Questions when starting out in the stock market

[Look]

Hello everyone

Hello Jerome

First of all, I would like to welcome you among us.

I am new to the stock market and I just bought my first shares.

Thank you Jérôme for sharing your experience with us which helps us a lot.

I just discovered the forum.

I would like to take this opportunity to ask the question about the only point that I did not understand in your book.

1- This question is answered: When should you sell?

You state three criteria:
– the stagnant dividend: this is a very clear point
– the fundamentals that have changed: what do you mean by that???
– The title is overbid. Again, what does that mean???

2- Another question: How to buy if you want to limit brokerage fees knowing that custody fees do not exist and that you adopt a policy of increasing dividends?
Is it more interesting to buy in small quantities frequently or rather in large quantities less frequently?

3- How often should you check your winnings to secure them and also balance the lines?

4- What is the ideal number of lines when starting and how many should not exceed each line?
I read somewhere that you should never exceed 8 lines including 2 trackers and even then only for a capital between 20K and 100K.

If you invest between 3,000 and 10,000 euros, then do not exceed 3 shares.
What do you think?

Well, that's quite a few questions and if they've already been answered (I looked and didn't find them) I apologize and would be grateful if you could give me the link.

Thanks in advance.

Look

[Jerome]

Hello Mira
Welcome to the forum. It's always nice to read about women here, unfortunately they are too rare.
1) The easiest way is to rely on the stock rating in the members section. The stocks that have one star are stocks that don't smell very good. The reasons: the dividend is stagnating (or worse it is falling), the stock is too expensive (especially because the dividend yield is insufficient), the fundamentals are bad (typically the dividend no longer sufficiently covers the dividend payment). Currently I have three stocks purchased that are in this situation and that I am monitoring closely:
– Emmi (EMMN): one star, but on the verge of being two. Very good company, but the stock has clearly overbid itself (yield of 1.4%). Not yet sold because the dividend is well covered by profits (distribution ratio 27%) and it is a defensive stock, which resists in the event of a market decline (and since the latter is very high, this is very useful at the moment). The dividend is still increasing, but at a fairly slow pace. In short, I am monitoring and if one of my criteria deteriorates, I sell.
– BP: paradoxical, I just bought it. And it’s not my style to trade. For once I deviated a little from my principles, in exceptional circumstances you sometimes have to know how to take certain risks. I wanted to take advantage of the extremely cheap oil prices, via a dividend-paying company. Oil had fallen due to a temporary economic situation (shale gas production, Saudi Arabia’s desire to kill the shale goose in the egg by overproducing, poor global economic situation, etc.). But in the long term, black gold will inevitably rise again. So BP has made recent losses, like other companies in the sector. The dividend risks falling or stagnating. In a normal case, danger, do not invest. But here I considered that this risk was already included in the price at the time of purchase. We will see if the future proves me right, or not. In short, I advise beginners not to do this, rather follow the basic rules.
– Abbott (ABT): 1 star, but in truth it should be 4 or 5. Why? Because the company has been a growing dividend payer for decades but it has done a split which artificially makes it look like it has cut its dividend. So I am holding it until it goes back to 2 stars soon because that will be the case anyway.
2) In large quantities and less frequently. If the brokerage fees are cheap, one can buy a little less, a little more often. But never exceed 1% of brokerage fees.
3) As little as possible! In all, you should avoid staring at the screen. It is counterproductive and encourages you to do stupid things (the investor is irrational: he panics when it falls, instead of buying he sells, and he gets excited when it rises, instead of selling, he buys). Same thing for securing your gains: stop orders are always badly placed or you sell while trying to secure 20% of gain and the stock ends up making +200%… Very often the best thing is to do nothing. But it is very difficult for a human being. Balancing the lines, the question may possibly arise for small portfolios… and even then. It is the stock itself that is important, not its position in a portfolio.
4) It's all blah blah. Try to rationalize less and do what's good for you. In any case, by following the rule in point 2, you will start with few stocks. What is important, once again, is to choose your stocks carefully: they must correspond to your risk aversion, so in principle not be too volatile (low standard deviation). If they are of quality, defensive and not very volatile, they will behave like a much larger portfolio! Then, when the portfolio grows (and that's the goal), you can follow a lot of stocks if you stick to a few criteria that you master well.

