How Much Are You Willing To Invest With No Research?
Investing is all about finding good companies or ETFs and buying them when you think they are attractively priced. And then holding them. This is the part that makes investing boring, because I know from experience that holding the quality companies will make you money over time, you don’t need to trade them.
It can happen quickly, you lose upside before you even have the chance to make successful trades. For example, Philip Morris (PM) is trading at a 52 week high and all time high. If you simply waited for everything to be “all clear” in the economy, you missed out on this move. A company like Philip Morris is a so called secular stock, which means that it makes money and grows its earnings consistently in spite of economic cycles. Therefore, trading it can be tricky.
So, I don’t trade it. I watch the markets every day and I get the inkling to buy a fast moving stock or some company that looks like a great idea but is speculative. The way I satisfy both urges is to hold great stocks with big money and trade speculative stocks with very small money.
The advantage of trading with small money is that it doesn’t affect you if it fails. You can take more risk. So, I have a very small portfolio (micro portfolio) that contains many of these speculative stocks, or stocks I bought without doing any research at all. Someday I may get around to posting it online.
How Much To Invest
The amount you can invest depends on the size of your portfolio and how much you are willing to lose. If you keep it small, it won’t make any real difference at all in your strategy. Here’s a recommended amount of money to put in small trades by portfolio size:
|Portfolio Size||Trade Size|
If you keep your total micro portfolio to 10 positions, this means in each case you will be speculating with about 1% of your money.
The cost of buying small positions can be very high. A few years ago, I used the monthly free trades from ZECCO.COM to buy small positions. Unfortunately, this not available anymore, but their trades are still reasonable at $4.95. Still, 5 bucks establishing a position of only $100 is still expensive. There are other options with various brokers which I will write another article about in the future. For example, you can get unlimited trades from buyandhold.com for $14.99/month. So, for no additional cost you can tack on these small trades.
What I Bought
There isn’t any strategy to how I selected which stocks I buy. The stock idea could come from anywhere as a few examples below demonstrate. However, I do like stocks that pay dividends if possible. At the very least I can make money this way.
Also, I generally don’t trade my positions. I will accumulate positions and hope something great happens in the future to each one.
Here are a few examples.
Stock #1: My Girlfriend’s Stock
One of my first purchases a few years ago was a company that my girlfriend at the time was interviewing for. The company is called Sunoco (SUN), which for people in the U.S., is a recognizable name since they sell gasoline at a retail level. But I didn’t buy Sunoco, I bought their MLP spinoff, Sunoco Logistics Partners (SXL). I bought one share without doing any kind of typical research on the company.
This investment has worked out well for me so far. The $60 investment has ballooned into 3 shares (stock split), with a total gain of about 85%. Just as impressive, the dividend has increase 20% in (3) years, it now pays me $5.00/year!
Stock #2: Stock Bought From A News Story
I made an investment in this company based just on a news story that occurred on 2011 concerning Warren Buffet. You may recall there was a minor scandal with Berkshire Hathaway at that time. One of the Berkshire’s executives, David Sokol, who was previously thought to be a potential successor to Buffet, resigned hastily. His sin? Sokol had bought shares in Lubrizol Corp. , an industrial chemicals giant, while recommending to Buffett that he acquire the company.
There’s a stock in here, hold on. If you want to read more about the scandal, read this story. Sokol is the largest shareholder of a bank, Middleburg Financial (MBRG). At Middleburg, Sokol succeeded in 2010 in getting the bank to change rules that now allow him to own up to 30 percent of the company’s stock – he already owns more than 20 percent.
So, if Sokol is now free from Berkshire and he is putting his nut in MBRG, what is he up to? I didn’t ask any questions, I bought 10 shares. Right now my position is underwater, $16.85 versus a purchase price of $17.50.
Stock #3: Smells Like Teen Spirit
You can make money following teenagers. Teenagers are fickle but when they latch onto a trend, you can make some serious money. I missed one that was staring me in the face: Deckers Outdoor Corp (NASDAQ:DECK), the maker of UGGs sheepskin boots. If I had bought shares when my nieces bought the boots, I would have made good money.
My next idea: Vera Bradley (VRA). Vera Bradley makes handbags and other accessories that are desired by teenagers as well as adults, if my own experience is used as a gauge. This company recently went public in 2010 @$25. I bought (3) shares @ $34.50, currently underwater @$30.20. I am looking to add to my position @$25.
Readers, do you have any stocks you want to speculate with?