Initial Stock Purchases

Like I said in the last post, I had followed the stock market since back in 2005, technology being what I followed the most.  Which stocks I followed varied depending on what was going on with them and what my interests were:  Dell was of interest back when I was shopping for their computers, Google has been a hot stock for years, Apple was one I tracked after the iPhone came out.  But one that I had of great interest since it debuted was SiriusXM (SIRI).

I got an XM Radio for my first vehicle back when I turned 16 and thought it was the coolest thing.  XM and Sirius both underwent several changes all the way up until the merger of the two, and the stock continued to suffer even after amid the financial crisis.  My interest in SIRI grew again recently when I learned that new car sales had increased as of late.  This means that with new cars that have satellite radio factory installed, car buyers get a free trial of the service to try it out.  From what I understand, this also includes some used cars that have it as well.  After that trial period is over, they can choose to continue the service and become paying subscribers.  Basically I'm banking on them getting hooked onto the commercial-free, coast-to-coast service so much that they're willing to pay for it.

I'll be honest, when I got serious about buying stocks last year, I didn't really think I would buy this stock.  I wasn't sure I'd find a good entry point to jump in.  By that, I mean where the stock became good value to purchase, but that's exactly what happened.

After I got my TradeKing account up and funded, I had been keeping track of prices of those stocks I was interested in buying.  For each one, I had an idea of at what point I wanted to buy them at, hoping that would be near the bottom.  For example, my price for FB (Facebook) was $25.00, CZR (Caesar's Palace) was $13.00, and DAL (Delta Airlines) was around $12.  And for SiriusXM, it was $3.00.

On my way to work on April 15, I noticed the price of SIRI had fallen to $3.03, so I got on my TradeKing app and set a limit order to buy 100 shares of the stock at $3.01.  I wasn't too sure if it would fall to that.  If it didn't, I wasn't going to be upset, but if it did, I felt I got a good amount of value in my purchase considering just a few days earlier, it had traded at $3.17.  Sure enough, within a few minutes, my portfolio updated to show that I owned 100 shares of SIRI and that the price had gone up to $3.03.  I had already made two dollars! (Minus the $4.95 cost of making a trade, of course.)

I arrived at buying $300 worth from the amount of money I had set aside for investing.  I presumed I could buy three different stocks for around $300 each, and that would be cost effective as the $4.95 per trade would equate to less than 2% of the total purchase.  Sure, when I sell the stock, I'll have to pay that again, but I plan on making far more than that amount first.

So before I confirmed to buy this stock, I had made a goal I wanted to achieve.  This is something I plan on doing for each and every stock purchase I make.  For SIRI in particular, my goal is to sell it at $3.50, netting myself somewhere around $40 after fees.  Then, I would use that money to move onto my next purchase.  I'm still holding onto that goal, as SIRI has been inching upward ever since a few days I bought it.  The stock did drop down below where I bought it, falling down to $2.97 at one point.  As much as I strive for perfection, I know not to expect that with any regularity.  Besides, buying any stock just four pennies from the bottom isn't doing too awfully bad.

Now that I had purchased my first stock, I obviously wasn't going to stop there, so I continued to research stocks I was interested in, along with new ones.  I keep a constant list on the Stocks app of my iPhone that I want to keep tabs on, and can tell you their average price at just about any given time.  I'll also use that, as well as the TradeKing app and my laptop, to follow trends of stock prices and trends, such as how high their peaks are and how low the drops go.  It's obviously not an exact science, but you can get a good idea of how a stock behaves and where good buy and sell points by looking at their one month, three month, and six month charts.

Two days later, I was keeping tabs on those stocks on my list, and noticed one that I was very serious about, RDN (Radian Group), had fallen throughout the morning.  It was one that, like I said, I was just waiting to find a good entry point.  When the stock was around $10.27, I set a limit to buy 30 shares at $10.20 each.  It didn't immediately fall to that point, but sometime after I set that, the purchase went through.

I was excited because this is one stock that I look to hold onto for quite sometime, at least a year if not three to five.  Radian Group is a mortgate insurance company that took a hit shortly after the financial meltdown.  Obviously when mortgages weren't being dealt like they had been, as well as so many falling victim to foreclosure, this was a dark time for anything related to housing.  But recently, the housing market has made a comeback and most things having to do with housing have seen quite the uptick in revenue, including homebuilders, suppliers, banks, and, in this case, mortgage insurance companies.  So just as SIRI was my play on the increase in auto sales, RDN works just the same with the boost in housing in this country.

The stock did fall further later that day, and even further the next morning, but after that it's been all uphill.  Again, I wasn't able to buy the stock at the very bottom, but I was within just over 3%, and now the stock is up over 15% from where I bought it, so I am already pleased with it, and plan on seeing this through for a while.

