Q For You Investor Types

[Champagne taste beer budget]

I have a call in to my "financial advisor", though he is really just the guy that sends me info re my 401. I'm sure I won't hear back from him till tmrw, if even that early, so thought maybe I'd get some unbiased opinions here sooner.

I am thinking of buying a couple shares of a stock that has taken some hits lately and is, I feel, undervalued. Don't ask cost/earnings blah blah blah, I don't know, I just got the feeling. Any idea what a broker is going to charge me, or how hard it is to do the online trade thing? Never done one, would not want to put the purchase on a credit card, nor necessarily want to give out bank account information either. I'm hoping somebody has some basic answers to basic questions. How Much? How Easy? How Fast? Etc.

My "guy" is an Edward Jones rep, I checked his website, has a stock finder, but the one I'm interested in is not found, possibly because it OTCBB instead of NYSE or AMEX. Those of you that have done this recently, or that do it often, is it something a relatively intelligent person can do without too much headache? I don't begrudge my advisor making a living, but I also don't want fees to be 1/4 of my total purchase price. (Yes, the stock is very low priced at the moment, I'm thinking a couple thousand shares for under $500.)

[Coytee]

I've been securities licensed now for 20 years. I hold a Series 7 (securities registration), 24 (General Securities Principal), 4 (Registered Options Principle), 53 (Municiple bond principle). I ran a small (very) broker/dealer (ie, Edward D Jones, merril Lynch,...) for a number of years. I was the muni principle, options principle and lead compliance person...

I say that to give some background, not to show all my feathers (I actually kept one or two feathers hidden [] )

With that background before you, I understand your basic question is, what's it going to take to buy a "pink sheet" (that's the "BB" part) stock. My first reaction is save your money and RUN from it.

My SECOND reaction is save your money and DON'T do it, I'd rather see you take that gamble and buy an index option on if you think the market is going to go up or down.

The pink sheet stocks are RIFE with a lot of "story stocks". If a stock needs a "story" to make you buy it, you really don't want it.

I'd charge my minimums for that trade, or about $50 (AFTER funds are in account, AFTER you sign a waiver form indicating you will hold me & my firm harmless for you buying a pink sheet stock)

The release form, is from compliance, they won't let you do the trade PRIOR to covering THEIR hiney... yes, pink sheet stocks are (can be) that bad.

I'm NOT registered in Minnesota so I can give you some thoughts without it being construed as investment advice per se (as in soliciting a transaction) I coudn't do the trade if I WANTED to.

You are more than welcome to call me if you want, toll free and I'll give you my thoughts on it.

If you want to PM me, I'll give you my 800 number. I'll be in the office tomorrow about 8:00 but have an appointment I'll be leaving at 10:30 for.

[Coytee]

In the event you can't or don't call me, let me offer item #2 that just crossed my mind. Regarding trading online.

I'm keenly aware of a specific horror story, some guy was going to spend $1,000 and buy some stock trading at .005 or something goofy like that. He put in a "market order" to buy 200,000 shares and he left for lunch.

What he failed to realize is, a market maker is NOT your friend, in fact, they are quite the opposite. If they are showing a bid/ask, they are required to honor 100 shares before they're allowed to pull away from their quote.

Seems they saw shark meat coming their way... they sold him his 100 shares at .005, another 100 at .05, another 100 at .50 and so on... before it was said & done, his confirmation was he'd bought 200,000 shares (I don't recall shares nor price, just the story, so hear the important part)

anyways, he got a confirmation that he bought 200,000 shares with a .10 "average price" and he owed them $20,000. He about FLIPPED and was all pissy that they screwed him (they did) and he was only supposed to spend $1,000.

He went back to SELL the stock and what pray tell, do you think happened? you got it... they honored 100 shares at a time and dropped the stock back down to the prior BID price, which was probably .001 and he had a net amount DUE of something like $13,000.

Reality is, HE inititiated the order as a market order, they filled it... it's not their "fault" that the market moved against him on the buy, nor on the sell. (although they were looking out for THEIR pockets and not his)

Had he dealt with a broker, he might have paid more in commissions (maybe not), however, a broker would have first, tried to dissuade him FROM that trade, and if he was insistent, they would have put in a limit order, thereby saving his hiney.

I don't know the end reality as he said he would probably have to file bankruptcy for that (which I found interesting), none the less, his horror ended up being a big lesson for others who were reading about it.

