STOCK INVESTMENT THE OPTIMUM APPROACH – RESOURCES AND ACCOUNT MANAGEMENT

In this section I will list various resources I have found helpful, including books to read, software I use, brokerages and trading platforms I like, newsletters I find helpful, and more, and a recap of how I use them. All products referenced are products that I use and that I view favorably. Are their other products available that I haven’t mentioned that are just as good or better? Possibly, I just am not aware of them. My point is I’m very pleased with the tools, etc. that I’m using, and I am happy to recommend them, but be aware that I am not necessarily all that knowledgeable as an evaluator, and I’m sure there are lots of alternatives available.

The more important lesson to take away from this section, beyond learning about the specific resources, is an understanding of the need for the necessary time commitment to acquire some background education, the need to learn how to use high productivity tools, and the need to commit to thorough record keeping and tracking.

First, what books can I recommend for acquiring some perspective? I’ve read over 100 in the last several years, and I have kept all of them in my own personal library. Many I’ve read several times. I frequently re-read certain chapters or sections of the best books. I can honestly say I’ve never read a book on the subject of economics, markets, stocks, trading, or options that I didn’t like, it’s just that I like some more than others. Before doing anything else, I believe an investor needs to read several books on the topic. I will first list the top 5 books I recommend, to represent a minimal list to get started, then several additional books I especially liked, organized by investment sub-topic. Note that new books come out all the time. Even if you read every book ever published on these topics (an impossibility), you still would only be finished for a short while, until new books appear. Then you will have still have more work to do. The point is, you should always be reading a topical book or two, and be attuned to any new books that come out that might provide some insights.

TOP FIVE BOOKS

The Intelligent Investor – Benjamin Graham (be sure you have the most recent edition)

Security Analysis – Benjamin Graham and David Dodd

Unexpected Returns – Ed Easterling

Irrational Exuberance – Robert Shiller

The Ultimate Dividend Playbook – Josh Peters (Josh edits the Morningstar Dividend Investor newsletter, which is my top recommended advisory service)

ADDITIONAL EXCEPTIONAL BOOKS BY INVESTMENT SUB-TOPIC

FUNDAMENTALS

Fundamental  Analysis for Dummies - Matt Krantz

Financial Statement Analysis - A Practioner's Guide - Martin Fridson, Fernando Alvarez

Financial Shenigans - Howard M. Schilit, Jeremy Perler

ECONOMICS

Wealth of Nations – Adam Smith

The Black Swan, Fooled by Randomness – Nassim Taleb

Endgame – John Mauldin and Jonathan Tepper (Mauldin has several books, "Endgame" is the most recent – also be sure to sign up for an email subscription to his free economics newsletter, "Mauldin - Thoughts From The Frontline")

INVESTING / TRADING

Stocks for the Long Run – Jeremy Siegel

How to make Money in Stocks – William O’Neil (O’Neil is the founder of the Investor’s Business Daily newspaper)

What Works on Wall Street – James O’Shaughnessy

Getting Back to Even – Jim Cramer (all Cramer books are good – "Even" is the most recent. Love him or loath him, Cramer is the foremost market commentator on the scene)

TRADING

There are more books on this sub-topic than any other, hundreds more. Three of my favorites are listed, although I have read and enjoyed many more.

Come Into My Trading Room – Dr. Alexander Elder (Elder’s other books are also excellent)

Mastering the Trade – John Carter

The Truth About Day-Trading Stocks – Josh DiPietro

TECHNICAL ANALYSIS

Technical Analysis of Stock Trends – Robert Edwards and John Magee

Technical Analysis of the Financial Markets – John Murphy

Technical Analysis from A to Z – Steven Achelis

OPTIONS

Options Plain and Simple – Lenny Jordan

Options Trading for the Conservator Investor – Michael Thomsett

Option Spread Trading – Russell Rhoads

Books are great for background information, but by their nature are a snapshot that ends when the book is finished. For current information, I have several newsletters and web sites I refer to, as listed below:

NEWSLETTERS (ADVISORY SERVICES)

Morningstar Dividend Investor – Editor Josh Peters provides monthly recommendations, with weekly or as needed status updates. Josh’s perspective and insights combined with the power of the Morningstar organization research is an unbeatable combination.

