HOW TO BUY STOCKS ONLINE

WITHOUT A BROKER
STEP-BY-STEP GUIDANCE
FOR ALL EXPERIENCE LEVELS

BY

MICHELLE PRICE

A MODERN WEALTH MEDIA PUBLICATION

NEW YORK

Copyright2012byMichellePrice.Allrightsreserved.
PublishedbyModernWealthMediaLLC,NewYork,NY.
Nopartofthisbookmaybereproducedorutilizedinanyformorby
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Limit of Liability/Disclaimer of Warranty: While the publisher and
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representatives or written sales materials. The advice and strategies
contained herein may not be suitable for your situation. You should
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Tothemostimportantpeopleinmylife:
Mom,Dad,Sister,Niece

Contents

Introduction......................................................................................10
InvestorsPutMoneytoWork.....................................................11
ThisisNotYourParentsStockMarket....................................12
TheDigitalAgeChangedHowInvestorsInvest.....................13
MyPromisewithThisBook........................................................13
ImportantNote.............................................................................16
Extras..............................................................................................17
Step1:UnderstandtheBasics........................................................18
WhatisaStock?............................................................................19
WhyDoCompaniesOfferSharesofStock?.............................20
WhatHappensAfteraCompanyGoesPublic?.......................22
GoverningBoards........................................................................23
SupplyandDemand....................................................................24
WhataFallingSharePriceMeanstoaCompany....................26
TypesofStock...............................................................................28
HowYouEarnaProfit(andLoseMoney)withStocks..........29
IsProfitFreeMoney?...................................................................31
WhatBenefitsComeFromOwningStocks?.............................33
IsaStockaBond?.........................................................................37
UsingBondstoRaiseMoney......................................................40
KeyTakeaways.............................................................................41

Step2:UnderstandHowtheMarketWorks...............................42
HowisaStockPriceDetermined?.............................................43
BattlingOtherMarketParticipants............................................46
DoYouHavetoUseaBrokertoBuyorSellStocks?..............48
WhereDoesMyMoneyGoWhenIInvestinStocks?............49
IsaBrokeranAdvisor?...............................................................53
DiscussingCompensationwithYourBrokerorAdvisor.......56
Brokers,Reps,andAdvisors...OhMy!......................................57
WhatAreMyOptionsBesidesUsingaLiveBroker?.............59
TheGenesisofDiscountBrokers...............................................61
Tradersvs.Investors....................................................................64
WithoutaLiveBrokersHelp,HowDoYouKnowWhich
StocktoBuy?AndWhentoSell?..............................................65
KeyTakeaways.............................................................................66
BeforeWeContinue.................................................................67
Step3:AnswerTheseThreeQuestions.......................................68
Question1:WhyAreYouThinkingAboutInvesting?..........70
Question2:WhatisYourTimeframe?.....................................76
Question3:HowMuchAreYouWillingtoInvest(andHow
Often)?............................................................................................83
PortfolioReturn............................................................................91
ShouldIPayOffMyDebtFirstBeforeInvesting?..................94
PuttingitAllTogether.................................................................95
KeyTakeaways.............................................................................96
AnAdvancedLookatRisk.........................................................97

Step4:FindStocksThatSupportYourPlan.............................102
DraftaListofIdeas....................................................................105
10StepStockResearchProcess................................................108
FreeOnlineResources...............................................................110
AboutPaidTools........................................................................111
10StepResearchExample........................................................112
KeyTakeaways...........................................................................189
Step5:CreateaPortfolio..............................................................190
WhyInvestorsDontThinkAboutCreatingPortfolios........191
MaximumPleasure,MinimumRisk........................................192
ModernPortfolioTheory..........................................................193
Correlation...................................................................................194
AnAdvancedLookatCorrelation...........................................197
TargetPortfolioReturn..............................................................199
BuildYourPortfolio...................................................................201
WhatAboutBondsandOtherTypesofInvestments?.........206
KeyTakeaways:..........................................................................207
Step6:DetermineHowMuchMoneyYouareWillingto
Lose...orGain..................................................................................208
MakingUpforLostMoney.......................................................210
ManagingPortfolioLosses........................................................211
AdvancedTechniquestoLimitPortfolioLosses...................218
KeyTakeaways...........................................................................221
Step7:ChooseAnOnlineDiscountBrokerandSignUp!......222
OnlineBrokerCriteria...............................................................224

