Monday, July 23, 2007

Free: Zecco

Alternate Dimension Andy (ADA):

As I mentioned before, Skeletor is being beaten out by brokerages that do not charge $25 per trade:
  • Scottrade charges $7.00 per online trade.
  • Charles Schwab charges $12.95 per online trade.
  • TradeKing charges $4.95 per online trade.
  • ShareBuilder charges from $4.00 to $15.95, and may have a subscription fee involved.
  • Zecco charges $0.00 per online trade.
Hm. Typo? No. Zecco actually charges zero dollars and zero cents for an online trade. There are restrictions, natch, but for someone like you or me, it will almost always be $0.00. They make their money with ads and margin interest (which I'll talk about in a future post).

ADA, there's way more to it than just how much these brokerages charge per online trade. You have to do your own research and a cost-benefit analysis and all that. I'll give you some of what I came up with when I was doing research:
  • Scottrade has a decent user interface and lots of products: stocks, bonds, mutual funds, etc.. $7.00 is not steep, but you can definitely do better.
  • Charles Schwab is expensive, but if you're doing well, it may be worth it. The fact that you can do all your banking and all your investing from the same site is a bonus. It's also a very usable site, considering how powerful it is.
  • Trade King gives me warm fuzzies. It's a very simple site with almost as many investment vehicles as Charlie. It's much less expensive than Schwab. It has a beautifully sparse UI, which makes this self-proclaimed usability expert all tingly.
  • Sharebuilder's monthly subscriptions are, in my mind, bullshit. For my taste, they also charge a bit too much for commissions.
  • Zecco has been described in the media as "The MySpace of online brokerages." Considering the horrible user interface and overwhelming ads, I would say that that is a spot-on assessment. The blogs suffer from a problem I've talked about before. What bothers me the most is that there is that they only offer stock and options trades online; if you want to buy a mutual fund, you have to send them something in the mail.
    But no-commission trades? Huge deal.
So, if all you want to do is trade stocks, I invite you to try Zecco. I have a feeling that if they grow, they will clean up their user interface and offer more investment choices. In the meantime, if you want to take advantage of other investment options, I think TradeKing is the way to go.

May you piss off Skeletor in all investments you make.

Sunday, July 22, 2007

ADA: Commissions Kill

Alternate Dimension Andy (ADA):

I have a math problem for you. Fun, huh?

Suppose you want to buy 100 shares of Horace's at market price, $10. How much will it cost?

As usual, whenever I ask a stupid fucking question like this, I'm trying to trick you into giving an obvious answer that is wrong. So, if you said, "Fuck you Andy, I'm not doing your math problem," you were right!

At first, it sounds like 100 shares that each cost $10 should go for $1000. But no, that would make too much goddamn sense. Instead, when you want to buy and sell shares of stock, there's usually an extra fee involved. This fee is called a commission.

Here's how it works. You call up your broker, Skeletor, and say, "Yo, dude, I AM IN NEED OF STOCKS PLEASE." And he's all, "I will hook you up." Skeletor looks at all the active trades going on at the exchange (probably the NYSE, in your case), finds someone selling the stock you want and handles all the bullshit that goes on with the trade. After some blackbox voodoo, you are the proud owner of the shares of your choosing.

But Skeletor does this for a living, not out of the goodness of his heart. I mean come on, he's fucking Skeletor for Christ's sake. So in addition to whatever you paid for the shares, Skeletor charges you an additional commission for facilitating the trade. These days, commissions for phone orders are usually in the neighborhood of $25 - $40 a trade.

It's super-sucky that this shit happens per-trade. I mean, if you wanted to buy those 100 shares at $10 every week, and the commission was $25, you'd end up spending an extra $1300 a year. Bullshit, I say!

But a-ha! The very same technology that makes this interwebal personal log ("ibalplog," I believe it's called) available to my millions of readers can be used to facilitate these trades. After all, the stock exchanges are all run by computers, and we don't need as many human eyes and pieces of paper to make trades happen. Computers handle it for us.

Nowadays, in addition to phone trading, you can also make your trades online, via an online discount brokerage. Usually, these charge more in the neighborhood of $5- $15 a trade. Skeletor is fucking pissed about this shit.

I'll talk more about these brokerages in another post, but here's a list (in no particular order) to peruse for the time being:
Skeletor hates them all.

ADA: Don't Take Advice From the Newspaper

Alternate Dimension Andy (ADA):

Now you're all, "Sweet! I'm totally gonna make a hojillion effing dollars in the stock market!" and I'm all, "Sweet! How?" then you're all, "By following all the hot tips in Money Magazine!"


I want you to stop and think this through. What is Money Magazine's ultimate goal? Or Fortune? Or Forbes? Or the Wall Street Journal? Mad Magazine? Ans: All of those publications are owned by businesses who want to make money.

How do they make money? Ans: They sell ad space; the larger their readership, the more they can charge. (They also sell magazines or newspapers, but the points I'm about to make apply to all media, even free websites and television shows.)