I don't have an exact price with this particular buy, as that was not my intention with it.  I would like to hold onto it for over a year, see where housing is at at that point, and try to figure how high it will go and when.  I keep reading and hearing that RDN could reach $20 within just a couple of years.  Obviously that depends mostly on if housing can keep its momentum going over the course of that time, thus why I'm leaving my options open.  I will say this though:  if it were to reach $20, or if I think it will get there, what I'd like to do is sell half of my shares and keep the other half.  The thinking here is that since the price will have doubled, selling half will earn me my original investment back, meanwhile I still own those 15 shares-worth of the company.  Nobody ever got hurt taking a profit, right?

So those are the two stock I've purchased up to this point.  As of this writing, SIRI as inched its way up to $3.12 from the $3.01 where I made my purchase, an increase of over 3.5%.  Meanwhile, RDN has managed to reach $11.78, $1.58 more per share than where I bought it.  Again, obviously those $4.95 per trade fees do dig into my profits, but as I increase my net worth and start buying larger portions at one time, the percentage of what I spend on said fees will go down.

First Investments Made

Before I got started picking my own stocks, a friend turned me onto another investment web site known as Betterment.  Betterment, to sum it up, is made for those who don't want to have to think or worry about what they're investing in.  It uses index funds, along with bonds, to spread your money out among several companies, allowing you to choose the proportion of stocks and bonds you're investing in.

I wasn't planning on signing up for this, but as with almost anything financial-related these days, it was taking me a while to get my brokerage account up and running.  And my lack of patience was getting the best of me (obviously not the greatest trait for any investor).  I guess I just wanted to get my money working for me as quick as possible.  So I added my money to the account (the $250 minimum) and started out all in stocks.  I quickly tried timing the market, moving to all bonds when I felt the market was at the peak of its up, and switching to 100% stocks when I felt the it had hit the bottom.  The only caveat to this is that day trading rules allow you to only change your allocation once per day.  And even though I had that figured out, sometimes Betterment would not act as quickly as I would hope, even waiting until the next day in a couple instances.  I found this to be annoying because both of those times, I lost everything I had gained the previous few days because the market had fallen.

I cancelled this account just before my first month ended and Betterment would have charged me their fee.  I'm absolutely not telling you to avoid this service, because this may be a terrific option for many of you who don't want to be as involved in where exactly your money is going as I am.  It does a terrific job of putting your money to work for you.  If nothing else, do like I did and make use of their one month free trial.

During this same month, I researched several brokers, and each one had its own pros and cons.  The one I decided on was TradeKing, as it had one of the lowest costs per trade and it is supposed to do a great job of giving you what you need to make the tax side of all of this easier (obviously more on this coming next year).  As time goes on, hopefully I'll be able to give more feedback on who to recommend and who to avoid.

I had followed the stock market off and on ever since 2005.  Being a computer science major, tech stocks in particular interested me.  I would try to follow the news and take notice of what it did to the stock price.  What I noticed is that paying attention to each company, including the news surrounding it, sales at any given point, and new products in pipeline, allows you to generally predict where a stock is heading.  And then there's those companies who will have a curveball thrown at them (or in some cases, they'll be doing the throwing).  That's where you risk losing money, but you never know where to expect it 100% of the time.  And that's where that "diversification" term comes from.

Remember when you first heard "Don't put all of your eggs in one basket."?  I can't think of any finer example of this than in the stock market.  Diversifying means not only investing in several different companies, but also in different sectors of the market. So investing in all kinds of technology stocks would do me no good when all of that sector takes a hit.  Buying MSFT (Microsoft) and AAPL (Apple) would put me at risk when all of technology falls, but buying MSFT and MKC (McCormick, the spice company), would give me a little bit of a cushion.  Is it possible that both could fall?  Absolutely!  But putting part of my money into some salt & pepper would keep it safe from poor sales in the PC market.

Speaking of McCormick, it is part of a sector that many refer to as "consumer staples".  This includes companies that produce products that nearly everyone uses in one way or another, such as Clorox, Proctor & Gamble, and Phillip Morris.  These are thought to be safe stocks, since these products are probably in your house right now.  They offer fairly consistent prices, as well as dividends.

Dividends are payments that companies pay to shareholders as a reward for owning their stock, a way of sharing the profits the company made.  The price is paid per share, and generally is handed out every three months.  Not every company does dividends though.  If a company is new and isn't yet profitable, there's no profits to hand out.  Some companies prefer stock buybacks, essentially where the company will use profits to purchase their own stock.  This increases demand, which in turn should boost the price of the stock, bringing increased value to those owning it.  Many people prefer to use dividends to purchase additional shares of the stock, also increasing shareholder growth.

OK, enough lecturing like a college professor.  Time to move on to the fun part!

Let's Get This Started...

I'm making my first post just 2 short months into my investing career.  But don't worry, I'm going to take you back to the beginning, all the way to my inspiration for getting this started, in fact, so you haven't missed anything.  In this blog, I plan on telling you my story, sharing what I learn as I go along, and give any advice I discover as I progress my way to what I hope is a glorious retirement.

