Become An Owner Instead of a Worker

When we’re young, we trade our health for money.  We work long hours.  We lift heavy things and wear down our tendons. We spend hours typing or doing other repetitive motions that cause carpal tunnel syndrome.  We spend hours on our feet and wear down the disks in our backs and develop heel spurs.

We trade this wonderful gift of youth and health that we’ve been given, the ability to keep pushing it for may hours, to bounce back when we fall down and heal fast when we get cut, for cash by working way too many hours.  We go in before dawn and leave after dark, never getting out to see the sun and the woods and the oceans.  We work hard to go on a vacation, which is then rushed and filled with work thoughts and emails back to the office the whole time.  We buy large, beautiful homes that we spend all of our free time maintaining and cleaning when we aren’t working to pay the mortgage.  We buy things on credit and then spend a quarter to half of our time working to pay interest payments.

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While we’re young we can make extra money by just pushing it a little harder.  We can make that car payment if we work overtime on weekends so we can drive that shiny new car to work and have it sit in the parking lot all day, slowly decaying away.   We can take on that second job and get all of the cable packages and five different web streaming services.  We can keep buying clothes to impress people we don’t like and buying all of the latest gadgets to look good for people we don’t even know.

When we get old, we trade our money for health.  Any money we’ve saved up through those long hours of work goes to treatments, surgeries, and drugs to reduce the pain our weary bodies feel.  We spend money to try to have the ability to walk and run and jump and heal like we did so easily while we were young.  We get surgeries to be able to walk after long hours of carrying heavy loads have destroyed our knees.  We buy prescriptions to lower our blood pressure after years of sitting idle at a desk, eating poorly, and letting our health decay.

Stop.  Stop today.  Stop right this minute and change your life.

Become an owner instead of a worker.  Instead of getting that new car, drive your old one for a few more years and send those car payments you would have made into a stock mutual fund and become an owner in a group of companies.  Buy a smaller house for cash and invest the money you save on interest.  Stop buying things to impress people and just buy what you need so that you can spend time with your family who don’t care what the label on your blouse or jeans says.

Start building a portfolio so that you will be getting dividend payments and capital gains instead of paying interest payments and penalties.  Let others work for you so that you don’t need to work those extra hours.  Expand your lifestyle by waiting a little while to buy things, instead investing the money in mutual funds, then using the distributions from those mutual funds to add to your income.  Direct some of that money back into buy more mutual funds, and your income will expand on its own.

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Everybody can become an owner.  You can start a mutual fund account with Schwab for only $1.  You can start investing through Vanguard funds for only $3,000 ($1,000 if you start a retirement account).  Start an account and start sending a little of your paycheck in each month to build your wealth.  Own things.  Build things.  Stop just using all of your effort to generate entropy.  Stop having your money flow into your back account through direct deposit and then back out again to bills through auto pay without your even seeing it.

The next SmallIvy book, Cash Flow Your Way to Wealth, will be coming out in about a month.  It gives the game plan to go from worker to owner.  Subscribe to this blog to make sure you get your copy when the time comes and don’t miss out.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

How to Place an Order to Buy or Sell a Stock

So you’ve decided to take the plunge and buy your first individual stock.  Now what?  In order to place a stock order, it is important to learn the lingo of stocks trades.  This allows you to communicate clearly with your broker to avoid misunderstandings.  If you’re buying online, knowing what the different orders are and which ones to uses is equally important.  Learn these terms and you’ll be sounding like a pro in no time.

Here are the types of orders for buying or selling stocks and other securities, plus some other ordering terminology, that every investor should know:

Buy – An order to buy a security.

Sell – An order to sell a security.

Bid price:  The highest price at which someone is willing to buy shares at a given time.  For example, someone may be out there ready to buy 500 shares of XYZ corporation for $30.25 per share.

Ask price:  The lowest price at which someone is willing to sell shares.

Market Order – An order to buy or sell a security at the current market price.  Because at any given time the market price includes the Bid price (the price someone is willing to pay for a security) and the Ask price (the price at which someone is willing to sell), if you put in a market order to buy you will pay the ask price, and if you put in a market order to sell you will sell at the bid price.  The difference between the Bid and the Ask is called the Spread.  In actuality, professionals in the markets will buy shares from someone at the bid price and then sell it to others at the ask price, so they will get to keep the spread as profit.

Limit Order – An order in which a price is set as a threshold for the sale.  For example, a buy order with a limit of $50 would execute when the Ask price of the stock was at $50 or lower.

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Stop– An order to buy or sell a stock if it passes through a specific price.

All or None – An order which is executed only if all the shares can be bought or sold in one lump.

Good ‘Til Canceled (GTC) – An order that will stay open for a month after it is entered.  Normal orders are only open for the trading day and must be reentered if not executed on that day.

So, if you wanted to buy 100 shares of XYZ corp, which was currently trading with a bid price of $50 and an ask price of $50.25, and you wanted to pay mno more than $50.50 per share, you would tell your broker:

“Buy 100 shares of XYZ corp with a limit of $50.50.”

Because the ask price was below your limit, assuming there were 100 shares available at that ask price and there were no one else in front of you, you would end up buying 100 shares at $50.25 since that was below your limit price. If there were only 50 shares available at that price and 50 more at $50.50, you would get fifty shares at each price.

The above terms can be combined.  For example, one would say “Buy 100 shares of XYZ at the market” to buy 100 shares of XYZ corporation at the market price.  One could say “Buy 100 XYZ, limit of $50 or better, GTC” to put out an order that would stay open for a month in which 100 shares of XYZ corporation would be bought if the Ask price dropped to $50 or lower during that month.

