A New Investor!

The Barbarian Investor · 17 November 2004

Hi All,

I’m new to the ‘businesses’ of shares, not to actual investing- what luck I’ve had with my choices over the years has been random.

However, I’ve decided to become a member of this forum and re-enter the market , this time exploring my options, such as, well, options, hedging, Technical Analysis, charting (in it’s various forms), all a foreign language to me, but I’m willing to learn.

As part of this ‘learning process’ I’m willing to post my ideas and thoughts here, no matter how silly they seem and I’m prepared to have them shot down by anyone here.. I believe this may be beneficial to other beginners.

The Barbarian Investor :ald:

The Barbarian Investor · 17 November 2004

A Barbarian

Q-

I’ve picked an example stock ARP- at $4.18 the other day.

If I purchase $5’000.00 worth of this stock (1’196 shares) and it then rises to $4.40 (as it has in the past) and I sold, a 22c Gain would be realised (not withstanding on-line brokerage).

22c x 1’196 shares = $236.12, so now I have $5’236.12 (not including buying and selling costs) not even a 5% gain!! Then take out my associated cost’s..

At 10% I make a $500 gain, a bit more reasonable. Should this then be my ‘benchmark’ (10%)?

So, I’m looking for a share that has potential for-

A/ Growth…of 10% and above

Or

B/ Income..potential for regular and increasing dividends.

I won’t receive much of either with $5000.00 starting capital, so I’m looking at $5-10’000, not much in the scheme of things, but it’s my base, I’m willing to add regular deposits to an account and then purchase further stocks as time goes by.

I wouldn’t be happy to make a Loss (who would), however, I’m mindful of Mr Market and his moods and I’m willing to listen to Techa’s advice and set a stop/exit at 10% also (Any more than that maybe hard for the share to recover from in the short term and would make me anxious), this is done to protect my capital.

I place more faith in the Blue-Chip or Top 200 companies and feel this is safer and less risky at this stage.

Feel free to post..

The Barbarian Investor.

bruham · 17 November 2004

Re: A New Investor !

Barbarian,
Like you,I'm a novice also.I've been trading for just on a year. haven't lost a dollar,yet!
My float is fifty thousand dollars.You can trade four or five stocks, so if they all jump by twenty-five cents or more, and you buy minimum of one thousand shares in each stock,there's reasonable money to be made.
25cents by one thousand shares=$250 profit by four trades equals $1,000.
This is how I'm doing it. No brains required.

bruham. :iamwithst

tech/a · 18 November 2004

Re: A New Investor !

Barbarian

WARNING

If your only trading one stock your exposure at 10% of initial buy price is 10% of your Initial Equity.
If you get it wrong 6 or so times straight(Highly likely even if experienced) then you effectivly out of the game due to lack of funds.
This is the dilema of the undercapitalised trader!

However (as I cant give advice)this is what I did years ago.

I simply took out the smallest Margin loan possible.$15000 with BT.
That gave me around 2.5X leverage.
That also meant enough for 8 trades at $5K and my stop meant
10%/8 = 1.25% of my capital on EACH trade actually including leverage
1.25 x 2.5 leverage = 3.125% on each trade.

Now on the Matrix shown you can even be right 30% of the time and make profit.Thats with an AVERAGEwin of 5x loss which mean 15.6% average win.

You will have less and you should be aiming at more!! To get the average % win up as high as possible.
Ill run a simulation on the 2 models I trade at the amounts you trade and see the results.

tech

still_in_school · 21 November 2004

Re: A New Investor !

Hi Guys,

Personally, ive heard different number of holdings that anyone person should have if trading in the stock market, for general, ive heard that 8 - 12 stocks should be held your trading portfolio at anyone time...

though as a begineer, anywhere between 3 - 5 different stock holding, should be noted to begin with, the reason being is, not enough diversification, the higher risk of capital being loss, to fewer trades...

though, personally, the maximum a portfolio should have in holding stocks, is no more than 20 different stock holdings... any more after this... is setting yourself up for risk....

anyway heres a risk - reward profiler below...

Cheers,
sis

bruham · 21 November 2004

Re: A New Investor !

SIS,
Depends on your risk factor. I'm prepared to lose my trading stake.
I wouldn't be happy if that happened,that's my worst fear.
As for how many stocks you should hold, I trade from one to five.This puts me in your high risk category.
To me I don't trade like anyone else. I trade only one day a week.
That's my way of doing it.

bruham. :iamwithst

The Barbarian Investor · 21 November 2004

Thanks

Still In School , Tech/a and Bruhams, many thanks for your posts..

In an Ideal world i would like to hold 10-12 stocks, this i believe would give me enough to monitor and not expose myself to much to the market as a whole.

Bruham, $50'000 is above my disposable cash at hand, however, i could always look at Margin Lending as Still in School suggested with quality Blue chips or those in the top 150-200 shares. I would always like to cover myself by having cash at hand should i recieve a margin call..i'd like to sell when i 'want to'.

