Starting in Stocks

[NakorOranges]

Hi all.

Ive been doing some research for a while and I’ve decided I want to try some trading!

To give you some background, Im 24, a student with a physics degree, about to finish my mech eng degree (8 months to go), and am so far debt free by sacrificing my summers to the reserves (im out now) and doing coops, all said around 50K in tuition so far with another 8K to go…plus rent. Gah. But the fantasy world of school is about to end and I feel I should get some experience in investing.

Since Im young-ish and stupid the way I want to try this is with stocks. Around the structure of how I want to do this the best choice seems to be with Questrade (Ive read the threads here so I know some of the conflict), but the 50$ free trade commissions, the 5$ trades after that, and the TFSA system (I have no money in any of them yet) has drawn me in. Ill worry about inactivity fees if I get that far and don’t lose all my money.

So Ive decided to throw $1000 in with questrade and see what happens. While I would prefer not to lose my money, I can survive the hit since Im so close to the end of school anyway. Im currently at a COOP job I have a lot of extra time to spend at so a more active style of trading is feasible and appealing to my foolishness.

But I’m not a complete idiot, so I thought I would ask here first if actively trading (swing/day) is even possible on such a small start without getting killed on commissions?

I think doing is the best way to learn something and that is really what this is about, but making a bunch of useless trades won’t teach me anything either.

Any input is much appreciated!

Thanks, Matt.

EDIT: I should add in no way am I asking for "stock tips"

[t_ginuwine]

Have you read any books on the subject? Beware that most books are written by people that are in the business of selling trading education, not actual traders. However you do come across few books that offer truth and realistic expectations of trading the markets.

The stats from veteran brokers are consistent. 85% of small account traders fail to succeed. They just don't have the staying power to see their strategy see it work. I suggest you build your capital and find a broker that charges much less commission.

Here are some books I recommend to get started:


Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House
http://ca.wiley.com/WileyCDA/WileyTitle/productCd-0470933097.html


Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude
http://www.amazon.ca/Trading-Zone-Confidence-Discipline-Attitude/dp/0735201447

[SkimGuy]

Are you investing to try to make money in the short term like day traders? Or are you investing for long-term capital growth?

If you're aiming for the first type, just forget it. You need leverage (i.e money) to make big plays in the market, and with $1,000 invested, the commissions will erase your capital pretty quickly.

If you're investing for long term growth, Broad index ETFs are your best friends.

[cjottawa]

Before you put any money on the line, read the book "The Four Pillars of Investing."

As an individual, there are an array of factors, companies and odds stacked against you.

Remember: you are only one side of the trade.
On the other side of the trade are:

multi-billion dollar companies
market-makers
research departments
institutional investors

...all trying to make money off YOU.

Do you think you can beat that?
It's not about smarts. I'm a smart guy. You're a smart guy.

The deck is stacked against us. It's a loser's game. Your best option is not to play.

Index investing is the winner's game for the little guy.
It's not glamorous but will make your fair share of returns, over the long haul. (20-35 year time window)

EDIT - paraphrasing "The Four Pillars..." and others, set aside 5-10% of your investment dollars for "fun distractions." If that distraction is "day trading" for you, go with that.

That 5-10% will keep you amused and your hands off the other 90-95% that is going to fund your retirement. A word of caution: if (or when) you lose that 5%, don't assign more to it; it's gone.

For me that 5% isn't for day trading; it's DRIP investing in Canadian dividend paying companies. For more on that, see these links or read the book "The Lazy Investor":

http://www.dripprimer.ca/aboutdrips
http://dripinvesting.org/boards/boards.asp
http://www.finiki.org/wiki/Dividend_Reinvestment_Plan

[NakorOranges]

Thanks for your answers so far everyone, its very good to know. Using jr high math I basically said if i pick a stock and put all 1000 into it, and it goes up 2%, i spent half of what I made on commissions. Clearly not at all what I would actually do, but just the most basic example of how it seemed possible.

As for indexs I really like this idea for two.5 reasons. One is that theyre probably a safer investment, the second reason is that looking at their histories, at least recently, theyre almost as volatile as everything else, but within a range. Almost seems like a perfect playground to get my feet wet in really. Unless of course the TSX crashes...

The half reason is since there are so many indexs that get more and more specialised, if i get involved in those, it gives me a chance to play close attention to smaller groups of companies and individual companies until I feel I have better grasp on whats going on.

Or Im making no sense, in which case please tell me.

[SkimGuy]

Thanks for your answers so far everyone, its very good to know. Using jr high math I basically said if i pick a stock and put all 1000 into it, and it goes up 2%, i spent half of what I made on commissions. Clearly not at all what I would actually do, but just the most basic example of how it seemed possible.

As for indexs I really like this idea for two.5 reasons. One is that theyre probably a safer investment, the second reason is that looking at their histories, at least recently, theyre almost as volatile as everything else, but within a range. Almost seems like a perfect playground to get my feet wet in really. Unless of course the TSX crashes...

The half reason is since there are so many indexs that get more and more specialised, if i get involved in those, it gives me a chance to play close attention to smaller groups of companies and individual companies until I feel I have better grasp on whats going on.

Or Im making no sense, in which case please tell me.

The point of index ETFs is that they're meant to mirror an index. Sure, you can gamble and try to pick out which sector/industry ETFs will outperform the market but at that point it's essentially timing the market. You can play with sector ETFs but they're mostly used by investors with extensive knowledge of the industry. For just regular investors like you and me I highly recommend index ETFs unless you're willing to put the time and effort into researching individual industries.

