I've been trading for a few years now and I'm still learning new things every day. I especially know how overwhelming it can be for new investors to take their first steps into trading. I've had a lot of experience lately with answering some basic questions that most people ask me about dividends, stocks and investing. I have no problem going into great detail about as much as time allows in the conversation. Right away I'm able to pour out my passion and love for investing and especially dividends.
Since I've recently had so many people asking me about stocks I thought it would be an amazing idea to throw an article together explaining some tips and tricks I've learned from my success and failures in the market. I really wanted to emphasis the failures portion as I have had some short comings but I always look at it as an opportunity to learn and grow from my mistakes.
Finding The Right Broker
The first question I always get is how I I purchase stocks. I find it so amazing at how old school most individuals think the purchasing of securities is. I could only imagine what it would be like to have to call a broker or even go visit a broker face to face to make a transaction. I typically suggest Fidelity as the trading platform I prefer, but this is simply because it is the only online broker I have ever used and I'm very comfortable. They have a very nice layout with a ton of tools that I find very useful. The only downside to Fidelity is that pesky $7.95 trading fee. It may not seem like much but those trading fees add up and as a dividend investor I constantly think about how much I would need to invest per year in order to make up those lost fees.
However, I have definitely thought of switching brokers before.If I had the opportunity to roll over my portfolio I would make the switch to Robinhood. Now don't get me wrong, Robinhood is a brand new brokerage still that is in it's growth stage as a new company. They have definitely come a long ways from whence they started though. Honestly the biggest reason is the fact that they have zero fees associated with them. This is an amazing thing for any trader and dividend investor alike. If you break down the numbers, I spent $227.60 in trading fees last year!! To put into perspective how much money this is, I would have to Invest about $7,000 to get this extra money back in dividends.
This absolutely blows my mind when I think about how much money I have spent already in trading fees. I really want to put this into an even bigger perspective. Lets assume I Spend the same amount of money in trading fees this year as I did last year and figure out how much money it could have been over 10 years. I came up with this calculation by assuming I get an 8% return, I continue to invest the extra $227 and it is over a 10 year span. The figure comes out to be $4,041.60. This may not seem like a lot of money but remember that this is only over a 10 year time and this is money that is not being invested into my account.
Finding The Right Dividend Growth Companies
the next question I'm always asked is how I find out about the companies I choose to invest within and where I go to research them. I actually use a lot of different websites for this. The #1 website I find my self visiting the most often is Dividend.com. This website has a massive database on almost every dividend related company I have ever looked up. I love the layout of the website, the Monday articles relating to current Ex-Dividend date companies and the wealth of useful information available with a simple search. Website pages contain all the useful information a dividend investor needs. The second website I use very often is marketwatch.com. I really enjoy this website for the financial Portion of my investments. It has a very simplified information layout that is easy for someone without a financial degree to read and understand. The third and last website I use to research new companies is investopedia.com. I use this website for all stock related information I need. I'm constantly yearning for more information and this website is filled with it. It has everything a trader and investor needs.
I also get a lot of great ideas from other dividend Investor bloggers. A few that have really inspired me and continue to give me some great ides are Keith from Divhut, Bert and Lanny from Dividenddiplomats and Jason Fieber from MrFree@33
These guys have some awesome websites and I encourage everyone to go check them out. It is really motivating to read a bunch of different ideas from other fellow bloggers. I have also gotten a lot of great tips and advice from these websites that have made me the invetors I'am today.
Determining An Entry Point
One of the biggest pieces of advice I could give to a new trader is to really do their research before purchasing a company and determining a great entry price. I always do my research into a few vital areas to determine and entry point. What is the current P/E of the company? This is a very important item to look upon to figure out at a glance if a company is overvalued or undervalued. The current S&P 500 has an average P/E of 26. An investor can use this average as a criteria to enter a position or not.
Another key Principal I use to determine a good entry point is the moving average technical analysis. This really allows me to get a good idea on where the current price is in relation to what affects the market has had on the current price of the security. The big three ones I use is the 50 day, 100 day and 200 day. This gives me a good short term and long term picture to base if the current price is undervalued or overvalued.
Random Observations I've Made
Over my years of trading I have had a few observations that can affect what price you enter in at.
From personal Experience I have learned that personally the best time I have noticed to get in a stock is during the 10AM-12PM time frame. This is typically the spot I have noticed stocks will consolidate after a morning sell off or run which typically makes a good entry point. Now this is not always the case. Their are many outlining factors to watch also for example if the company has any news that is released early or later on in the day. Depending on the nature of the news, it can have a massive affect on the share price.
Don't chase a stock!. What I mean by this is that, if a company is on the rise, and it is climbing rapidly, Don't chase that price and pay the higher amount for the shares to simply get in. I have noticed that this happens a lot in the open of the market and if a company gaps up it typically has a pull back and creates a more suitable entry point. My comfort zone or sweet spot to purchase into a company is when their is a nice little dip. Something about buying in at that sale price makes me feel extra comfortable about my move and gives me a feel that it will only go up from where I bought in.
Stock purchasing can be a very tricky thing if the individual is trying to get in at the best price possible. People often get confused on the purchasing aspect of trading. It is very important for people to understand the basics of buying and selling securities. for that I obviously recommend them to read about it on investopedia and get a good grasp of what they are doing before jumping into their first purchase.
Another great tip is to pay attention to news sources and what is going on in the world. Their are plenty external factors to watch out for to determine what type of stock day it will be. Are investors getting antsy about a presidential address, are their fears of a Federal rate hike? These can all go into play and you should always pay attention to this if you want to maximize on a certain day you will be purchasing. I recommend an investor use more then one news source. I personally like Marketwatch and Reuters.
Do some good quality research and get the confidence you need before making that first purchase. Make sure that the companies you are investing in are good quality one and not some random one you heard about from some ad on someones website. Chances are that a purchase will work out down the road if it was made on a quality company with a solid financial foundation. Don't let the fear of losing out on money ruin your chances to make a lot of money in the market. A lot of people have fears that they will lose all their money over night. This is not going to happen! Even during the 2008 financial crisis, investor who bought in at those lows are reaping the rewards today. The markets will always correct themselves and on average will continue to rise.
Get out there and get your feet wet after doing some research and use any mistake as a learning experience to grow into a better investor! I have grown from many of my own mistakes and I wouldn't change a thing about that.
Does anyone else have any advice or tips that an investor could use? Obviously I can't list all of them since their are so many but I did my best. Feel free to leave a comment with some advice to me or a new investor!