Investment Quality Trends – Editor is Kelley Wright. In existence since the 1960’s, this letter’s somewhat mechanical approach based on yield generates some strange numbers sometimes for lows and highs upon which to base buys and sells, but the screening of stocks IQ performs is an excellent example of what to look for. Since things don’t change that rapidly for the stocks I am interested in, a quarterly, online only subscription represents an excellent value.

Income Superstars – Nilus Mattive, editor. Nilus is affiliated with Weiss Research, and presents a unique and informative view of dividend opportunities and the markets.

Harry Domash's Dividend Detective - Harry is an occasional contributor to MSN Money, and also is a Seeking Alpha author. His newsletter is very reasonably priced, and can be subscribed to on a month-to-month basis, so a minimal commitment is required to try out the service. His website provides a lot of free information, so a visit  is worthwhile, and can aid an investor in deciding whether or not to subscribe. 

There are of course many other stock and trading advisory newsletters out there, but these are the ones I have found that are the most focused on stocks from a dividend perspective.

WEB SITES (EXCLUDING BROKERAGES, DISCUSSED LATER)

Seeking Alpha – Head and shoulders above the rest, this site functions as an organizer and clearing house for articles submitted by hundreds of vetted contributors. Many opinions and strategies are presented, with some of the most thorough analyses on economics, markets, stocks, and strategies available anywhere. Each day brings a new set of 200 or even more articles available for review. The site is very interactive, and an investor can create an account and set it up to assist in filtering the massive content to areas of highest interest, such as a stock portfolio. The ability to comment on articles and interact with authors and other readers can greatly enhance the educational experience. Also, last but not least, the site is totally free!

Other Financial News Sites I visit regularly – CNN Money, CBS MarketWatch, MSN Money, Reuters, Bloomberg, Fox Business, Schaefer’s Research, Forbes, Barrons, The Wall Street Journal, Investors Business Daily, The Street.com, and many more. (I have omitted links here - these sites are well-known.)

BROKERAGES

The conventional wisdom is everything should be collected up into one or two accounts, perhaps one taxable account and one IRA account. As in many other areas, I don’t agree. I have six brokerage accounts, and I believe I receive benefits from all of them, in many cases features not available from their peers. (Again, I have omitted links, as these firms are all heavily advertised and are well-known.)

TD Ameritrade – This account is a must-have, with access to the Think or Swim trading software, Quotetracker, and many other features available on their website. Think or Swim is a massive tool, which provides a video feed from CNBC, two separate charting tools, scan capabilities with a programmable language, live news ticker, and extensive option analysis capabilities, including option graphs. One unique feature is the ability to review option quotes as of a point in time, not just currently. It can be very instructive to see how an option position you might have considered some months ago has fared as time has moved forward. The trading capabilities are actually too much for me, I just use TD Ameritrade’s web site to enter buys and sells. But I use everything else. Research tools from the basic TD Ameritrade web site are also excellent, with many analyst reports available. Another great feature of the regular website charting software is the ability to create a chart going back as far as 10 years or even more, and see all quarterly earnings and dividend data. To do this, pull down the choices available under "Comparisons and Events", and activate "Show Earnings" and "Show Dividends". Then, all you do is move the mouse over the small squares tagged as "E" or "D" on the chart to see the relevant dates and amounts. This is terrific for a quick review of dividend history, which sometimes is not easy to find.  I will discuss Quotetracker, the single most important benefit (in my opinion) of having an account with TD Ameritrade, subsequently.