[Stryker]

Back in the 90's I noticed that the professional managers were saying that it was very difficult to beat the market due to the fact that it's a bull market for equities. Wait til there's a trader's market they said. Well, we've had a trader's market for well over a decade now and when I compare their active fund returns for the last ten years to a live index like TD e-Series funds, the majority of active are still getting whipped. Too bad there's no way of telling by looking in the rear view mirror as to which are the minority of active funds that are going to do better, but every few years that list of winners keeps changing.

Then of course the amateur comes in and he/she is going to beat the market. Good luck with that one against the pros.

[gta_guy]

The point of index ETFs is that they're meant to mirror an index. Sure, you can gamble and try to pick out which sector/industry ETFs will outperform the market but at that point it's essentially timing the market. You can play with sector ETFs but they're mostly used by investors with extensive knowledge of the industry. For just regular investors like you and me I highly recommend index ETFs unless you're willing to put the time and effort into researching individual industries.

What ETFs do you recommend?

[rfdrfd]

There was another thread askign the same thing, so I'll type the same thing here:

1) get a REAL stock trading education (not a get rich software, a real education, like the one I did, search it here)

2) don't put any money into QT and see how it goes, do it ON PAPER ! You don't need to risk money yet. I can almost guarantee you will lose if you trade more than a few times. Like do you know how many shares to buy? It is not BCE costs $10/share, I have $1000, so I can buy 100 shares.

3) always plan your trade BEFORE you trade. Entry price, exit price and stop price. Again, refer to (1) and learn carefully before you go in.





Hi all.

Ive been doing some research for a while and I’ve decided I want to try some trading!

To give you some background, Im 24, a student with a physics degree, about to finish my mech eng degree (8 months to go), and am so far debt free by sacrificing my summers to the reserves (im out now) and doing coops, all said around 50K in tuition so far with another 8K to go…plus rent. Gah. But the fantasy world of school is about to end and I feel I should get some experience in investing.

Since Im young-ish and stupid the way I want to try this is with stocks. Around the structure of how I want to do this the best choice seems to be with Questrade (Ive read the threads here so I know some of the conflict), but the 50$ free trade commissions, the 5$ trades after that, and the TFSA system (I have no money in any of them yet) has drawn me in. Ill worry about inactivity fees if I get that far and don’t lose all my money.

So Ive decided to throw $1000 in with questrade and see what happens. While I would prefer not to lose my money, I can survive the hit since Im so close to the end of school anyway. Im currently at a COOP job I have a lot of extra time to spend at so a more active style of trading is feasible and appealing to my foolishness.

But I’m not a complete idiot, so I thought I would ask here first if actively trading (swing/day) is even possible on such a small start without getting killed on commissions?

I think doing is the best way to learn something and that is really what this is about, but making a bunch of useless trades won’t teach me anything either.

Any input is much appreciated!

Thanks, Matt.

EDIT: I should add in no way am I asking for "stock tips"

[rfdrfd]

Please read these articles: VERY VERY well written

http://lessons.tradingacademy.com/article/the-reasons-why-we-struggle/

[rfdrfd]

What ETFs do you recommend?

If you want Index ETFs, go to iShare's website and look

[heroviper]

With $1,000 I will say you better take a mid to long term position.
In my experience, day trade with small fund will end up with nothing left in your pocket. (commission, emotion, gamble behaviour...etc, will just destroy you completely)

[cjottawa]

What ETFs do you recommend?

ETFs aren't cost efficient for portfolios below $75,000 (if using a large online brokerage with $30 commissions) or about $30,000 if you're getting $10 commissions at a discount brokerage like Questrade.

Below those portfolio thresholds, you're better off with TD e-Series index mutual funds.

Reference: http://canadiancouchpotato.com/2010/06/25/should-you-use-index-funds-or-etfs/

[angelok]

Hi all.

I think doing is the best way to learn something and that is really what this is about, but making a bunch of useless trades won’t teach me anything either.



Forget about trading. it's a zero sum game.

Buy companies that pay and grow their dividends, add to your portfolio on a regular basis and always re-invest your dividends. Think long term.

[NakorOranges]

Thank you again everybody. I believe I now have an idea about where i want to put my money! I think I will put half in an index fund, and the other half in a single stock or two. Thans everyone! Im sure I will have many more questions to come as things progress.

[gwan]

if you try to time the market and buy and sell you will probably loose unless you're warren buffet
so far, what i've gotten from reading a ton of info, researches is to just buy and buy and ignore it and just let it grow

read on - 8 part series on stocks
http://jlcollinsnh.wordpress.com/2012/04/15/stocks-part-1-theres-a-major-market-crash-coming-and-dr-lo-cant-save-you/

[ccyk]

always try to time the market, thats the only way to beat market. too many lazy or less intelligent people who fail to do so say impossible. at least give yourself a try. do it with paper trading first if you are too scared. dont do fully equal weighting at minimal even if you are semi-lazy. adjust the weighting when you feel market is too high or too low. an average person who put some effort can do better than blindly equal weighting.

A better approach is to study ETF and kick out those obvious losers and buy the rest stocks to beat etf.

[ccyk]

With $1,000 I will say you better take a mid to long term position.
In my experience, day trade with small fund will end up with nothing left in your pocket. (commission, emotion, gamble behaviour...etc, will just destroy you completely)

unless op lose all 1000 in 1 shot (options) I dont see it as a waste even he lose most of it in say 6 months. it is important to get the feeling of trading. there is no place to learn how to control emotion elsewhere. it is an expensive learning process; for $1000 it is cheap. it is better than learning how to trade with 1million on hand lol.

