Welcome to Eliezer May's Website

INTELLECT AND INNOVATION AMPLIFY ONE'S SUCCESSES IN ALL OF ONE'S ENDEAVORS

     

email: Eliezer@EliezerMay.Com

STOCKS AND FINANCIALS

STOCKS AND FINANCIALS

THIS SECTION IS INTENDED FOR PEOPLE WHO ARE SERIOUS INVESTORS OR WANT TO LEARN STUFF THAT THEY DON'T NORMALLY TEACH YOU

INTRODUCTION TO BROKERAGES

There are vast differences between brokerages.  So it is worth choosing your brokerage wisely.  Most people have their retirement plans and/or trading accounts at a brokerage.  But many people do this through their employers which may limit the options available to you.  Many of the plans use fund managers of some form or another.  One major lesson I learned is that if you know what you are doing no brokerage or fund manager will beat a good investor.  This also includes CPA work that we will discuss in a bit.
So I recommend you first identify your objectives and make a list of your expectations from the brokerage.  The first thing I look for is whether they have 24×7 service or not.  If you are a simple investor and have used fund manager, look at the track record of the managers.  We had select funds in Vanguard and entrance to the club required a lot of money and in the end they only lost money.  When I took over the management I increased my wife’s net worth dramatic within a few months.   
Another important point is commissions and fees.  A few years ago one of the brokerages, Robin Hood, turned the brokerages on their head by suddenly eliminating all commissions and fees.  It did not take long for most brokerages to follow suit.  This does not include fund managers.  But investors today should not have to pay any commissions or fees.
The next thing that you should check out is whether they have any inceptives.  This means if you will open your account with different levels of money there may be immediate cash rewards depending on how much money you have.  Also if get someone as the person who referred you to the brokerage, that person may also get a cash reward.  Because I am in the top 1% of investors at my brokerage I also have an assistant assigned to me who keeps me up to date and various topics and helps me with any issues that arise.  In my brokerage this is called Private Client Services.  Another perk is that if there are a hundred people in the queuje waiting for service and I call in, my call is immediately passed directly to Private Client Services and I do not have to wait in line.  And there are periodic nice gifts (eg I received an Amazon Echo, fancy expensive heated coffee mug, etc.

 

SO YOU OPENED YOUR ACCOUNT

Some of the important things to know is how to Day Trade which means buy and sell securities.    When you sell a security (ie stock shares) there is a settlement date which used to be in three days.  This has recently been reduced to two days.  Now you need a minimum of $25,000 to be able to do Day Trading.  Otherwise you have to wait for funds to settle before you can buy back and sell again.  But it you get Day Trading privileges you can immediately buy back and sell as many times as you want.  This is called a round trip.  

IF YOU ARE A REALLY SERIOUS TRADE YOU CAN GET A MARGIN ACCOUNT

Margin trading can be an extremely risky venture if you don’t know what you are doing.  Simply put in normal trading you buy and hold shares of some company.  When you think that you have enough profit or when you need the money and have no choice for some critical payment you can sell shares that you own and either take a gain or a loss depending on the cost basis or price that you bought those shares at.  So what is the most you could possibly lose?  The most is 100 percent of the money that you bought the shares for if the company you invested in goes bankrupt.  And what is the most you could possibly make.  The answer is unlimited.  You could make a massive fortune if you pick the right stock at the right time.

Now what is shorting.  This may sound weird at first.  Shorting is when you sell shares of a stock that you do not own but you “borrow” shares to sell.  So now let’s say that the company’s stock goes down a lot in price.  You no decide to repay the shares that you borrowed which is called “covering”.  So if the stock goes down in price you buy back the shares to repay at price that is lower than what you “shorted” or initially sold the shares for and the difference is your profit.  To make it simpler it is almost the same as buying shares and selling where the gain or loss is the difference between the buy price and sell price.  But with margin you do the sell and afterwards do the buy to cover.  

But now we must ask the same questions again and the answer will shock you.  In this case if you buy shares and then the companiy you invested in files for bankrupcy and no longer exists its shares value goes to zero and your profit is 100%.  You keep the proceeds of the short or sell and do not have to repay it.  But let’s say that the share price of the company goes up, you could potentially have to buy back the shares you owe and there is no limit to your potential losses.  In other words the sky is the limit for what you could lose.  But let’s say that the stock price is fluctuating and you are convince that it may still go down sdo you could still get back in profit with the stock lower or find the best exit point to minimize your losses.  You can do this but this cvould be very risky if the stock price continues to go up.  The key factor here is that you r account must have a certain percentage equity.  If the price of the stock that you shorted goes up too much and your equity falls below the minimum that you are allowed, you will get a nasty margin call and then you will either have to cover (buy back the shares you owe at the current price) within the time allotted you to get you account in order or the brokerage will be forced to cover for you and this is a very nasty situation and potentially a very big loss with no ultimate limit.  In conclusion I have shorted and even made $250K shorting Intel when Intel was at $60 per share.  But I made my money and stopped shorting.  Today Intel is at around $20 per share and the company has massive problems.  But it seems like the world is blind to this.

NEXT PAGE IS TRADING ACCOUNTS VS IRAS AND 401K’s