E*Trade – I hope they don’t get acquired. I use their daily wrap-up of economic reports and analyst upgrades and downgrades in my daily pre-market review (which I will discuss further in a bit). I like their stock research screens, especially the snapshot, which shows current dividend information and pending earnings releases prominently. Many research features and analyst reports are available. E*trade’s unique practice of notifying the client via the internal E*Trade email of dividends paid, or other actions, is a plus. I also like their facility whereby you can specify the block being sold when you place a sell order, for partial sells. A minor negative is when an option is assigned, they charge double the commission on the stock sale, unlike many other brokerages. They also charge fees on re-organizations, while others don’t . These negatives don’t occur often enough to really matter, however. E*trade’s Pro-Elite trading platform is a technological marvel in the same league as Think or Swim, but E*trade’s policy of only allowing it’s use on a quarter-to-quarter basis, dependant upon making enough trades to qualify, has discouraged me. Why invest time to master it if they are going to take it away anytime activity drops below the mandated level?

Schwab – One plus is that the commission is less than the preceding two brokerages, although (at $8.95) not by much. Schwab also has excellent research features. Schwab allows you to specify which shares are being sold (for partial sells) in a roundabout way, by specifying first in – first out, last in –first out, and other choices, not as good as E*trade, but better than no facility. Schwab is unique in that quotes on stocks trading only on the Toronto exchange are available in real-time, a useful feature if you trade these stocks. Schwab also is unique in that they provide their own ratings on many stocks, in addition to providing other ratings and research reports. Recently, Schwab has expanded their own ratings to include many international  stocks. I haven’t investigated Schwab’s new StreetSmart Edge trading platform, but I suspect it is as terrific the others.

Fidelity - Fidelity has reduced their commissions from around $20 a few short years ago to to $7.95 per trade, which is lower than the preceding brokerages. Further, their research offerings are the best I have seen yet. I do not have an account there, but my spouse does, and in addition to assisting her with trades, I use it for stock research. I have less "hands-on" experience with Fidelity than the preceding firms, but I am thinking of transferring some funds into Fidelity, so I can get more familiar with their website, and use all the research features using my own account. 

Direct-Access Brokers – These cater to heavy-duty traders. Commissions can be as low as a penny per share, although there are trade minimums. For trades of 100 or less, the savings can be significant. There can be additional recurring fees which are waived if trading activity exceeds a certain level. Examples are MasterTrader, Trade Station, and MB Trading. I have thus far determined that Trade Station and MasterTrader, two that I have investigated, exceed my needs at this point. I have accounts (regular and IRA) at MB Trading, which is a tremendous value for me. I only hope they don’t kick me out of the account for not trading enough. In addition to the real-time quotes and slick trading software, their real-time charting is superb. Curiously, my investment performance in these accounts has lagged the others even with the lower commissions, which I attribute to my tendency to go in and out more than I should due to the low cost of doing so.