Put another way, were it in fact the BROKERS fault, we have E&O (errors & omissions) insurance to cover trade errors like that, he didn't so he likely had to pay up. I know I wouldn't have covered HIS mistake for him...would you? That would be the same as, if he made a KILLING on the stock, he gave me some of it, and he wasn't likely to do that. He wanted 100% of the gain, so he took 100% of the risk. (btw, he was not dealing with us in any capacity, it was simply a horror story on a forum, much like you just now posting here)

you really are welcome to call me if you want to learn more, I'll be MORE than happy to share a chat about this with you.

[]

[Champagne taste beer budget]

Now I know why you have Jubs and I'm still listening to KG4's. []

Actually, there have been a couple guys over the years that have made a decent living in the automotive business. Ford, Benz, Penske, Edelbrock, Porsche. I'm still aspiring to be 1/100,000,000 of them. If you ever need advice on a repair, or expected cost of a repair, call me.

Oh Yeah, you most certainly have a pm coming. Thanks.

[Coytee]

I've PM'ed with Craig, so this is meant for anyone who's reading this as opposed to being directed at him specifically...

Regarding trading online for say, $8.00 per trade... (you pick the provider)

Question: with all the money they spend advertising, with the cost of their employees, trading department, rent, lights, postage... do you REALLY think they are doing your trade and ONLY making $8.00 on it?

(hint: answer is no)

These firms, indeed I guess, ALL firms (most likely) are also participating in what they call "order flow" although the name might be different in some circles.

Bottom line, here's how it works, and I'm going to use round numbers, the "real" numbers might be more or (more likely) a bit less. I'm going to speak of only circumstances in which I know the facts.

Scenario... you call your deep discount broker and tell him to buy you 2,500 shares of "ABC" stock at $10.00. Not a big trade at $25,000.

What happens? Let's say the stock is bidding/asking 9.875 x 10.00

A) they go to a market maker, or exchange, buy from another individual selling the stock, give it to you and charge you $8.00 commissions and the $8.00 commission is their entire "take" on the trade. you might fill at 10 or you might fill at 9.875 (or any in between)

They instead, go to another firm, the other firm fills $10.00, HOWEVER, the other firm actually bought it cheaper (or will try to later). They will give a .125 /share "kickback" to your broker/dealer firm. So, the B/D makes (per this example) $312.50 net gain from the trade, AND they then charge you $8.00 on top of that. You are happy because you only paid $8.00, when in fact, had you utilized a "regular broker" and paid his $100 commission, he MIGHT (and I realize, might not... we always try to as this is where some of the fun & challange comes in). Anyways, he MIGHT have filled your order for 9.875 x 2,500=24,687.50 plus $100 commission, your net cost is $24,787.50

Would you rather TRY to pay $24,787.50 and have a $100 included for your broker for looking out for you, or would you rather pay $25,008 with a "deep discount" broker and "save" $92 in commissions?

I know there are a LOT of brokers who don't really give a rats hiney about trying to maximize someones (your) money and for those guys, you'd end up paying $25,100 as they'd not look at the order and try to work it...

My larger point to consder is, you really ARE paying more than you think you are, it's just being hidden from you. There is no free lunch as in anything else.

When I use to run our old B/D, I'd get calls ALL the freaking time from these idiots, trying to get us (as a firm) to "direct" our trades with our trading department to THEIR trade desk... various ones would promise us 1/8th of a point (.125/share) or even up to .25/share...

We never (ever) did it as I for one think that practice is wrong and I don't like it. My puritanical views on the practice however, doesn't mean squat as it's really pervasive in the entire business and I'd bet 1/2 of my SEP account that 99% of all firms are engaged in it one way or another (even my current B/D)

[:^)]

[Arky]

Coytee is giving good advice. I held a series 3 , 7 & 63 for 10yrs or so. If you can incorporate options in there somewhere the potential monetary risk is minimized somewhat.

[Champagne taste beer budget]

Points taken and appreciated.

This is a one shot deal, I am not a guy that thinks he knows better than the market, I just know a product and company that has seen some grief and may be making a turn around. It may not be. But I'm willing to blow $500 if it falls apart. (I could have sworn I saw the words "not a big trade" and "$25,000" in the same sentance before.)

