18 Year old New to REAL investing, but not innexperienced need general advice
I have been following the market and several stocks and sectors closely for the past year or so and have been playing fantasy stock games on investopedia and such, and I am turning 18 this week so I will be able to trade stocks on my own for the first time in real life. The only problem is due to my dad's profession (he works for an accounting firm) I cannot legally trade most stocks, only a couple, and even that is risky. My dad gave me about 3 stocks he said i would safely be able to trade but thats very limiting. I was thinking about trading commodities futures instead. Does any one have any general advice for someone like me who is young, and eager to test the waters? I wouldn't be trading a whole lot of money obviously. I save about 250 dollars a month from my allowance which i could use to invest with, and It will go up when I get a job in the next month or two. Im just looking for some general opinions on what you think the best way to approach investing is in my situation.
Answers
678 points
BoxCar answered 10 months ago …
[Knowledge is power] there are 2 ways to learn, formal education/book learning and
the school of hard knocks (remember 1st time you rode a bike or tried to ski?)
Both are rewarding, the point being IF you do nothing, you gain nothing, so don't be
afraid to FAIL- part of the learning curve, process used to figure out enything in life..
Best thing going for you is TIME- your youth is the most important asset you have.
KIDS are important because [they ARE the Future] lesson being, don't let anyone
tell you that you're not important- Why tell you this? So you'll ask wealthy people
how'd they do it? and not feel as if you can't ask the question- they'll understand!
You need to know the rule of thumb called [The Rule of 72] so you can get a feel for
impact of % on principle by dividing 72 by annual % of return to find out approximatly
when a principle will double, ie. at 9% your investment is doubling every 72/9=8yr
When I was your age, late 50s, I saved every silver coin I made bagging groceries.
Now that silver is worth over 10X face value but inflation has kept it in its place. A
better bet was 1987 stk mkt crash when I got 32 shares of Harley Davidson @$500
It SPLIT 5 times to 64, 128, 256, 512, then 1024 in 2003 over 16yrs for a gain of
1024/32 = 32X but sold it all for $50,000 because the "face value" was now $50
Point is, growth comes at you several ways, dividends, stk splits and price growth.
Why did I sell? Who wants to buy a 101st ann. Harley? they've done not much since.
Point is, you have to know the company. I've been riding Harleys since the 50s and
knew in 1982 a consortium of engrs had bought Harley in '81 and immediately set
about to solve ALL the AMF bike problems. Harley is the woofer of the industry &
I knew riders of Jap bikes in the mid-range would move up to Harleys and they did.
Again, it pays to KNOW, because then you have a handle on whats in the future.
Sometimes it pays to ignore all the trade journals about investing and just read the
scientific journals, scientific american and popular science to understand our world
A 1998 Sc. Am. article on the End of Cheap Oil convinced me to get out of the Tech
bubble and bet on OIL & Nat.Gas. Put all into Fidelity FSENX & FSNGX and VGENX
Vanguard when they were in the teens. Sold Fidelity in the 60s in 2006 and then just
last spring sold Vanguard in the 80s. Again, like the really wealthy say, "I sold too soon" or did I? None of these stocks are where they were, so I'm OK with it.
Don't recommend penny stks but I did buy 400 shares of LNG in 2001 for 80cents. Sold it in 2005 for $80 (100X) bought a Buick Regal-Again, based on knowledge-
GM built the Regal for China diplomats at $40K. A rental, had 32K miles, @30mpg
& 200hp, if tires will spin, you don't need more hp, limiter is set at 110mph As for
LNG, their CEO sold off several million shares and its dropped like a rock. Why?
We are awash with nat. gas for now, so we don't have to ship it across the pond, yet.
We get our fertilizer, ammonium nitrate from nat. gas, so there is a big market for it
if everyone wants to eat. In essence the energy we get from food comes from N.G.
Again, knowledge is power- read about it in 1976 fall issue of Sc. Am.
Need to get familiar with charts: www.stockcharts.com has history of DOW over last
100yrs that shows how DOW was a roller coaster in early 30s, something that could
happen NOW as we are set up for another round of "Mortgage Resets" for 2010/11
Also shows a HUGE Head 'n Shoulders developing w/a shoulder @1000 in 60s/70s
On StockCharts do an overlay of [Vol.X Price] for the quarter (3 months)to see where stk price wants to go to. There is a similarity between stk price and electron behavior
Electrons exist in specific energy states. Energy drives electrons into a higher or lower energy state, likewise Stock prices tend to reside on [Vol.x Price] ledges and
this is where you get your Heads and Shoulders. Sell on a Head, Buy on a shoulder.