[ccyk]

Forget about trading. it's a zero sum game.

Buy companies that pay and grow their dividends, add to your portfolio on a regular basis and always re-invest your dividends. Think long term.

the odds actually favor retails, considering most mutual funds, pension plan, etc lose money...

[FunSave22]

too many lazy or less intelligent people who fail to do so say impossible. at least give yourself a try.
Too many people who have read all of the studies that say your chances of doing it successfully in the long term is extremely small. The studies are all exceptionally clear. Just because you don't want to believe the science, doesn't make the science any less true.



A better approach is to study ETF and kick out those obvious losers and buy the rest stocks to beat etf.
The studies are clear that doesn't work.



the odds actually favor retails, considering most mutual funds, pension plan, etc lose money...
The studies are extremely clear that in the long term nearly all traders underperform the market. So no, the odds don't favour retail investors.




it is important to get the feeling of trading.
Why? It's clear for the vast majority of people this is a horrible way to invest in the long term. So why bother learning how to do it?

[NakorOranges]

Its good to see no one agrees on anything! Always learn the most from that sort of conversation.

I have a couple questions if someone wouldnt mind answering them.
1) Who does the after hours trading? Or does the price change on stocks from non-trading related things overnight. Just looking at the TSX right now and I see a huge jump from closing yesterday. I knew this happened, but could someone tell me the cause?

2) Kind of a continuation from #1. What exactly changes the stock price. And I don't mean "what makes a stock go up and down" in the long term sense. Throughout the day the thousands of tiny adjustments, what is actually casuing them? Does each stock bought and sold raise and lower the price by some amount? Or is there two guys out there somewhere baratering over a price, representing me and every other person at my broker who just hit the sell or buy button?

3) I think I already know the answer to this one, but the large index's I could not even buy into with my $1000, correct? TSX example again, one slice would cost me 11k?

Thanks again guys.

[Sauerkraut]

For me, investing in stocks is like playing golf.

You'll get an innumerable number of different opinions and sugestions from people on how to play. Some will take expensive lessons, spend all day at it and show nothing for their efforts. Others just have a natural ability. The professionals will flaunt their latest techniques, trying to convince the masses to follow their lead. Then you get the people who brag about their latest birdie, while conveniently forgeting about all the triple bogies they had last week. Most end up doing average at best.

In the end, there's a hundred different ways to play the game and still get a good score...or a bad score. But you need to find your own swing, and keep playing because you enjoy it.

[FunSave22]

But you need to find your own swing, and keep playing because you enjoy it.
I see no reason to enjoy investing. I see it as the same thing as paying my bills or vacuuming the carpet. It's just something I need to do.

I invest to hopefully ensure I have a comfortable retirement. Not for entertainment value.


I passively invest because all of the studies are quite clear this is the best way to invest. And passive investing is boring. But it's also doesn't take much time. Which leaves me a lot of time to do things I actually enjoy.

[Sauerkraut]

I passively invest because all of the studies are quite clear this is the best way to invest

Well I'm glad you cleared that up for me. Didn't know it was the "golden rule"

[FunSave22]

Well I'm glad you cleared that up for me. Didn't know it was the "golden rule"
If you know of a study that says otherwise, please post it. I expect many of us would be interested.

As far as I know, all of the academic studies are exceptionally clear.

[t_ginuwine]

For me, investing in stocks is like playing golf.

You'll get an innumerable number of different opinions and sugestions from people on how to play. Some will take expensive lessons, spend all day at it and show nothing for their efforts. Others just have a natural ability. The professionals will flaunt their latest techniques, trying to convince the masses to follow their lead. Then you get the people who brag about their latest birdie, while conveniently forgeting about all the triple bogies they had last week. Most end up doing average at best.

In the end, there's a hundred different ways to play the game and still get a good score...or a bad score. But you need to find your own swing, and keep playing because you enjoy it.

Well put, find your own swing. The movie The Legend of Bagger Vance succinctly describes the process. Here is a scene from the movie (http://www.youtube.com/watch?v=9426lT0RHTo). To add to that, " You can jump into Ayrton Senna’s car (deceased legendary Formula 1 racer) and use his exact seat adjustment, mirror positions, helmet and everything else. The results will not be the same even if Ayrton talked you through it all. You have to make it your own. You have to come with the right attitude."

I can offer this to new traders:
1. Take your time and read as much as possible on the subject
2. Find a mentor, see if their style jives with yours
3. You need a reliable, independent and objective methodology that works in multiple time frames. Structure, simplicity, objectivity, measurable, expectancy, validation through back-testing.
4. Detach yourself to money, develop your psychology edge

Stephen Covey has a 90-10 principle. He mentions that 10% of your life is determined by what happens to you. 90% of life is decided by how you react.

Events happen to us. What differentiates how we react.

"Any fact facing us is not as important as our attitude toward it, for that determines our success or failure."
- Norman Vincent Peale

Remember, this is a process. Any step in the right direction moves you closer to your goal.

"Continuous improvement is better than delayed perfection."
- Mark Twain

[ccyk]

Too many people who have read all of the studies that say your chances of doing it successfully in the long term is extremely small. The studies are all exceptionally clear. Just because you don't want to believe the science, doesn't make the science any less true.

yea majority of people are lazy and average at best. so dont be them. spend time to do due diligence! I spend avg 2.5 hours /day researching stocks.


