When I was still early in my career at World Wide Widgets, I got to know a guy that we had hired away from the A1 Widget Company, then and now the largest widget company in the US. This guy knew a whole lot about a very narrow field, but it was a field that was very important to the Widget industry. But his expertise was called on only from time to time. Months could go by without him having anything to work on, and then all of a sudden he would get a call from some WWW plant, he would fly out there, fix the problem, be a hero, and come back to the office and find some way to make the days go by. Twenty years later, I am still looking for that kind of job.
His way of making the days go by was playing the stock market. His office was half full of Widget industry trade journals, and the other half was Wall Street Journals, Forbes, a newsletter from some gold nut, Valueline reports on all kinds of stocks, and all kinds of other stock information stuff. He quite freely admitted that he spent about half his day playing the market, and that for the most part, derived half his income from WWW, and the other half from the market. This all lasted till his wife divorced him, took his locks and stocks, and left him over the barrel.
Happily for him, our office was in the middle of a major city, and there were at least three stock brokerage offices either in our building or the one next door. In those days of the middle 70's this was important, because you pretty much needed access to a brokerage office to get up to the date stock quotes from a terminal like device in their offices, or just to read the ticker, which they all seemed to have available. The office that was on the first floor of our building had a little arena area where there were a bunch of theater like chairs, all pointing to this electronic tickertape that was displayed on a wall of the office. Most of the people hanging around there looked like retirees, some looked like the image of a stock broker, all snazzy in an Armoni suit and YSL tie, and others looked like bums that somehow wandered in out of the cold. However, you got the impression from the way the people in the office treated these bums, that they could probably buy and sell half the people in the WWW organization.
So, after a few months of watching all this, I decided to take a flier. I went to one of the brokerage offices nearby, told them that I was there to get rich, and what should I buy to start my life of wealth and happiness? PSA Airlines, they shouted. Why is that? I asked. Well, it has just dropped from 32 to 22, and it can't drop any farther, they said. Good enough for me, buy buy buy!
In the next couple of months, it tanked all the way to 3 (that is a single digit, yes). So they called me back: "buy buy buy, it can't go any lower!". I told them that I was going to stick with CDs from now on, thank you very much. A few months later PSA climbed back to 6 and I was out of there.
So now we advance about 20 years, to the early 90's, when the market had grown from 2000 to 3000 almost overnight, and I decided that maybe this stock thing had something going for it after all. So I invested a few bucks in a couple of mutual funds, but everybody was saying that the market was way overpriced, so I kept the bulk of my money still in CDs, waiting for the market to crash back to 2000. And I have been waiting essentially ever since.
I now have another friend, somebody that owns his own business, who also spends some of his time watching the market, and he has finally convinced me that the market ain't going to go back to 2000 any time soon, and if I expect to get into the market before I retire, now is the time. Fortunately, WWW has had a very nice 401K plan for its employees, and I have tossed a few dinero in there so I have not missed the market rise completely. And if you have access to a 401K, that is probably the place that you should put most of your investment dollars, because a) they are professionally managed, 2) you don't get taxed until you take the money out, presumably for retirement purposes, and 3) generally the fees are quite small.
But after you have maxed out your 401K plan, then what? Mutual funds are very likely the best long term place to seriously invest your money. These things have professional managers that actually get paid to do what my friends do for nothing. While there are good funds and bad, generally speaking most of these funds are going to track the market to a strong extent, or they will not be in business very long.
But doing your own investing can be a lot of fun, and can be quite rewarding. And with the advent of the internet trading that is widely available today, you can think about doing things now that you would never have attempted 20 years ago. The low commissions means you can buy and sell a stock in a couple of days, and make a nice profit. And the best thing about the internet is, you never have to talk to a broker, or more importantly, you never have to let them talk to you, and make you do something you don't really want to do. Like buy PSA on a downward track.
