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Curious about the little guys out there...

Recs

13

October 25, 2009 – Comments (12)

A while back, when I started blogging and following TMF, I read a reply that basically put down small investors or folks with very little money to trade with.  We were told that trading in such small amounts was a sure route to financial ruin and a good way to lose money.  I disagreed with that then and still do today.

I may not be a millionaire or have 100s of thousands of dollars to invest, but I do have a small portfolio that so far has managed to net me about 21% in paper profit.  Might not seem very big given the sizeable run up the market has had over the past seven months, but given that I am making 21% with some losing picks in there, I'd say that beats putting my money into a savings account any day.

I know that I am far from a pro when it comes to trading, and that I continue to have a lot to learn.  I am curious to know how my fellow small time traders out there in Fool-land are doing.

For the record, I own stock in all but eight of my current picks and have at one time or another held positions in each one of my picks here on TMF.  I do acknowledge that I am far from the best picker out there and that I have taken some sizeable (relative to my portfolio size) risks considering the amount of money I am trading.  BUT have read in many places that to make money one has to be willing to risk money.  To make big money one has to be willing to risk big money.  Until I have big money to risk, I'll take my chances with what I have, and consider each lesson I learned as a valuable investment in my future.

Fool on...

Note, my experiment with FAZ and SKF are my biggest losers to date since I got wiped out last Fall.  If I believe Alstry and some of the other uber-Bears out there, I still might be able to make money on them...but I'm not holding my breath. 

12 Comments – Post Your Own

#1) On October 25, 2009 at 11:42 PM, catoismymotor (35.46) wrote:

+ 1 Rec.

Any big fish that tries to talk a small fish out of investing is mistaken. Everyone needs a place to start. Even if you can only set aside $600 a year to invest you can still make a few really solid picks and watch them grow.

Congratulations on your 21%. It certainly does beat any CD or MMA out there. There is no better time to get into investing than right now. The experience and knowledge you are gaining in the process of making your picks will make you a better investor in years to come. I could not imagine a better time than now for a newbie with a few coins to spare each month to get in the game. 

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#2) On October 25, 2009 at 11:45 PM, catoismymotor (35.46) wrote:

BTW: I was not calling you a newbie. I know you have been at this probably as long as I have. Fool on!

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#3) On October 26, 2009 at 12:17 AM, truthisntstupid (82.49) wrote:

Sure. If we don't have any "real" money, money we "don't need in the next five years"  (HA!)  we're told by some that we should just quit trying to be too big for our britches and put our money in the bank.  So my question is: 

WHO IN THE HELL ARE YOU TRYING TO HELP?

Rich people, people who have more money than they need whether they invest it wisely or not?  Is this all about and only about helping RICH PEOPLE GET RICHER? 

WHAT ABOUT US?  You know there are a LOT of people down here at my income level that can make a big difference in their lives but nobody seems to care to aim anything at us.

It took me a year and a half to build a dividend income portfolio that would put a check in my mailbox every couple of weeks using direct stock purchase plans.  Most required a minimum initial investment of only $250 but one of them required a $500 minimum initial investment.  Usually I was determined to save until I had at least a hundred or more over the minimum.  Anyway, many of my holdings are utilities, one is a telecom (WIN), one is PEP, and finally, one is MO.  My portfolio is now structured such that I'm never more than a week or two away from my next dividend check.  Many of my first dividend checks started out small.  $5 or $10.  You folks evidently haven't a clue how much difference an extra $10 in the mailbox can help someone out who doesn't make much money.  Anyway, they don't have to stay small.  Most direct stock purchase plans allow for additional optional cash purchases of $50 or less.  Once the basic portfolio structure is in place, its easy to work on making the dividend checks bigger by sending in $25-$50 at a time.  I make $8.85 an hour and I'm working on building a dividend income that will be a significant extra source of income for me by the time I've been doing it for three years - probably less.   In time I also will want to add many other dividend stocks in companies with lower payout ratios such as CVX that can probably grow their dividend for years to come.  In the meantime, in order to have a check in the mail every week or two automatically means you're spreading the risk around quite a bit.  If any one of my companies catch me off guard and cut my dividend, it won't represent a large part of my porfolio.  Besides, I watch them.  I'm poor, not stupid.  By the time I've been doing this for three years, I'll have built up enough dividend income to make the same difference in my life as moonlighting at a second job would...without having to actually work a second job. 

But I suppose I should be putting my little bit of money in the bank @ one-half of one percent and wait for the magic of compound interest to uh.....uh, WHAT?   Again I ask the Fool...

ARE YOU ONLY INTERESTED IN HELPING RICH PEOPLE GET RICHER?   It's a shame.  You could occasionally write something targeted at people that DON'T make $40,000 or more a year and have a truly wonderful impact on the lives of people who need it so much more.

As to "trading"....anyone at my income level that thinks they want to "trade"  is risking spending way too long spinning their wheels.  Read...LEARN,,,,INVEST!

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#4) On October 26, 2009 at 12:19 AM, NOTvuffett (< 20) wrote:

Mike,

Good points.  I would add that people with limited funds shouldn't try to hold too many different stocks at once (go with your best ideas) or trade too frequently or the fees will become an issue. 

A hard lesson for me to learn was to keep money in reserve in case a buying opportunity presented itself. (I thought I should have all available money working).

21% beats the hell out of any cd, congratulations on your gain.  And don't be discouraged by people that tell you they put a lot of real life money into a really risky venture and hit the jackpot. 

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#5) On October 26, 2009 at 1:50 AM, UltraContrarian (31.53) wrote:

I agree with this post completely - everybody has to start somewhere and the younger and less money the better.  (Between a 401(k) and IRA, I started saving 20% of my $40K salary right out of college. Of course I don't really need to save that much, I'm just naturally a saver/investor.)

