Investing $3000 - thoughts pls...

[pharaoh]

Hi guys

Tell me what you think.
A mate of mine has 2 stocks bought in the last 3 months.

One now worth $2,700 and the other $800
He can only contribute $700 each month into buying stocks, and these existing two are on the up.

He doesn't want to take a marginal loan, in case the market turns down the track, but he wants to maximise his exposure and use this foundation plus the monthly extra, to build a pool that he can then use to expand his portfolio.

Things like, should he top up the $500 into both these each month, at good buy points of course, or save this until he can buy a $2000 parcel eg, or buy new low spec parcels hoping on growth (i.e. aex etc).

I have told him what I think, but recommendations would be really appreciated.

And no, it isn't me
Thanks

 

[Profitseeker]

Hi,

First your friend needs a trading plan. He should also pay particular attention to cash management. That is to say your friend needs to spread his risk. I never have more than 10% of my portfoilio in more than one stock.

 

[pharaoh]

True, good point.

But when you only have such small amounts, it is hard to make them worthwhile, don't you think? Is it not better to throw the 2 or 3 eggs into a few small baskets, and build that up to then spread it out, then build that up then spr....etc.

Also, with a trading plan, just the basics? i.e. identify risk ratio, financial goals, etc...

 

[Profitseeker]

There are many good threads on this forum on how to develop a trading plan. I don't feel that I have enough knowledge yet to be giving good advice on what a trading plan should and should not incoparate. What I do know is since I introduced to my plan, stop losses and cash management I have had a lot more success. It is hard to do when you are strating out with limited capital. Therfore I would not be investing back into the same shares when you save more money but look for other opportunities and gradually diversify.

 

[tech/a]

With a singular $3k all you can really do is trade one stock.

Have a tight initial stop and if it runs stay with it until it goes flat or reverses of its highs significantly enough to warrant an exit.

Unfortunately $3k wont plave you in a position to develop much of a portfolio style trading methodology purely due to undercapitalisation.

Use the cheapest online broker you can as you cant stay with a trade that moves below your initial capital---its got to move immediately into profit!!,or you must move immediately out!

You cant trade margin unless you have around $15k so thats out.
Save up to buy decent parcels as brokerage on a $700 purchase will be the same as for a $2k purchase.

Protection of capital is all important and you will have to be very comfortable with taking small losses very quickly because if you dont you will find yourself $500 or more down and not prepared to take that size loss--next week it could be $1000.

If its making $$s stick with it like glue in particular if its 20% above your initial purchase price---give it room to fluctuate,losing the 20% gain in an effort to make longterm gains of 100%+ is no problem a 20% loss of initial capital is a BIG problem and could be disasterous.

 

[IGO4IT]

Pharoah,

questions you need to ask your friend are:

Purpose of investing (financial goal):

why is he/she investing? long term - collecting stocks that will grow in future? when is the future? when would he/she realise gain? or short term?

Risk capacity:

how much is your friend willing to lose if markets turn back for any reason? up to 10% or up to 50%? of course that will help you determine which stocks to engage in.

Control methods:

how & when will he top up? on dips only or whenever cash is available? - you need to answer financial goal question above first to answer this question.

Reinvestment:

what would your friend do with the money gained if any? re-invest all? re-invest part? if you keep putting money into same set of companies you're increasing risk on long term. practically if that company had done a mistake or market had a bad appetite for that share then you're risking long time savings!

as mentioned by others, a trading plan is a must regardless of whether you're investing $10 or $100,000.

Fees on small amounts will destroy any hopes of any short term gain & the more you sell short term on small amounts the more work you'll have to do in research to find others.

trading $2000 in 1 lot is not the solution, $2000 in low risk BHP or RIO could still get you no big gains because their value is high & will be equal to investing $200 in say MUL. (Not that I recommend buying into any of these companies of course!)

if you send me your email address, I can send you detailed pdf file that contains the way of how you make a trading plan & that plan will ask you all these questions above & more, after you do it once trust me you'll feel a lot more comfortable trading with small & big amounts.

if you follow your trading plan "strictly & religiously" & you'll have a very high chances of achieving your goals whatever they are.

cheers,

 

[tech/a]

IGO4IT

How do you know your or any trading plan is or has the potential to be profitable.
Having a set of rules/plan in itself doest guarentee profit.
There has to be a way of determining potential before implementation of any plan,how do you do it?

Ive seen many plans which look great in theory and absolute disasters in practice.

With $3k to invest Simplicity is all that can be expected.

 

[IGO4IT]

IGO4IT

How do you know your or any trading plan is or has the potential to be profitable.
Having a set of rules/plan in itself doest guarentee profit.
There has to be a way of determining potential before implementation of any plan,how do you do it?

Ive seen many plans which look great in theory and absolute disasters in practice.

With $3k to invest Simplicity is all that can be expected.

tech/a,

my plan doesn't guarantee a win position but at least give you higher chance to succeed.