Note that stop orders can be stop limit or stop market orders.  If you place a stop limit order, it will create an order to sell (or buy) if the stock price reaches your limit with a minimum (maximum) of your limit price, where a stop market order will sell (or buy) at the market price if your limit is reached.

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You may be thinking that this is all well and good, but which orders should I uese and when?   Let’s now go into the strategies I use when selecting the type of order to use.

The investing strategy I use and that I promote with this blog is to invest for the long-term and make a lot of money with each successful trade.  We’d like the stock to go up 1000% or more over the time period that we hold it.  Because of the long time period involved, we are not that concerned with getting a few extra pennies per share on a trade.  For this reason, I generally use a market order when buying.  This will cause the order to be filled within the next few trades (we may need to wait a few trades if there are people ahead of us with market orders).  On a stock that trades a lot, said to be “liquid,” market orders are generally fine and we won’t get a crazy price, which can happen in stocks that trade rarely and therefore are illiquid.  There,  a limit order is needed to prevent getting a bad price.  Buying stocks at-the-market prevents us from missing a good buying opportunity and seeing the stock shoot up out of range be cause we’re waiting for the price to drop by a few cents.  If you make $30,000 from a stock trade, it won’t matter much if you pay an extra $50 for the shares.

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When I’m looking sell because I’ve made a good profit and I’m worried it may evaporate, I also find that it is best to use a market order and get out.  I’ve had the experience before when a gain turned into a loss because I set a limit and it didn’t fill before the bottom dropped out.  Again, it is usually best not to quibble over pennies.

If I’m in the process of accumulating shares and I feel that the stock has good long-term prospects but there is probably nothing to cause it to shoot up in the near-term, I may set a limit order and wait.  I may also enter with a market order to get some shares, and then place a limit order a little lower to buy more shares if the price then dips.  (Note with a limit order I also tend to use Good-Til-Canceled since it may take a few days to execute.)  When setting a limit, I pick an odd amount (for example, $20.16 per share or better) because there will generally be other people with limit orders in and people tend to like round numbers.  With a limit order, the first in line at the price gets the shares.  If the stock is thinly traded, or illiquid, I will never place anything but a limit order.  This is because if there are only a few buyers or sellers, the price may easily change by 10% or more between trades.  Looking at the typical spread for the stock (difference between the bid and the ask price) and the volume is a good way to tell if the stock is illiquid.   I also always use a limit order when selling stocks short or covering a short position, generally setting the limit slightly above the ask price in the latter case to make sure it executes rapidly, but giving me protection fram radical price movements.

Stop orders, often called “stop loss” orders, are sometimes recommended as a way to limit losses.  For example, you buy 100 shares of xyz, and then set a stop loss order at $36 so that if the stock drops by 10% you’ll get out automatically.  I generally don’t recommend stop loss orders for two reasons.  The first is that the market will set all kinds of prices based on rumors, news, and just fluctuations driven by trading (the stock goes down a little so more people jump out, causing it to continue down).  These fluctuations really mean nothing about the underlying business, and we don’t want to get out of a good company just because it becomes temporarily unpopular.  The second reason is that various traders use stop loss orders to make profits and get shares at lower prices.  A stock may move down temporarily, hit your stop causing you to sell your shares, and then shoot back up, leaving you behind.

One case where I may use a stop order is when a stock has gone up a lot and I’m looking to take some of the money off of the table and move it somewhere else (the stock has gone up enough that I don’t want to risk the loss).  In that case I may set a stop loss a few dollars below the current price, and then move the stop up if the stock rises until it eventually hits.  This is nice psychologically since you don’t feel like you’re selling a stock that is a winner and will climb higher, but in general I’ve found I end up just losing a couple of dollars when my stop gets hit and I should have just put in a market order and sold the shares.

As said above, there is what is called a stop market and a stop limit.  A stop market will sell the shares at the market price if the stop price is reached.  The stop limit will put in a limit order at the stop price if the stop is reached.  Never use a stop limit because if the stock falls below your limit price, the order will not be executed and you will still own the shares.

Finally, I may use an all-or-none order for a thinly traded stock to avoid getting a few shares and having to pay minimum commissions on more than one trade.

So there you have it.  Time to buy some shares.

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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


Kindle Edition of SmallIvy Book of Investing on Sale Starting Monday

The SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy

The SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy

You probably spend most of your day looking at your phone.  Maybe you’re texting friends, browsing the web, or paying solitaire.   What if you could be using some of that time learning how to improve your future?

The electronic version of my book on investing and money management, The SmallIvy Book of Investing, Book 1: Investing to Grow Wealthy, is going on sale starting Today for only $1.99.  This book starts by giving you all the information you’ll need about stocks, bonds, and other types of investments, including the risks involved.  It then tells you how to manage that risk to use investing the generate additional income so that you can grow your wealth more quickly than you can with a job.

The middle chapters discuss what you should be doing at each stage of life if you want to become financially independent – that magical state where you don’t need to work to support yourself and your family.  It also provides a plan for cash-flow management – how to budget your money and start your savings compounding and so that you’ll have the money you need for things like new cars, college bills, and retirement.

Next, the way to invest if you’re serious about making money, not just playing around with investing, is discussed.  Here the information about risk and reward given in the first chapters is put to use to show how you can take reasonable risks for a chance to beat market returns with the portion of your wealth beyond what is needed for necessities.

Finally, mutual funds are discussed, including their use in IRAs and 401k plans.

Take a look at the book on Amazon and be ready Monday to get your copy at this special price.   Download a copy for just $1.99, then use some of that time you spend starting at your phone to be learning about investing and money management.  Also, if you do buy a copy, please consider leaving a review on Amazon to let me know what you think.

Thanks!!  SI

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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.