Thursday, October 04, 2007

"Mad Money"

J.D. posted yesterday about his experiments in individual stock-picking. His conclusion? He's getting out.

But his description of his experience made me want to try it. Just in that same kind of small-time way, with a small amount of money I could afford to lose--what I've heard Jim Kramer calls "mad money." I just think it would be an interestingly direct way to dip my toes into the stock market. And I think it would be fun.

Right now, though, I don't have $1,000 to lose. Maybe once I get my Freedom Fund all nicely stocked up. Or maybe I could play around with a smaller amount of money. Say, $500. Yeah, I think $500 might be a good place to start.

I still don't have $500 I'm willing to lose, though. This may be something I'll consider adding to next year's financial goals, but the difficulty would be saving for this chunk of money. It might feel kind of futile, given that I'm going to be speculating with it. So it might be better to devote some windfall money to this.

But not until my savings goals are met.


Anonymous said...

But please, don't follow his advice -- he doesn't have a clue what he's doing. Stocks should be bought for potential earnings FAR into the future, he's just going to end up paying capital gains tax and losing sleep in the process. It's much smarter to blow $1,000 on a handbag, than to trade it constantly every few months, like he is. You're just paying fees and taxes, and it's not getting you anywhere in the long run.

SavingDiva said...

Sharebuilder is a great place to start with a little bit of's $4 per purchase...and there is no minimum

Jon said...

Agreed, don't listen to anything Cramer says, and check out Sharebuilder :) If you do sign up there, use a promo code like SHARE50 (or just google it) to get $50 free.

Anyway... statistically, there is a very low probability that you will lose 100% of your investment, and virtually 0% chance of that if you invest in more than one or two companies. (Erm, assuming you're doing a modicum of research and not investing in seriously shaky companies... even without that I'd guess it's as very low probability.)

Hmm... I wonder how many cautious investors would buy insurance to protect against severe loss (say, anything over 50%) and how much they would pay for it?

Caroline said...

Put aside $520 for it. $500 for some shares and $20 for a quality book on building a share portfolio.

Mrs. Micah said...

My personal finance prof introduced us to a site called It allows you to pretend to buy stocks and such, just to play and see what happens. It can be for learning about the market or for testing strategies or for whatever.

I've been playing with that a bit lately, especially whenever I wish I could trade stocks.

Here's my entry about it:

Anonymous said...

I actually meant, don't listen to the other blogger, HE doesn't know what he's doing either, buying shares and selling them every three or four months. And of course, be careful about Jim Cramer too.

Escape Brooklyn said...

I like that advice from Mrs. Micah - I'm going to have to check out that site. But personally, I'd rather max out my retirement accounts than buy individual stocks.

After I've met my emergency fund goal, I plan to buy stock index funds with Vanguard. Either the 500 fund or the Total Stock Market fund. That way I'm investing in stocks but reducing my risk.

English Major said...

Escape Brooklyn, I would really think about this more like a purchase than an investment. It would be a $500 purchase of entertainment and, hopefully, a little bit of experience & knowledge.

Escape Brooklyn said...

Thanks for clarifying, English Major. You are so good to use your extra cash to learn about stocks! (I'd probably take a vacation or buy new clothes...) *laugh*

The Captain said...

I think it's a good idea to experiment, but then again, I'm broke as hell.

I've started dabbling with Sharebuilder. It's a great resource for socking a small amount away each month using their automatic investing for $4 a trade.

Unfortunately, if the bug bites and you want to make some more immediate, hare-brained moves, the fees for real-time trades shoots up to $15.96 (which is hardly competitive).

I'm trying to get an account going on Zecco for my small money dabbling.

Anonymous said...

Sharebuilder? Honestly, you're better off getting an index fund with Vanguard if you want to invest a monthly, small amount of your savings in stock.

While you may want to be careful with Cramer's stock picks; you can learn a lot from the show (and books) when he interviews CEOs or explain what forces could drive the market. He managed a hedge fund; it helps to be exposed to how people like him think because that same psychology is a big part of what will drive your stock's price.

Just do your homework and you'll be fine. There's nothing wrong with trading. Know what return on an investment will satisfy you and when you get it or the stock fundamentals change, get out and take the money.

Short term gains are taxed like your regular income. If you $500 turns into $750 in a few months and you pay $40 in brokerage fees and $50 in takes are you gonna be pissed that you walked away with an extra $160? The guy who tells you to buy a handbag is nuts and obviously knows nothing about investing.


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