The studies are clear that doesn't work.

for that small amount of people, it works wonder.



The studies are extremely clear that in the long term nearly all traders under perform the market. So no, the odds don't favour retail investors.


I don't know. but for myself, trading since 06, I made 400%+ gain already.
etf is just market perform which by itself even has a hard time beating inflation the same period...


Why? It's clear for the vast majority of people this is a horrible way to invest in the long term. So why bother learning how to do it?
it is clear you are amusing OP is the average majority...maybe yes, maybe no.

[FunSave22]

yea majority of people are lazy and average at best. so dont be them. spend time to do due diligence! I spend avg 2.5 hours /day researching stocks.

There's no evidence I'm aware of that working hard helps you become a better trader. There are a huge number of traders who put in a lot of work and most of them underperform in the long term.



but for myself, trading since 06, I made 400%+ gain already.
Six years isn't the long term. It's much too early to tell whether you are among the tiny group of people who can outperform over the long term or whether you have just been lucky.

[NakorOranges]

There's no evidence I'm aware of that working hard helps you become a better trader. There are a huge number of traders who put in a lot of work and most of them underperform in the long term.



Six years isn't the long term. It's much too early to tell whether you are among the tiny group of people who can outperform over the long term or whether you have just been lucky.

As I said before, I apreciate the arguement, its insightful, but lets keep it that way. Give the man some credit for a job well done so far at least.:) Also no one has yet answered my last set of questions:D

[ccyk]

As I said before, I apreciate the arguement, its insightful, but lets keep it that way. Give the man some credit for a job well done so far at least.:) Also no one has yet answered my last set of questions:D

last set of question? regarding learning? do you know how to read and understand financial statements? and various stock price models? if not, that is the area to look at for a good start.

[Sauerkraut]

If you know of a study that says otherwise, please post it. I expect many of us would be interested.

As far as I know, all of the academic studies are exceptionally clear.

That's the problem with most investors, they want to seek out some study that justifies their plan and then they can feel all warm and fuzzy. Or they want to study charts and trends and god knows what else. I've been investing for almost 40 years and I've learned one thing...there are no rules. The future can't be predicted by some trite historical pattern like "sell in May and go away" or "Santa Claus rally". If Couch potato investing works for someone, great but that doesn't mean it's the best or only way.

I personally chose to try and follow Warren Buffett's style. Is it the right way...who knows, but it's worked out for me so far! I'm sure when my kids inherit my money, they won't give a crap if I used active or passive investing.

[FunSave22]

That's the problem with most investors, they want to seek out some study that justifies their plan and then they can feel all warm and fuzzy.
Wanting to see evidence and using said evidence is a bad thing?




I've learned one thing...there are no rules.
Sharpe's The Arithmetic of Active Management (http://www.stanford.edu/~wfsharpe/art/active/active.htm) is most certainly a rule.

It's a mathematical proof. Similar to how the circumference of a circle must be 2*pi*r, Sharpe's proof must be also be true.

[ccyk]

Wanting to see evidence and using said evidence is a bad thing?




Sharpe's The Arithmetic of Active Management (http://www.stanford.edu/~wfsharpe/art/active/active.htm) is most certainly a rule.

It's a mathematical proof. Similar to how the circumference of a circle must be 2*pi*r, Sharpe's proof must be also be true.

lol these studies always assume perfect market, which never exist in real world.
there is no rule in human emotion & greed, there is no rule in politic, there is no rule in corruption, manipulation, insider tradings etc.

look at how SEC operate, they never go after the naked shorters from institutes. they always go after the powerless retails.

look at LTCM, full of phds and nobel price winners yet they went bankrupt.

throw these studies away. they are more like propaganda to brainwash the herd.

the perma-bullish market since 70s has already ended in 90s for japan and 2000 for US.
look japan index, 0 gain for 28 years.
look at s&p500, no gain for 12 years.
buy and hold is dead.
bottom line, buffett's formula only works in 70s-2000.

[FunSave22]

lol these studies always assume perfect market, which never exist in real world.
No they don't.

The link I just gave to Sharpe's proof don't assume a perfect market. And A Random Walk Down Wall Street or The Four Pillars don't either.

[Sauerkraut]

Wanting to see evidence and using said evidence is a bad thing?

If you treat said "evidence" as an absolute gospel, yes.

Case in point:arrowd::arrowd::arrowd:


buy and hold is dead

[angelok]

buy and hold is dead.


It all depends on what you are holding.

If you are holding a non dividend payer, then you are correct.

I have been holding "NVO" since 1997. Convince me as to why I should sell it?

[ccyk]

No they don't.

The link I just gave to Sharpe's proof don't assume a perfect market. And A Random Walk Down Wall Street or The Four Pillars don't either.
i pretty much stopped reading after this line

If "active" and "passive" management styles are defined in sensible ways, it must be the case that

(1) before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar and


I just don't get how 1) is right? it is assuming active and passive's return are the same, which is never the case in real world and means this paper assumes perfect market.
market is active investors+passive investors.
like 80% or 90%, whatever % you want to call, will make money, balance% will lose money. and assume passive investors just invest in funds/etf/index/whatever.
it could be 10% of active make 10%, 90% of active make 0%, 100% of passive lose 0.1%, if market is 50% active and 50% passive.

[ccyk]

It all depends on what you are holding.

If you are holding a non dividend payer, then you are correct.