OnlineBrokerRecommendations............................................229
KeyTakeaways...........................................................................232
Step8:PlaceYourTrades.............................................................234
HowtoEnteranOrder..............................................................236
KeyTakeaways...........................................................................243
Step9:MonitorandKnowwhentoTakeAction.....................244
MonitorNewsRelatedtoYourPortfolio................................246
MonitorBenchmarksThatMatchYourPortfolio..................249
PerformanAnnualResearchCheckup...................................251
ChecktheWinnersandLosers.................................................252
JensensAlpha............................................................................253
IfYoureStillThinkingAboutChangingYourPortfolio.....258
AdditionalWaystoMonitorPerformance.............................259
KeyTakeaways...........................................................................263
Step10:ContinueDownYourPathtoGreatness.....................264
HowtoReachtheAuthor.............................................................266
Index.................................................................................................272

ANINVESTMENTINKNOWLEDGE
PAYSTHEBESTINTEREST.

BENJAMINFRANKLIN

INTRODUCTION

Introduction

11

Askanybodyaboutgettingrich.Morepeopleunderstandhow
togetrichfromplayingthelotterythanfrominvestinginstocks.
In fact, two of the top five ways people learn investing are by
searchingonlineandguessing.
People invest billions online. However, they do it without
really knowing how to invest. Why? Investment books are
eithertoosimple,ortheyneedaPhDtounderstandthem.
Weneedbooksthatteachmorethanthebasics.Atthesame
time,wedontneedallofthecomplextechniquesprofessionals
useinordertobesuccessfulinvestors.
Thismiddlegroundneedsabook.

Investors Put Money to Work

What if you found a machine that could create a twin for you.
You could send your twin to your day job. Meanwhile, you
woulddowhatyoulovedforaliving.

JOEYDREAMSOFTHE
DAYWHENHISMONEY
WORKSFORHIM.

12

How to Buy Stocks Online

Well,Ihavebadnews.AXeroxmachineforpeopledoesnt
exist.Investinginstocks,however,cansimulateone.
Its a key reason why people invest. Investors aim to put
their moneytoworkforthem, sothatthey dont haveto work
fortheirmoney.

This is Not Your Parents Stock Market

Whohasntheardbuyqualitystocks,waitforthemtoriseover
thelongterm,andthensellataprofit?
Its still mostly true. However, the 1990s introduced new
subtletiesandpitfalls.
For example, lets look at the S&P 500 index. It acts like a
thermometer, tracking the health of the US stock market. It
developedasplitpersonalityinmid1990:

Noticehowthemarketbecameanentirelydifferentbeast?!

Introduction

13

The Digital Age Changed How Investors Invest

Investors started to have instant access to information on the
internet in the mid1990s. News flowed 24x7, allowing
investorstoreactquicklytoglobalevents.
More institutions traded electronically to squeeze profits
from buying and selling stocks after tiny price changes. This
madethemarketchoppyandvolatile.
TheUSeconomyalsoexperiencedatremendousexpansionof
economic activity, spurred by the boom in internetbased
businesses.
Investorsnolongerhadtheluxuryoftimetoponderwhether
to buy or sell a stock. We said goodbye to the monochrome
stock market, and entered a vibrant highdefinition place. A
place where the markets sensitivity to even a whiff of news
increased.
Therulesoftradingchanged.Somusttheadvice.

My Promise with This Book

Many authors have never worked as professional investors.
Other may have, yet talk at 1000 feet with anecdotes only they
careabout.
Until authors manage money, they cant write about the
subtle points of investing. They also cant take the things
professional investors know and translate them into language
everydayinvestorsunderstand.

14

How to Buy Stocks Online

ThetechniquesIteachinthisbookarethesameIusedinthe
past to get a 300% return from stocks like Cephalon during a
recession. They also helped me minimize losses in my clients
portfoliosduringthe2008downturn.
Youll not only get a practical, stepbystep guide to buying
stocksonline,butyoullalsoget:
Strategiestofindopportunitiestoinvestinthestockmarket,
startingwithusingyourcommonsense

Rulesonwhentobuy(andwhentosell)

Opinions on online discount brokers to help you find one

bestsuitedtoyourneeds
Ill also fine tune your gut feeling for recognizing a good
investment, and show you how to put together a portfolio to
reachagoal.

YOUNEEDHOPE
ANDASTRATEGYTO
REACHYOURGOALS.

Introduction

15

Alsointhisbook,well:
Searchforvalueinvestments.Thesestocksareonsale,
andappearunderpricedincomparisontotheiractualvalue
onpaper.