[Vol.x Price] tells you where to expect the next Head or Shoulder to be. Combination
of these tells us the DOW now wants to Oscillate between 8000 and 9250, so it all
helps predict where the market is going near term in general. I think of stk price as
a ping pong ball bouncing along from ledge to ledge of the [Vol.x Price] works 4 me
Be forewarned: according to solar scientist Theory of Solar Mortality, the 2nd Great
Depression should have already started in year 2007.5 Read more about it in blog
<www.genocideorigins.blogspot.com>
If thats not enough warning of whats ahead, Google "Mortgage Resets" and go to
a 10yr chart '06 to 2016- Shows the entire iceberg where '07/'08 subprimes were
only the tip. Obama may walk on water but rest of us think "Mortgage Resets" are cast in concrete and can sink the economy. That said keep assets liquid in cash
or gold/silver. A friend with an FFL has been buying machine guns, while he can
They'll be worth a lot when Feds knock down all the gun shows & restrict gun sales
You need to walk out onto a football field and imagine this- A stack of $1000 bills is
only .004" x 1000 = 4 in thk. Take 1000 of those stacks to get $1Billion and its 111
yards deep- that's 1 football field in length, goal post to goal post. To get $1Trillion
its 63 MILES of $1000 bills. Now think about 1 oz. of gold. Is it worth $1000 or more?
Hey, good luck
904 points
jillybeansisme answered 10 months ago …
I am very sorry that you are not able to invest in stocks because of your Father's profession. His firm must be the auditors of many of the companies whose stock trades on the exchanges.
Does this prohibit you from investing in ETFs (Exchange Traded Funds)? Ask your Dad about that. Perhaps it would be a possibility. The reason I am suggesting these is because commodities trading is so incredibly risky and most people should not be trading futures contracts whatsoever. I worked for Heinold Commodities in the early 80's and for the MidAmerica Commodity Exchange (when it existed). I saw so many people go broke or end up taking delivery on futures contracts because they didn't understand what they were doing. I saw so many lawsuits your head would spin.
Normally, to even open a commodities trading account, you would need to have $5,000 to invest. While this might seem like alot of money -- it is not, especially when it comes to trading futures. I realize you are becoming a legal adult, but PLEASE consult your Father on your idea of trading futures contracts. Trading futures is not something you can just "try" and hope for the best. If you don't fully understand it, you could end up with a load of pork bellies on your front lawn. Or you could end up with a contract for gold being delivered to your door and to get rid of it, you would incur major expenses to have it assayed.
Perhaps it sounds like I'm trying to dissuade you, but the truth is you have to know what you are doing . . . when it comes to commodity futures trading, you can't fake it.
348 points
Sensei answered 10 months ago …
I'm an accountant. Conflict of interest rules prohibit me from owning shares in public companies that I audit. And that applies to certain people that I'm related to if I have control or influence over them. This is probably why, as a minor, you couldn't own shares in many companies. But as an adult, you should be able to do whatever you want. (You can check this by calling the AICPA and asking.)
Even if they tell you that you can't own shares of companies your father's firm audits, it is highly unlikely that you'd be limited to "only a couple" of companies. And you could invest in another company in that sector. For example, if they audit Apple, you could invest in Research in Motion instead.
As for the commodities market ... stay out! Jilly is right. This market is for extremely sophisticated players (most of them "gunslingers") who will eat you for lunch. Even if you don't get a carload of pork bellies deposited on your front lawn, the leverage in these contracts can kill you in a moment. For example, you're looking to put about $3,000 a year into the market. A "small" gold contract is 100 oz. If the price of gold moves down $30 (and it can do that very easily in a day or two), you'd be wiped out. Worse, if it did that and then "bounced" $60 an ounce over the next few days, it would be too late - you'd have been "sold out" by then. Instead of having doubled your money, you'd be broke.
At 18, you have a lifetime to make a fortune in the market. "Slow and steady wins the race." Take small steps now ... and learn how to use options. You get leverage and controlled risk. And you likely won't get decimated by the market in 24 hours.
265 points
fuzball answered 10 months ago …
Sorry, this 'answer" poses another question. (I want to learn, too.) Would it not make sense to stuff an IRA account as much as possible and use it for your main investments? They'll remain tax free until retirement. Or, perhaps, MOST of your yearly cash into that IRA and another smaller stash in a regular "fun" account to invest in your day to day picks, hopefully turning it into spendable cash. You surely like spendable cash, as we all do but, your FUTURE is very important, so beef up an IRA account
Does that make sense, playing it two ways?..
