Registered User
Joined: 9/1/2005
Posts: 16
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Hey all, this is my first post here at TC, I just subscribed to the Gold Version and it is awsome. As my title implies, I am 15 years old, currently have a part time job, and need some advice! I have read over 20 investing books so far (ordering other 2 Market Wizards and Trader Vic right now) including:
The Intelligent Investor
High Probability Trading
Random Walk Down Wall Street
Siegel's Books
Morningstar Books
Peter Lynch's Books
2 Will O'Neil Books (Succesful Investor and How to Make Money in Stocks)
Common Sense on Mutual Funds (correct title? Bogles Book)
Dummies Guide for Technical Analysis (yea, laugh it up. Good book though, hopefully ordering more Technical Analysis books soon)
And more random ones
I also have premium subscriptions to TC (of course), Smart Money, and IBD (grandma gets the paper, but she lets me use the site, which pretty much gives you the whole paper for free).
Anyways, I am obviously going to read a ton more and hope to get some more experience. But I have conflicting views on what I should with my saved up money now. I am planning to work part time for the next 3-4 years, making around 3-4k a year, if not a little more. I have $1,600 in Vanguard Total Stock Market (VTSMX) and around $1,000 in the bank (I save 80% of my paycheck). *gasp* Ok, here is the question. Should I use my couple thousand or more when I earn that soon and trade slowly, just to get my feet wet and see what it's like, since I am young and it will be a good learning experience? Or should I just invest all of it into mutual funds until I graduate from college and then pull that out and start trading with that? (To clarify, I plan on trading, but having a job at a financial institution when I get older. So I won't be living off this money, nor will I be day trading at home everyday. But nevertheless, I plan on trading often and taking it seriously.)
My grandma is retired but swing trades (sometimes daytrades) and she is relatively sucessful, so I know what it is like. So, what my questions boil down to is, is 3-5-possibley $10k worth trading with to get experience, or should I wait to get more money than gain experience with that? Being undercapitalized is bad, but another side of me wants to get started soon (not to gain money, trust me, I understand how long it takes to make profits consistently) because I have nothing to lose and I have time to devote to TC and selecting stocks. Anyways, thanks (if you are still reading), and I would appreciate all thoughts you have on this!
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Registered User
Joined: 10/7/2004
Posts: 2,126
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Hello Bamilus! Greetings from a seasoned trader - since 1999. Here people know me by Bigblock (it has to do with my trading style). Anyway it is refreshing to see a post like this. You are only 15 yrs old, and have gone much further in your research and preparation than many other adults.
There are 2 things you must keep in mind:
1 - you cannot make a living trading with less than $50,000 and that is the low end. Now if you do not have to pay the bills, then you can trade with less and build your way up. If you have that luxury take it while you can and do good things with your money.
2 - Trading successfully requires full time dedication and a clear mind. If you are going to college, I think you should concentrate on that mainly. Now do not put the money in Mutual Funds you will most likely regret that. Try instead ETF's which require somewhat less attention than specific stocks and are still very flexible in the sense that they trade like stocks and are very liquid. QQQQ are a popular ETF.
I suppose that you will go into finances when you go to college - that will be a great oportunity to expand your knowledge of the markets.
If you need any further help picking your books for further education on trading let me know I will be willing to help you with that.
Welcome to TC2005!
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Registered User
Joined: 1/15/2005
Posts: 13
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I started trading at around 16, now 24.
after studying the market for a year and
placed virtual trades on etrade. I borrowed $3000
from my parents (no interest =P) at that time and was doing range trading.
It went well at first, I traded up to $5000
and returned $3000 back to my parents within a year and half. Then I thought I could easily earn a living on this and eventually became greedy. I didn't have money mgt and never put a stop loss. Then bull market came and you can imagine what happened first then after. So yes I did get burned eventually.
to sum it up
- You don't need lots of money to start investing; you have to go through the path anyways
- Stop-Loss, Stop-Loss, Stop-Loss; no matter how much you luck out, no $ mgt will burn you eventually.
- Admit your mistakes and record your trades.
One thing I do disagree with Bigblock is that you will regret mutual fund. Mutual Funds have active mgt, which you will never get with ETF. If you find Peter Lynch vs ETF, you go figure =)
ETFs are a good trading vehicle and I certainly use it as well, but my point is that they serve different purpose and should not consider one over another; utilize both.