You guys are funny too! It's not all blown on the amp topology guys!! []

[Coytee]

Coytee is giving good advice. I held a series 3 , 7 & 63 for 10yrs or so. If you can incorporate options in there somewhere the potential monetary risk is minimized somewhat.

Series 3... pretty cool...I had to look that one up!

[oldtimer]

Coytee knows what he is talking about. I would reiterate his first reaction of Run Away, however, as long as you are willing to lose all you invest then go for it, for $500 why not if you feel good about it.

[merkin]

I'm not a broker just a an investor that has done a little investing. I believe in the efficient market and that anything you know or think you know so do a lot of other people. If the story on the stock is that interesting(potential for growth) then those other people have already thought that and bid the stock up to its real value potential. Smucks like me on the outside have little chance to make gains on such stocks especially penny stocks. (your odds are almost as good in the lottery). My advice is put the money in a mutual fund that you have researched that doesn't have much in operating cost and not much for a load cost. Better yet buy some forte II's for the 500 and have years of enjoyment provided by the 500.[]

[Coytee]

[:$]

Not to defend my typing...(as he goes on to defend... [] )

When I took typing class on an electric typwriter, my (corrected for errors) speed was 83 wpm. I was the fastest male typer in the class and the second fastest person in the class. Darn that Alison Medford!!! [:@]

I get my brain ahead of my fingers which my wife would tell you, are just flying across the keyboard and I just "spit it all out"...I don't find this forum very helpful with the small window we have to type in and I have NEVER liked typing in Word and copying over, so I just type it out and let if fly.

Fortunately for me, folks are very tolerant of typos...[] []

Oh, and I might add that I DO correct many errors on the fly, when I catch them. (that'll give you an idea of how many I REALLY have)

[oldtimer]

You are a smart man Merkin. For this much money forte II's would be good. However, it is also a cheap education in speculation, so it is even in my book.

[Coytee]

lol, you dog, you edited it...now I look like I'm talking to a wall or something...

[:#]

[oldtimer]

Sorry, I edited it before your post because I decided it was not important enough. I now admit before the Forum that I made a side comment regarding spelling, all in all we are just another brick in the wall.

[Coytee]

Well, you are/were right... I even spelled Principle/Principal both ways... as I carry several of the designations, you would THINK I might know which one to spell...

Oh well... I don't put any more effort into checking spelling other than what I do on the fly. I probably should. I did find it funny though.

[]

[Spkrdctr]

Coytee, I also have had all the licenses and agree with everything you said. The pink sheets are much worse than you stated though. The bid/ask spread can be so large that you have no real chance of making any money. The stock prices are manipulated by the market maker of the firm who is running the stock. Florida is the penny stock ripoff capital of the USA. Also, the old lie that all the big names were once penny stocks is untrue. A "real" good stock will come out at a price that is determined by many actors, but most come out between 20 and 50 dollars a share. So, they were never penny stocks. Anyway, the pennies are a mess. I also would never recommend options to someone who is not a seasoned investor and really understands the options game. Nice topic! I enjoyed reading straight from the hip good advice.

[Coytee]

You are right on the spreads. I'll try to clarify to someone (who's looking at something with .05 x .10 spread) "do you realize this stock has to go up 100% before you are at BREAK EVEN??? Then they start to "get it".

On options, you hit one of my passions. What most people don't realize is you CAN play options very conservatively (my own bd included it would seem). Options get the bad rap for losing someone's money and I'll try to educate the person and show them (what I feel is) a better way. SELLING them and never buying them. Covered calls & covered puts.

Interestingly to me... (and this is me ragging on my b/d) my firm would not raise TOO much of an eyebrow if a 55 year old lady came to my office, opened a margin account and for what ever her reasons, bought 2,000 shares of (insert name of listed or otherwise BIG company) stock. So... now she's leveraged. If it goes up, she can make a bundle but if it goes down, her losses are also magnified.

I won't hear a peep from compliance.

If however, I took that same amount of money and instead of margining the stock, sold a put for her with a strike price say... $5.00 UNDER the current market, netting her let's say $1,00 oh what the heck... let's get crazy and say I net her $5.00 per share premium for this opening transaction (times 1,000 shares so she pockets $5,000 upfront and her risk is buying this stock 5 dollars BELOW it's current trading mark)

What can happen?