I have been holding "NVO" since 1997. Convince me as to why I should sell it?
well there is always exceptions to any rule, but it you could trade it right, like sell in mid 08 buy back in 09, returns should be better.
if you are holding us bank stocks or autos, they are crap buy and hold.
never look into this company b4, but from yahoo finance(sometimes data error), p/e 27 p/cf 20.5 yield 1.3%. something doesnt add up to support its price? it has very low debt tho. good luck.

[FunSave22]

I just don't get how 1) is right? it is assuming active and passive's return are the same, which is never the case in real world and means this paper assumes perfect market.

It has to right. It's just math.


Before costs, the average return all of the passively invested dollars is the market return.

All of the remaining investors are active investors. So before costs, the average return of all actively invested dollars return also has to be the market return.


After all, the average return of all investor dollars (before costs) must be the market return. And if the average before costs return of the passive dollars is the market return, there's no way for the average before costs return of the active dollars to be anything but the market return.

[ccyk]

It has to right. It's just math.


Before costs, the average return all of the passively invested dollars is the market return.

this is already perfect market assumption, sadly.

[FunSave22]

this is already perfect market assumption, sadly.
Huh?

The average before cost return of passive investors in the S&P 500 will be the return of the S&P 500. There's nothing about the perfect market here.


You can replace S&P 500 with any other type of market. It's still going to be true. It's a truism. It doesn't rely on perfect market.

[ccyk]

Huh?

The average before cost return of passive investors in the S&P 500 will be the return of the S&P 500. There's nothing about the perfect market here.


You can replace S&P 500 with any other type of market. It's still going to be true. It's a truism. It doesn't rely on perfect market.
1) passive holders can hold individual stocks and different market indexes, so it is never the true market return.
my hypothesis is that passive holders tend to hold under-preform stocks/etfs in long term.
2) can passive investor short the market? if you factor into that, total profit is different from index return as well.

[FunSave22]

1) passive holders can hold individual stocks and different market indexes, so it is never the true market return.
No, then they are both passive and active.



The total passive holdings of all passive indexers will have a before cost return equal to the return of the market they are indexing.

The proof isn't making a statement about an individual investor. It is saying the that average of all of the passive holdings in a market has a before cost return equal to that of the market. Meaning that average all of the active holdings in a market must have the same return.

[chevron]

1) passive holders can hold individual stocks and different market indexes, so it is never the true market return.
my hypothesis is that passive holders tend to hold under-preform stocks/etfs in long term.
2) can passive investor short the market? if you factor into that, total profit is different from index return as well.

So you were unable to scroll down slightly and read the definitions? Allow me to correct your ignorance.

A passive investor always holds every security from the market, with each represented in the same manner as in the market. Thus if security X represents 3 per cent of the value of the securities in the market, a passive investor's portfolio will have 3 per cent of its value invested in X.

An active investor is one who is not passive. His or her portfolio will differ from that of the passive managers at some or all times.

[ccyk]

So you were unable to scroll down slightly and read the definitions? Allow me to correct your ignorance.

A passive investor always holds every security from the market, with each represented in the same manner as in the market. Thus if security X represents 3 per cent of the value of the securities in the market, a passive investor's portfolio will have 3 per cent of its value invested in X.

An active investor is one who is not passive. His or her portfolio will differ from that of the passive managers at some or all times.

erm, thats different from passive investor in real life. shouldnt this be a perfect market assumption?
i have yet to know a live person that hold every stocks in world.

[Rhinox87]

Hi all.

Ive been doing some research for a while and I’ve decided I want to try some trading!

To give you some background, Im 24, a student with a physics degree, about to finish my mech eng degree (8 months to go), and am so far debt free by sacrificing my summers to the reserves (im out now) and doing coops, all said around 50K in tuition so far with another 8K to go…plus rent. Gah. But the fantasy world of school is about to end and I feel I should get some experience in investing.

Since Im young-ish and stupid the way I want to try this is with stocks. Around the structure of how I want to do this the best choice seems to be with Questrade (Ive read the threads here so I know some of the conflict), but the 50$ free trade commissions, the 5$ trades after that, and the TFSA system (I have no money in any of them yet) has drawn me in. Ill worry about inactivity fees if I get that far and don’t lose all my money.

So Ive decided to throw $1000 in with questrade and see what happens. While I would prefer not to lose my money, I can survive the hit since Im so close to the end of school anyway. Im currently at a COOP job I have a lot of extra time to spend at so a more active style of trading is feasible and appealing to my foolishness.

But I’m not a complete idiot, so I thought I would ask here first if actively trading (swing/day) is even possible on such a small start without getting killed on commissions?

I think doing is the best way to learn something and that is really what this is about, but making a bunch of useless trades won’t teach me anything either.

Any input is much appreciated!

Thanks, Matt.

EDIT: I should add in no way am I asking for "stock tips"

Nice to see another engineer starting trading! I'm currently a grad student pursuing PhD in medical imaging and have been trading for 3 years now. Best system that has worked for me would be playing breakouts on high EPS and high growth names. I follow IBD's system pretty religiously, here's where it all started: http://www.amazon.com/Money-Stocks-Complete-Investing-System/dp/0071752110/ref=sr_1_2?ie=UTF8&qid=1341429269&sr=8-2&keywords=how+to+make+money+in+stocks

If you need more info, pm me and I'll direct you towards more resources etc. Glad to see you're not asking for tips and or listening to everyone's advice here. Take every opinion including mine with a grain of salt.

good luck.

[Rhinox87]

Wanting to see evidence and using said evidence is a bad thing?




