Contributor Eric Tippelt offer ups some tips on getting started in Micro Investing
Eric Tippelt | March 24, 2017 | SmallCapPower: I am a Micro Investor. I have found that is a bold statement to make in the company of other non-Micro Investors. The terms, idiot, fool, stupid, get heard a lot after making that statement. I will admit that the way I started Micro Investing was not ideal. If not for some luck in the beginning, my investing adventure would have been short lived.
But I did survive, and learn how to be a Micro Investor. First off, I define Micro Investing as starting out with between $500 and $5000. Micro Investing is very different than regular investing. I would only suggest it to people who have a true interest in money, have patience, have access to online trading all day, 5 days a week, are willing to learn, have nerves of steel, and who are willing to put the time into RESEARCHING their investments. Without these there is a limited chance for success.
The reason for this limited chance of success is because you are forced to deal with very volatile investments. You are going to be dealing with inexpensive stocks, (Penny Stocks) mostly on the Venture exchange. Which leads me to the first rule of becoming a Micro Investor. Practice like it’s real for 6 months to a year before you ever use real money.
What does that really mean? If you have only $1500 to start with in reality, don’t practice invest with more than that. Also include real expenses that you will have, like trade commissions (most commissions today are in the $9/trade range). With Micro Investing, the trade fees are very important, since it is the money you have to spend. Remember the trade fee applies to both buying and selling. So, at a $9/trade fee, you will have to pay out $9 when you buy, and another $9 when you sell. That just took 1.2% of your trading dollars out of your account. The stock you bought has to go up at least 1.2% just to break even.
Most people are not born with nerves of steel when it comes to money. How are you going to handle looking at your stocks the day after you bought them, and they went down $350? Panic and sell?! Or just raise your eyebrows and check the news about the stock, to see why that just happened? It might be a signal to buy more stock, and dollar cost average down. It takes about a year to understand how stocks work, how to use the research tools in your trading platform, and learn that emotions have nothing to do with stock trading.
Every trading platform I have used, or heard about, has tools to limit losses, and take advantage of price drops. It just takes time to learn how, and when, to use them. When you have a proven track record of picking winners, it is time to use real money. But not before!!!
Every trading platform (Like TD Waterhouse, iTRADE, BMO Investorline, etc) has research tools, regular articles and reports, stock screeners, and tons of other stuff to help you figure out what stock is a good bet and also when to buy it. The theory is simple: Buy low, Sell high. But when is a stock low? When is it high? And the real trick, when is that low stock going to turn high, and how high should it go before I sell it? I would strongly suggest you learn how to become an expert at using the tools.
Another excellent tool you need to learn is how to read a stock chart. I recommend the website www.Stockcharts.com. They offer free access to very basic charting, but have a free feature called Chart School. It covers how to read the different types of charts and indicators. When you get into using real money you might want to pay for the more in depth charting tools. I have been using them for over 10 years and would not do a trade without checking their charts first.
Always remember; we learn more from our mistakes than our successes. So, making a mistake with practice money, is a free learning experience. More in my next post.
Eric Tippelt is a full time professor of electrical automation at Loyalist College in Belleville. He has been studying money and finance since 2004 when he began his online trading activities. Eric writes about Micro Investing ($500.00 to $1,000), because there is very little information out there on how to invest at that level.