Buying Stock for Long-term Online, Best Sites?

[PuppetMaster]

Im looking to purchase some stock for long-term, atleast one year.
What is the best way to go about this? I would perfer the conveinance of buying online...

[MaxPower]

I don't really consider one-year to be long term. If you will need the money within the next 3-5 years, you shouldn't be investing it in the stock market.

Anyway, you can open an account at any of the discount brokers. I use Ameritrade and have been satisfied with them.

Here is a link to a broker comparison (http://www.fool.com/dbc/dbc.htm?source=LN)

[squiffy]

PartyPoker is outstanding. Invest mainly in AA, KK, QQ and AK suited. I used Ameritrade, which has been fine.

[squiffy]

Good point. But he did say AT LEAST one year, implying that he may hold for longer than a year, which may meet your definition of long-term.

I don't see anything wrong with intermediate term investing. Though you make a good point, you can't guarantee that at the end of a year you can sell for a profit. You could be stuck longer.

[PuppetMaster]

[ QUOTE ]
Good point. But he did say AT LEAST one year, implying that he may hold for longer than a year, which may meet your definition of long-term.

I don't see anything wrong with intermediate term investing. Though you make a good point, you can't guarantee that at the end of a year you can sell for a profit. You could be stuck longer.

[/ QUOTE ]
Yes, I could easily leave a stock in for many years to come. I was just trying to point out that Im not looking to day trade, which is what most sights seem to be based towards.

Im just learning the market and Im planning on investing in some of the more stable stocks. Right now Im looking at Fox, Krispy Kremes, Lucent.

[deathtoau]

If you are looking for long-term holdings in big companies, I recommend you look into Dividend Reinvestment Plans and Direct Investment Plans.

Most allow you to set up the account with little or no fee and allow you to purchase shares directly from the companies without broker commissions. Then you can add funds at any time for no additional cost. Typically, the only time you actually pay commissions is when you sell share. The downside of these plans is you have set dates to buy shares (you can sell at any time), but if you are dollar-cost averaging, that is not as big a deal. Check out the investor relation's page of the companies you are interested in and look at the costs involved. With no broker fees and with free dividend reinvestment, you might save considerable expenses.

[BadBoyBenny]

I've heard that sharebuilder.com offers a cost format that allows you to invest in drip fashion without having large fees. Don't use it myself though. If you are truly looking for the convenience of an online broker, I doubt that DRIPs would work for you, but deathtoau makes good points. Dollar Cost Averaging is a very effective way to invest and DRIP's offer that at lower costs than any broker will give you.

[MaxPower]

Drips are excellent. I'm in one now and will be getting into another one soon. I'd like to get about 4 of them an keep contributing to them for many years, but I am being very carefull about chosing the companies.

They are complicated to get into and manage so it might not be the best for a new investor.

I looked into Sharebuilder once, but I didn't think what it offered was that great.

[deathtoau]

[ QUOTE ]
They are complicated to get into and manage so it might not be the best for a new investor.

[/ QUOTE ]

Of course, for a new investor everything in the Stock Market is complicated.

For more information on DRIPs go here (http://www.fool.com/school/13steps/13steps05.htm)

[deathtoau]

For my online brokerage account, I use Scottrade. $7 market orders and $12 limit orders is about as good as you are going to do and the service has been really good. Plus they have offices all over the country if you need to see a real human being and not get stuck in automatic email/voicemail hell.

[PuppetMaster]

I have about 20,000 that I wish to invest. I was planning on perhaps putting 5,000 into Microsoft, 5,000 into Disney, 10,000 into a Mutual Fund.

Any thoughts, suggestions?

BTW, I have opened an account at sharebuilder.com
Im 19 years old, in college.

[scalf]

/images/graemlins/grin.gif put it all into jun 110 treas puts...you'll be a millionaire..and buy your own college..lol

bet it all ..sleep in the streets..

gl /images/graemlins/smile.gif /images/graemlins/wink.gif /images/graemlins/diamond.gif

[Ray Zee]

first of all forget about putting up your money into internet companies. put it in vanguard or fidelity. you probaly would want to use their mutual funds anyway. here you have billion dollar companies with good acounting to watch and protect you. plus you get all the services like money market funds and check writing and debit card. plus have your proceeds moved to immediately to mm acount. plus you know they will be there next year and you can get your money in case of a meltdown.
start a retirement account right now. 2000 a year tax free will give you a few million when you get old.