Sharpe's The Arithmetic of Active Management (http://www.stanford.edu/~wfsharpe/art/active/active.htm) is most certainly a rule.

It's a mathematical proof. Similar to how the circumference of a circle must be 2*pi*r, Sharpe's proof must be also be true.

Mathematics does make sense. But it is based on sum of all actively managed portfolios. What if it was viewed as a distribution? you would probably get a gaussian curve like anything else in life, with some portfolio managers beating the market, some lagging the market and some matching market returns. Of course mean would be less than avg. return of market because of MERs'. Trick then would be to try and be at the highest std. dev. on the positive side.

So at the end of the day if you beat the market, someone else has to lose as total return equals to what the index advanced.

[FunSave22]

Trick then would be to try and be at the highest std. dev. on the positive side.
And that would be a great trick, however plenty of studies and books such as A Random Walk Down Wall Street show that over the long term only an exceptionally small number of active traders can consistently remain on the positive side.

Reversion to the mean is an extremely powerful phenomenon. And the problem for active traders is that the mean minus their costs is so much less than they could have achieved by passively indexing.

[Rhinox87]

And that would be a great trick, however plenty of studies and books such as A Random Walk Down Wall Street show that over the long term only an exceptionally small number of active traders can consistently remain on the positive side.

Reversion to the mean is an extremely powerful phenomenon. And the problem for active traders is that the mean is so much less than they could have achieved by passively indexing.

Completely agree with you. Math also says that the tails thin out as we go away from the mean. But at the same time, why not aim for being on the +ve end of the tail, being the very best. (of course a whole another story whether you get there or not)
Secondly, at least in my case, this is the best time that I could aim to be the very best and try and actively invest for myself even though it might inherently be a bit more risky. Once I have real responsibilities, I could always go back to boring index funds/mutual funds if active investing didn't work out or I have no time for it.

[FunSave22]

But at the same time, why not aim for being on the +ve end of the tail, being the very best. (of course a whole another story whether you get there or not)

Because you are likely to underperform. And the amount you underperform by will compound for the rest of your life.

It's a negative expectation bet (in comparison to indexing). I see no reason to take the bet.

[SkimGuy]

Because you are likely to underperform. And the amount you underperform by will compound for the rest of your life.

It's a negative expectation bet (in comparison to indexing). I see no reason to take the bet.

That's the entire philosophy towards indexing, and it's one I believe in highly. Sort of pessimistic but I'd rather have a higher chance of stable returns than gamble it in active investing.

[ccyk]

That's the entire philosophy towards indexing, and it's one I believe in highly. Sort of pessimistic but I'd rather have a higher chance of stable returns than gamble it in active investing.

problem of this is that index itself is moving down for a long long time. (ie Japan)
passive = loss
be active = have chance to gain

[ccyk]

Completely agree with you. Math also says that the tails thin out as we go away from the mean. But at the same time, why not aim for being on the +ve end of the tail, being the very best. (of course a whole another story whether you get there or not)
Secondly, at least in my case, this is the best time that I could aim to be the very best and try and actively invest for myself even though it might inherently be a bit more risky. Once I have real responsibilities, I could always go back to boring index funds/mutual funds if active investing didn't work out or I have no time for it.

butter stay in bond market if one want to take less risk. for past 10 years it outperform equity by a great margin and with less risks.

see how the elites rig LI(E)BOR? being passive in stock market has no chance to gain.

[Rhinox87]

Because you are likely to underperform. And the amount you underperform by will compound for the rest of your life.

It's a negative expectation bet (in comparison to indexing). I see no reason to take the bet.

It's a negative expectation bet if you don't think you can outperform other 50% of traders/investors involved (Doesn't matter if your approach is technical or fundamental). What is the premise in indexing? stock markets always go up in the long run? since you're so fond of this model, does that also mean that you do time averaging rather than price averaging?

[Rhinox87]

butter stay in bond market if one want to take less risk. for past 10 years it outperform equity by a great margin and with less risks.

see how the elites rig LI(E)BOR? being passive in stock market has no chance to gain.

actually, bond markets might be near the end of their run, they follow a 30-ish year cycle.

[S5]

It's a negative expectation bet if you don't think you can outperform other 50% of traders/investors involved (Doesn't matter if your approach is technical or fundamental).

It's a negative expectation bet irrespective of the investor's confidence in his own ability.

It gets even worse when factoring in risk. Lots of company specific risks which are uncompensated due to being easily diversifiable(by using broad index products).

[Rhinox87]

It's a negative expectation bet irrespective of the investor's confidence in his own ability.

It gets even worse when factoring in risk. Lots of company specific risks which are uncompensated due to being easily diversifiable(by using broad index products).

it would be negative expectation bet if you assume chances of winning are less than 50%. What is the reason for such assumption?

Company specific risks are to a stock as downtrend in commodities is to TSX or debt crisis to european indices. So, how is it really that different?

[FunSave22]

It's a negative expectation bet if you don't think you can outperform other 50% of traders/investors involved (Doesn't matter if your approach is technical or fundamental). What is the premise in indexing? stock markets always go up in the long run? since you're so fond of this model, does that also mean that you do time averaging rather than price averaging?
I'm working on the assumption that break even is matching the returns of an passive investor. Active investors have higher costs than passive investors.

This means on a before cost basis, active investors need to do better than the mean in order to break even. Being forced to do better than the mean makes this a negative expectation bet.

[S5]

it would be negative expectation bet if you assume chances of winning are less than 50%. What is the reason for such assumption?

