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Saturday, November 6, 2010

Going Orange

We have all heard the phrase Going Green, well this month I’m going Orange.
As in Orange, ING sharebuilder, investment accounts.

I’ve had an ING savings account for several years now and have always known about their sharebuilder investment services but have never decided to take advantage of their services until now.

Why?

Well, two reason really.

First, I already had the bulk of my investments in company sponsored 401K type plans and larger ETF accounts that I rarely traded in or made any changes to more than once or twice a year at most. So the costs of these accounts to me was not very much at all.

Secondly, up until a couple – three years ago, I never really got into individual investing much. Partly because of fees, I thought they were too high and would eat into my profits too much if I ended up doing a lot of trading. And, partly because I didn’t think I could do as well as the professionals.

Well, as it turns out, I was incorrect in my assumptions on both counts.

Shortly before I started this blog, I decided to do something like an “individual investor experiment”.

I thought I had a few really good stock screens and filters to pick potentially good stocks for investments and I was curious about stock patter investing. So I started tracking my watch lists and trying to “hit” certain patterns.

So how have I done?

Over the past couple years, via tracing my individual stock trades with Covestor, I have maintained over 23% return. Though, at times it was much higher (60%) and much, much lower (-40%), overall I think I did OK.

Also, though not independently tracked, my monthly watch lists have done reasonably well too. My 2009 watch lists for instance, have returned, on average, 23% to date and if I factor in stop losses, that average jumps up to 30% return to date.

One of the really cool ideas about Covestor is that any member can track his or her funds, share the results and ideas with the rest of the Community and even the world, and even set up a model portfolio for others to follow and invest with. If they do, you could be paid, somewhat like a broker, for this.

Well, trading in one or two stocks a month does not a portfolio make.
And in order to open a model portfolio and participate in the program you have to actively invest in said model at least $10K.

For my “individual investor experiment” I did invest my own money, obviously, but I started with an amount that I felt was enough to offset fees of a couple trades a month, yet if I lost it all, I would not be crushed or put myself, and my family in financial Armageddon. Needless to say, this $10K amount is much more than I risked or currently “play with” as an individual trader.

Over the course of this blog, I have been using Firstrade as my brokerage for individual trades. They do not really have a minimum amount for maintaining or opening an account, nor are their fees really really high. They charge $6.95 a trade.

I have been pleased with their services and site and would recommend them to anybody who asks. BTW, Scottrade is the other online brokerage I have used before and they are equally as good as Firstrade.

However, at $7 a trade, if I traded my starting lineup watch lists each month that would be $140 dollars a month (buy and sell) in fees and nearly $1700 a year! For my experiment of playing individual investor trading, that was and still is prohibitively expensive and TOTALLY out of the question.

BTW, even for a $10K investment portfolio, $1700 in yearly fees is also totally out of the question too!

So, what to do?

I realized that what I really wanted to do was independently have my watch lists tracked and maybe some day be at a point to open a model portfolio on a site such as Covestor.

This would require me to actively invest in my watch lists. And to find an economical way to do so.

ING rates are some of the best in the industry. One reason why their best rates are so good is because to take advantage of them, you can only trade when they do their “bulk” sharebuilder trading on Tuesdays. When I first started trading I came up with a watch list of stocks based on my screens and out of those look for trends and or patterns to invest in.

I felt in order to fully take advantage of trends and stock movements, the only on Tuesdays would be a bit limiting. And for the most part, this is true. However, now that I have over 2 years of data go research I come up with a several insights.
One, I have averaged nearly 2 stock trades a month. That is 4 x 7 = $28 in fees.

That translates into $336 minimum in fees per year.

Guess what? Based on my returns, that is still too high.

Two is that though the only on Tuesdays does not work for really short term quick hype hits or trends, but over the course of the year, it would really does not negatively impact my overall returns.

Three, I have noticed that there are some stocks which consistently or at the very least regularly show up on my screens and or watch lists. Sometime they are always there, sometime the drop off only to show up again a few months later.
Four, as I pointed out before, my watch lists over time are just as if not more effective as my individual pattern investing of one or two stocks a month.

So, I have taken the plunge with Sharebuilder and will be using them to invest in and track my watch list investments.

What I like:

Cost – Sharebuilder has an “Advantage Plan” that charges a $12 monthly fee and gives you 12 free trades per month.

Ease of use - Everything was easy to set up (I use my Orange savings account to transfer money free of charge) and the layout is easy to navigate and understand.

Good Reports – You can lookup a stock and view a rather good report that gives all the basic information that one would look for when researching a company and it’s stock. (available only through the Advantage program)

Range of available Investments - stocks, bonds, ETF’s, Funds. Basically anything an average or new investor would want.

Good for New Investors - you can invest as much or as little as you want on any Tuesday you want. They even have a questionnaire for, first timers, that you can go through which gives you different portfolio suggestions based on your answers and "what if" analysis on stocks had you invested in them over a given time period.

What I don’t like:

Their screens and research tools. Though I have to say that there is one which you can screen for recommended stocks based on industry investment grades (A – E). This is similar to MSN Money’s top stocks screener which does give good suggestions.

So, I have set up a Sharebuilder Advantage account.

For 12 dollars a month, I get 12 free trades per month. After that it is $1 a trade. That means for $120 dollars a year (much less than my current $330 or theoretical $1700) I can trade and track a 10 stock portfolio made up from my watch lists. There are no minimum account limits, inactivity fees and because they pool all the trades and monies into Tuesday Trades you are not limited by the cost of the stock either. What I mean by that is one could invest say $50 in a stock. If the stock is $100 a share you get ½ and share. You can’t do this with normal brokers.

I will be maintaining a 10 – 12 stock portfolio based on my watch lists and make my trades on the 1st Tuesday of each month.

I have submitted my change in brokers to Covestor, so once they sync the accounts, they will be tracking my performance.

This month I picked 7 stocks from my starting lineup and 3 from my bench.
















Not bad for 4 days worth of trading! Between the elections (the stock market loves Republicans) and some favorable quarterly reports, the Federal Reserve buying actions and a good jobs report, this has been a really good week for most everybody.

We’ll see how I do for the next 12 months and beyond.

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