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“The trick to an IPO was actually getting shares at the IPO price. An IPO has an underwriter (usually multiple underwriters) that actually brings the stock to market. These underwriters typically cater to their largest clients (usually institutions) who get the vast majority of shares at the IPO price. It wasn't until recently that individual investors started getting access to IPOs. I believe E*Trade and Wit Capital were two of the first brokerages offering IPO shares to their clients. Even with this access, the number of shares given to these companies was small. And they had to distribute the shares to requesting clients. For a while, the usual number of shares available to an individual investor was typically 100. And these were generally given on either a first come first serve basis or through a lottery system. As demand grew, the typical allotment fell to 50 shares.”
“Currently, the IPO market is very cold, and not many companies are going public. The few that have have had either modest gains or even fallen below their IPO price. For now, it seems the IPO game is over, but it is definitely a cyclical thing as many years ago, Biotechs had a hot IPO market much like the Internet IPO market of a couple years ago.”
So you got money. You want to invest.
You need a broker.
A broker is a glorified bookie. Just like at the horse races. A broker takes your moolah, advises you on how to invest it wisely, and does all the work for you, turning your modest pile of moolah into a Matterhorn pile of moolah (hopefully), for a modest fee, of course.
There are four laws about what to look for when choosing a broker.
One is that he is easy to talk to.
Two is that he does not pressure you.
Three is that he pays attention and acts on what you say.
Four is that he explains things until you understand.
Those are good rules to follow.
Remember, this is your money. He works for you. No “Boiler Room” tactics here, just make sure that those four things are happening and you will go far.
If you are worried about a broker (like, you aren’t sure if he has ties to the Russian Mob) you can go to the National Association of Securities Dealers (or visit their website at
www.nasdr.com) and look the broker up. They should have good things to say. Too many complaints (or the guy is not listed there at all) then you should drop him like uranium.
I checked out the Buy and Hold broker’s corporation, and they offered a starting deal at a mere $6.99 per month for two trades, and every trade after would set you back $2.99, or a package deal of $14.99, with unlimited trades.
Now, next, you have to pick the stocks you wish to invest in.
There are many, many ways to do this.
The Motley Fool (
www.fool.com) has a technique called the Foolish Four.
Stock Guru Michael O’Higgins, author of the book “Beating the Dow”, has a technique called “The Dogs of the Dow”, also known as “The Dow High Yield Strategy.”
The thing to look for in any stock is low price, high yield. Simply put, you pay little and it becomes more. Easy enough. There are many different names for stocks. Penny stocks. Blue chip stocks. Preferred stock.
Stocks are all a part of your portfolio. A portfolio is simply a term used to describe all investments and assets a company owns.
One method, for example, is to research companies who were traditionally well off, according to the Dow Jones Industrial Average (a famous index of the cream of the crop of American businesses), but have taken a bad turn.
You invest in these faltering corporations for a year, gambling on the fact that perhaps they just went through temporary bad times and will return bigger and brighter in the future. When they do, the 100 shares you bought for 50$ a pop (a five thousand dollar investment) will hopefully double (or even triple) to ten or even fifteen thousand.
Yeah, I know, you are thinking of all that cash and your eyeballs are starting to sweat. Let’s back up a bit.
No one…NO ONE can predict how a the market is going to be in the future. It’s just not possible. People have been trying to do it for decades. It’s like guessing which horse will get to the finish line first, or the winning numbers of the lotto. It’s voodoo. It’s called speculation, and sometimes it works and sometimes it does not.
Basically, it sounds good in the short term, you buy several shares of Microsoft at $50.00 a share. Let’s say you bought 20 shares for a total of $1,000. Later that day, the market is full swing, the price goes up to $75.00 a share and you sell, sell, sell all of your shares and reap a profit of $500.
Short term investing is fast and furious, and can be as successful as faith healing. Much like a game show, you can win big or lose big, and there are no guarantees.
The moral of the story is, don’t bet your rent money in Las Vegas.
Another method is so very simple you wonder why economic analysts and brokers get paid. “The Dogs of the Dow”, which I mentioned earlier, was invented by the famous broker’s group, The Motley Fool.
You simple buy stock from ten companies that have the highest yield and hold onto them for a year. At the end of the year, if your stocks are not on the top ten list, sell them and buy shares in the ones that are.
Simple, eh? Well, according to the Motley Fool, you can make $10,000 into $625,00 over the course of twenty five years.
But start small. Start by investing, say, $100.
I have already mentioned the broker part. You are going to need one. Well, you need to decide what type of broker you want to hire, a full-service broker or a discount broker.
There are differences…when you get big time you will certainly want a full-service broker, but let’s put it this way: a discount broker will cost you $20, while a full-service broker from someplace like Merril Lynch can be up to $150, with an additional $150 annually.