See FS22's reply above.


Company specific risks are to a stock as downtrend in commodities is to TSX or debt crisis to european indices. So, how is it really that different?

Nope. Those macro factors will also affect individual stocks, afterall what is an index but an assortment of individual stocks? Uncompensated company specific risk remains and free variance(before higher trading fees and tax events inherant in active management) is not beneficial to investors.

If you really believe they are the same I suggest you read a good investment primer like A Random Walk Down Wall Street or The Four Pillars of Investing.

[cjottawa]

I'm working on the assumption that break even is matching the returns of an passive investor. Active investors have higher costs than passive investors.

This means on a before cost basis, active investors need to do better than the mean in order to break even. Being forced to do better than the mean makes this a negative expectation bet.

Bingo.

Active traders I've listened to seemed to focus on absolute return ("I made 12% this year!") instead of return relative to the market.
IOW, "I made 12% this year" isn't impressive when the market returned 15%.

[Cerenity]

active trader, active investor, and passive investor mean different things to me
maybe people can elaborate what they really mean by each.

i guess i consider myself somewhere between active investor and passive investor. i probably make no more than 3-4 trades per quarter, so that doesnt seem that active, but i always thought of passive investing as index ETFs and funds, which i'm not doing either.

[Rhinox87]

I'm working on the assumption that break even is matching the returns of an passive investor. Active investors have higher costs than passive investors.

This means on a before cost basis, active investors need to do better than the mean in order to break even. Being forced to do better than the mean makes this a negative expectation bet.

Agreed the math works. But I wonder if there is a more detailed study out there that shows the mean return of all traders/investors vs. a histogram of mean return plotted vs. level of experience that a trader/investors possesses. My inclination is that with some initial experience the returns would indeed get better.

And the math would always work out in case of passive investors, because comparing mean returns is a zero sum game (if one traders wins, another one loses loses to keep the mean return same as the index). So at the end of the day, if you wish to be a +ve statistic, you gotta beat someone to be there.

I'm in the camp that with effort, experience and proper risk management the average return could be beaten. Books such as How to make money in stocks, market wizards and number of others show just that. Its a whole another story if not enough time could be dedicated to pursue this and in that case passive investing makes much more sense. But to generalize and say that market can't be beaten would be wrong in my books as people have done it time and again, for a consistent period of time as well.

[Rhinox87]

Bingo.

Active traders I've listened to seemed to focus on absolute return ("I made 12% this year!") instead of return relative to the market.
IOW, "I made 12% this year" isn't impressive when the market returned 15%.

Not true. Most of the active money managers and sophisticated individual traders focus on 'alpha' and not absolute return.

[Rhinox87]

See FS22's reply above.



Nope. Those macro factors will also affect individual stocks, afterall what is an index but an assortment of individual stocks? Uncompensated company specific risk remains and free variance(before higher trading fees and tax events inherant in active management) is not beneficial to investors.

If you really believe they are the same I suggest you read a good investment primer like A Random Walk Down Wall Street or The Four Pillars of Investing.

General market direction dictates price movement of 3/4 stocks. so it is true that macro factors will also affect individual stocks.

I have not read those books, will read them and build case for passive investing. May I suggest you read something like 'how to make money in stocks by William O' Neal to lay a case for active investing?

[cjottawa]

Not true. Most of the active money managers and sophisticated individual traders focus on 'alpha' and not absolute return.

1. we're discussing private investors; my assertion stands
2. most active, institutional investors fail to beat the market over the long term - their clients would have been better in index funds

[Rhinox87]

1. we're discussing private investors; my assertion stands
2. most active, institutional investors fail to beat the market over the long term - their clients would have been better in index funds

I'm a private investors and I keep track of my alpha. I also know a few other people who do the same.

Secondly, how would you explain holding index funds to someone who lost almost 50% in 2008-2009, especially someone who is on the brink of retirement? how much longer should they hold to break-even? TSX still isn't back to where it was in 2008 and possibly might not get there any time soon as commodity cycles are topping and most of the resource stocks are a mess.

In comparison many private investors were sitting in cash in 2008 and so were some of the institutional investors.

Make of this what you want. I'm done discussing, sorry for sidetracking the thread OP.

[Stryker]

In comparison many private investors were sitting in cash in 2008 and so were some of the institutional investors.



The Enemy In The Mirror (http://www.moneysense.ca/2011/10/03/the-enemy-in-the-mirror/) by Andrew Hallam

What can you miss by guessing wrong?

Studies show that most market moves are like the flu you got last year, or the mysterious $10 bill you found in the pocket of your jeans. In each case, you don’t see it coming. Even when looking back at the stock market’s biggest historical returns, Jeremy Siegel, author of Stocks for the Long Run and professor of business at University of Pennsylvania’s Wharton School, suggests that there’s no rhyme or reason when it comes to market activity. He looked back at the biggest stock market moves since 1885 (focusing on trading sessions where the markets moved by 5% or more in a single day) and tried connecting each of them to a world event.

Seventy-five percent of the time, he couldn’t find logical explanations for such large stock market movements—and he had the luxury of looking back in time, and trying to match the market’s behaviour with historical world news. If a smart man like Siegel can’t make connections between world events and the stock market’s movements with the benefit of hindsight, then how is someone supposed to predict future movements based on economic events—or the prediction of events to come? It’s as improbable as guessing which of the moths frantically flying around your light bulb is going to be fried first.

If anyone ever convinces you to act on their short-term stock market prediction, it could end up being a very expensive mistake. Let’s look at the U.S. stock market from 1982 through December 2005 as an example.

