Dabbling in the stock market

Hi All,

I am now in a reasonably strong financial position having finally cleared all that darn gambling debt, and also given up the gambling too...

I am earning 40K now and and i'm in a postion to put away 1,000 per month into a regular savers account earning a high interest rate...

This means I would have 500 euros per month left over effectively to invest in other asset classes, the one which appeals to me is equities...

I have been studying the market for sometime now and would have studied certain aspects of the market through university, so I would have a little grounding on the subject, I have identifed 5 companies that I would be prepared to invest in over the next year with a view to holding the stock for a 5-10 year period. Therefore investing 100 euros in each company per month for the next year giving a total investment of 6,000 euros and a 1,200 euros holding in each...

My question is, how best to do this in order to minimise broker fees, I will effectively be making 60 purchases over the next 12 months, given broker fees range from 10 euros to 30 euros where should I be looking to get on to the market... as any potential gains could take a large hit given the broker fees...

Isn't dabbling in the stock market another form of gambling?

Gambling? Not really.

To answer OP's question:

1. There are some online brokers who specifically cater for the very small investor. This is one option

2. Just save until you have enough to buy a share; then buy it. €1200 is probably too small a purchase (many brokers have a minimum charge). I suggest you save until you have circa €5,000; then buy a share; save until you have another €5k and buy another.....It will take longer to get to having a reasonably diverse portfolio, but 5 x €1200 holdings is not terribly practical.

You can take account of lower fees using online brokers such as Firstrade (I am a satisfied customer), who charge $6.95 a trade. However, they are really only useful if you are buying US equities, and take associated currency risk.

If you buy 5 x Eur100 stakes per month, you are killing yourself with fees. Even with a cheap broker like Firstrade, that will cost you $35 a month or 7% of your investment! on the other hand, if you invested Eur 1500 every 3 months in one company, you would still pay $7, which will represent 0.5% of the investment.

playing the stock market is a gamble, but its an arena where you can give yourself an edge, something to help you increase your odds of victory. basically if you know ur stuff its like backing a horse where the race is fixed

A lot of the on-line discount brokers charge a spread in addition to the fee so the discount claim is really a con.

In general you should stay away from investing in equities unless you are a professional or semi-professional investor/trader. That said there are some good equity deals out there right now such as the Canadian energy trusts which pay 15-18% dividends at current prices.

DavyJones said:

Isn't dabbling in the stock market another form of gambling?

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Only in the sense that all business risk is a form of gambling. Do you know how many people open up all types of shops every year and fold? On that basis you would say opening a retail outlet is gambling.

lemur said:

Only in the sense that all business risk is a form of gambling. Do you know how many people open up all types of shops every year and fold? On that basis you would say opening a retail outlet is gambling.

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No I wouldn't say that. The OP has quite recently given up gambling as he was addicted to it. (Congrats by the way). I was asking a genuine question directed at OP.
Playing with the stock market is exciting for some and this could be a replacement for betting on a horse etc.

To some investing in shares/stock market/equities can be considered gambling and anyone with a gambling problem would be well advised to not replace one problem with another one. It's like telling an AA member to work in a pub. Why tempt yourself.

The difference in the shop analagy is that you largely have control over what happens and if the shop folds it's probably because you didn't do enough homework about whether it was the right location, competitors, and whethere there was a sufficent market there, so you'd only have yourself to blame.

With the stock market, once you invest, its largely out of your hands. You could invest in something in another country which might suffer overnight from a terrorist attack.

With the ordinary person investing in the stock market you don't know what's around the next corner and you leave yourself exposed to considerable risk, so it is gambling in a sense.

The experienced person would I imagine reduce the risk, but even so, the example of the Volkswagen hedge funds disaster shows that the experts also can lose big time.

Your arguments there just don't hold water. In some cases, trading is less risky than other businesses because you dont have inventory, employees, arson and other risks etc

Trading is no different than any other business risk and investing is just trading with a longer term timeframe.

Hi All,

thanks for comments, when I posted I just had that feeling the former gambling habit would be mentioned in a negative way when associated with stock market investment...