SOFTWARE

QuoteTracker – I have used this product for many years. It used to be available for free if you were willing to put up with ads, or for a fee if not. This may still be true, I’m not sure. The user must specify the source of quotes, which could be any of several sources. Of course, the user must have an account or subscription with the quote source. A few years ago TD Ameritrade established a relationship with Quotetracker that allows you to use it for free (without ads) if you have a TD Ameritrade account, and you can use TD Ameritrade as the quote source. I have it running all day every day. I track around 500 stocks, organized into "portfolios" in Quotetracker’s terminology, which are actually watch lists. I have a list for each brokerage account I own, with all holdings. I also have lists for my vetted stocks (including those I own), broken out between my top tier, my second tier, and a third tier of "ultra-high yield" stocks. I further have lists for each of the major sectors, such as energy, utilities, health, and so on, with my choices as to the most important companies for each sector entered. I also have a list for the Dow 30, most significant ETFs, and several other categories. To avoid sinking my computer with excessive data flows, I set the update frequency to once per minute, not continuously. Quotetracker also allows for several indexes to be displayed on the top of the page at all times, regardless of which list is shown. For each stock, you can select as many values as you want to show on a line from a master list of available columns, such as bid, ask, last, day high, day low, 52 week high, 52 week low, and so on, just keep it down so only one line per stock is required. It also has significant charting capabilities. Now, here’s the over-the-top feature that makes the product great – you can specify that one of the columns to be shown is "notes", which can be anything you want it to be. I have evolved a standard for what goes into "notes" for each type of list. For holdings, I show each purchase by block, noting the price paid and the number of shares. I also post sales, matching each sale to the block sold, and the price. I keep the data until I need the space to post new information, so long-since sold trades can stay there for some time, even years. It helps to see the history at a glance on both current holdings and sold positions, to be reminded continually of moves I have made, both smart and not so smart. Plus, I can always see what my holdings are at any point in my accounts, including how they are trading, without having to log on to my brokerage accounts. For the master lists of vetted stocks, I note the maximum price to pay, the full value price, and occasionally other facts. For the sector lists, I try to put in useful data, such as company name, and other comments. I try to avoid posting information which will quickly be out of date, such as ex-dividend dates. This tool allows me to see at a glance where everything is at, and whether any stocks are moving into buy or sell territory, thus staying on top of 200 to 300 stocks all day, every day, is do-able.

Other software – I use MicroSoft Word for several forms I have developed, a Daily Activity Journal, a Monthly Recap with a column for each day, and a Monthly Results tracking worksheet for dividends and gains/losses from closed positions. I also post on a weekly basis the current total equities value, cash, and account value (per Friday closing prices) for each account, with a grand total value and total cash available for investment. This form is my Weekly Mark to Market Recap. It has one column per week, and a page covers several months. It is instructive to review these going back several years, to see how things have progressed. For example, on the week ending 3/13/2009, my total value hit a low (along with every one else in the country), while cash was down to around 2%. This was a scary time, yet I was considering tapping other sources for even more cash (home equity loan, sell my Harley, anything) so I could buy more stock, when suddenly stocks started moving up. I don’t know if I was smart or just lucky, but I’ll take the results as vindication of the overall strategy. I use Microsoft Excel for tracking details of all positions, including cumulative dividends paid. It is divided into an open positions section and a closed positions section. As positions are closed out, they are deleted from the open section and moved to the closed section, where all transaction details are recorded.

Now, how do I use all of these resources day in and day out?

Daily, pre-market – Fill out the Daily Journal worksheet, filling in yesterday’s closing values for each of several indexes I track. Also, post the economic releases expected today, and the consensus expected values. In addition, post all upgrades and downgrades, showing the symbol and the upgrade/downgrade value (b=buy, s=sell, etc.). Note if any stocks I track have been referenced. For all stocks of interest, you should know ahead of time if an ex-dividend date is near, or if earnings are to be released anytime soon. Lastly, make notes as to cash available by account, and develop any relevant short lists of stocks "on the radar" today, perhaps those with the ex-dividend date approaching, or stocks approaching a buy or sell target price.

During the trading day – Check how stocks of interest are trading, place trades (always use limit orders) as warranted. Some trades may even be placed before the market opens, if a big move looks like it may occur). I only use day orders. I’m here every day, so I don’t need to use "good till canceled" (GTC) orders, plus things can change a lot from one day to the next. With GTC orders, today’s smart trade that you don’t get filled on may be tomorrow’s stupid trade that you do get filled on. Post the results of economic releases as they occur, note any market reaction. Go to the gym or whatever if this is a dull day. Come back before the close, make one final check, consider adjusting any orders that are within range, to improve the odds of being filled, then watch through to the closing bell.

Also, during the day or really anytime, scan the news and other web sites for articles of interest, gathering more information / opinions regarding stocks of interest. Make notes on the Daily Journal of trades made, plus anything else of interest. I have these journals going back every market day for over 5 years. They can make for interesting reading sometimes, as I try to answer the question "what was I thinking"?