[Wildbill]

Damn Ray, you really hate those internet companies don't you? /images/graemlins/grin.gif The kid said he wanted MSFT, DIS, and then half into mutual funds. May not be the best two stocks to pick right now, but I do think no matter what neither will be victims of accounting shenanigans and both figure to be around for many decades. I think MSFT is a good stock for the long run, it is in a valley right now, but if you are looking for something to hold for decades this might be the best place to go. They reinvent themselves every few years and have great visionary management that doesn't stay in one place for long. That isn't something you can say about a lot of companies.

[Ray Zee]

sorry bill. but i meant he shouldnt put his money with internet brokerage companies. just big ones with lots of services. who also are on the net. but have real buildings and places where you can physically cash in your money.
i would own msft cause they are going to have to give back alot of money in dividends in the next few years. but not disney.

[PuppetMaster]

[ QUOTE ]
sorry bill. but i meant he shouldnt put his money with internet brokerage companies. just big ones with lots of services. who also are on the net. but have real buildings and places where you can physically cash in your money.
i would own msft cause they are going to have to give back alot of money in dividends in the next few years. but not disney.

[/ QUOTE ]
I think microsoft is a very good long term stock. You never know what gates is going to come up with.
Perhaps I should reconsider Disney.

Im only investing a small amount 20,000 and I just wanted to get my feet wet, really.

[adios]

I think it's fair to say that MSFT is one of the most widely followed stocks in the market if not the most widely followed stock. If there was ever a company where the market was behaving "effeciently" on it's MSFT. I can't possibly see why the MSFT current price reflects an undervalued security or put another way I can't possibly see why the market has MSFT priced incorrectly. Really many of these same comments apply to DIS. It's widely followed and I just have to believe that the market has DIS priced correctly as well. I looked at the MSFT beta which is 1.618 and the DIS beta which is 1.045. Averaging these two betas given that you'll buy $5000 of each yields an average beta of 1.33. From a portfolio theory standpoint IMO you'd do better by buying $13,300 worth of SPY with you're $10,000 (using margin of course). Of course it depends on what your margin rate is. Not sure if the increase in portfolio effeciency (risk vs. reward) would offset these costs. Really I'd look for a Closed End Mutual Fund, an Exchange Traded Fund or a Mutual Fund that had similar risk characteristics as MSFT and DIS combined. IMO you want to purchase undervalued stocks where the market is wrong and not stocks where the market is right. BTW many will give valid arguments that the market is very effecient and that you really can't find undervalued stocks with a systematic type of approach. If you do find such undervalued stocks you've been lucky not good.

[PuppetMaster]

Do you have any book suggestions? Right now I've just been reading articles online. Unforchanctely I dont have cable tv so i miss out on that aspect of it.

[adios]

The Rydex funds have one fund that tracks the S&P 500 but is leveraged 2-1. Therefore when the S&P 500 goes up 1% the fund goes up 2% and of course if the S&P 500 declines 1%, the fund declines 2%. Given the average beta of DIS and MSFT 2-1 leverage implies too much risk. Also I'm fairly certain now that borrowing costs of margin make using it unattractive. However, I did think of a way to use the Rydex funds to acheive the level of risk implied by the combined betas and creating a more efficient risk vs. reward scenario than buying the two stocks outright. Rydex also has a fund that moves inversely to the S&P 500. When the S&P 500 goes up 1%, the fund declines 1% and vice versa. Buy both funds in the ratio of $2.33 spent on the leveraged fund to every $1 spent on the fund that moves inversely to the S&P 500. If it's a long term investment then transaction costs should be in the noise level I would think.

[adios]

Start with a Random Walk Down Wall Street. At some point I whole heartedly recommend Investment Valuation by Aswath Damodaran. He's also got a web site www.damodaran.com. (http://www.damodaran.com.)

[PuppetMaster]

be hurt badly by an impending terrorist attack in the US or abroad?

[adios]

[ QUOTE ]
be hurt badly by an impending terrorist attack in the US or abroad?

