General Guildlines To Start Investing In Stock Market.

So we got an online brokerage ac open. What the next step?

For a start,  there's free news feeds we have access to on the market. Start reading it and creating watch list on the stock of your interest.

That's all. No Buy. No Sell. Yet.

Step 1:
We start of by defining the capital we want to set investing with. Preferably not your whole life saving. May be $100,000 or $20,000 depending on how much you have and your risk appetite.

If I have $100,000, 20% is $20,000. If I only have $20,000, 20% is only $2000. The amount of capital you can set aside will depend on what type of stock you can look at.

Step 2:
Understanding your risk profile. There are lots of investment risk profile test online. Just Google it. It will mainly classified us under 1 of the 3/4.

a.Highly Adventurous. ( 10% or more loss)
b.Adventurous. ( 7% max loss)
c.Cautious ( 3% max loss)
d.Peace finder ( 0% loss)

I only emphasise on loss this point of time because, who wants their profit be cap? we stop at 7% if there upside of 4% more?

But losses is some thing we all want to avoid,  by determine the figure before we start, we are able to make rational decision and not emotion hope, pray for better price tomorrow investor.

Another simple method is of the capital you set aside. $50,000. What is the maximum lost of capital i can absorb before I will declare its the end of the world, the stock market is not meant for me feeling floods the mind. If its $2500. Your risk appetite would be $2500/ $50,000 giving you 5%

Step 3:
Though I'm not sure where this 7-8% stop loss come about. I believe it got to do with something about support and resistance and if the stock drop more then 7-8% a day. Its going to tank more.

There are some point of time we have to cut loss. Lose a leg to diabetes or I die keeping that leg with me. Don be fool into situation Long term investor because the stock that I purchase has drop 40% and I can't sell it now.

Step 4:
Stocks moves along various ranges. In Singapore context, a Bank share can move against / with
you on a spread of 0.1 to 0.5. ($100 - $500) where as a Telco Share range between 0.02 to 0.1 ($20-$100) in an intraday.

If I'm starting out with a capital of $10,000 with a risk tolerance of 5%.  it works out to be $10,000 x 0.05= $500.

You identify a share with great potential upside after researching and monitoring.
Share X is price at $10.30 ($10,300) a lot and have a spread of 0.3 to 0.55 ($300-550)

I believe its 'cheap now' and I make a purchase on margin. ( making payment after 5 working day) the next day it drop to $9800. ( becaase other feels it should be cheaper )

Wat do you do?

The above trade itself have a few fundemental mistake.
a. If knowing the stop lost limit at 8%. I wold only need to sell at $9480 ( Rounded to the nearest 10s)

It has exceed my personal stop loss limit of 5% of $500.

b. Knowing that the spread on an intraday can go between 0.1 ot 0.55. The max loss of $550 has also
exceeded my personal risk margin of 5%.

c. Will be tempted to cough up another $300 to purchase the share at $10,300. In the hope to sell later at a higher price. Freezing our captial and preventing future trades.

To sum this up. before we make any purchase, we have to identify stocks with daily spread that don't exceed our highest risk amount of 5% , $500.

Even though the potential upside is $500, so is the down side. Instead of looking at stock of this spread. We look for stocks that move between 0.1 to 0.3 or 0.05 to 0.1 which every that suits you more. ( Industry sector, company reports appealing ..etc..etc.. ) To prevent being prematurely kick out of the market.

With the watch list created, we start monitoring.

Step 5: Armed with daily news and Technical analysis ( Support and resistance line ) of the stock graph. We wait for a time to entry, exit.

Buying only near support and exiting near resistance. As market is irrational more often then usual. News and global happening can easily tip the techincal aspect.

Step 6: How much to buy is next in line. Share Y cost $.1.95 My captial is $10,000. so it will be $10,000 / $1950 =  5 lots ( Rd to nearest 1000s)

But nope its not that simple. There's 1 more step.  Theres a stop lost of 8% we mention earlier. $1.95 x 0.08 =  $0.156

Exit price of the share would be $1.79. Taking $1.95 minus the 8% loss.

With an inital capital risk of $500 divided by $0156 we get to pruchase about $3205 share. which Rd to nearest 1000s would be 3 lots.

So with  an Captial of $10,000 of a risk torelance of $500. I can purchase 3 lots of Share Y at $1.95 with an Exit price of $1.79 should it move against me.  Using $5850 of my total captial and maximum lost of $480 when sold at $1.79.

The above 6 step are a general guild to make stock buy / sell a tiny bit managable. Each has its own preference, thus if theres step 7, 8 or 9 that you think should be included.

Do drop me a message at the Shout-out box or email me as I too am still learing.

Spending a windfall

A few days ago, a buddy of mine ask what would should he do if he won the Big Sweep aka Lottery in other countries.

The jackpot price is 2.2 mil and this is how I would use the money.

1. Spend the .2 mil $200k. It can buy pretty much alot of little wants in life.
2. Invest .5 mil into the stock market. ( Equity, unit trust, commodities )
3. Save up 1mil in a time deposit a/c
4. Set up a trust fund with the remaining .5mil for a good course. ( Fund the poor education, SME startup grants..etc.) The trust fund must be self substain and growing faster then the financing of the trust mission.)



Well, that if I have a windfall coming soon.

Life shouldn't change much, I would continue to do what i am doing.

A thought cross my mind as I wrote this. How would one define luxury life style? As each to its own. This is my analogy, While i'm showing at home. I off the tap when i need to soap or shampoo. When i'm on holiday, I enjoy myself in running shower to reading a book in tub fill with sented oil. That's a luxury to me. (Contentment is each to its own)

What is your luxury? How would you spend your windfall?

New Reads - Why we want you to be rich

This is my latest reads, its a book co-written by Donald J. Trump and Robert T. Kiyosaki.
 
2 Men who fame and wealth has reach us to a certain extend - Globally.

Donald being the biggest real estate developer and the Robert who started of the Rich Dad Poor 
Dad books.

With such big names in this book Why We Want You to be Rich: Two Men - One Message, most people would be interested to take a read. This book in my view would be classify under 'why classification'

Why do people want to be rich, why we should be rich rather then How to get rich. This book is mainly written in 1st Person context. Its give me the feeling of reading a part of this 2 great man biography. Though they view mainly involve america as the discussion. there are interest view and pointers where they share which to each its own might be useful.

The book shares insight of who they are and what made them how they are. Robert contributes his success with relation to the leadership and military training he got when he sign on as a marine nad later on what the oil industry has show him.

Where as for Donald, he share that his dad was the best role model in his life, where hardwork, honesty and preseverence seen and learn from his dad still drives him in his business of real estate and making him successful till this day.

Overall, its a good book for light reading and soul searching as every chapter they pose a question back on the topic they have discuss. making you do some thinking. ( if you want to get the best out of the book)

Some quotes that I felt was enlightening is that Insanity referes to doing the same thing over and over again and expecting different result.

If we are unhappy with our current situation in life now, we got to charge some where some how, a small step is what it take. Thought moves us into action and thus yield result.

If theres something in life now that you don like, you can change it! Nothing is easy, but who wants nothing?

Official Site.

All the best in 2008 for the world and everyone out there.