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After 5 years of having an account with RBC Dain Rauscher, I have finally closed it out. I realized that at this point in time having a full service broker wasn’t right for me. I first opened the account when I was 18 because I wanted to invest in some stock. The first and only stock transaction I did with them was purchase 20 shares of Microsoft. I was pretty excited when I made the trade, but that soon changed when I found out what the trading commission for it was. It cost about $65 to make the trade. When you factor that out, you find that the stock will have to rise $6-$7 before you make any money. That made me pretty upset, but I didn’t sell because then I would have eaten $130. So I hung onto it ever since.

I got really excited when they paid their one-time $3 dividend. I was mostly excited because the dividend ($3 x 20 = $60) was almost enough to cover my commission to purchase the stock. I never really paid a whole lot of attention to the account because there was just one stock in it. A year or so later I was looking at a statement that came in the mail. When I looked at it I noticed that there was nothing in the cash account. I knew that there should have been at least $60 in there plus a smattering of small dividends plus a bit of interest from the cash account. This was a bit upsetting to say the least. The next day I called in to talk to “my broker.” Of course the broker was not available, so I end up getting passed around from secretary to secretary and finally end up with someone who sounded like they hadn’t worked there too long. I told her what happened and she said that she would look into it and give me a call back.

After about three days of playing phone tag during my lunch I finally found out what had happened. Apparently if you do not have over $100,000 in your account you are charged a $100 annual maintenance fee. When you have only ~$500 in your account that comes out to be a 20% deduction. She did seem excited to tell me though that since I only had ~$70 in cash assets in the account they only charged me that and wrote off the rest. How nice of them.

After this incident I decided to close out my account and transfer it to Fidelity. For some reason I got charged $112.98 for the transfer. I guess that is the closing fees associated with closing out an account. That seems kind of ridiculous for transferring 20 shares of stock. Between the $65 purchase price, the $112.98 close out fee and the $20 sale price, I am going to have to sell Microsoft for $9.90 more than what I bought it for to break even.

I guess there are a few lessons to be learned from this:

1. High priced full service brokers only make sense if you have a ton of money
2. If you are doing all the research to buy and sell stocks, you shouldn’t be paying a premium to do it.
3. Know the fee structure of a full service broker before you get into one. Otherwise the fees will eat you alive.

Overall I think it was a decent learning experience. Buying that first 20 shares is what really got me interested in trading. I don’t think that I would be as active into my trading today if I hadn’t started out this way. Although it may look like a wasted $270, but in the end I learned a lot about how these companies work. If you have a lot of money and just want someone to do all the work for you, a full service broker may be right for you. If you are just starting out and don’t mind doing a bit of research, then a low priced broker like Fidelity, Scottrade or Schwab would likely be the better option.

I checked a book out from the library a few weeks ago called “Green Investing” by Jack Uldrich. When checking out this book I was hoping to find some ideas on companies that were in the business of producing environmentally friendly products and services. This book was full of good information on that subject.

The book was divided into nine different chapters. Each chapter discussed different companies within a certain part of the “green industries.” To better make my point, the following is a list of chapters in the book:

1. Green Investing: A Long-Term Trend
2. Due Diligence: Do Your Homework
3. The Big Dogs: The Fortune 500 Companies
4. Biofuels: Fuel of the Future?
5. Solar: Heating up or Flaming Out?
6. Wind Power: The Sky is the Limit
7. “Alternative” Alternative Energies: Geothermal, Fuel Cells, Wave Power, & Clean Coal
8. The Cleanest form of Energy: Energy Conservation
9. Tracking Cleantech and Building Your Own Cleantech Mutual Fund.

In each of the main chapters, Uldrich gives an extensive list of the companies that are poised to excel in this field. He gives the trading symbol and market (if applicable) for each company. He also gives a website as well. Each company also receives a short description, reasons to be bullish, reasons to be bearish, what to watch for, and a conclusion.

It is nice that Uldrich has done all the hard work for you. He has weeded out the bad companies so that you can focus more of your time on the good ones. This book was published in 2008, so it is very up to date.

One thing that I did not like about the book was that there were a decent amount of companies that were either private companies, or could only be traded in foreign markets. To me, it would be hard to invest in either a private company or one that only traded on a foreign market. I guess if you have the money to invest you can probably find a way though.

In conclusion, I think this book is an excellent primer to the world of green investing. Uldrich has done most of the hard work for you. Now, the investor only needs to find a company that they like and decide if it is worth investing in.

A market order is not the only type of stock trade available. Another common type of order is a “Stop-Loss.” With a stop-loss, the trader instructs their broker to sell a particular stock as a market order if its’ share price falls below a particular value.

Say for instance you own 100 shares of Washington Mutual (WM), which is currently trading at $11.89. You are afraid that some negative news may be coming out and would like to minimize your losses. In order to do this, you set a stop-loss trade to sell at $10/share. If the price of WM falls below $10/share, the stop-loss will trigger a market order for the shares. This will help to ensure that you liquidate your positions and avoid a major downturn.

While stop-loss orders may seem like a worry free solution, Jonathan Burton of Marketwatch.com has a differing opinion. He feels that they really aren’t all they are cracked up to be. While they do offer great downside protection, they can come back to haunt you as well. Going back to the Washington Mutual example, let’s say that WM drops to $9.85/share. Suddenly a market order for your shares take place and you no longer hold WM. Now let’s imagine that after it hits $9.85/share the stock bounces back up to $12/share over the next few days. Now you are stuck having sold out at $9.85, while you could still be holding on at $12/share.