[/ QUOTE ]

Yes and so would MSFT. Stock price movements tend to be correlated and MSFT is a signifant portion of SPY. A simple but effective approach to understanding risk in a stock selection is to look at the portion of the risk that is specific to the individual company and the portion of the risk that pertains to the market generally called market risk. Investors can diversify away individual company risk and this is proven quite easily mathematically. Therefore portfolio theory states that investors are not paid a risk premium for individual company risk. There's a mearurement calle r squared which measure the gives the amount of risk allocated to the market and the individual companry risk. I have no idea what MSFTs r squared value is. Many of these same comments apply to DIS as well. BTW do as I say not as I do LOL. I'm faced with a problem that NFI has become way too much of my portfolio again. AceHigh was buying NFI with both fists at $15 and it's trading around $70 today. I assume AceHigh is retired to a nice sunny location now /images/graemlins/smile.gif.

[mosta]

I think the best investing reference I've seen (along with Malkhiel's Random Walk Down Wall Street) is this site:
http://www.coffeehouseinvestor.com/
The best long-term investment is a diversified portfolio that tracks broad market indexes. The S&P has been discussed in the responses above, but you should be more diversified than that, with some exposure to bonds and real estate (and perhaps international markets). SPY is a good way to track the domestic equities market, but after doing extensive cost comparisons, my finding was that the most cost efficient way to trade indices is with Vanguard. With the SPY you have to pay broker commissions. And the SPY does have management fees (even though you never receive a bill--they come out of the dividends--all ETFs have fees). Vanguard has the cheapest management fees. In fact, if I understand correctly, they are a non-profit company--they exist altruistically, to fight the good fight against the fking scum-bag POS commission vampires you see on TV. And this advice isn't from someone afraid of or against the securities markets--I'm a derivatives trader on an exchange floor.

One other issue raised above is the use of leverage. With SPY you can margin it, and funds were named that also trade leveraged. Leverage for the retail investor is a can of worms I don't want to get into. But if you really want to do it, buy futures. Seriously, if you're considering margin, try to figure out what would have happened to you in 2002 when the S&P went below 800. Could you have met the margin call? Or would you have had to liquidate at the bottom?

[adios]

Good post. I only mention SPY because I know it does track the S&P 500. If there's a better alternative I recommend it and apparently Vanguard is a better alternative although I'm just taking your word for it which I have no reason to doubt. To be clear I mentioned leverage and margin to offer a perspective on the risk involved as measured by beta. I'm almost positive the Rydex combination I mentioned would be a much alternative than using margin.

[mosta]

and I neglected to make clear: vanguard has tracking funds for other benchmarks, equity and non-equity--wilshire, russell, foreign market, different term bonds, and REIT (coffeehouseinvestor.com goes over this). also, another justification for trading SPY, in addition to margining, is that you can trade options--for those who like to play (not necessarily advised). but again, the negative impact of commissions can not be overstated on long term performance. one interesting thought I've had--the CBOE created a tracking index (nontraded) for buy-writing the SPX. It's long the index plus short the front month at-the-money call, one-to-one, rolling the short call the next month next ATM at each expiration. I haven't analyzed it in any kind of depth, but I believe it's supposed to be the case that simple long SPX outperforms the buy-write long-term, due to the lost upside. If so, then isn't the natural thing to do to trade the spread?? Long SPX vs short BXM. but what's that? The long and short underlying positions cancel and what you have left is long the ATM call naked. then are we to conclude that buying options on the index is a safer more conservative portfolio than trading the index? Of course the fact that the return is expected to be positive doesn't imply that it is a better return than the SPX, which is also expected to be long-term positive. but still I found the thought interesting.

[BadBoyBenny]

Here is an interesting excerpt from an old article about Rydex funds

In last Friday's column, I argued that tech stocks are almost certainly overvalued -- an opinion that hasn't changed -- and disclosed that, to take advantage of the decline I foresee, I had purchased the Rydex Venture 100 Fund (RYVNX), a mutual fund that every day moves double the inverse of the Nasdaq 100. In other words, if the Nasdaq 100 falls 1% on a given day, this fund will rise 2% and vice versa.