There are a number of internet brokerage firms available. Schwab is probably the largest, with maybe half the market. However, they are also among the most expensive, at $30 per trade, and their internet response time while the market is open really suffers. There are other firms that advertize heavily in financial magazines that will do stock trades for as little as $7.
Since we are dealing with real money here, you first have to register with the firm. They are not very interested in buying and selling and hoping that you will pay for it later. They pretty much want cash on the barrelhead, although margin accounts can be arranged once you are registered. The registration can get started on the internet, but there are apparently some financial laws that require an actual signature on a real piece of paper, so they send you a wad of stuff, and you sign it and insert a check, and you are in business. The money you send in goes into a money market account that generates a pretty good rate of return, at least compared to a bank (I know, the bank is insured, and the brokerage office is not.)
Step 1 is to find a stock you are interested in. There are a lot of free, and some not so free, ways to do this. The free way is to go to www.quote.com, and use their facilities to present you with daily, six month, and 2 year graphs of how Bazoolla Inc is doing. To do that, you have to know their stock ticker symbol, but quote.com conveniently has a link to a database that translates from company names to ticker names. These graphs are quite useful, giving a trace of the closing price over whatever period you need, and a moving average. For the day, it gives a minute by minute trace of how the stock moved in the most recent day. Note that these are all delayed by about 20 minutes for some legal reason.
The brokerage internet sites will also let you get a real time quote, but some of them (Schwab, again) will charge you if you ask for more than a few such quotes per month. True professionals no doubt rely on these quotes rather than the delayed ones, but unless you are really about to buy a stock today, there isn't much worth in this over the free delayed quotes.
If you are willing to part with a little cash, you can buy one of several stock tracking programs - Windows on Wall Street is one - that displays a stock history in many different statistical formats. But to use these, you need to get the detailed data, and there is the catch. That kind of data ain't free. You have to sign up with one of several services, and that runs from $15 - $30 a month.
Once you have picked your winner, the next step is to actually buy the stock. These internet brokerage companies make it quite easy to do. With Schwab, you are presented with a form to fill out. It asks you for the stock symbol, how many shares, and then gives you the option to buy at market, at a limit, or at a stop price. A market buy is to simply tell them to buy it now ( or if the market is closed, at whatever price it is when it opens). A limit price, which for buying is generally lower than the current stock price, says buy this if the stock falls to this price. A stop price, which is generally a price higher than the current stock price, says buy this if the stock rises to this value. I have done both market and limit orders, and have not yet done a stop order. To my loss, because if you think a stock is going to go down before it goes up, a limit order is good, but if it does go up and never goes down to your limit, then you have lost it, whereas a stop order would catch it before it got too far away. I have watched both Intel and IBM get away from me big time because I did not put in a stop order.
And now we get down to the difference between investing, and playing the market. I think that if you are investing for the long haul, you should really be in a mutual fund. But if you want to play the market, think of what a $14 round trip on a trade gives you. Say you buy 100 shares of Bazoola at $25/ share, and it climbs to $27.50. You can sell out, pay the $14 commission, and still be $236 ahead of the game. And stocks do this. The market has become very volatile over the last few years, perhaps just because of this low commission phenomenon. Just yesterday, IBM ranged something like eight points from its low to its high for the day. While I hold stocks for maybe a week or a month, my friend who got me into this sometimes buys and sells in the same day.
The internet brokerages provide you with online status of what your stocks are doing, what stocks you have outstanding buy or sell orders for, and a transaction history that can be useful when tax time comes along. And you get all the normal month end paperwork that any broker would expect to provide.
It makes great water cooler talk. Once somebody gets the bug, and convinces a few others that this could be good, you now have several fine minds working on these issues, or at least listening for hot tips, and not just your own biased soul. If you do well, you get great bragging rights, and if your picks stink, then it gives everybody in the office something to throw rocks at you about instead of your work product.
Afterwords:
For some reason, this article did not get published in July. The editor and I agreed that it would fit in the November issue, but for some reason it did not make it there either. The magazine's last issue was December, so this is about the only exposure that this article will get.