368 points
ads answered 10 months ago …
Having started trading stocks when I was 13 (my father's name was on the account since I was a minor, but he let me make all the decisions regarding the account), it is a very good way to learn how the markets work. As boxcar said, knowledge is power, so no matter what you do, be sure to research things extensively if you truly want to learn how to trade equities. Also the other comments are very good, as commodities can be very risky if you are not familiar with them. And as Sensei said, it is unlikely that the company that your dad works for audits that many companies that you would be limited to only a few to trade, as there are several thousand publicly traded companies. But another thing to keep in mind is that you need to get a feel for what kind of risk you can tolerate, as the more risky the investments the more potential there is for a large return (or to loose most of your investment). So do some reading regarding different investment styles and get a feel for their advantages and disadvantages, as well as the risks involved in each and the work that each investment style takes. As an example, I only invest what I can afford to loose, so I tend to invest in things that many others would not have the stomach for, however my initial investment of $50 when I was 13 grew into more than $1,500 by the time I was 16 (without any additional money added to the account, actually I had sold that initial investmen for more than $100 after commissions and then my dad added an equal amount to the account and I grew that to more than $3,000 with half of the funds being mine and half being his, however again I made several investments that most would concider to be way to risky, so that kind of a return is not common by any means). But then I wanted to invest that $3,000 into a "penny stock" that was actually trading on the Vacouver Exchange for one-cent per share but the broker we were using refused to make the purchase, so I pulled the funds out of the account and did not do any more investing in stocks for many years, but 5 months later I looked just to see how that company was trading and they had gone to $1.73 per share (it was a biomedical technologicy company that had made a couple of breakthroughs in ways to test for a couple of major diseases). So I ended up missing out on a huge return, but still did very well for my early trading attempts. But again, always do estensive research, not only of the companies financials, but also their markets and their management, as that kind of knowledge will be the key to success.
Read more from ads904 points
jillybeansisme answered 10 months ago …
In reply to Fuzball -- yes, it would be incredibly wise to put as much as possible into the IRA or retirement account first. Compounding for a longer period of time will create greater retirement wealth.
Read more from jillybeansisme
731 points
thinker70 answered 10 months ago …
Congratulations on your entrprenurial spirit, there is far to little of that in our youth today! I envy your opportunity, wish I had begun investing at a young age instead of close to retirement!
You have received a lot of good advice in previous posts so I would like to add a little emphasis to a few key points. While it may be tempting to swing for the fence, given your age a cautious conservative approach will serve you best while you gain experience! The magic of compounding over a lifetime will make small wins consistently very profitable in the long term.
While it is exciting to have doubles and triples, a steady stream of 20% to 40% winners over a relatively short period like 3-6 months time is far more productive in todays market. Buy and hold worked well for past generations but in a volatile market like this; it may be better to identify companies that have fallen hard but still are sound in sales and profits, paying reasonable dividends, where economic conditions are favourable for a rebound to previous highs.
The key in all this is not to fall in love with a specific stock, investors who have ridden a stock UP and then ridden it right back down instead of taking their profits and investing in a new potential winner are legendary! If a stock you pick after due diligence checking it out disappoints, falling more than say 20%; SELL to cut your losses and put it on a watch list for a better entry point if you still believe in the companys potential.
I would also remind you that there is a great deal of statistical evidence that small cap stocks OUTPERFORM blue chips over time, the principal is very simple, if you do what the majority are doing, investing in well known stocks you have LESS chance to outperform. Instead of investing in todays SUCCESS stories that everybody and their uncle knows about, look for the FUTURE Wal-Marts, McDonalds, Apples, Microsofts etc.buying them when they are still under Wall Sts radar. Even Warren Buffet admits he could make much higher returns with a smaller portfolio to work with, the same problem mutual fund managers have.
To lower your risk even further you might consider targeted ETF's by researching SECTORS/countries/assets that should do well for the next 6 months to a year because the management fees are low and you can get in and out quickly and being right about a sector is EASIER than being right about a SPECIFIC stock, leaving that choice to the professionals!
Finally, keep in mind that a $5.00 stock can double far more easily than a $50. stock.so maybe you need a professional to select those for you. Follow Wall St. Grand for example and keep careful track of their percentage of winners for FREE before deciding whether to invest in their pienny stock picks! I would also caution you that as you become active as an investor yu will be bombarded by promos for newsletters; EACH of which will sound like a " MUST HAVE" and the answer to your need for guidance. You can WASTE a lot of money by buying their pitch instead of just deciding what sector of the market holds the most interest for you and them checking Hurlbuts Ratings to see what ONE or at most two newsletter might be a fit for you. TOO MUCH information can paralyze you, so don't overdo newsletters!
457 points
SallyG answered 10 months ago …
Lots of great advice here—I'm one of those who have ridden (a few) stocks up and down. Most of my long-term holdings were pretty steady until late October or so; also, I generally look for stocks that pay dividends.
I'm 53, my parents gave me 6 shares of the local utility right after I graduated high school to get me started. I mainly followed my dad's rather conservative strategy and it has served us both well; when the market was down 30+% this fall, his account was down only 11%. Most of my experience has been of the buy-and-hold variety, I am now paying much more frequent attention in a very volatile market, and have started using stop-losses to protect what few gains I have left.
I am still investing most of my dividends and trade proceeds, looking for the *real* bargains among today's low prices. As Think70 says, reading newsletters can eat up an awful lot of time; I'd stick to a couple of free ones. I tend to track recommendations for a while before buying, so look for long-term advice in newsletters. I also check recommendations in one newsletter/by one Web site against others, which often leads to conflicting advice, which just proves that many theories can work. . . . find the strategy that suits you best, which takes time and experience
Good luck.