My story begins toward the end of 2012. I turned 27 in November and have been trying to work my way through school for some time now.  It was around my birthday that I determined I would use my tax return from that year to put towards tuition, use that cost as a tax write off, and use that money for tuition the following year, repeating this process until the day FINALLY came when I would graduate and get myself a big boy job.  I've worked in a restaurant almost constantly since two months after my 16th birthday, and I'm obviously not interested in doing that for the remainder of my days. I plan on making big bucks, working my dream job, enjoying what I do, and all that good stuff, and the sooner the better!

Anyways, back to the task at hand.  This whole "putting my money away for later on" thing was an entirely new concept for me.  For as long as I can remember, I've always been the kind of person who would have my money spent before I even had it. Thus why I got myself in trouble with credit cards back when I was just out of high school.  I have not held a credit card now for probably 7 or 8 years just because I didn't want to get back in the habit of buying something only to pay for it several times over later, just because I knew that's what I would do. I plan on changing that philosophy soon, but more on that later.

So like I said, I aimed to put this money towards tuition, but obviously would not have my tax return back in time for the beginning of the spring semester.  So I made a game plan:  I would open up a savings account of some kind, earn interest on that money, and insure that it would not be touched until the time came to pay the costs of going back to school.  That's when I began researching different banks, their rates, and what else they offered.  What I discovered was that most of the local banks in my community offered very poor interest rates, especially if you deposited less than $25,000, and I obviously was not even close to having that much, so that inspired me to look elsewhere.

Now most banks around my area were offering .01-.05% annual interest.  Yes, that is one hundredth of one percent, meaning if you deposited $10,000, you would be earning $1 per year in interest, maybe slightly more depending on how often said bank compounded the interest.  Because of this, I decided to look at banks online.  I had seen commercials for a few of these, Ally in particular lately.  As I began researching their interest rates, I was amazed at how much greater they were, when compared to local banks.  I understand banks that have local branches have greater costs because they actually have buildings and employees to maintain, but the difference is astounding.  When I first opened my account on Ally, I was earning .90% interest.  Still not great, but much better than that .0001 per dollar I would earn locally.

My Ally account now earns .84% as interest rates have continued to come down industry-wide.  Not a huge deal, but definitely something to make note of and keep informed of.  A great way to do some quick research is with bankrate.com.  Here, you can compare interest rates for a variety of different accounts.

As time went on, I started reading others tips and advice on saving and investing. At this time, my girlfriend and I also began planning on moving into something larger than our 550 sq ft apartment.  It was just getting to the point where there wasn't enough room for both of us and our two dogs.  So we started adding a percentage of each of our incomes into a fund to be used for things at our new place and also for emergencies.  I had never done anything like this before, so I was unsure what to expect.  We started by adding 10% of everything we made into it.  As a bartender, I was obviously adding money daily, while she was contributing every two weeks.  The best way we discovered to do it is to add it to an envelope, while keeping track of how much you're adding on the front.  I drew three lines creating four columns, and included the date, money added, and total inside with each contribution.  Once the fund would reach a certain threshold, we would deposit it in our joint savings account that we created solely for this purpose, for fear that fire or theft would take away everything we earned.

Like I said, we planned on using this fund for emergencies and for things for our new place.  When it comes to how much to put away for emergencies, it seems it varies depending on your current situation.  Less if you are single and live alone, more if others depend on your income.  The basic idea seems that a single person should save two months of their cost of living, while a family of 4-5 should put away six to eight months.  I never had done anything like this, so seeing an account of mine...err, ours having an account balance of four figures was quite refreshing.  I often ask myself why I never did anything like that before rather than stressing how long after the due date will I be able to pay the bills.  I like to chalk it up to immaturity, because I hope it means I'm past that part of my life.

Bottom line:  if you don't have an emergency fund with at least two months of your total costs saved up, get on it!  If you don't think you can do it, just start at 10% of what you make.  Don't even think about it, just put it away.  I was amazed at how easy it was to start, and now I've been doing 20% constantly without hesitation.  And it's a good thing we did because I had no idea just how much furniture was going to be.  Granted we got exactly what we wanted and we love it, it cost so much more than I dreamed it would.

Another thing I discovered along the way was mint.com.  I had heard about people using it and how great it was a few years back, and even created an account at one point back then, but never did anything with it.  But as it turned out, I was missing out.  Mint does a great job of showing you a sum of all of your accounts (and your debts), how much you spent, how you could be doing better, and so on.  No matter how well you might be doing, Mint continues to give you advice to save you money and prepare you for the future.  And best of all, it's free!  I'm a big fan of free.

So I got my tax return, opened up my high(er) interest rate savings account, put extra money away, and have done what I can to prepare myself for the future.  Time to start investing!