Bare in mind also that full service brokers are salesmen. They reap a profit based on what you buy, and how often you trade. As you can imagine, if you own fifty shares in a software company that’s cutting a deal to sell it’s new product to the U.S. Government, you probably want to hold onto those stocks until after the beta testing is done.
Don’t think for a second that the company you decide to put your green into is none of your business. It is.
For big investing, that is, when you have more cash to throw around, look into companies which are clearly doing well and building golf courses for their fat cat CEO’s= Microsoft, Disney, Starbucks, or look for companies that are universal= Gilette, Coca-Cola, Intel.
But for now you are doing what’s called small cap investing.
In plain argot, small cap investing is putting your money into companies that are moving up but don’t have their own company University like Microsoft.
These companies tend to have shares on sale for $7 (yes, seven dollars, the price of a gallon of gas will probably be one year from now) with sales of only $500 million (gee, I wish I only made $500 million.) Typically, the company in question has a net profit margin above 7%, with insider holdings of 15% or more.
Simply put, ask your broker, after you have found one and set up an appointment with him, to look for small, profitable, growing companies. Look for products that people want, like pencils, pens, soda, microchips, or look for companies that are researching something that is going to be big= like the cure for AIDS or hair loss.
Brett Law offers his own advice on how to start investing.
“The easiest way to start buying and selling stocks is through an online account. There are many online companies including E*Trade, Ameritrade, and Datek among others. They typically require some initial amount to open an account, and then you can start trading immediately. I think the most important thing to remember is that profiting from individual stocks is NOT EASY. It takes a lot time and energy as well as some luck.”
“ For most people just starting out, the best way to start is through mutual funds. Mutual funds own a variety of stocks, and when you buy into the mutual fund, you essentially own all the stocks within the fund. By doing this, you allow professionals to do the research, and you invest in the professional. Finding a mutual fund can be almost as difficult as finding a good stock. Mutual funds have a prospectus which describes the strategy of the fund including the type of companies they invest in, the size of the companies, etc. Individuals should try and match a mutual fund to the type of stocks they would be interested in owning.”
“Another fun way to begin investing is through an investment club. I've been the president of an investment club for the past few years now, and it is something that gives us a chance to meet every month or two to discuss our performance and present research to the rest of the group. Decisions on stock purchases are made through voting, and we all succeed or fail together while reducing each individuals risk. It also allows us to buy more shares and / or more stocks than we could if we were each investing on our own. Information on investment clubs can be found at the National Association of Investors Corporation (NAIC) at
www.better-investing.org.”
I’d like to take this time to mention that, aside from being quite an effendee when it comes to investing, also makes a great deal more money than I do. He’s more than just a little worth listening to.
My advice?
Invest in porn.
You laugh, but porn is a big business that is going to go public with their stock in a major way. Men buy porn (no, really, they do.) and it’s not going to go away, despite what George Bush and the Pope think otherwise. It makes a pretty big profit, too…Steve Hirsch and David James, owners of Vivid Entertainment, are serious businessmen. They made a mere $1 million a few short years ago, but are expected to make $18 million in 2001.
Not bad, not bad.
Investing can’t be learned overnight, quite obviously. It’s not something that is automatic, either. It takes time to learn, like any other hobby, but the principles are constant and fundamental, just like changing the oil in a Buick or a Honda.
There is nothing loathsome about calling the company you wish to invest in and asking them. They will usually send you a starting investors package with a complete step by step of where to go with your money, in regards to their future.
If you were to drop $100 dollars into stocks in an up and coming business, buying eight shares at $10 each, giving $20 to your broker, and five years later that company gets bigger (as companies do, remember, businesses rarely tread water for long, in the raging seas of capitalism they either sink or swim) to where there shares are $50 each, you will have made a profit of $300, which you will then wisely reinvest, right?
In the movies, investing is exciting. Drooling stockbrokers, wearing immaculate Armani suits, running around screaming with their ties around their heads like bandanas, foaming, “Sell!!! For the love of God, SELL!!!”
That’s what’s known as hourly trading, and it’s for the dauschunds. Wise investing is done over years, patiently, investing and reinvesting what you’ve made, not wrestling other suits like some cocaine addict with a business major.
As I have said before, it’s your money, and investing is there, waiting. The next time the love of your life wants to spend $250 on those damned beanie babies, explain to her that if you drop $250 into an off shore genetics manufacturing firm that goes public, your investitures could mature within four years, and a possible percentage increase of 300%. That’s enough cash to buy a thousand of those damn glorified bean bags. Just don’t tell her you’re going to invest it in “Sexx, Inc.” a porn movie making company out of Orange County, California, and that you’re going to spend your share on a night out at the local pub, followed by an excursion to the strip club, with you and your buddies.
$5,000 can buy a lot of lap dances, you know…