Tech/a, hard to believe that some years back you were a novice and starting on the road to financial freedom.

Charting to me seems to make sense to me, from what i know at this stage, however- what to do when the stock is at record highs?
And it's resistance level is unknown?

Supposedly the stockmarket is up 50% from 2 years ago..

I've enjoyed watching the moving averages along with the share chart to get a feel for the share..

PS- I had a look at NMS and Mirabella -MBN , they seem to be at thier 12 month highs at this stage though?

Westfield looks like it is rising again and seem sto be in the 'channel' that SiS was talking about in another post, at this share price and for it to move up to it's resistance level again (20c gain) what would be the minimuim investment to make it worthwhile?

The Barbarian Investor
going to have a look at Sonic Healthcare now...SHL

bruham · 22 November 2004

Re: A New Investor !

When I trade, I like turn over. I only want to hold the stocks for one or two weeks. I trade on the internet, so I'm paying brokerage of sixty dollars etc
(buy and sell).My profits are not returned to trading. They go to my LOC loan repayments (deposits for property investments).
My trading day is Monday afternoon. Today WALL SREET is well down, so I'm looking to buy.
On with the game!

bruham. :iamwithst

bruham · 22 November 2004

Re: A New Investor !

Barbarian,
You know a lot more than me to use margin lending. I would be scared sh_tless to borrow that way.

I have been reading a lot of posts here and I have NO idea what you're going on with. Total confusion to me.
So I'll just stick to my simple ways and I'll keep on reading this website , hoping to learn something.

bruham. :behead: :iamwithst

tech/a · 22 November 2004

Re: A New Investor !

Understanding.

Understanding---How it works
Understanding -----how to apply it.
Understanding----whats the worst thing that can happen.
Understanding-----Your risk.
Understanding-----How your reward is increased.

This removes the FEAR of Leveraged Trading.(Margin,CFD's,Futures)

Doesnt mean youll be profitable.
But will give you the opportunity to work your money harder.

Bruham.

Youll borrow Thousands for Property investments----------the difference is??----Perhaps Understanding?

tech

still_in_school · 22 November 2004

Re: Thanks

The Barbarian Investor said:
PS- I had a look at NMS and Mirabella -MBN , they seem to be at thier 12 month highs at this stage though?

Westfield looks like it is rising again and seem sto be in the 'channel' that SiS was talking about in another post, at this share price and for it to move up to it's resistance level again (20c gain) what would be the minimuim investment to make it worthwhile?

The Barbarian Investor
going to have a look at Sonic Healthcare now...SHL

Hi Barbarian Investor,

...MBN i would be buying it up... personally i have a very large stake in this stock.. (and have loss count in how much, holdings), though personally, this stock i definetly feel will go through the roof within the next 4-8 weeks at the most, and most likely will double in price...

just checking todays close at it closed up even higher again at 35.5 (though did managed to get some nice parcels in at .30 cents...)

this is one stock, i suggest you keep on your watchlist... but watch it, and learn from it as you see, the market reaction, due to when reports or news breaks out...

NWS - just a major pullback, but nothing really concerning... (its media and technology) and on ABC Business News today... all good news, but one stock for the future of good growth propersition...

though, i had options up till today on WDC, and exit out on those, the stock is having problems breaking that $15.50 resistance, but another good stock option, that should have a nice bounce tomorrow is SGB (St George Bank) with todays nice market pull back and SGB closing at $24.12 and closing on its dip of an uptrend... should have a nice rally up tomorrow as it goes ex-dividend on the 29th of november...

Cheers,
sis

The Barbarian Investor · 22 November 2004

Reply

Hi Still in School,

With the Options Market, did you go to a course on how to trade it (ASX or Similair) or have you had someone show you the ropes ( a better option?), Options interest me, but i think you need a reasonable understanding of the process and it's pitfalls to play them.

The idea of making a profit without totally purchasing the share seems to be a good idea (all things being positive) on a limited cash holding.

The markets seem tohave a lot of strength left in them according to all accounts and even though they are trading at highs of 2 years, i believe there is still gains to be made, i just have to find them

Hopefully MBN has some strength to rise, where have you set your profit/exit and stop/loss level at if you don't mind me asking? (trying to get a 'feel' for it)

The Barbarian Investor

tech/a · 23 November 2004

Re: A New Investor !

B.

"The New Options Advantage"
David Caplan

Dont be sucked in by the lure of leverage.
Until you can make a consistant profit from conventional trading leveraged trading particularly if less than cashed up,generally takes you out of the game super quick.

tech

RichKid · 23 November 2004

Re: A New Investor !

In terms of leverage I was looking at using CFD's- but as you say tech it's better to get a grip on conventional trading first. Still, CFD's look interesting- it'll take me some months to figure out how they work and if there are any real advantages for me to use em.

Currently looking at CMC, Tricom and IG for CFD trading, might go to some of their free intro seminars. I use ComSec for my normal trading and if I can find an equivalent cutprice CFD provider with good basic tools I'll give it a go to test the water.