During this time, the stock market averaged 10.6% annually. But if you didn’t have money in the stock market during the 10 best trading days, your average return would have dropped to 8.1%. If you missed the best 50 trading days, your average return would have been just 1.8%. Markets can move so unpredictably, and so quickly. If you take money out of the stock market for a day, a week, a month, or a year, you could miss the best trading days of the decade. You’ll never see them coming. They just happen. More importantly, as I said before, neither you nor your broker is going to be able to predict them.

Legendary investor and self-made billionaire Kenneth Fisher, who writes a column in Forbes magazine, had this to say, about market timing:

“Never forget how fast a market moves. Your annual return can come from just a few big moves. Do you know which days those will be? I sure don’t and I’ve been managing money for a third of a century.”

[Stryker]

I don't know why investors keep thinking it's so easy to beat the market. If you have a few successful years, you do think it's easy, until the market turns around and strikes back.

Here's the about face of a professional hedge fund manager writing in Kiplingers. The first article was published in 2006.

My Jack Bogle Problem (http://www.kiplinger.com/magazine/archives/2006/05/feinberg.html)

Some of us can beat the dickens out of the market if we try. We should be encouraged.

By Andrew Feinberg

-------------------------------------------

The second article came out in March of this year from the same author.

A Humbling Year for a Hedge-Fund Manager (http://www.kiplinger.com/columns/promisedland/archives/hedge-fund-manager-recent-performance.html)

Mutual-fund managers who beat the market for a time have a nasty habit of reverting to the mean.

By Andrew Feinberg

[ccyk]

I don't know why investors keep thinking it's so easy to beat the market. If you have a few successful years, you do think it's easy, until the market turns around and strikes back.

Here's the about face of a professional hedge fund manager writing in Kiplingers. The first article was published in 2006.

My Jack Bogle Problem (http://www.kiplinger.com/magazine/archives/2006/05/feinberg.html)

Some of us can beat the dickens out of the market if we try. We should be encouraged.

By Andrew Feinberg

-------------------------------------------

The second article came out in March of this year from the same author.

A Humbling Year for a Hedge-Fund Manager (http://www.kiplinger.com/columns/promisedland/archives/hedge-fund-manager-recent-performance.html)

Mutual-fund managers who beat the market for a time have a nasty habit of reverting to the mean.

By Andrew Feinberg

if people survived 2008/09 crash, everything else is easy.

[ccyk]

If anyone ever convinces you to act on their short-term stock market prediction, it could end up being a very expensive mistake. Let’s look at the U.S. stock market from 1982 through December 2005 as an example.

During this time, the stock market averaged 10.6% annually. But if you didn’t have money in the stock market during the 10 best trading days, your average return would have dropped to 8.1%. If you missed the best 50 trading days, your average return would have been just 1.8%. Markets can move so unpredictably, and so quickly. If you take money out of the stock market for a day, a week, a month, or a year, you could miss the best trading days of the decade. You’ll never see them coming. They just happen. More importantly, as I said before, neither you nor your broker is going to be able to predict them.


this argument is flawed

1. why stop at 2005 and start at 1982? cherry picking. he has data all the way back to 1885 afterall. why not select 1929-2008? thats annual return of 3.06% for dow. even if using 1900-presenthttp://stockcharts.com/freecharts/historical/djia1900.html (12896.67/68.13)^(1/112)-1=4.79%

2. as much as missing 10 best trading days, he forgot to also include data for missing 10 worst trading days. I strongly believe the result does not favor his conclusion. it is common sense when stock market drops it drops fast and quick. percentage wise it will be bigger than gaining days' percentage.

3. also look at the 100 year chart, see all the losing decades 1906-1925, 1937-1949, 1964-1982, 2000-now, which stock market stayed flat.
it was only when there is a major industrial breakthrough or world event that stock market will step up and stay forever. mass production of automotive after 1929 crash, post-war boom, computer innovation.

4. also need to consider currency valuation. it should be noted that US debased its dollar in 1933/34 by some 40% and again abandoned gold standard in 1971, and started printing money out of air, which greatly inflate stock market with lag.

[rfdrfd]

Everyone who's playing stocks and the market should read these articles. Its free and full of very good info. Not those fake news out there.

Pay special attention to Sam seiden's articles. Trading plan in this issue is VERY important for your success.

http://lessons.tradingacademy.com/

[rfdrfd]

if people survived 2008/09 crash, everything else is easy.

Anyone can survive a crash like that if they only used STOPS. As I learned, you need to find out you are incorrect ASAP, STAT !! Keep your stops tight.

[rfdrfd]

Well said. It is because the concept is flawed. "Beating the market" is not the goal.


I don't know why investors keep thinking it's so easy to beat the market. If you have a few successful years, you do think it's easy, until the market turns around and strikes back.

Here's the about face of a professional hedge fund manager writing in Kiplingers. The first article was published in 2006.

My Jack Bogle Problem (http://www.kiplinger.com/magazine/archives/2006/05/feinberg.html)

Some of us can beat the dickens out of the market if we try. We should be encouraged.

By Andrew Feinberg

-------------------------------------------

The second article came out in March of this year from the same author.

A Humbling Year for a Hedge-Fund Manager (http://www.kiplinger.com/columns/promisedland/archives/hedge-fund-manager-recent-performance.html)

Mutual-fund managers who beat the market for a time have a nasty habit of reverting to the mean.

By Andrew Feinberg