According to the article, “Stop-loss orders are geared to traders and investment professionals who buy and sell shares frequently. They might lose 10% in a stock one day and make 25% the next. The stop-loss is a way to avoid a beating if they’re wrong.” Short term traders can easily just walk away from a stock and move on to the next. Longer term traders tend to have more of an emotional attachment to the company. This can be in part because of the amount of time spent trying to find the company, or financial roller coaster that the company has put them through. Long term traders are more likely to keep watching the stock after they sell and beat themselves up mentally saying, “if only I hadn’t…”

In an interesting statement, the article points out that “things often rebound very quickly and it’s very hard to recapture the stock at a good cost basis. It’s almost like ensuring that you will sell in irrational market panics.”  The market is not always right and is often subject to major corrections in times of volatility.

Jonathan does suggest an alternative to the stop-loss method. “The trailing stop is a stop-loss order that you adjust upward as a stock moves higher. If a stock rises 10%, raise your stop by 10% and so protect your profits. You still run the risk of being sold out earlier than you might like, but at least you’ll have something to show for it.”

As a final bit of wisdom, Jonathan states that “if you’re a long-term investor it doesn’t make a lot of sense (to use a stop loss), and if you’re a short-term trader you’d be better off watching the stock. Long-term investors should simply monitor the stock’s fundamentals.”

A few weeks ago I mentioned that I had checked out a few finance books from the library. Well my checkout period is over now, and since I will be returning my book tomorrow I thought that I would take the time to write a brief review of the book.

I checked out two books, but I only ended up reading one of them. The one I chose to read was called “How Technical Analysis Works” by Bruce M. Kamich. I will admit that i didn’t make it through the whole thing, but I did make it through all of the topics that I was interested in.

In this book, Kamich does an excellent job putting the mysterious world of technical analysis into easy to understand terms that can be useful to both beginning and experienced traders. An experienced trader may want to read something a bit more advanced though.

Coming into this book I knew a little bit about technical analysis like moving averages and certain volume indicators. The book introduced me to a few new strategies that I have already started to use when analyzing different companies. The three strategies that I found most useful were trendlines, triangles, and areas of resistance and support. A few weeks ago I wrote an article about trendlines from what I had read in this book.

One great thing about this book is that Kamich does not simply tell you what a strategy means, but he also tells you how he uses them to trade. I found that to be very useful, because knowing what certain indicators are will only get you so far. Knowing when, where and why to trade is where your success will come from.

For me I found this book very helpful for the advancement of my trading strategies. The important thing to realize is that technical analysis is not the golden ticket to investment success, but is just one of many tools to use when analyzing a company.

Overall, I would highly recommend this book to someone who wants to know more about using technical analysis as an additional trading strategy.

Trading stocks can be tricky business. Just when you think that now is the time to get into a stock it goes down, and as soon as you decide to sell it goes up. I think we’ve all been there. The problem with trying to “time” the market yourself is that there can be a lot of human emotion involved. If a stock is just off its 52 week high, it can be easy to hang on to it thinking that it will rise back up to where it was. As the stock continues to drop, the investor continues to hold thinking again that it will go back up.

One of the best ways to try to time the market is by developing a strategy of when to get in and when to get out and sticking with it. A carefully devised plan is useless if you don’t stick to it. The website TradingSolutions.com
thinks that it may have come up with a system that can predict peaks and valleys in a stock’s trading pattern. In fact, they their system can predict price movement in forex, futures, mutual funds, and options. They say that by using neural networks, which is a way to analyze trading patterns in stock price data, they can predict the best times to be in and out of a stock. The company says that “a more effective way of using neural networks is to model what the best possible trading strategy would have been in the past and apply that strategy to your current trading.” Seems simple enough right? The user can even choose between over 250 different functions and technical indicators in order to sift through historical data, which will then be used to project the future.

The nice feature of their program is that you see how trading on a certain function or technical indicator would have performed over a certain period of time. By using this, you can see whether or not a certain stock trades in predictable patterns. On their website they give a great example of how trading based on their program can produce phenomenal results. One case study they use is trading Wells Fargo from 1/31/2007 - 1/31/2008. Throughout the one year period, the TradingSolutions system showed great results. If an investor had used the buy and hold strategy over this time period, they would have had a return of -5.10%. Using the TradingSolutions system, the return would have been +132.68%. This is probably a fairly extreme example, but it shows what their system can do.

Take a look at the following charts to see how these trades were executed.

The first chart shows all of the trading suggestions over the one year period. The second chart shows how the stock performed over the course of the year. The red chart shows the buy and hold strategy. The green chart shows the TradingSolutions strategy.

One thing to keep in mind though is that using this system requires that the stock be actively monitored and actively traded. In the Wells Fargo case study, the stock would have been traded 32 times over the course of the year, which averages out to about one trade every seven days. Assuming $10 a trade, that is $320 in commissions for the stock for the year. If you have a decent amount of money invested into the security, then it won’t matter too much, especially if you are getting a +132.68 return.

The system promises to be a miracle worker, but it doesn’t come cheap $995 will get you the most basic version that updates its’ buy/sell advice at the end of the day. For another $1000 you can see the buy/sell advice in real time. Don’t hang your heads just yet though, because TradingSolutions offers a free 30 day trial of their software. Feel free to check it out and see what kind of software some of the “big boys” may be using, and in the meantime it may give you a few decent trade suggestions in the process. Here is a link to the free download.