The Barbarian Investor · 25 November 2004

hi Rich Kid

have a look at www.cmcgroup.com.au for CFD's

By the way, i'm looking at setting up an ActionPlan and think the one below is OK, i have it in EXCEL format as a reminder of my plan..what do you think?

STOCK... ACTION....CURRENT PRICE....TARGET..STOP/LOSS..TIME FRAME
CRD....... BUY..........19c...................40c.........14c..........12 months
GDP....... BUy...........78c..................$1.50.......50c...........12 months
LLC....... TRADE/BUy..$12.20.............$12.60......................2-4 weeks
PTD....... BUY............$1.87...............$3.50.......$1.54........12 months

Also..any ideas on deciding the number of shares to buy as such-
decide the dollar amount you are prepared to lose if the stocktrades below the Suggested Stop/Loss (Typically 2-3% for the majority) If you can afford to lose $350 then the maximum shares which could be purchased is $350 / (Market Price- Stop Loss Sell Price)

If a share increases in Value, i also intend to 'move' my stop loss up accordingly , covering myself and locking in profits if the share price drops suddenly.

Still trying to come to grips with "Covered Call's", i think you need someone to physically 'show you' rather than just reading/listening..any ideas here?

Maybe the ASX Options Booklet? and also visit the ASX for course?

PS- couldn't attach Excel file from desktop?

The Barbarian Investor

still_in_school · 25 November 2004

Re: A New Investor !

Hi Guys,

IMHO, i trade CFD's with CMC Groups (see Barbarian Investor post for link), i also have a trading account platform for CFD's with Tricom.

The reason why, i dont trade with Tricom with CFD's (yet everything else i do) is because, Tricom's margin is 10% up on most instrutments being traded, there brokerage is a little higher @ .03 %,

while

CMC Groups - 5% margin down more leverage, but brokerage is also only .01%

though the reason, why i trade CFD's with CMC Groups, is that on 5% margin required, and on technical analysis entry, if im wrong or stepped out, im happy to lose that 5% as its equal to an equavilent stop loss.

eg..

ABC (trading at $3.00)

5% of $3.00 = $0.15 cents

If stopped out $3.00 - $2.85 = my stop loss would be trigger at $2.85, yet because trading on margin, the amount i would lose, would be quite minimal, as 5% is the maximal i can lose, but the potential to gain is unlimited to an extent.

if i was to lose more than 5%, i would then be margin called, though because of my strict trading style reginm. 5% is the maximum i can lose, but thats one of hte reasons why i like CMC Groups VS Tricom, as 10% margin, can sometimes keep you into a losing trade longer...

though this type of trading, i do with CMC Groups, is real bullish or bearish trades, (BlueChips stock again). they are only trades that i can't do with options, because of lack of open interest, or there are no options on the stock.

Cheers,
sis

still_in_school · 25 November 2004

Re: Reply

The Barbarian Investor said:
Hi Still in School,

With the Options Market, did you go to a course on how to trade it (ASX or Similair) or have you had someone show you the ropes ( a better option?), Options interest me, but i think you need a reasonable understanding of the process and it's pitfalls to play them.

The idea of making a profit without totally purchasing the share seems to be a good idea (all things being positive) on a limited cash holding.

The markets seem tohave a lot of strength left in them according to all accounts and even though they are trading at highs of 2 years, i believe there is still gains to be made, i just have to find them

Hopefully MBN has some strength to rise, where have you set your profit/exit and stop/loss level at if you don't mind me asking? (trying to get a 'feel' for it)

The Barbarian Investor

Hi Barbarian Investor,

i like trading options because they are less risk (than stock) the Option game is very fast, but most people will say that option trading is risky (i will agree to a certain extent, though once you have an understanding option trading is quite profitable, but risk can be minmised and capital can be protected)

i've had a few people now, show me how to trade options, but also, have a broker and talking about your trade decision, before you go ahead, can be reassuring and positive.

Option trading, can be great, because of all the different strategies and combinations of these strategies, but overall, option trading is very important you get educated.

there are some good books out there, from the ASX and Guy Bowen, but if your doing stand alone positions in option trading instead of spreads, its almost like forecasting the direction of the trade (trend is your friend), and exiting on your share price targets.

though learn to share trade first, before you begin to option trade, and short sell too.... though for practisiing i like CFD's cause it teaches you to fine tune your entry points, because of low margin, but if your stop out, your trade is over, but you become much better at idnentify early entry points or technical indicators

though MBN, im still very bullish... still giving it more time to nourish..

Cheers,
sis

The Barbarian Investor · 29 November 2004

Re: A New Investor !

Hi Still in School,

I will have to look at CFD's a bit further.

In regards to Stop/Loss i was just made aware that a broker has no obligation to execute it and in a rapidly falling stock he may not have to do so..

Another option, though unsure if it is worthwhile in a rising market is Hedging- maybe in an uncertain market to 'lock-in' a high price achieved?

hmmmm..

A New Investor!

The Barbarian Investor

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