1. Stock goes up, she never gets put the stock but she keeps the $5.00/share premium.

2. Stock goes down to ZERO and she's out the strike price LESS the $5.00 premium. For arguments sake, let's say she's out 100% of her money EXCEPT for the $5,000 preumium.

My B/D would be MORE comfortable if she margined the stock and lost 100% of her ENTIRE money, than sold an option on the same stock and lost it all EXCEPT for the $5,000 premium she brought in.

I ask anyone who has a brain... if you are going to gamble with say $50,000... would you rather

A) lose the entire bet ($50,000)

lose the entire bet BUT salvage $5,000 from it, so your net loss is "only" $45,000?

It's an over simplified story but it makes the point. It also shows that my b/d is VERY uneducated on these things (as are many people). Sadly, my b/d would rather stick their head in the sand than let one of there "mere brokers" teach them anything. (arrogance at the highest levels)

My business partner is a CPA. He was our Financial Operations Principal at our B/D & been in biz 5 years more than me. When I first joined with him, I took some time to show him some ideas for writing some calls and puts. He too buried his head. He didn't understand them so he hid from them.

Over the next several years (been together 12 years now) with me dripping ideas on him...his lightbulb FINALLY went off and he finally "got it"

Today, he is a writing machine. Last year alone, I think he netted something like $75,000 on his premiums alone. He went from his head stuck in a hole in the ground to a VERY eager writer. Something I've witnessed with just about EVERYONE I've held by the hand & taken the patience with to teach & show them. After a couple months or years of this over eagerness...then they too "calm down" and finally become fairly sophisticated and unemotional about the process.

Really can be fun to watch someone change from before to after their lightbulb going off.!!

[Champagne taste beer budget]

Since this thread found its way back to the top, an update:

The stock I was originally considering purchasing was Tripath, the digital amp company. I'd watched it as it slowly lost value, as I recall I was looking at buying in at the $.15-.20 range. (Cents, mind you) I'd held out hope for the company to turn around, it had been over $20.00 a couple years ago, but fell on its nose. I decided not to buy, not necessarily due to any one particular reason, just didn't have the right feel. Today it's trading at somewhere between .022 and .028 cents a share. Still check it occasionally hoping to see company pull itself out of the hole, but doesn't look too promising.

[Coytee]

No disrespect meant, but I'm glad you missed that one. Given the trading costs in and pending trading costs out, you would still yet to be at 'breakeven'. This is AFTER the stock has risen ...wait... I looked closer to do the math...you're saying you first thought to buy at .20 cents and today it's UNDER THREE CENTS???

yikes! (I misread that and thought you could have bought at 20 cents and today it is bidding 22 cents... where are my glasses... [:^)])

I know you were only talking $500 but that would have hurt the pride, if nothing else!!

Word of wisdom I always try to sneak in when I can...

"Half the secret to making money (in this business) is not LOSING it... if you can manage your losers, everything else will take care of itself"

Unfortunately, I can not tell you HOW many times I witness people managing their winners. Meaning, they'll buy a stock. Let's say it goes up 10%. They then sell it. They sold it, right in the teeth of it doing what they WANT it to do.

On the flip side...same person buys a stock and it goes DOWN 10%. Do they sell it? NO, they hold it "waiting for it to get back to breakeven". What if it then drops another 10%?? do they sell it?

No, they are now waiting for it to get back to the original -10% position (or 90% of true cost). What if it drops another 10%???

So what ends up happening is, they (this is speaking in broad general terms becuase there are clearly exceptions)... ok, they end up selling the stocks that are doing what they want them to do (go up) and keeping the stocks that are going down. Net result, they end up with a basket of dogs.

When ever anyone calls needing to sell some positions for what ever reasons, the first thing I'll try to look at is sell your losers first. We don't ALWAYS do it if we have reasons to elect out of that. As a rule though, if you keep pruning your losers, what is left but "winners" (as defined as assets that are performing like you wanted them to perform).

I need to stop typing here... I'm beginning to gab like Dean & Craig... [6] []

[Champagne taste beer budget]

I need to stop typing here... I'm beginning to gab like Dean & Craig... [6] []

Ahh, but that is how the new grasshoppers learn, Master. CHI. (My daughter and I just took our first katate lesson last night, every thursday night for 10 weeks, I believe. Push ups? Sit ups? Yeah, I did some of those 25 years ago. Ouch.)