Creategoalbasedportfolios.Wewillfigureoutthetypesof
stocks you need in your portfolio for it to grow to a target
value. Well also talk about how to minimize the risk of
losingyourmoney.
Most importantly, Ill try to talk in conversational language
andnottalklikewereatasnobbylecture.Andnoanecdotes
justthefactsthatyouneedtobuystocksonline.
We all used training wheels before riding a bike. We all
needed mom and dad to help us move from crawling to
walking.Everyinvestorneedsawaytotakehisorherskillsto
thenextlevel.
My hope is you will become a sharper, more successful
investorafterreadingthisbook.Ialsohopeyoulldiscoverhow
investingcanbeexciting,apersonalchallenge,andevenfun.
ImhonoredyourereadingHowtoBuyStocksOnlinesoI
maybepartofyourjourneytobecomeagreatinvestor.

Michelle Price
ManagingPrincipal
PriceCapital,LLC
RegisteredInvestmentAdvisorandFinancialPlanner

16

How to Buy Stocks Online

Important Note
Buyingstocksisnotforeveryone.Investingisatyourownrisk.
While I give opinions in this book, these opinions do not
constitute investment advice, an offer to invest, nor an offer to
provideadvisoryorinvestmentmanagementservices.
It is also not my intention to state, indicate, or imply in any
manner that current or past results are indicative of future
resultsorexpectations.
As with all investments, there are associated risks that can
cause you to lose money. You alone are responsible for
evaluatingthebenefitsandrisksassociatedwithusinganonline
broker and investing. You are also responsible for deciding
whichsecuritiesandstrategiesbestsuityourfinancialsituation,
goalsandriskprofile.
Prior to making any investment, you should consult with
your own investment, accounting, legal and tax advisors to
evaluate independently the risks, consequences, and suitability
of that investment. Please speak with a professional that you
knowandtrustbeforeyoubuyorsellstocks.

Introduction

17

Extras
TakeaShortcut
Each chapter represents a step towards becoming a stock
investor.Pleasereaditfromcovertocover.Youmaydiscover
somethingnew,oradifferentpointofview.
Nevertheless,tohelpyougetwhatyouneed,pleasefeelfree
touseashortcut:
If you already know the basics about stocks and the stock
market,jumptoStep3.
Ifyoureresearchingstockstobuy,gotoStep4.
Ifyouneedhelpinfindinganonlinebroker,skiptoStep7.
If you already have a portfolio with an online broker and
arentsurewhattodonext,fliptoSteps6and9.

UsetheExcelWorkbook
Get the free companion Excel workbook at the Modern Wealth
Mediawebsite.Itsahelpfultoolforplanning,researching,and
trackingyour stocks.Theworkbookalsoincludes manyofthe
calculationsdiscussedinthebook.
Nowthatyouknowaboutit,whatareyouwaitingfor?Visit:
http://www.modernwealthmedia.com/workbooks

...andgetyourcopyoftheworkbooknow!

272

How to Buy Stocks Online

INDEX

Index

273

10
10StepStockResearchProcess................................................108
A
AccreditedInvestor......................................................................24
Advisor..........................................................................................56
AllorNone..................................................................................244
AnalystOpinions........................................................................136
AnalystRatings...........................................................................138
AverageAnnualPortfolioReturn..............................................94
B
BestExecution...............................................................................55
Beta...............................................................................................101
BlueChip.....................................................................................126
Board..............................................................................................26
BondCoupon................................................................................41
Bondholder....................................................................................41
Bonds..............................................................................................40
Broker.............................................................................................56
Broker/DealerFirm......................................................................54
Budgeting......................................................................................87
BuytoCover...............................................................................239
Bylaws............................................................................................26
C
CallOption..................................................................................223
Capital............................................................................................25
CapitalGains.................................................................................34
Certifications.................................................................................60
Commission..................................................................................59
CommonShares............................................................................31
Compounding...............................................................................82
Correlation...................................................................................197
Correlation(Excelformula)......................................................200
CostBasis.......................................................................................32
CoveredCall................................................................................223

274

How to Buy Stocks Online

CreditCardDebt..........................................................................97
CurrentRatio...............................................................................163
D
DayOrder....................................................................................244
Dealer.............................................................................................52
DebtMarket..................................................................................40
DigitalAge....................................................................................16
DirectStock/DirectInvestmentPlans........................................62
DiscountBroker............................................................................63
Diversification...............................................................................92
DividendYield............................................................................126
Dividends......................................................................................36
DoddFrankActof2010..............................................................24
DollarCostAveraging.................................................................90
E
Earnings.........................................................................................47
EconomicIndicator....................................................................264
EfficientMarket............................................................................49
Equity.............................................................................................22
EquityFinancing..........................................................................25
ExcelAddIn(forstockmarketfunctions)..............................189
ExcelWorkbook......................................................................20,70
F
52weekHighandLow.............................................................122
FairValue....................................................................................169
FeeBasedAdvisor........................................................................59
FeeOnlyAdvisor.........................................................................59
FibonacciRetracements.............................................................183
FiduciaryResponsibility(FiduciaryStandard)........................57
FillorKill.....................................................................................244
FinancialIndustryRegulatoryAuthority(FINRA).................57
FinancialPlan................................................................................73
FinancialStatements..................................................................159
FinancialStressIndex................................................................263
FloorBroker...................................................................................53
Fraud(inFinanicalStatements)................................................166