Daily, after the close – Update the Daily Journal with the closing levels for all indexes. Also update with any additional upgrades/downgrades (they occur all day long, more or less randomly). Calculate the net results of any positions closed, profit or loss, including commissions, and post to the Daily Journal. Fill out the day’s column on the Monthly Recap worksheet, including market statistics for the NYSE and NASDAQ, VIX, 10 year yield, Dollar Index, oil, gold, and other commodities’ closing prices, and whatever else I am currently tracking.

Intermittently, at least once a week – Update the Monthly Results with any dividends received. This form is to be filled out ahead of each month with expected payments, and then posted as payments occur. Investigate any unexplainable discrepancies. Also, post dividends (monthly and inception to date) and the results of trades to the Excel worksheet. Show all relevant figures for closed trades, including dates, commissions, and so on. I post all activity, including IRA activity. At year-end I purge the IRA data and trim it down to build Schedule D-1 for tax filing, but this is a secondary use. (Note that new Form 8949 has replaced Schedules D-1, but I still use the worksheet data in preparing the multiple Forms 8949 as required.) The primary purpose of the worksheet is to document for each position all dividends received, monthly and from inception, and the capital gain or loss realized on any positions closed. In fact, to figure out the exact total return on any given trade. I pro-rate commissions if need be on partial sales, and also allocate dividends as appropriate to the blocks of shares retained and shares sold, if I have made partial sales. This can get complicated, but it is necessary to know the true total return for each position entered and closed, including the net capital gain or loss plus all dividends allocable to this specific block of stock while it was held.

Weekly – Post the Weekly Mark to Market column for the week just ended. I’m most interested in seeing a continual picture, so each column is a snapshot of values as of the week ending date, week after week. One form covers about four months of postings, and when the form is full I start a new one. This shows what the value would be if you had to cash out today. Depressing at times, but essential to know where you really are. Also, note the cash levels by account and determine the total percent cash represents. You must continually evaluate this value to know what flexibility you have going forward and whether you are over or under invested based on where the market is right now. The goal is cash should be high when the market is high, and vice-versa, yet never forgetting that the lower cash goes, the less capability you will have to take advantage of subsequent opportunities.

Monthly – Post any gains or losses from closed positions and any dividends not yet recorded to the Excel worksheet. Sum up all gains/losses shown on the Daily Journals and post to the Monthly Results worksheet. Compare the Monthly Results gain/loss total to the Excel calculated total for capital gains/losses for the month, and reconcile. If they don’t agree, find the error and correct it. Similarly, add up the dividends on the Monthly Results worksheet and compare to the Excel total for dividends for the month (add the total dividends for the month from both the open positions and closed positions sections). Again, if they don’t agree, find and correct. After all reconciliation, make the monthly copy of the Excel worksheet (to be considered "frozen"), then zero out the monthly dividend columns on the active Excel worksheet, both sections. Post the month’s results to the Year’s Results tally. (Not a form per se, just one line per month with columns for total dividends, capital gains/losses, interest, fees, and total results

Annually – Update the Excel worksheet for December, making the "frozen" copy for December. Then, zero out the monthly dividend columns on the active worksheet, and also re-initialize the closed positions section. At the start of a year, there are no closed trades for the new year. As noted, with some manipulation, the December Excel worksheet is the starting source to eventually create the IRS Schedule D-1 of gains/losses (for taxable accounts). Sum up all columns on the Year’s Results worksheet to determine the results for the year. Note: Schedules D-1 have been superceded by Form 8949, and I can no longer use the Excel worksheet as modified to generate part of my tax return. Still, I do use the information from the worksheet in preparing the multiple Forms 8949 as required.

Basically, that’s it. Wash, rinse, repeat, and continue on, striving to learn more and improve each day, week, month, and year.

The final essay discusses the use of options to add to returns.