ .20 cents @ 150,000 units = $30k
MTT @ $3.12 @ 32,051 units = $100k (70% Margined)

now both go up 10%, taking a profit and return on investment of (ROI):

SRA - $30k ($3k profit) ROI $30k / $3k = 10%
MTT - $100k ($10k profit) ROI $30k / $10k = 33% (remember we use margin to help leverage our profits)

now lets look at the other side of the equation, if we were to set a stop loss, on the last line of support.

SRA - support at .175 cents (purcahsed in at .20 cents) if stopped out 14% loss
MTT - support at $3.00 (purchased in at 3.12 cents) if stopped out 4% loss

SRA - $30k (minus 14% if being stopped out = $4,200) Capital left = $30k - $4,200 = $25,800
MTT- $100k (minus 4% if being stopped out = $4,000) (though loss on true $30k capital = $30k then divided by $4,000) Capital left = $30k - $4000 = $26,000

True Loss (capital remaining) & Loss on Investment %

SRA - $30,000 - $4,200 = $25,800 16% total loss on investment
MTT - $30,000 - $4,000 = $26,000 15% total loss on investment

** pls note...

in this example, what ive shown is, if you use leverage, it can amplify losses, but at the same time, if your investing into solid blue chip stocks, your loss, can still be less, than if you invested into a midcap or part speculative position...

though one, stock was margin and geared, the loss was still kept to a minimal and in this example, it still out preformed in being a winner, even if both stocks got stopped out.

though, if both stocks did go up in value... clearly the blue chip stock, would have out preformed the speculative position on a percent and dollar figure value....

(less risk, more bang for your dollars, but also you can sleep much better at night time)

Cheers,
sis

ps..

anyway, this is the way, i truly trade, and with some caculations, technical analysis, and instead of using stop losses, and losing capital, instead i hedge and protect positions, if i do feel my entry was wrong...

though, once the share is going up, profit targets or profit stop losses can be entered, to both protect capital and profit...

Hi SiS,

Thanks for the post S.i.S

I entered the shares in order from the AFR top 7 of the top 150
NewsCorp
BHP
National Australia Bank
Commonwealth
ANZ
Westpac
Telstra

I've sent you those i've been looking at (and kicking myself for not buying in August), IMHO some good Blue Chips..

I like you're leveraged example..


REDWING

Hi Redwing,

another one i would be watching at the moment is BIL (Brambles) just jumped on the boat today... very nice pullback, but another excellent blue chip, but has excellent LVR, market exposure and liquidity...

Cheers,
sis