More or less give you an idea of what you want to reach & when you want to reach it so you don't lose focus & randomly collect any profits while if you wait you could get more!

buying & selling points should be based on T/A or fund change in any share, also after filtering thru your plan & making a decision on what price range your stocks should be under then your chosen stocks must statisfy basic tests to guarantee that you're not buying false hopes in dreaming companies but real potential & high possibility of future growht. its never an insurance for your success.

any plan even if it was with ferw thousands or millions will return ONLY what you set for it to return for you, if you set it to return 10% in the shortest possible time frame then it will, good on you if 10% was $100,000 or $100, the most important thing is that it works to return POSITIVE 10% on capital, then even if it returns to you $100 today it may next time if you decide to re-invest return $110 & that by itself is a successful investment strategy.

I don't personally think regardless of any TA analysis or fund analysis that there's any insurance in stocks for not losing, you automatically start buying the share on a loss sitituation since you pay your brokers commissions immediatly, unless you have a plan you'll never know when to buy or sell & you'll be shocked to see a lot of stocks skyrocket few days after you got some profit & you may find yourself regreting selling. if you have a plan, then you'll stick to it as long it shown positive returns before.

 

[Julia]

Hi,

First your friend needs a trading plan. He should also pay particular attention to cash management. That is to say your friend needs to spread his risk. I never have more than 10% of my portfoilio in more than one stock.

Profitseeker

The principle of not having more than 10% of a portfolio in one stock makes very good sense where the investor/trader has a reasonable level of capital.
However, with $3000 in total invested, I wouldn't like to see it divided into $300 lots. Brokerage alone reduces potential profitability.

I agree absolutely with Tech-a's suggestion when dealing with $3000.

Going for a speccie may appear to be getting a lot of shares for your $'s.
But how will that help if the company isn't profitable?
Imo people starting out in the share market and with small amounts to invest can do a lot worse than buy a relatively small amount of a blue chip company which has a proven history of capital gains each year and reliable and increasing fully franked dividends.

If you had bought BHP or QBE at the beginning of February this year, you would be up more than 25% already. ANZ over the same time up around 10%.

Julia

 

[michael_selway]

Hi guys

Tell me what you think.
A mate of mine has 2 stocks bought in the last 3 months.

One now worth $2,700 and the other $800
He can only contribute $700 each month into buying stocks, and these existing two are on the up.

He doesn't want to take a marginal loan, in case the market turns down the track, but he wants to maximise his exposure and use this foundation plus the monthly extra, to build a pool that he can then use to expand his portfolio.

Things like, should he top up the $500 into both these each month, at good buy points of course, or save this until he can buy a $2000 parcel eg, or buy new low spec parcels hoping on growth (i.e. aex etc).

I have told him what I think, but recommendations would be really appreciated.

And no, it isn't me
Thanks

I think he shoudl save up until atleast $2000 before buying otherwise the brokerage will cost him a fortune % wise!

thx

MS

 

[SharonK]

Just a thought,

Commsec has share packs where they pick I think it was 6 shares and you can pick the catagory of growth, income there were two others which I can't remember and it selected 6 blue chip shares for you all for a brokerage fee of $66

I thought this was pretty good value for when your starting out if your looking at holding them long term and adding to them in the same way as you get more funds.

cheers
Sharon

 

[michael_selway]

Just a thought,

Commsec has share packs where they pick I think it was 6 shares and you can pick the catagory of growth, income there were two others which I can't remember and it selected 6 blue chip shares for you all for a brokerage fee of $66

I thought this was pretty good value for when your starting out if your looking at holding them long term and adding to them in the same way as you get more funds.

cheers
Sharon

good idea!

http://www.comsec.com.au/public/news.aspx?id=647

CommSec Share Packs – The easiest way to start a portfolio
30 Dec 2005

With more than 1,700 securities listed on the Australian Stock Exchange, deciding what to buy can be a real challenge. But with a CommSec Share Pack, you can have your own Australian share portfolio in minutes.

Simply decide how much you want to invest and the type of portfolio you want – it’s as easy as that. You can choose from four different investment styles:

Market Leaders
Capital Growth
Income
Tax-Effective Income

Each pack contains a diversified portfolio of six leading blue-chip companies, chosen by an independent team of CommSec analysts. That means you can invest with confidence, knowing that your shares have been thoroughly researched by a team of experts.

 

[crackaton]

good idea!

http://www.comsec.com.au/public/news.aspx?id=647

CommSec Share Packs – The easiest way to start a portfolio
30 Dec 2005

With more than 1,700 securities listed on the Australian Stock Exchange, deciding what to buy can be a real challenge. But with a CommSec Share Pack, you can have your own Australian share portfolio in minutes.

Simply decide how much you want to invest and the type of portfolio you want – it’s as easy as that. You can choose from four different investment styles:

Market Leaders
Capital Growth
Income
Tax-Effective Income

Each pack contains a diversified portfolio of six leading blue-chip companies, chosen by an independent team of CommSec analysts. That means you can invest with confidence, knowing that your shares have been thoroughly researched by a team of experts.