How do they increase their readership? Ans: With cover stories like "Stock Picks So Good They Will Fuck You Up For Life," not cover stories like "Research and Due Diligence Are Key."

In reality, financial journalists are doing research; they're not intentionally lying or anything. But:
  • the journalists don't have a crystal ball.
  • if a journalist did have a crystal ball, she likely would not be making her money as a journalist.
  • if a journalist can't find anything with a really predictable trend (hint: nothing is predictable in finance), she's still obligated to write an interesting story.
  • if a journalist actually finds a good stock and gives a SWEET PRO TIP, her story will be indistinguishable from the filler.
Kinda sad, I know. You wanted the mags to be all sexy. Sorry.

Consider this too: suppose that one morning you open the newspaper to the business section (see how much credit I'm giving you ADA? I've assumed you're literate!) and read an editorial or some shit that says, "Horace's has announced plans to sell their products in France, goatee capital of the world; OMG BUY NOW." Holy balls! Sounds like a good time to go out and buy some shares of Horace's!

Of course, this was announced in the newspaper, and there will be lots of people who have read the same editorial. They'll want to buy too. (In Economics, that's called an increase in demand. When demand increases and supply remains the same, price increases. This concludes this month's installment of Facts You Already Clearly Understand.)

And pretend you were on the other end: you own shares of Horace's when they make this announcement. If the announcement means that Horace's is 50% more valuable (thereby making the shares 50% more valuable), would you sell your shares for anything less than the new price? (Ans: No.) Hell, even if you didn't think the shares were more valuable, the fact that you know a lot of people are going to be trying to buy it might be a good excuse to overcharge.

After reading the editorial, if you go out and buy shares right away, chances are good you're either going to get them at fair market value or be overcharged for them. Chances are quite bad that you will buy them at discount, then turn around to make a 50% profit in the next week.

ADA, you can't listen to the financial media for "hot picks"... or "hot pics," for that matter. They have failed us in both departments. Most of the time they're just trying to sell ad space. Not to mention that if a story creates a crowd, there's pretty much no way you're going to make money off of it.

You're going to have to find a different strategy for picking stocks. I hate to say it, but you may have to think for yourself.

Tuesday, July 17, 2007

MMM: Index Funds

Alternate Dimension Andy (ADA):

We've already decided that in most cases it's not okay for you to think for yourself. At least, that's been implicit in everything I've said in these posts so far. We've also decided that it would be totally sweet to find a knowledgeable expert who would invest in the stock market on your behalf.

It does sorta suck, though, about mutual funds charging 2% a year. That cuts into your profits! Or adds to your losses! If you would have made 10%, now you only make about 8%; and after inflation, more like 4.5%. LAMENESS. It would be Ninja Turtle radical if mutual funds didn't cost so much.

Well, here's a story you're gonna love, ADA. Once, there was this Leonardo-level cool dude named John Bogle. One day, he did a backflip into Foot Clan headquarters (a company called Vanguard), and said to The Shredder (the finance industry of corporate America has its roots in secret ninja clans of recent Japan), "You may know ninjitsu, but I soooo know it better than you." Well, the actual words he used were probably more like, "If I just made a mutual fund that copied an index, we wouldn't have to hire people to manage it; it would manage itself; I could charge, like 0.5%."

"Half of a cent on the dollar!?" Shredder screamed. Shredder was fucking pissed about that shit, but eventually he decided to let Bogle give it a try. When it worked, and Bogle's fund did better than most of the funds on the market, Shredder was all, "No fucking way."

Quoth Bogle: "Way." Then Raphael, Donatello and Michaelangelo came back-flipping in, and they all gave each other high-fives and ate pizza. It was quite rad.

See, in addition to charging customers less (thus increasing their profit), Bogle also realized that lots of mutual funds were falling way short of the indices to begin with. Add to that the fact that they were blowing money on shit like advertising and stock trading commissions, and it's sorta unsurprising that Bogle rocked so large.

The real story is actually even more interesting than I've told it here, though it is woefully lacking in the TMNT-metaphor department. And the metaphors don't suck as much (since Bogle actually worked for Vanguard, wasn't a ninja, etc.).

Still, you get the gist.

Monday, July 16, 2007

ADA: Peeps Be Watchin' the Stock Market

Alternate Dimension Andy (ADA):

So maybe you bought a couple shares of that goatee wax company. Good for you. Your fucking medal is in the fucking mail, fucker. Seriously, though, good for you. And maybe you have OCD, and maybe you spend your days tracking every movement of the company's stock. Perhaps you call up the company, just to hear Horace's voice on the phone.

And yet, through all this, you wonder: How'm I doing? Not in a profound, life improving way, mind you. Just in an Is the grass greener? sort of way.

You are not alone. I mean, in the profound way, yes you are. Please stop calling Horace. But in the "wanting to make sure you're doing it right" way, you're definitely not alone.

A couple of big companies (Standard and Poor and DOW) have asked the same question and come up with a pretty darn good answer: indices.

