Always keep some cash on hand

[Kipp]

Just thought I'd pass on some advice to other newbies to the market...

Always try and keep some cash on hand (let's say... 25% of your total investment funds) this allows you to make a quick move on some massively undervalued stocks (arising from panic sells, or someone trying to manipulate a stock).

This happened to me last week, when for one day MAH slipped from 70c to 62c momentarily before making a speedy recovery back to the 70+ in the space of 2 days. The Share Price was always going to come back in my mind (I would of happily bought in at 67c) as this little crash has come on the back of consistently strong annoucements- half yearly reports etc, good profit growth etc. So the possibility of some easy gains went begging cause I had no cash on hand... (A similar thing happened with SKW- skywest trading solidly at 20c then slipped to 16c for a day... now back at 21c.

This post really has nothing to with MAH (though I am a big fan) All I'm saying is I missed 2 easy opportunities just cause I had no capital reserves... I know it is hard when you don't have alot of money (me for instance I have a pissy 5K to trade with!!!) but something to consider...

Apologies if I am stating the obvious here, but it only just occured to me, and after all... this is the beginners lounge!

 

[crackaton]

If you have a trading account with shares you can do very quick trades with no outlay. Too bad if you get caught out!!

 

[Kipp]

What do you mean crackers? I have an on-line account (Avcol) which allows for pretty quick trading but that still means that I have to sell out of other shares in order to "free-up" some capital for a BUY order. And this isn't always ideal... because I'd be paying brokerage on the SELL order for one. ANd if most of your porfolio is tied up in the stock which is heading in the negative spike than selling it isn't in your best interests either...

 

[clowboy]

As an example he means the likes of westpac where you can buy up to $50,000 worth of stock without having the funds (as they deduct from your account on settlement). 50 k is the trading limit that they impose.

Technically speaking you can buy and sell those same shares in one day and only have the profit/loss deducted from your account three days later.....beware the risks though.

 

[Kipp]

Righto... thanks clowboy. Sounds good... except a week or so could be more handy than 3 days, but for the purposes of my last two examples it would of been enough.

 

[crackaton]

Thus born the day traders/suckers. lol

 

[kaveman]

of course the huge drop in price in one day could be the start of a continued south movement for the next year.

 

[crackaton]

Settlement on some stocks is five days. LHG is an example I think and MMN OSH used to be as well.

 

[freelancer]

If you have a trading account with shares you can do very quick trades with no outlay. Too bad if you get caught out!!

Hi crackaton

When you say caught out, do you mean that the share price does't go back up and you are stuck with the overdraft on the bank account????

Sorry for the dumb question I am a new to this!

 

[silence]

Basically if you buy and sell on the same day your bank account will only be changed by the difference in prices.

E.g. buy $30000 worth (even if you have no money) and sell for $40000 later that day, pocket $10000 on settlement day.

Or buy $30000 worth, price drops and you sell for $20000, come settlement day and you have a problem because $10000 gets deducted from your account.

 

[tech/a]

Basically if you buy and sell on the same day your bank account will only be changed by the difference in prices.

E.g. buy $30000 worth (even if you have no money) and sell for $40000 later that day, pocket $10000 on settlement day.

Or buy $30000 worth, price drops and you sell for $20000, come settlement day and you have a problem because $10000 gets deducted from your account.

And with a $5000 capital base your just being introduced to trading ruin.

Missed opportunity doesnt mean it will never be seen again.
Ruin can mean that youll never be in the position to take advantage of it when it does re appear.