Expert: Steve Hach - 11/8/2009

Question
Hello Steve,

Last spring I subscribed to an online newsletter that gives tips on ground floor opportunities in the stock market, specifically penny stocks.  Having never invested in stocks before I have been apprehensive about going it alone, but have not yet asked anyone for advice.  So now I am asking...

In your opinion, do online investing vehicles like E-Trade, etc. allow a person to choose stocks, purchase them, sell them, keep track of earnings, and bascially provide a "do it yourself" opportunity for individuals such as myself?  I have to admit, I am clueless when it comes to this sort of thing, so I could really use some step by step instructions.  While I am not asking you to hold my hand through this, it would be helpful if you knew of any DVD or online tutorials that could get me started.  

What are your thoughts?

Thank you,
Gary  

Answer
Gary,

the quick answer is "yes," all of the major stock trading services allow you to purchase and manage stocks with little hassle.

Etrade, scottrade, tdameritrade, etc will all work at a considerable savings over a traditional broker.

However, I must caution you that the world of penny stocks is notoriously volatile and rife with scammers.  Beware of internet message forums and such and always do your research.  Sure, you can make a lot of money with a penny stock, but this is not the norm.

Be especially careful now as we have seen some very good stocks make some big moves recently as they recovered from the beat down they suffered during the market crash.  That is not typical and more often than not penny stocks are garbage rather than quality companies that suffered a bad patch due to the worst market since the Depression.

Picking stocks is tough, and for most it is better to develop a long-term outlook and try to follow broader indices via cheap index ETFs than to look for big scores with penny stocks.

I recommend that you check some of the other beginner investor advice I have posted in the previous questions and that you take 6 months to a year to practice paper trading before you put any of your own money at risk.

If you want a step-by-step guide, check out a book like "Investing for Dummies" from the "for Dummies" series, despite the insulting name it is a good resource.

Best,

Steve