How to Buy a Stock: The Basics of Investing.

A lot of people often wonder, ” how do I actually buy stocks?” This question can certainly be daunting, as the stock market appears to be a rich mans game. This negative sentiment is a leftover from trading in the latter century. I affirm that buyins stocks is easier than ever with the prominence of discount and premium brokerage services.

Buying a share of stock, whether it be common or preferred, seems like a daunting task to those who have never owned stock before. But to put it quite simply, stock is nothing more than a piece of paper resembling a portion of ownership in a company. Most big-time firms will issue stock in order to raise cash, so if they have cut up 100 shares and you buy one… you essentially have 1 ownership in that company! Cool huh?

Rather than buying the paperwork directly, most investors nowadays turn to stock brokers. What is a stock broker? Think about a broker as somebody who orders the shares you want, does all the paperwork for you, and keeps track of your money, your earnings and your losses.

Picking a Broker: Discount Brokers The most popular option for investing today is through a discount broker. These typically have a low minimum deposit and low trading commission fees. Here are my favorite three:

1. Scottrade This is the broker I use to make my trades. They are known for having the best customer service in the business, and very favorable pricing for beginning intermediate buyers. Trades are all just 7, including stock options. The minimum deposit is just 500, so anyone can put money in. Plus, they are the only major broker that hasn’t been hacked in the recent wave of phishing attempts. I trust them more than anyone else because they offer a sense of security. Customer service is very helpful and their trade execution time is apparently the best of all discount brokers. If you want to sign up, let me know so we can both get 3 free trades!

2. E-Trade These guys have a lot to their name. Even after their own stock was hit hard last November, they have managed to maintain their customers and continue offering value. Minimum investment at E-Trade is 1000, still very low, and they give you 100 free trades during your first month. Your first 1, 500 trades of each quarter are just 7, increasing incrementally after that. The company is stable, and you can definitely count on their security and reliability as brokers. I think that their rates aren’t as good as Scottrade, but a terrific option nonetheless.

3. TD Ameritrade This broker is a bit more pricey as far as discount brokers go. The minimum for a cash account is 2, 000, but you get their excellent” StrategyDesk” tool as an incentive. Their current promotion is 30 days free trades 100 back. Trades are just 9. 99 every time you place an order. As far as discount brokers, TD Ameritrade is probably the most prestigious with one of the largest networks around. You may be paying a few dollars extra, but the service and quality cannot be denied. They currently offer an” asset protection guarantee” on all of your information and money.

Picking a Broker: Other Brokerage Options There are some relatively new trading services that offer trades around 5 each like TradeKing. com and ShareBuilder. com, there’s even the 0 fees from Zecco. com! In a nutshell, I would rather trust an established broker with fees than mess with the uncertainty from these super-discount brokers… but judge for yourself if you want the savings. Premium brokers are much more for the experienced investor, so I am not going to go into detail about them. If you are interested in higher-end services, I suggest Charles Schwab, which straddles the line between discount and premium services.

In short, to trade stock you will probably want a stock broker to handle all of the messy paperwork for you. Choose your favorite, deposit money into your account, and start investing like a pro!

The Net Fool Visit my blog website for more stock market picks, get paid to GPT website reviews and other ways to make money online!

http: www. thenetfool. com Your 1 Resource For Making Money on the Net!.

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When Is The Time To Buy Gold Stocks?.

Can something as simple as tracking a commodity give predictive insight into what commodity stocks are going to do? Below I outline an example of the possibilities behind this type of analysis. This line of analysis was originally developed by Jay Kaeppel and published in Stocks and Commodities magazine in July 1993 Prospecting with Gold Mutual Funds. Kaeppel also authored a few books on options and futures like The Four Biggest Mistakes in Option Trading. His work was examined and furthered by Nelson Freeburg of Formula Research who wrote a follow up article here. Kaeppel takes a simple ratio of a commodity stock index in this case Barron’s Gold Mining Index to the underlying cash commodity gold. I used to track this every week for a whole host of commodities oil, silver, etc. More than anything it can help give perspective to how expensive or cheap a basket of stocks is relative to what a commodity is doing kind of a” forest from the trees” analysis. Hussman talks about a similar method here and here. Here is the example with gold. Weekly data since 1977. I recorded all ratio readings, and then the subsequent 3, 6, and 12 month performance of the gold stock index. I then divided the historical data into deciles. The average returns for gold stocks since 1977 were 2. 2, 3. 93, and 9. 93 3, 6, 12 months. Is there any sort of relationship between the ratio and future stock index movements? Below are charts for the 3, 6, and 12 month excess returns nets out the average return for gold stocks over the time period. There is a nice stair step that you want to see with this type of analysis. The highest ratios stocks expensive relative to the commodity result in future underperformance, and vice versa. Oil stocks as measured by the OSX are also in favorable territory. Kaeppel suggested buying gold stocks when the ratio was below 1. 4, and selling when above 1. 9. Kaeppel’s simple system tests with 16 CAGR from 1977-1994 with drawdowns of 37 vs. 6 for the GMI and 73 drawdowns. Out of sample from 1994-2007 results in 9 CAGR with 54 DD vs. 2. 5 CAGR and 75 DD for buy and hold. Both tests exclude the benefits of sitting in cash which would bump the results up probably 3 p. a. for the timing model. Where is the ratio right now? Near the historical bottom 30 of readings, a pretty good time to be in gold stocks. Future total returns not excess in this decile were 8. 39, 18. 13, and 31. 64 3, 6, 12 months out. Below is a historical chart of gold stocks vs. the ratio. I tried to highlight when the ratio was below the bottom 30 of readings in green. Look at that big block of time from 1998-2003 when it was a great time to get long gold stocks. . . but who was talking about gold in 1998? And here is the oil OSX chart since 1997. . .

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