This is an excellent idea I believe for the small funds which are being used. or you can just chuck the whole lot on mmno or aexo or mmn or aex.

 

[rederob]

crackaton
I like your idea.
But anyone who wants to invest in the markets needs to know how they prefer to invest, or trade.
If someone gave me $3000 to invest relatively safely I would put $1500 on CWT and $1500 on OXR: Each is trading well below the valuation I would put on them and each is from a different spectrum of the market.
CWT yields over 10% and is trading 15cents below NTA (an absolute steal!).
OXR will offer its first dividend this year, but its growth potential as an established metals producer about to reach its potential is quite phenomenal.

 

[nizar]

With a singular $3k all you can really do is trade one stock.

Have a tight initial stop and if it runs stay with it until it goes flat or reverses of its highs significantly enough to warrant an exit.

Unfortunately $3k wont plave you in a position to develop much of a portfolio style trading methodology purely due to undercapitalisation.

Use the cheapest online broker you can as you cant stay with a trade that moves below your initial capital---its got to move immediately into profit!!,or you must move immediately out!

You cant trade margin unless you have around $15k so thats out.
Save up to buy decent parcels as brokerage on a $700 purchase will be the same as for a $2k purchase.

Protection of capital is all important and you will have to be very comfortable with taking small losses very quickly because if you dont you will find yourself $500 or more down and not prepared to take that size loss--next week it could be $1000.

If its making $$s stick with it like glue in particular if its 20% above your initial purchase price---give it room to fluctuate,losing the 20% gain in an effort to make longterm gains of 100%+ is no problem a 20% loss of initial capital is a BIG problem and could be disasterous.

Tend to agree, excellent explanation and good advice..

1 stock is the way to go but with strict risk-management

Going for a speccie may appear to be getting a lot of shares for your $'s. But how will that help if the company isn't profitable?

Julia: a company doesnt have to be profitable for you to make money in the SHORT-TERM. I made a motza out of TOE, SAU and others, and they arent profitable...

But pharaoh, ask ur mate about risk, how much he is prepared to take and make sure he knows how to manage/minimise that risk through stops, etc...

 

[pharaoh]

Thanks guys,

The 6 pack from Commsec is interesting, will let him know.
I think he wants to play short term atm, so he can try to grow this small nest egg - and where many of you mentioned understanding his risk profile, it will be high risk, but he is willing to take that.

If he invests in 1 stock initially, he is prepared to lose it, or a portion, it is better than taking out a marginal loan after all.

One of his 2 was ENG that I recommended him to, and he doubled his money already thanks goodness, so is keen to keep finding similar growth stocks.

I tend to think personally that this is the way to go initially at least, growth stocks, high risk and top up each month with these small amounts.

Over time, as long as the stock does well, it will become a substantial holding.

It's good to hear opinions though and that is the best way for us all to gain knowledge, through thoughts and experiences.

Blue chips were mentioned.

I had always assumed one can't get into blue chip unless you are buying 15k parcels, otherwise not worthwhile - would anyone agree?

 

[Julia]

Blue chips were mentioned.

I had always assumed one can't get into blue chip unless you are buying 15k parcels, otherwise not worthwhile - would anyone agree?

No.

Given the new info that your friend is happy to lose his money, then delete my earlier comments.

Julia

 

[StockyBailx]

Im lost on Julia's last comment, but definatly thoughts and exsperience are the only way to get him through the ropes. 3k can go along way in a short period of time. he needs to be looking at his options, bye keeping his eggs in the same basket, that qualify's for a excellent short or long term profit.

Go through your commonities agian and see whats cooking, I suggest buying into the penny, small change market on a winner. Let that rise to a stop profit of $2, t0 $5 or a percentage of 150 and above. e.g. sell 100% buy another penny for extra nickles and so. Using this sort of reasoning a capital can be gained quicker than you think.

Using most of the advice from above and choosing your own parameters I think you couldn't do any worst, than what he has already achieved.

The rest is up to you?

 

[money tree]

with $3k you could do a risk-free dividend strip.

This will give you a $5k profit every year till you die. And its risk-free.

 

[bullmarket]

Good morning everyone

Pharoah, with $3000 imo your friend is basically limited to 1 stock (2 tops) and so in this case, to help minimise the risk of losses doing thorough research on a company's fundamentals and outlook is even more critical than say with a diversified portfolio of 20 stocks.

But seeing your friend can top up ~$700 per month then depending on his objectives and experience another alternative could be to maybe save that $700/mth (say in a high interest online savings account) for 12 months thus accumulating ~$10000.00 during which time he/she can read up on developing and paper trading a trading/investment plan until they are happy with it and then in 12 months time start trading slowly with ~$10000.00 capital, which is not large but at least you can then trade up to 3 opportunities simultaneously if they arise.

cheers and good luck

bullmarket