And finally, a stock trader's almanac is useful.
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Registered User
Joined: 3/25/2005
Posts: 864
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Hi Bamilus,
You are off to a good start.
Bigblock makes some good points if you are to become a trader but given the amount of money you have currently and your current inexperience at trading, I believe your best approach should be one as a diversified investor and you can start now!
First of all -- Don't give your money to the Mutual Funds! You can play this game successfully without them!
Here is what you need to do with the money you already have and with the future investment money you will earn via employment:
1)Using Tc2005, keep tabs on the current top 7 performing industry sectors over a moving 1 month time period.
For Example, as of this weekin, the top 7 perfomers using the '1-month price percent change' sortvalue are in this order:
ENERGY - Oil&Gas Refining and Marketing, MATERIALS&CONSTRUCTION - General Contractors,
WHOLESALE - Building Materials,
UTILITIES - Water,
ENERGY - Independent Oil&Gas, MATERIALS&CONSTRUCTION - Manufactured Housing, ELECTRONICS - Scientific and Technical Instruments
2)Using the Russell 3000 index of stocks, find those stocks in each of the current top 7 industry sectors that have PE's multiples of 17 or less.
3)Go to the finance page at the Yahoo website and review the price targets for each of those stocks that have the PE multiples mentioned above. The stocks whose price targets are still at least $10 above the current price are the ones you should invest in.
4)Purchase exactly 10 shares of each stock and stay in the stock until you have made at least a $5.00 profit per share on your investment. Afterward, get out of that stock and replace it with another one.
(Once you have made a mininum of $5.00 profit, set trailing stops to prevent you from losing the $5.00 profit you have already made on that stock).
5)Maintain a diversified portfolio of no more than 10 stocks at a time. (I would advice that you not choose more than 2 stocks per each industry sectors currently in the top 7).
6)Set Stop Losses on each of the stocks in your portfolio of $13.00 below your Entry Price (So, the only reasons that you will ever exit one of your stock selections is if your stop loss has executed or you have made $5.00 or more profit on the selection)
* The above rules will do 5 things for you:
1)It will enable you to not have to Micro-Manage your porfolio (unlike a trader).
2)You can sleep well at night because you have minimized your risk through diversification and through minimized share-purchases of only 10 shares each.
3) It enables you to easily practice good money manage techniques.
4)These rules will give you the opportunity (but not necessarily the promise) to make at least $50.00 on each investment before you change each stock out for a new one.
5)Your portfolio identifies you as an investor and not a trader.
* Please be advised that I have seen this approach take as little as a few days up to a month to achieve the expected $5.00 profit on each stock.
Finally, using this approach, you can invest this way for a life time. And, as your portfolio increases in value to the point where you can take more risk, you can eventually start purchasing 20 shares per stock, then 30 shares per stock and so on, and so on.
I believe that you can eventually make a lot of money over a lifetime this way.
GOD'S SPEED,
memorable
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Registered User
Joined: 3/25/2005
Posts: 864
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Bamilus --
I would like to correct 2 statements above:
In rule no. 2 above, you should checkout the Russell 3000 component stocks in Tc2005 and add the sub-industry group sortvalue in one of your tab displays.
Also, I stated that you could call yourself an investor rather than a trader. Well, actually, that is not really accurate. You are more of an investor than a daytrader when you follow the approach above but I believe a more correct label for you would either be a swing-trader or a position-trader using this approach.
I believe you have to hold stocks for a year or more to be considered a true investor and anything shorter term than that makes you a trader.
memorable
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Registered User
Joined: 9/1/2005
Posts: 16
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Wow! Thanks a bunch guys! I've never gotten this much help from a forum before :) I appreciate all your posts, I feel a lot more secure now that I have your advice and thinking to reinforce mine. And Memorable, I will definently check out your steps that you posted for me, they look great! Once again, thanks and God Bless.