Have fun and good money

[Look]

Hello Jerome

Thank you very much for this response which touches me a lot.

I printed it and it's one word page.

Once again, thank you for this detailed response which must have taken you some time.
I will study it with a clear head and will not fail to tell you what I think of it.

Thank you for the welcome. If you don't see many women in the stock market, it's because the stock market and your language seem so complicated. At least that's how I see you.

You are practically the first to make things accessible to us.

Regarding the titles, I will look at what standard deviation, volatility and so on mean, but it is clear that I do not ask myself any questions concerning the titles which appear on your extremely well-made site.

Thank you for everything you make available to us.

Look

[Look]

Good evening again Jerome

I read your very interesting answer carefully and this time, you will understand why we are so rare on the stock market.
I don't know if all women are like this but I'm rubbish at finances and what seems so obvious to you is so difficult for a novice like me.

1- How to know the market trend? How to know its average?

2- How do you know if a stock is too expensive or cheap? By the PER? If so, what value?

3- Bad fundamentals: the dividend no longer covers enough: what does that mean? How to know? By the distribution rate?

4- You say: a yield must not exceed 5% but what is the minimum value tolerated?

5- What does it mean that a stock has become overpriced? That it has become too expensive? And how do we know that? By the PER or by the yield? After all, what does it matter since all that matters is the dividend. A stock becomes more expensive simply because the company has proven itself, right? I don't understand why that could be a selling criterion.

6- How is a yield of 1.4% bad?

7- How do you know that oil is cheap?

8- A company that distributes dividends: how to know and where are they displayed?

Excuse me if you find my questions stupid.
But you can be sure that all newbies ask themselves these questions.

[Jerome]

I'll try to keep it short and sweet:
1) we can use moving averages (any stock market site gives it, for example finance.yahoo.com) or trend lines. Otherwise to make it simple, we look at the market with a little time perspective in a macro way and normally it is still obvious. No need to be an expert in technical analysis.
2) the PER in particular yes… let’s say 10 = cheap, 20 = be careful… but take it with a pinch of salt because growth or quality companies have by definition slightly higher PERs. Otherwise we can also use the dividend yield. Let’s say 5% be careful. Not as easy to interpret, because it depends on the distribution ratio. See here: http://www.dividendes.ch/2011/12/le-ratio-de-distribution-payout-ratio/
3) or by the distribution ratio precisely, see link above
4) same explanation as above.
5) yes, by the PER and the yield. Here I use the yield, linked to the distribution ratio… as we have seen, the three are closely linked. What actually matters is the dividend first and foremost, so as long as the price rises and the company continues to produce profits to ensure the payment of the dividend and to make it grow, no problem. Be careful, however, if the dividend stagnates: http://www.dividendes.ch/2011/10/investir-dans-les-dividendes-quels-sont-les-risques/
6) Again, nothing bad on its own as long as the payout ratio is low, like Emmi. That's why I'm not selling for now.
7) For raw materials it is more complicated because it does not depend on their intrinsic value, but on supply and demand. So here I am only speaking from a historical point of view.
8) Ben in the members section of the site, or on financial sites like Yahoo Finance, Morningstar, Fool.com, Financial Times… or even on company sites.

[Earnie]

Indeed, for novices, it is not the panacea with this technical vocabulary and these percentages, these ratios… Thank you Jérôme for taking the time to answer us, even if for you these are obvious, and you must have repeated it many times. Courage Mira, with a little time, reading, scribbling on paper, calculations, stubbornness, questions it will come gently. It is within everyone's reach, you just have to get down to it and study. You have to tell yourself that this is not quantum physics, but mathematics that we learned in high school and even before, plus, minus, times, divide, %.
I am in the same situation… So let’s take things one at a time, and happy investing!

[Look]

Hello Jerome

Thank you very much for this answer.
You don't have time to answer everyone so that you don't have to answer, I'll rephrase what I think I understood.

Only respond if you think I am wrong.

1) -I do know about moving averages but when you were talking about the market I didn't know what you were referring to.

As I see it, it's simply the stock price.

