The mechanics of actually buying shares

[Semillon]

So you have done your research and picked a company or ten that you wish to invest in, the next question is how do you decide when to enter the market in the short term and at what price? If you would be happy to pay the current market price for a long term position, do you place an order limited to the current market price? Below it? Just above it? Enquiring minds would like to know...

I beleive I understand some of the basics of comparing companies on a fundamental basis, however do people actually drill that right down into an actual price they feel it is profitable to buy at? If so, I would appreciate any links to such methodologies as I am yet to find any

 

[cooper1308]

I guess it all depends on your timeframe.

If you are holding for the long term, trying to pick a good entry can get quite frustrating and very hard to do..... Sometimes you get in at the best possible price and other times you get in a horrible time..... Generally speaking it should even out over the long run

If your timeframe is very short, for example scalping intra-day, then entry is everything... Your profitability runs parallel to your timing skills

As you can see, two different time frames = two completely different answers.

So you have done your research and picked a company or ten that you wish to invest in, the next question is how do you decide when to enter the market in the short term and at what price? If you would be happy to pay the current market price for a long term position, do you place an order limited to the current market price? Below it? Just above it? Enquiring minds would like to know...

I beleive I understand some of the basics of comparing companies on a fundamental basis, however do people actually drill that right down into an actual price they feel it is profitable to buy at? If so, I would appreciate any links to such methodologies as I am yet to find any

 

[Semillon]

Understood Cooper, just to clarify, I am talking about long term (> 6 months?).

 

[skc]

So you have done your research and picked a company or ten that you wish to invest in, the next question is how do you decide when to enter the market in the short term and at what price? If you would be happy to pay the current market price for a long term position, do you place an order limited to the current market price? Below it? Just above it? Enquiring minds would like to know...

I beleive I understand some of the basics of comparing companies on a fundamental basis, however do people actually drill that right down into an actual price they feel it is profitable to buy at? If so, I would appreciate any links to such methodologies as I am yet to find any

There are many fund managers out there who build large spreadsheet valuation models to calculate what the share price should be. There are also some out there who simply do some back of envelop calcs and believe the market has not price in a share's true worth. So up to you and your interest in spreadsheets really.

 

[cooper1308]

Ok thats the first step.... If your looking at 6 months+ then I would generally say timing isn't too important. But again that is up to you to decide.

The important thing is to keep a level head if the stock moves against you and not panic. Have a plan and stick to it.

Also look for other factors...If your buying a stock for the income? Capital Growth?... ect ect.... this can help you decide which entry method is best for you.

This may seem like a long process but the question in itself is soo subjective.

Understood Cooper, just to clarify, I am talking about long term (> 6 months?).

 

[Semillon]

I guess my question is really only at the fringes, if you feel a stock is undervalued and you plan to hold it until the market reflects that value then quibbling over 0.5% of the share price is not a big deal?

 

[nathanblack]

I guess my question is really only at the fringes, if you feel a stock is undervalued and you plan to hold it until the market reflects that value then quibbling over 0.5% of the share price is not a big deal?

holding long term, 0.5% will seem like nothing. and you can always use dollar cost averaging to even out your entry. with averaging you will never buy at the best time, but you wont buy at the worst either.

so if you wanted to buy $5k in a stock and hold, maybe consider buying $1k a month for 5months. you might pay higher today , then lower next month in a falling market or it could rise.

this strategy will minimise risk of poor timing, but also take away potential gain if you can time perfectly. probably not feasible the less $$$ you have, due to brokerage. i wouldnt do it with 1k. but if you have more???

 

[So_Cynical]

When u cut to the chase Semillon...what price are u happy to buy XYZ at? or do u just
absolutely want to buy XYZ tomorrow?...only u can answer these questions.

Ideally u would of been playing successfully with a dummy account so have some confidence
in your ability to make good decisions?

Keeping in mind all the reality's of buying shares, like u cant get it right all the time, its pretty
much impossible to pick bottoms/tops etc etc.

 

[Julia]

Semillon, I wouldn't consider 6 months to be a long term hold.

A few years ago ASF member Bunyip posted the following. Sums up very well imo the fundamental research question. Read it and see what you think.

Quote:
"Researching stocks takes a lot of time and it prevents me from doing other things."

I agree - researching stocks is time consuming.
But there's a simple solution to your problem.....don't do any research. There's no need to - tens of thousands of traders and investors have already done the research for you, and their findings are reflected in the trend of the stock.

AMP fell from $13 to $3 between March 2002 and August 2003. Shortly after it's downtrend began it was patently obvious, even to someone of little experience in chart reading, that the stock was heading south east on the chart.......a downtrend.
Why was it downtrending? Because traders and investors were quitting the stock en masse.
Why would they do that? Because tens of thousands of them had researched the company and found out that it was in trouble, and it's future prospects were none too bright.
In which case, you could have made money from the AMP downtrend by selling the stock short, or buying put options.
Or if you owned the stock, you could have bailed out long before it's value was decimated.
The point is that you could have got quite an accurate summary of the fundamentals of AMP without spending one minute of your time doing fundamental research. Just look at the chart.....all the information you needed was graphically displayed for you.

Look at the current price action of AMP. Nice uptrend in place, particularly when viewed on the weekly chart.
Why is it uptrending? Because tens of thousands of investors, having done their research, have formed the opinion that the stock has good fundamentals. No need for you to research AMP to profit from it - the research has already been done for you. If an uptrending stock shows temporary weakness by pulling back for a few days as profit takers bail out,
and then the uptrend resumes as buyers come back in, it presents you with an ideal opportunity to hitch a ride on the trend and make some money.

The same sort of simple analysis and trading strategy can be applied to any liquid stock that starts uptrending or downtrending strongly.
WPL is a good example.....uptrend began in early 2003. Three years later, the stock is more than four times it's 2003 value.
Once you saw WPL heading steadily north east on the chart, making higher peaks and higher troughs, did you really need to spend hours or days of your time doing fundamental research on it?
Thousands of investors had already researched it for you and their findings were very positive, otherwise why would they be piling into the stock and pushing it higher week after week?

A common fallacy among stock market players is that if you want to profit from the market, you have to read the financial papers, company reports, brokers newsletters etc to keep yourself up to date with the latest developments in the economy and within individual companies.
Its simply not correct.....I've been trading the markets for 10 years or so and for the last eight of those years I haven't read a financial publication, a brokers newsletter or a company report.
The most reliable information is in the charts. Learn how to interpret them, learn how to identify trends, learn how to recognise retracements, watch for the trend to resume following the retracement.
You won't need to spend your time doing boring company research, and you won't need to hand your hard earned money over to Fat Profits either.

If you want some good books on how to identify trends and how to hitch a ride on them, I'd suggest.....

"Dave Landry On Swing Trading" by Dave Landry

"Secrets For Profiting In Bull And Bear Markets" by Stan Weinstein

The trading methods expoused by both these men are simple to learn, easy to implement, and require very little time input from the trader or investor.

I'd endorse Bunyip's suggestion of the Weinstein book in particular.
Read that and I'm betting it will change your whole approach.

 

[johenmo]

Semillon. Good advice here. I'd add that despite the timeframe you use/choose (minutes to years) you must have an exit strategy. Don't buy & forget, or buy & do nothing. Also monitor it.

Done that twice - never again. Cut the losses if you have to. Example are Allco, BNB etc.
Cheers