Turning 30 in a month. Out of CC debt. Want to start investing

Hi,

This may be a long post, as it's my first, but I hope to be here for many years to come

I have quite a few questions, and I'm hoping some nice people would be willing to help answer

To give some basic background, I have a degree in statistics, but I haven't done too much with finance. I'm confident in my ability to learn the math behind stocks, but I know it will take awhile. Before posting here, I actually read all the tutorials and intros on a simulation website (am I allowed to say the name? It has the same ending as Wikipedia but it's about Investing ...)

I made a portfolio there with $10,000 starting money, and the account value is up to $10,400 after a month (I literally did nothing but buy Apple, Ebay, Target, Amazon, Walmart).

After reading some basics, can I confirm I understand all the following about these companies?

- They are large cap and represent the least risk to invest in
- They are 'solid' investments as in the odds of me losing all my money from them going bankrupt is slim to none, and they will continue to grow over time as there's no reason to assume people will stop wanting iPhones, 2 day home delivery, to be able to sell their items around the world, etc.
- They will not show large returns as they can't grow 10, 15, 20% a year when their cap is already so large
- They are long investments and ideal for somebody with the mentality of 'I just want to put $5,000 away and get $10,000 back in 10 years without ever doing anything with the stock market again'
- If I wanted to invest in a dividend stock, these are good as the actual dollar value (Amazon is $330 a share, seriously?) is high, so if the dividend is 2% I would get $6.60 per Amazon share, per divident yield? This one I'm pretty certain I'm incorrect on

Given my background, is technical analysis probably my best bet as I can work with charts and trends and historical data to help predict the future?

Is there a good Excel spreadsheet that can import stock data and will then show statistics and parameters for analysis to be able to pick a stock? I've been unable to locate one through about 20 minutes of google searches

Where should somebody like me go to be able to purchase stocks? Etrade? Sharebuilder?

And the final question (for now), how exactly do you FIND a stock you don't know about? Let's say there's a stock out there with an intrinsic value of $30 a share and it's trading for $10, how would I know about it?

Thanks, appreciate all the responses

Given you have a degree in statistics may I introduce you to probability based trading. See www.tastytrade.com I think you will find this right up your alley. There are no tricks or gimmicks or magic systems. It's all free in fact if you use www.dough.com to create an account in TDAmeritrade you will get an automatic fee reduction. Then if you complete the doughjo video series with a 70%+ on the quizzes you will receive automatic permissioning for options trading. The thinkorswim platform and dough platform all come free and you will be able to practice your trading strategies in real time without ever even making a deposit into your account.

You can learn all you want about fundamentals or technicals but the only way to create a statistical edge is through option strategies.

The strategies make the assumption that overall market movement is random. (The evidence supporting this is overwhelming) You are currently up on your trades because you bought some solid stocks in a bull market. But consider this....imagine a bell curve of probabilities....the market is currently 1-2 standard deviations out to the upside and volatility is 1-2 standard deviations to the downside. Given what you know about statistics or probabilities....what do you think the future may hold? Prices may or may not revert to the mean as the current prices can always become the mean over time. However volatility certainly does have a tendency to revert to the mean. That is where we look for opportunity with option strategies.

In the tastytrade.com archives I think you will find some interesting stuff in the "The Skinny On Options Math" videos. I would be interested in your take once you've had a chance to check it out.

Thanks for the response, I'm actually working my way through https://www.tastytrade.com/tt/shows/...7?locale=en-US and all the videos in this series. I'm maybe 5 in, and it's very beneficial. One thing that's not making sense is why there is so much emphasis on options, when he had mentioned people generally are not using options because they're so risky and it's so hard to actually make money off them

Regardless of what I do, is it beneficial (required even) to work through a series like this and just make sure I understand all the terminology and underlying math and definitions?

To answer your question, the market would currently be very very high (1-2 standard deviations above the mean would be in the 95+ percentile) and trending back towards the mean, meaning all my stocks would be going down. So if I felt this were the case, and the market is going from Bull to Bear, I would want to SELL my current stock (ask) as I feel the value is going down. Or if I wanted to do this via an option, I would look for an option to sell (put) the stock at a value near where it is now, so that I have two options (pun intended): 1) I keep the stock now and if it doesn't drop I lose the cost of the option but I keep the stock that is doing well, or 2) the stock actually does drop and I lose much less as I can still sell for a relatively high price and I just lose the cost of the option. The third scenario would be simply selling (bidding) the stock without purchasing an option, and if I did this I would have to hope the value of the stock goes down so that I made the right call. If the stock stayed constant or actually increased in value there was nothing gained from selling it

Just some other basic questions - Is only having maybe $100 a month to start going to be a dealbreaker? I have student debt and some of the loans are at 6.9%. Unless I can make more than 6.9% off the market, it would be better to put extra money each month towards the loans. On the other hand, actually playing the market will teach me much more than just watching videos.

Not sure exactly what episode you are referring to but I would bet that what he was saying is that people are told/taught that options are risky and/or hard to make money with as I know they certainly do not believe that to be the case.

Your answer....you've got the right idea. But what if you sold a call at 1 standard deviation to the upside. Then bought back the call the first time it touched 50% max profit. The probability of touching the 50% max profit area is far greater than the probability of getting max profit at expiration. So if your assumption is that the risk is mostly to the downside you may apply a strategy that gives you a lot of upside protection in case you are slightly wrong. (with smaller accounts you can limit your risk and capital requirements by selling a call spread to create the same strategy...the return is less but so is the risk) So this is how you can make a strategy built around a market assumption and the pricing is based on theoretical probabilities that you can wrap your mind around.

With a stock purchase you do not KNOW anything about what it is going to do. You can only have theories or projections. With options you KNOW 3 things. Options expire, time moves forward and high implied volatility tends to revert to the mean. Whether you think the market is random or can be predictable it just makes sense to use every advantage you can to give you an edge. 2 things give out of the money options value (called extrinsic value)....time left until expiration and volatility. Most of the value of time (theta) drops off rapidly in the 30-10 days until expiration period. So it makes sense to SELL that time value to someone else in the 50-30 days till expiration period and let them eat the theta decay. Then if you do this in options that have a high implied volatility you will be able to collect more premium with further out of the money strikes thus further increasing your probability of reaching some % of max profits.....30%, 50% whatever...before expiration.

Finally the money issue. You will need 2k in an account to trade option strategies like these. I would shoot for 2500 just to give yourself some buffer as nothing is guaranteed. And of course it's better to be debt free...the 6.9% is a guaranteed loss. But I have conservative positions on that return around 3-5% per month, the perceived risk is minimal but is always present. You'll have to do whatever puts you more at ease. Personally I have paid minimums on my student debt until recently (it's almost paid off) simply because I always felt I could outperform the vig by keeping the capital and using it myself....even before trading. And consider this....if the interest rate is 7% with current inflation rates do you think it would be better to pay them off with today's dollars....or the devalued dollars of tomorrow that you have had time to use to your advantage? You can use debt to your advantage...THEY do...and it wasn't until now that I was able to leverage it in a way similar to what THEY do.

If you don't have the money yet don't worry. You can learn a lot maintaining the paper trading account in TOS free of charge. And TOS, Tastytrade, Dough all have TONS of free education. And saving up will just give you more time to learn.