However, I still don't understand what allows you to say, for example, that the market rate is 2.5% and that consequently we should not exceed 5% of yield.
How do you know the rate is 2.5% and what does that mean? It's stated in your book.

2) Thanks for the PER scale. It's clearer.

3) There too it is clear. And for more precaution I will rely on your tables.
To think that I bought two American stocks without looking at the price or the rates. I chose them just because they are dividend aristocrats. Now I wonder if I made a mistake but I will not do this stupid thing again.

Thanks for the link, I will print it.

Ernie, I spent a year there.
And every time I read a forum, I came away with the impression that I understood absolutely nothing.
I know maths and I can tell you that finances are ten times worse.

[Jerome]

1) ah ok I misunderstood... you mean average market yield, here's an example: http://www.multpl.com/s-p-500-dividend-yield/
we see that historically, the market offers a low return... which indicates that the market is overheating and is confirmed by the ratio of market capitalization vs GNP: http://www.dividendes.ch/evaluation-du-marche/
3) aristocrats, that's already a very good starting point... it doesn't mean your choice is wrong... what are these actions?
Mira, don't worry, it's all about understanding the basics. You don't have to dwell on every criterion down to the last decimal point, whether 5% is good or bad, and so on.
Take a step back. I know that's easier said than done, because I've been there too.
Today, the market is very high. But on the other hand, there's not much else to invest in. So we have to stick to the basics:
- long history of growing dividends
- payout ratio <66%
- low volatility, defensive sector, low beta
- beware of currency risk if you invest outside your own currency (see my articles on this subject).
yield is certainly a criterion to be taken into account, but it is too often overestimated
so if you come across a stock you really like, even if it only offers 2%, go for it, ditto if it offers a little more than 5%, as long as the above criteria are met.
also expect a correction to come
you need to be able to withstand a fall in a stock you've just bought (hence the importance of criterion 3)

[Look]

Hello Jerome

In my securities account I bought two American stocks that you rated 4 stars: Coca Cola and Exxon.

But it is true that the price is rather high.

I was so excited to get started that I didn't even look at the price and now I'm wondering if I messed up.

Fortunately, the most important thing for me is the dividend. And there I am not too worried.

By the way, I ask myself the question: which account will this dividend be paid into? The current account at my bank or my broker's account?

My sister told me that I should invest in bonds and everywhere I read it says that you should vary but if it is for a return barely exceeding that of banks….

As for real estate, not only do I know nothing about it, but I also don't have the means.

You recommend: “low volatility, defensive sector, low beta”

At the moment I don't really know what that is. I'll just rely on your notes.

I understand that it is not the performance that matters; you explain it very well in your writings.

As for the exchange rate risk, I will stick to American stocks investing in Europe and French stocks.

But I don't really know what to put in the PEA. The French stocks you list are very expensive: BIC, BOIRON, L OREAL, AIR LIQUIDE
Strong but very expensive…
Will it continue to climb like this indefinitely?

What worries me is the tax authorities. I have never filled out a tax return since I received it pre-filled and now I find out that I will have to start doing so.

I don't want any problems with the taxman.

Look

[Jerome]

KO and XOM are a good choice. Not for nothing do they get 4 stars.
XOM is cheap, thanks to lower oil prices. KO is certainly more expensive, but let's not forget that the whole market is overheating at the moment.
For the dividend, it depends on the banks/brokers. Some pay it into the cash account of the currency linked to the stock, others into a current account.
Bonds aren't great right now because rates are very low, so coupons are low, and what's more, if rates rise in the future, the value of bonds will fall.
Defensive sectors: e.g. food, cosmetics, household goods, tobacco, alcohol, real estate, utilities, healthcare...
in short, everything you need... even when things go wrong, and sometimes especially when things go wrong!
No, it can't go up indefinitely, at least not in the short/medium term. So it's going to break. It's just a question of when and why.
For tax purposes, there are trustees who do that if need be. But I prefer to do it alone.

[DSwissK]

Out of curiosity, I wanted to know where Maria is in her stock market adventures. I find her questions and the answers given very interesting and am looking forward to knowing the situation almost two years later.

[Jerome]

Yes it's true, feedback from Mira would be welcome. 🙂

[Author]

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