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Tuesday, 26 July 2005
A Reader Writes: "How should I start?"
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please consult with your professional investment advisors prior to making any investment decisions based on information on this website. And even to answers to questions in the Email!

Checking through my email today, I found a letter from Amy K. who writes:
Hi! Bob,

I am a fulltime mom, and now I feel the need to make some extra income to help my husband to support our own family and his brother's family as well. I have only $500 in my brokerage account. It seems to me there are not many opportunities for such little money. I am targeting on the small cap stocks whose prices are under $5, and I would like to do swing trades. But so far I haven't been able to get into any position. Do you have any advice for me on how I should start? Thank you so very much for your time and help!!

Good luck trading!!



Best regards,

Amy
Thank you for writing Amy! Please really take seriously the fact that I am an amateur investor. I am not qualified to advise you individually about your particular situation and you should consult with your professional investment advisor.

I would like to share with you my own experience in investing. Years ago, literally about 25-30 years ago, when I first started investing, I would invest small dollar amounts into my Merrill Lynch "Sharebuilder Account". I am not sure whether Merrill still has that option or not, but I would pick a stock and buy maybe $75 or $125 worth of stock even if it were just a share or two.

I am aware, however, of the "ShareBuilder" online brokerage. I do not have ANY financial interest in this site, nor do I receive any money from this or any brokerage account. Perhaps someday, if I ever get famous :) I shall have ads here! But not today.

Anyhow, ShareBuilder does allow small investments.

For anybody starting out with a small amount, it is always wise to do the usual responsible things, like pay down high interest credit cards, develop a 90 day cash reserve, etc. However, if you are interested in equities and mutual funds don't do anything for you, then maybe buying some shares isn't a bad idea.

Personally, I find that your particular strategy, while it may turn out great for you, is high risk. And with the small amount of funds that you have, I would rather you start with just a few shares of a quality stock rather than a lot of shares of a small priced stock. As William O'Neill likes to point out, most of the stocks under $5 are going to be of poorer quality than the more expensive shares. These tend to be of greater risk, and even though you might think you could make some money this way, the possibility of losing it is also greater.

That being said, I would rather see you purchase $300 of one stock and $200 of a second stock and then regularly add some cash to these two positions until you reach your initial $ goal for a position. For instance, you might wish to accumulate a $1,000 position. And if you were interested in adding $100/month to the account, you could buy $50/month of each stock. One is likely to hit your goal first...then you could start on a third stock, etc. until you hit your initial goal.

Try not to worry about how many shares you will be owning. This isn't a good way to make any income in the short run, but in the long run, you can acquire a significant portfolio even if you start small.

Good luck investing! Let me know what you decide to go and I shall share it with our readers (if you don't mind!).

Bob


Posted by bobsadviceforstocks at 5:35 PM CDT | Post Comment | Permalink

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