Rational share strategy

melbury

Radiantsoul wrote: »

John Lewis are a partnership and so you can't buy them. I think the point is they are very much top dog of the department stores at the moment. Presumably it would take years for Debenhams to get to that level, but the rewards are potentially high.

Shame isn't it? I would love to own some JL shares if they were a public company:)

cepheus

There are many rational methods of making money on shares, but setting a profit less then the loss isn't one of them. In fact it's a sure way to lose over the long run. On purely grounds of price distribution you generally look for a profit target which is a multiple that of the stop loss.

What criteria were you using for profit taking? Did you decide on any? There are three main factors when buying a share, criteria to get in, criteria to get out, and how much. People rarely consider the latter two factors, only the first.

Glastoun

The criteria were just based on percentages and cash values - £75 was as much as I wanted to lose on the deal, and if I made 10% on it, especially in a short period of time, that would be more than I would have got putting my money into my cash ISA etc.

Like I said above, I think this was a trade-play rather than an investment - I thought the drop in share price was caused by panicking current investors and if I jumped in at the low point I could take advantage of it.

With regard to 'if you wouldn't buy into it now, then sell it' - surely there's a set of criteria where you wouldn't buy into it, because it had gotten too expensive, but you also wouldn't sell what you had because there was still some value to be gained from holding them? Else people would be buying or selling all of their shares all of the time.

(sorry for keeping this thread going, but the advice here is much clearer than anything I've ever read on a website )

marathonic

Glastoun wrote: »

With regard to 'if you wouldn't buy into it now, then sell it' - surely there's a set of criteria where you wouldn't buy into it, because it had gotten too expensive, but you also wouldn't sell what you had because there was still some value to be gained from holding them? Else people would be buying or selling all of their shares all of the time.

No, No, No... (sorry, don't want to sound condescending - just want to get my point across).

If you wouldn't buy it because it's too expensive, why would you want to hold it?

Of course, you have to compare it to other opportunities available and include the cost of fees in switching to those opportunities.

For example, if you thought Debenhams was 10% too expensive and Tesco was at it's correct value, you'd normally want to sell Debenhams and buy Tesco. As your investment is £500 with a £12.95 dealing fee, costs may make it unfeasible to do this.

This is the problem with small investments - you want to be investing enough that fees shouldn't really come into the equation when buying or selling.

You have to take into account tax (negligible for a small investor due to CGT allowances) and fees (very important for the smaller investor) when dealing in individual stocks.

At your current position, fees are inevitable so I'd hold until it gets to a point where I thought it was too expensive, then sell and open a regular savings account (First Direct have a 6% one available at the moment).

Only get into individual shares when the fees don't influence your decisions so much.

marathonic

Are you over or under 26 years old (there's a reason behind this question)?

Glastoun

marathonic wrote: »

If you wouldn't buy it because it's too expensive, why would you want to hold it?

Because I bought it when it was cheap? I think we're using the word expensive in different ways - I take it you mean expensive as in overvalued? I'm not sure I know in what sense I'm using the word.

If I thought (believed/hoped) it would go to 100p, if it was at 95p I wouldn't buy any more but neither would I sell the stuff I'd bought at 83p. Is that the wrong way to think?

I guess there are also exposure/diversification issues as well, when deciding what/when/how much to buy - £500 was my limit on this venture, and any other money I have is spread elsewhere.

marathonic wrote: »

At your current position, fees are inevitable so I'd hold until it gets to a point where I thought it was too expensive, then sell and open a regular savings account (First Direct have a 6% one available at the moment).

Again, I have other savings and investments, including an FD regular saver, this money is just some fun with a share and a learning experience. So give me all the guidance you like, but please don't be worried about my financial stability.

Glastoun

marathonic wrote: »

Are you over or under 26 years old (there's a reason behind this question)?

The only thing I know that is relevant to age 26 is a young person's rail card, but yes, over 26.

marathonic

My advice would be to open a Cash ISA and save until you have the minimum to open an Interactive Brokers account (this is what I did).

Interactive Brokers require the Sterling equivalent of $10,000 as a minimum initial balance - the exception is if you are under 26 in which case the minimum drops to the Sterling equivalent of $3,000.

With Interactive Brokers, there is a minimum charge of $10 per month ($3 for those under 25). This does not mean that you have to pay $10 per month on top of their commisions. It just means that, if your commisions for a month are below $10, you will be charged a total of $10 for the month. Therefore, as purchasing up to €4,000 of European shares only costs €4 ($5), you could transfer whatever funds you have for the month over to Interactive Brokers, purchase a number of 2 different European shares and your total commissions for the month would be $10.41 (or €8). Trading US shares is cheaper at $1 per trade of 200 or less shares. The UK trade cost is £6 for up to £50,000 worth.

Regarding the opening of the account, it is relatively straightforward. Everything is done online - including the signatures they require which are just typed. The only other thing you have to do is fax, email or post a copy of two identification documents - I used a passport and a utility bill. A drivers licence and bank statement also works.

Transfering the money to your account is easy – it can be done online.

I planned to purchase US shares as I believed their economy would be first out of this mess. Therefore, the first thing I had to do was to transfer my Sterling to US Dollars. Interactive Brokers are one of the best (possibly the best) for this as you can lodge your money to a Sterling account and transfer the money to dollars using their very low commission foreign exchange - exchanging $10,000 will cost you $2.50. You can maintain balances online in multiple currencies.

Another advantage is IB's flexibility - you can trade markets all over the world.

So in summary:

Minimum Opening Balance:
Sterling equivalent of $10,000 ($3,000 if you are under 26)

Monthly Commission Minimum:
$10 or £6.75

Minimum Monthly Commission Covers:
2 European Trades (almost); or
1 UK Trade; or
10 US Trades

IronWolf

Glastoun wrote: »

Because I bought it when it was cheap? I think we're using the word expensive in different ways - I take it you mean expensive as in overvalued? I'm not sure I know in what sense I'm using the word.

If I thought (believed/hoped) it would go to 100p, if it was at 95p I wouldn't buy any more but neither would I sell the stuff I'd bought at 83p. Is that the wrong way to think?

Not an unreasonable way to think. For example I would only buy a stock if I thought it was undervalued, but I may want to hold onto it long term. So the price could rise to what I would consider 'fair value' but I wouldn't sell it as it's still a good long term investment. Neither would I buy more though.

marathonic

IronWolf wrote: »

Not an unreasonable way to think. For example I would only buy a stock if I thought it was undervalued, but I may want to hold onto it long term. So the price could rise to what I would consider 'fair value' but I wouldn't sell it as it's still a good long term investment. Neither would I buy more though.

But if fees were so low that it would be feasible to switch from a stock at a level at which you would consider "fair value" to another stock which you would feel is undervalued, would that not make sense?

In doing so, you'd lock in a gain, using some of that years CGT tax-free allowance and you'd then be in a better value stock.

Say, for example, you were investing in US stocks via Interactive Brokers, your $10 monthly fee includes 10 trades (well, if you do a foreign exchange that month from GBP to USD, it'll allow you an additional 7 trades given the $2.50 cost of the forex trade).

Therefore, you could actually consider there to be NO fees for switching - as they're included in your minimum commission.

The Interactive Brokers annual minimum commission of $120 represents a 1% annual cost on a $12,000 portfolio and allows 12 monthly forex trades and 90 annual stock trades if investing in US quoted stocks.

This is what drew me to Interactive Brokers a few years ago.