I argued that owning this fund was a much better option than shorting the Nasdaq 100 tracking stock (AMEX: QQQ) "because gains are unlimited while losses are capped -- precisely the opposite of a short position. If tech stocks retrace their gains over the past year, for example, investors in the Rydex fund can more than double their money, yet if the Nasdaq 100 continues to soar, losses cannot exceed the amount invested."


While this statement is true, I have reconsidered my analysis of the Rydex fund and now believe that it is not a good investment vehicle for the long-term, fundamental bet I wish to make. As a result I just sold my entire position in the fund. The fundamental problem with the Rydex fund is that identical percentage losses hurt an investor more than gains -- for example, a 20% loss followed by a 20% gain yields a 4% loss.


This table shows how an investment in the Rydex fund might work over one week:

Nasdaq Rydex Venture
100 100

Monday 1.00% -2.00%
Tuesday 5.00% -10.00%
Wednesday 1.00% -2.00%
Thursday 1.00% -2.00%
Friday -8.00% 16.00%

Weekly
Returns -0.47% -1.74%

We can see that during this week, the Nasdaq 100 fell by 0.47%, resulting in an identical gain if one were short the QQQ. An investor in the Rydex fund, however, has lost money since the big gain on Friday can't make up for the earlier losses, as the gain was on a diminished base of capital.

This example is not hypothetical. This table shows what would have happened to someone who invested $10,000 at inception on 6/2/98 in the ProFunds UltraShort OTC Fund, which is nearly identical to the Rydex Venture 100 Fund:


Date Nasdaq UltraShort
100 ProFund

06/02/1998 $10,000 $10,000
12/31/1998 $15,466 $3,252
12/31/1999 $31,233 $639
03/31/2000 $37,045 $385
03/31/2001 $13,252 $1,017
12/31/2001 $13,284 $616
09/30/2002 $7,013 $1,455
09/30/2003 $10,981 $445

Loss since
inception 9.8% 95.6%


In other words, an investor who had simply shorted the QQQ (and had the guts to hang on as it more than tripled) would have lost less than 10%, whereas someone unfortunate enough to own one of the leveraged inverse funds would have been nearly wiped out. Even during shorter periods when the Nasdaq 100 didn't budge, such as 3/31/01 - 12/31/01, an investor in the ProFund lost nearly 40%.

To summarize, a leveraged inverse fund is not a good way to make a long-term fundamental bet that an index will decline, because even if one is eventually right, short-term volatility can ruin the bet. Such a fund is only appropriate, I believe, for short-term traders or those who can accurately identify peaks -- an ability I know I don't have and I'm skeptical of anyone who claims to have it.

[BadBoyBenny]

The only thing you miss by not having TV is fast access to news, which shouldn't be a big deal to long term diversified investors.

Warren Buffet's shareholder letters have been posted here before, they're free and have lots of insight into both business and investing.

http://www.berkshirehathaway.com/letters/letters.html

[BadBoyBenny]

I know this is talking about a leveraged short fund, but I think the same issues relating to variance and diminshed base of capital for returns would apply to similarly leveraged long funds as well. Does anyone have a more educated or enlightening opinion about how these would do in the mid to long term?

[AceHigh]

[ QUOTE ]
I assume AceHigh is retired to a nice sunny location now .

[/ QUOTE ]

Unfortunately I rebalanced my portfolio a little too early to make out on this latest run. Fortunately, I didn't sell all my NFI stock.

[AceHigh]

MSFT is a decent stock to retain wealth. I'm not sure it is a good stock to build wealth.

DIS, ugh...stay away.

[mosta]

[ QUOTE ]

in the fund. The fundamental problem with the Rydex fund is that identical percentage losses hurt an investor more than gains -- for example, a 20% loss followed by a 20% gain yields a 4% loss.




[/ QUOTE ]

I need to think about this--how this investment would work--but one thing to note is that "identical percentage" gains and losses do not break even for an unleveraged investment either. If SPY is trading 100 and goes down 20% to 80 and then goes up 20% to 96, you still have a 4% loss. Is this guy that you're quoting an idiot?

[BadBoyBenny]

Not an idiot, a pretty well respected writer and money manager. His name is Whitney Tilson

What he meant by that is that for a fund that doubles the variance of the market this negative effect is amplified, and the larger gains and losses will kill any long term returns.