If you have a small amount of money to invest it's even more important to keep your trading fees and taxes down.  If you learn good habits now you will be a much better investor later.

"21% beats the hell out of any cd, congratulations on your gain.  And don't be discouraged by people that tell you they put a lot of real life money into a really risky venture and hit the jackpot."

Well, I agree with that, but at the same time don't be too satisfied with what you've done. It's always good to ask yourself (and other people) how to improve, and how next year you will make even better decisions. Next year I'm going to read more 10Ks and 10Qs.

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#6) On October 26, 2009 at 3:18 AM, checklist34 (99.70) wrote:

+1 rec.

you are up 21% despite holding 2 positions in levered bear ETFs.  ...  nobody should ever hold levered ETFs for long, they are absolutely horrible long term investments and ... often that will be true if you define "long term" as more than a few days.  

anyway, you're up 21% despite that and thats awesome.  Frankly, its probably better than all but a few professional funds in 2009.

I cannot possibly see how its worth NOT investing your own money foryourself if you have a small sum...  add 1000 bucks a year, follow the basic guidelines outlined by Dreman and others...  beats the crap out of bank CDs.

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#7) On October 26, 2009 at 3:49 AM, stan8331 (97.14) wrote:

With all the online discount brokers competing for business, this is the best time there has ever been for small investors.  Most folks who were not born wealthy have a small pool of funds to work with when they're starting out.  There's also an unprecedented amount of info available on publicly traded companies.  Today, there's no reason small investors can't achieve returns that beat the institutions, so long as we stay away from trading too frequently.  

As checklist34 stated, you should never hold levered stock ETF's for more than a few days.  The leverage causes them to decay in value over time due to market volatility - they are designed to be day-trading instruments, not investments.  

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#8) On October 26, 2009 at 9:48 AM, A6Bogie (< 20) wrote:

A big +1 rec Mike

 I'm with ya in the small investor world.  I am not a wiz when it comes to buying/selling stocks.  I've made some boneheaded decisions and had a few big winners (one 10+ bagger!).  But overall I learn more each time.  Right now I'm 3/4 on the sideline cause I just don't know how to read the tea leaves.  Using CAPS helps me play out some ideas, but mostly I try and gain some insight through the blogs and such.  Sittin heavy in cash now in anticipation of a downward move.  To those with lots of money to burn probably a bad move, to me every dollar counts and as such colors my approach.  To all those who share their ideas, strategy and understanding of the market environment I thank you.

 

Fool On!

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#9) On October 26, 2009 at 9:57 AM, ocddave (< 20) wrote:

I'm definitely one of the little guys, I put in less than $10,000 in  March and made back 60% on my money, so not bad here either. I got out recently, not liking the overexuberance of the Market right now. I figure with our national debt skyrocketing, and our political leaders hell bent on spending even more nonexistent money, that eventually when the music stops, there are going to be a lot of people with out a chair. If the stockmarket heads back down to 7,000 again, I'll probably jump back in, but right now it scares me to death.

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#10) On October 26, 2009 at 11:34 PM, meganchip (89.05) wrote:

I am a little guy - er, girl !!! and I agree completely with what others have said!!! I am not just a little investor but I probably started as one of the littlest as I started investing only a few years after losing most of everything in my life.

I made my first stock purchase through Sharebuilder with an automatic investment of only $100, divided into $25 each for four companies CAT, CBH (now TD), IDXX and NFLX. Now that's small.

The amounts invested over time in those four (I've added others and stopped and started the plan as needed but for the sake of this I'll just talk about these first four) shake out as: CAT has a loss of 16.13%, IDXX has a gain of 19.31%, NFLX has a gain of 76.81%, and TD is down 1.27%.

I learned a lot. If I had tried to save up money to make my first purchase it would have been extraordinarily difficult and would have forced me to choose just one stock... very hard. Automatic investing of small amounts allowed me to skim the top of my salary with discipline and I still do it to this day. 

Benefits of starting small for me also meant I could learn the ropes and make mistakes without operating in a state of terror that I might lose my money ... heck it wasn't that much money! Now that my money pile is getting a little bigger, I am putting effort into learning even more.  

I think everyone should do it, no matter how small, and tell the naysayers to shut it ;-)

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#11) On October 27, 2009 at 7:00 AM, MikeBobulinski (< 20) wrote:

Wow...much bigger response than I thought.  Thanks for all the recs and great replies.  I have been in and out of the market for years.  The biggest stake I have ever had at any one time, all positions summed together was about 20K.  Then the market took a header and my overleveraged portfolio died leaving me with about $600.  Since that point, I have been able to rebuild a little at a time to get about half-way to where I was before the market crashed.

I have learned a lot and while not as risk averse as I should be, I do not go all in like I used to.  I spend a bit more time looking into stocks before I make a purchase them.  I still make mistakes.  I still manage to pick some dogs.  BUT I also find that I have enough gumption to experiment with some of my money in order to learn about more investing opportunities and how they work.

For the rest of the little guys out there that are on the fence and trying to figure out whether or not it is worth it.  Only you can answer the question about whether or not the risk of losing your money is worth it.  BUT I will tell you this, much like any gamble or lottery, you can't win, if you don't play.  In this game, you simply have to make certain you manage your risk to a level that is acceptable for you, and believe me, there are plenty of opportunities to be had for investors and traders at all levels.

Fool on... 

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#12) On November 01, 2009 at 5:03 AM, benfranc (< 20) wrote:

 

Relationships are equity and hustle is capital.

 

http://www.reverbnation.com/benfranc

 

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