Just a few points...

I will be saving 1,000 p/m into a regular savings account

I am prepared to write off the 6,000 over a ten year period ... I no longer gamble... I am happy to have shares to hold for a the long period of time as I feel the market is now in a strong buy position ...

Again this is 6,000 against 120,000 going on deposit, a very small percentage of any portfolio and in my opinion too small an amount to have allocated to equities in a portfolio... however I can reasses that position in ten years time when i'm in my mid thirties...

I just want to get the ball rolling...

I think I will follow advice below and buy stock by stock so as to minimise the outlay to brokers, therefore purchasing 1,200 euros of stock a time... so therefore investing once every two months... I'd like to avoid taking currency risk as well so I will more than likely stick to a irish based broker...

Stupid Boy said:

Hi All,

thanks for comments, when I posted I just had that feeling the former gambling habit would be mentioned in a negative way when associated with stock market investment...

Just a few points...

I will be saving 1,000 p/m into a regular savings account

I am prepared to write off the 6,000 over a ten year period ... I no longer gamble... I am happy to have shares to hold for a the long period of time as I feel the market is now in a strong buy position ...

Again this is 6,000 against 120,000 going on deposit, a very small percentage of any portfolio and in my opinion too small an amount to have allocated to equities in a portfolio... however I can reasses that position in ten years time when i'm in my mid thirties...

I just want to get the ball rolling...

I think I will follow advice below and buy stock by stock so as to minimise the outlay to brokers, therefore purchasing 1,200 euros of stock a time... so therefore investing once every two months... I'd like to avoid taking currency risk as well so I will more than likely stick to a irish based broker...

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My feeling is your parameters are too vague. Making money in the market is hard. You need a solid trading plan with an edge to succeed.

lemur said:

Your arguments there just don't hold water. In some cases, trading is less risky than other businesses because you dont have inventory, employees, arson and other risks etc

Trading is no different than any other business risk and investing is just trading with a longer term timeframe.

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In the case of arson, most properties are insured, but if your share investments go down the tubes there is no such insurance, you just take the hit.

Depending if you own the shop or not, it would be a fixed asset which may grow in value. You hire employees based on whether they can produce a profit and let them go when they can't.

Owning a shop is not plain sailing but you won't suffer a catastrophic (50%+) loss of earnings over night or in a week or a month, maybe a long decline depending on competitors and you would sell up your fixed assets before that happens.

Shares are not fixed assets and cannot be insured against catastrophy. You could hedge against losses but even that is not certain.

But I agree somewhat perhaps that trading isn't altogether like gambling because you can make educated guesses with trading.

lemur said:

. In some cases, trading is less risky than other businesses because you dont have inventory, employees, arson and other risks etc

.

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In relation to arson didn't 9/11 affect shares?

Guys you really are missing the point here. All business activity carries the risk of losing money. The difference in risk levels between business models are the parameters. All pro traders have risk control parameters to protect their account even if something like 9/11 happens and the market crashes.

Bottom line- trading is no different than any other business in terms of risk as long as you set yourself up correctly, dont over leverage and have a good trading plan with an edge.

lemur said:

Guys you really are missing the point here. All business activity carries the risk of losing money. The difference in risk levels between business models are the parameters. All pro traders have risk control parameters to protect their account even if something like 9/11 happens and the market crashes.

Bottom line- trading is no different than any other business in terms of risk as long as you set yourself up correctly, dont over leverage and have a good trading plan with an edge.

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What "edge" are you talking about?

I'd be careful.

I do know someone who used to gamble a lot, but packed it in.

He merely started again, but this time in the guise of "investment".

Have you considered putting it into a unit linked savings plan? Then you get the exposure to the stock market without the "rush" of backing a winning share (something that could awaken old feelings in you)

demoivre said:

What "edge" are you talking about?

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Every successful trader has an edge which varies according to which market he or she trades, the set ups he/she uses etc.

For my own trading, I have set of 3 edges for 3 different markets.

I thought studies show repeatedly that there are very few successful traders? For example, 80% of US professional fund managers don't beat stock indices such as S&P 500.