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I worked for many years in management in the health care industry in the UK, in Bermuda, and for the last 20 years in Florida. The day I turned 59 1/2 I just got out of bed and decided I didn't want to work any more and that I would just take my various pensions from different countries, such as... More
  • The great loophole that can make you money every day 5 comments
    May 2, 2011 8:58 PM

    OK, if you are reading this I assume that your check for $49.99 is in the mail. If not, then I guess you are getting this valuable information for free.

    Actually for experienced investors this is like teaching grandma to suck eggs, but here it is anyway.

    Stocks have spreads, the bid price is always a bit lower than the ask price, so if you buy a stock and turn right around and sell it, you are going to lose money even if the price of the stock is static.

    However, if you buy the stock using a limit order, then you can name your own price and ignore the bid/ask spread. Either you will get the stock or you won't, but at least if you do get the stock you will get it a little cheaper than it is right now, which means that if you wanted to turn right around and sell it again you may be able to place another limit order at the current price and actually get your money back.

    In itself this isn't very useful, but consider that you want to take a position in a stock like ZLCS or ZIOP, two small cap biotechs that I have traded in and out of. If you look at a candlestick chart of these stocks you will see that there is frequently an intraday variation of at least 25 cents per share between the daily high and the low. If you have a block of 1000 shares, that represents $250. I don't know about you, but I find that $250 here and $250 there soon adds up to some serious money.


    By hanging out a limit bid at somewhere just above the 3-day low, you will often get filled at a good price, whereupon you can now hang out a limit sell order somewhere close to the 3-day high, and you will also have a good chance of getting filled sooner or later. Remember that in an IRA account, you don't have to worry about that capital gains stuff.

    The other "trick", OK it isn't really a trick, but here goes, is this. If you want to buy a position, you can buy half the shares first with a limit order, then put in a second limit order for the rest of the shares at an even lower price. If the first tranche of shares increase in value, you won't be too sad as you are already ahead of the game, but if they fall in value, then at least you will be able to reduce your average basis in the full position. Of course you will pay two commissions, but if you are using a cheap broker, the amount is very slight, and the lower basis will compensate you.

    If you can't get the rest of your shares cheaper, then at least if you buy them for more, you do lose a bit of upside, but once your full position is established it is already in credit and you avoid that sinking feeling when you buy a new position and it is already in the red the next day.

    Coming next: How to Get Incredibly Rich Selling Puts.

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Comments (5)
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  • BK0324
    , contributor
    Comments (152) | Send Message
    OMGosh - you are brilliant!! I just negotiated 100 free trades with Schwab, for moving my IRA over there .... I will do this, and enjoy it so much!


    I have an account there already, and have made close to $10,000 by buying low and selling high, mostly these 3 stocks: SI, DAIFF and BAMXY. I'm from Germany, and know these stocks, from way back. I know the companies will never go down, period. And I know the values, because my parents invested in them, and so I feel comfortable doing this.


    I already made my big mistake, buying Amazon, 100 at 237, then another 100 at 231, thinking they were just going down and would recup, then as they sank even lower, another 50 at 229. That night, they announced earnings, and sank to 198 in overnight. I held on to them, because deep down I believe in the company. I decided to regard the losses, should I decide to sell and take the $5000 loss, would be my tuition in the world of trading. However, it seems to be going up again, so I'm holding on, and might just keep them until after the holidays, to see if they can get back in good graces.


    Do you have any opinions regarding this strategy?


    Thanks again for all your help,
    3 Nov 2011, 09:05 PM Reply Like
  • Rookie IRA Investor
    , contributor
    Comments (2885) | Send Message
    Author’s reply » Vielen Dank für Ihre freundlichen Worte. Sounds like you are doing well so far with those German companies.


    Regarding Amazon, no one really knows where the stock will go next. If we have a good Christmas season in the US, then sales may perk up, but there are some anxieties about the future as it seems quite likely that Congress would do something to make Amazon pay sales taxes, as it does in other countries, because many regular stores that have to charge sales tax in the various states feel Amazon is unfair competition.


    On the other hand Amazon has great hopes that the Kindle Fire tablet computer will bring them many new customers.


    The $5000 loss is gone now. The question is would you still buy Amazon at its current price? If the answer is yes, then you should hang on to the stock. It is a pity that you did not know about covered calls at this time, because if you had sold calls against the stock, then you would have made a profit on the calls that would have offset some of the losses on the stock.


    If the answer is no, then you probably need to think about whether you could use the money better in some other investment.


    My advice to you: I am not in any way qualified to give investment advice to anyone other than myself, however I believe that in the long run you would benefit from paying more attention to the mechanics of investing and less to picking the companies that you like, because you may love the product or service that a company supplies, but that does not necesssary make it a good investment.


    There are many interesting authors here on Seeking Alpha, but the three whom I would really pay a lot of attention to are 1) Bret Jensen, 2) Phil Davis, 3) Tom Armitage as all their articles contain really solid content and no bullshit. I also highly recommend Phil Davis's Web site, were you can follow his retirement portfolio and learn how he manages it. At first it is hard going, but if you are serious about investing, you can learn a lot from him.
    3 Nov 2011, 09:36 PM Reply Like
  • BK0324
    , contributor
    Comments (152) | Send Message
    Ja, aber Bitte! Ihr deutsch ist aber sehr gut - sehr beindruckend! Wo haben Sie das gelernt?


    I agree deep down I think I should just take the loss, and offset some of the gains, I won't like the tax burden come next April anyway, and as someone else said, I'm way ahead of the bank rates at this point, and what I would have made with a CD, so I might just sell it. I just figured out that today the loss is only 3,750 - at first it was 8,750 - YIKES!


    And also agree I need to change my buying strategy from intuition and "I like this company" to "Show me the Money" haha.


    I'm already following Phil Davis, he's great ... and will go check out the other two.


    Vielen, herzlichen Dank!
    3 Nov 2011, 09:45 PM Reply Like
  • Rookie IRA Investor
    , contributor
    Comments (2885) | Send Message
    Author’s reply » Ich habe Deutsch settdem funf und vierzig Jahre in der Schule in England gelernt, auch in Deutschland (Gottingen) wann ich Schuler war, aber habe jetzt fast alles vergessen, und spreche taglich Spanisch zu Hause. Mein Deutch ist sehr sehr langsam und die Worte kommen erst in Spanisch.


    If the money is in an IRA you only have to pay taxes when you take a distribution from the IRA, so the profit or loss within the IRA is irrelevant.
    3 Nov 2011, 10:12 PM Reply Like
  • BK0324
    , contributor
    Comments (152) | Send Message
    Das ist wirklich sehr gut, und es ist immer schoen wenn man eine zweite oder dritte Sprache kennt!


    I just figured that out, (about the difference between contributions and interest allowed to accumulate) I think I have brain fog tonight, it's raining, and somehow that always makes me so tired - as you probably remember, Germans are extremely 'wetterempfindlich ' ...


    Bis spaeter dann, schlaf gut!
    3 Nov 2011, 10:40 PM Reply Like
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