Index

275

FreeMarketForces.......................................................................48
FreeOnlineResources...............................................................113
FundamentalAnalysis...............................................................155
G
GoalBasedPlanning....................................................................73
GoodTillCanceled.....................................................................244
GoogleFinance...........................................................................113
I
Industry.......................................................................................129
InitialPublicOffering(IPO)........................................................25
InstitutionalOwnership............................................................153
Internalization...............................................................................54
IntrinsicValue.............................................................................169
InvestmentAdvisersActof1940...............................................57
InvestmentBank...........................................................................25
Investor..........................................................................................67
IPOPrice........................................................................................46
J
JensensAlpha.............................................................................256
K
KnowYourCustomer..................................................................56
L
LimitOrder..................................................................................242
LiquidityProvider........................................................................52
LoanPaymentFormula(forportfoliovalue).........................215
LongtermCapitalGainsTaxes..................................................34
LossCarryover..............................................................................35
Losses(fromstocks).....................................................................33
LTDebttoEquityRatio.............................................................162
M
MarketCapitalization................................................................126
MarketMaker...............................................................................52
MarketOrder..............................................................................241
ModernPortfolioTheory..........................................................196
N
NetIncomeApplicabletoCommonShares...........................162

276

How to Buy Stocks Online

NetProfitMargin.......................................................................160
NewYorkStockExchange(NYSE)............................................53
News(relatedtoportfolio)........................................................249
O
OnlineDiscountBrokerCriteria..............................................227
OnlineDiscountBrokerRecommendations...........................232
Order..............................................................................................52
OrderExecution............................................................................52
OwnershipInterest.......................................................................22
P
PricedIn......................................................................................49
PaidTools............................................................................114,189
PaperTrading.............................................................................230
Portfolio(creating).....................................................................204
PortfolioLosses...........................................................................214
PortfolioReturn............................................................................94
PreferredShares............................................................................31
PricetoEarnings(P/E)...............................................................143
Principal.........................................................................................52
PrivateCompany..........................................................................23
ProfitMargin...............................................................................164
ProfitabilityRatios......................................................................160
Profits(fromstocks).....................................................................33
PurchasingPower........................................................................78
PutOption...................................................................................222
Q
QualitativeAnalysis...................................................................156
QuantitativeAnalysis................................................................169
QuickRatio..................................................................................163
R
RelativeStrengthIndicator(RSI)..............................................182
RetirementPlanning....................................................................78
ReturnonAssets.........................................................................150
RevenueActof1921.....................................................................34
Risk...............................................................................................100
S

Index

277

S&P500Index.........................................................................15,84
SavingsShortfall...........................................................................91
Scottrade......................................................................................234
SecondMarket............................................................................25
Sector............................................................................................129
SecuritiesActof1933...................................................................24
SecuritiesandExchangeCommission(SEC)............................24
SellShort......................................................................................240
SellShortExempt.......................................................................240
Series66(Series63/65).................................................................57
Series7...........................................................................................57
Sharebuilder................................................................................233
Shareholder...................................................................................22
SharesOutstanding......................................................................23
ShortAgainsttheBox................................................................221
ShorttermCapitalGainsTaxes..................................................34
Specialist........................................................................................53
StandardandPoors.....................................................................84
StandardDeviation....................................................................102
Stock(definition)..........................................................................22
StockCertificate............................................................................22
StockMarket.................................................................................23
StockPicking...............................................................................108
Stop/LossOrder..........................................................................243
SupplyandDemand....................................................................28
T
Target(analysisofthecompany).............................................115
TargetPortfolioReturn..............................................................202
TaxexemptBonds........................................................................43
TechnicalAnalysis......................................................................177
TechnicalIndicators(categoriesof).........................................179
TimeintheMarket.......................................................................80
TotalDebttoEquityRatio.........................................................162
Trader.............................................................................................67
V
Valuation.......................................................................................46

278

How to Buy Stocks Online

VolatilityIndex(VIX).................................................................264
W
WashSales.....................................................................................35
Y
Yahoo!Finance............................................................................113
Z
Zecco(TradeKing)......................................................................234

Index

279