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Registered User
Joined: 1/15/2005
Posts: 13
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"6)Set Stop Losses on each of the stocks in your portfolio of $13.00 below your Entry Price (So, the only reasons that you will ever exit one of your stock selections is if your stop loss has executed or you have made $5.00 or more profit on the selection)"
Correct me if I am reading the above stmt wrong, but
why would you take a risk of losing $13 for a $5 gain?...
not saying your strategy doesn't work because i certainly
didn't check it out myself, but to me "personally" the risk to reward ratio is uhhhh..... =)
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Registered User
Joined: 9/1/2005
Posts: 16
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I have to agree with Mic on that one, I would feel more comfortable with a stop loss under a trendline, or whenever MACD/ADX/Stochastics combo or otherwise start to tell me to get out. But, I'm still learning so I'm sure I'll figure something out. Oh, I got one more question. Do any of you guys use fundamental analysis? I'm curious if I should use fundamental analysis, just to search for top performers (CANSLIM stocks), and then use Technical Analysis to trade them. Any thoughts? Or should I totally ignore the stock completely and just look at the technicals? Thanks!
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Registered User
Joined: 3/25/2005
Posts: 864
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I have a good reason for recommending that you take this approach to stop loss as follows:
You don't want to get out of the stock too soon and end up taking a loss that could eventually be a profit for you within a month's time.
Several times I have seen one of these stocks drop $6 or $7 on average only to turn around a few days later and head back up to $5.00 or more in profitability.
The worse that I have seen in a ton of these observations was when the stock almost dropped $13.00 before turning around and completing the $5.00 profitablity within a month after the original entry price point (This type of extreme is very rare).
The point is, if one of these stocks drops $6 or $7, your emotions are going to probably kick-in and you are going to want to sell and take a loss. But, most of the time, I guarantee that you will be making the wrong choice.
I have observed so far that if the stock drops past the $13 threshold it will probably not recover within a month's time from your entry point.
So, for this reason, I am saying don't give up on the stock until it reaches this point (which, in most cases, it probably never will before you have made a profit).
With this system, you don't need to micro-manage your trades with trendlines, support and resistance lines, moving averages, TSV, Stochastics, MACD's, RS curves etc. etc. (been there, done that and getting tired of it)
You can just sit back, relax and occassionally check in on the portfolio to see how things are going!
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Registered User
Joined: 3/25/2005
Posts: 864
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Bamilus,
To answer you question about using Fundamental Analysis and Technical Analysis in the context of the system that previously proposed to you,
I say: 'For Get About It....'
The $13.00 stop loss enables you to ignore the technicals and the fundamental analysis has already been done for you by the analyst who set the projected price target and by the low PE multiples for your stocks of interest.
What more do you need. Enjoy!
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Registered User
Joined: 9/1/2005
Posts: 16
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Ok, thanks for the clarification and the prompt answers Memorable! I am definently intrigued by your system, and I will surely give it a shot in 4-5 or so months when I have enough money and feel confident enough to get my feet wet. When that day comes, I will let you know how it works! Thanks again everyone! (I think my questions are done, but I wouldn't mind other people's feedback if they have some :P)
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Registered User
Joined: 3/25/2005
Posts: 864
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Sure thing, Bamilus and I will gladly accept gratuities from anyone who is successful with this system.
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Registered User
Joined: 12/18/2004
Posts: 180
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Just thought it might be wise to add that you should be very careful following analyst price targets. These are given by "sell-side" analysts whose job it is to move prices. Standard and Poors is pretty good, if you have access to S&P reports. Most of their price targets are generated using a Discounted Cash Flow model (DCF). You can also learn how to do this for yourself. If you use any such analysis, don't take it as the gospel that the price will reach that target, but it is just one more tool that tells you that the stock can justify a higher price (or not) based on the present value of what the company is expected to generate in cash over a given time period (usually infinite). Of course, things can happen that may alter the actual value of the company, so you want to stick with proven companies that have been around or those with many things going for them. You may want to do an internet search for "Aswath Damodaran". There are spreadsheets available on the net that will calculate a stock's fair value for you once you find all the inputs.
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Registered User
Joined: 3/25/2005
Posts: 864
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You can calculate your own target price projections also. I would do this just to see how my own price projections match up with those so called 'sell-side analyst'.
Here is how it is done:
If the price of a stock is $39.75 and its current earnings are $3.60 and the company estimates that it will earn 25% in the next quarter (its estimated growth rate for the next quarter)and its current P/E ratio is 10.9 then you would:
1) Multiply $3.60 times 25% = .90
2) Add this .90 to the $3.60 = $4.50
3) Multiply this $4.50 times the 10.9 P/E ratio = 49.02
4) So, The Projected Price Target is $49.02
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