The idea goes like this: there's all these companies out there. If we picked, say, the 500 that were worth the most, and we invested the same amount in each of them, how much could we expect to earn? Even sweeter idea: what if we listed a whole bunch of companies by industry -- raw materials, technology, healthcare, etc. -- so that we could see how well stocks in a particular industry were doing, relative to the average?

That's all an index is: a benchmark. A penis-measuring contest. A way to remove the FUD that you are small, and that the dudes around you know it. Now you don't even have to buy a Hummer to compensate; you can just know that you're doing fine.

There are whole bunches of indices, but the two you'll hear about the most are the S&P 500 and the DJIA. The S&P 500 is put together by Standard and Poor. It's a measure of how well the top 500 blue chip stocks (a company that has a long record of profit is a "blue chip") are doing. The Dow Jones Industrial Average (The Dow, DJIA) is a measure of the top 30.

So if you're wondering how your stock is doing, you can compare it to the Dow. If the Dow has, over the past year, gone up 10%, and your stock has gone up 12%, you're "beating the market." If the Dow has gone up 10% and you've gone up 4%, I'm sorry to say that you're below average... but, erm... size doesn't matter or something?

Anyway, it's nice to be able to grade yourself. Perhaps now, you'll leave Horace alone?

Sunday, July 15, 2007

ADA: Stuff Costs More Than It Costs

Alternate Dimension Andy(ADA):

I was thinking of Wal-Mart underwear the other day. (If you're not creeped out, please read on.) There's plenty of places to get cheap underwear, but at Wal-Mart, you can get a six-pack of tighty-whiteys for, like seven cents. On the upside, you don't have to spend much on underwear. On the downside, well...

On the downside, those pairs aren't going to last longer than a couple of wash-wear cycles. On the downside, you have to shop at Wal-Mart. On the downside, they're not very comfortable undies. On the downside, they were made by children who worked their fingers to the bone for enough money to buy broth.

But hey, cheap underwear!

My point is, there's a hell of a lot more to how much those underwear cost than the price on the package. How much does it "cost" you to have to deal with shopping at Wal-Mart (perhaps in your dimension, you're not a self-important douchebag who thinks Wal-Mart is trashy; if that's the case, I salute you)? How much does it "cost" to not have to itch your junk all day 'cause the undies are balling up under your scrot? How much does it "cost" emotionally to sleep at night knowing you've contributed to Wal-Mart's international labor practices?

It's not just about underwear either.

I know. Sit back and hold on. This is gonna get wild.

I assert (as do many thousands of economists, so don't even try to prove me wrong) that every single choice you make has a cost. Which car to buy, which house to buy, where to work, which job to take, which brand of goatee wax to recommend to a friend... they all have a cost.

Consider the example of buying a car. I assume that in your dimension you're a liberal, know-it-all hippie who wants to buy a Prius. How much does a brand new (for the sake of argument) Prius cost? Look it up; I'll wait.

Obviously, it's a trick question. You'd probably end up buying a brand new one for about $23,000, but that's not what I'm asking. Consider all of these factors:
  • A hybrid has many more moving parts than most cars. This means that there are more things that can go wrong with the car. In turn, this can mean that you spend a lot more on repairs over the lifetime of the vehicle.
  • A hybrid uses a lot less gas than other cars of the same size; while you're paying more for the car itself, that's partially offset by the money you'll save on gas.
  • Because it's burning less gasoline, the hybrid is polluting less. As a green liberal nutjob, I'm sure this is your currency; it doesn't matter if the car costs $1000 more, since you'll be decreasing your impact on the environment by so much.
  • A Prius will make you popular with the ladies.
  • Maybe someday, you'll be driving down the highway, and a Prius-specific missile will blow up your car, killing you. It's a cost you wouldn't have incurred had you been driving, say, a Jetta.
Natch, some of these costs are ridiculous. But you gotta admit, even a "maybe" is a cost.

Now, not all of these costs are currency costs. Some of them are just opportunity costs and added risk. "Cost" isn't always about money.

How much does it cost Google to give all their employees such totally awesome benefits?
  • They're paying a ton of money for 401(k)s, health insurance, ping-pong tables, catered lunches, on-site laundry, a beautiful facility, etc. All told, I guess (based on the 0.00 units of information I have) that Google spends about three times an employee's salary on that employee.
  • Because they're in the San Francisco Bay Area, an expensive place to live, they spent more on their facility than they would have in another locale.
  • Because they're in the San Francisco Bay Area, a place where people want to live, they are able to pick and choose their employees from the best of the best.
  • Because they pay well and offer amazing benefits, they are able to retain employees who are the best of the best.
  • Because they have the best employees, they are able to make amazing software that makes them a market leader in search and online advertising.
I guess the real question is, how much does it cost Google not to retain their amazing employees?

How much does it cost you to sit at home doing nothing all day?
  • You're not spending any money on food.
  • Let's pretend you're not spending any money on gas, garbage, water or electricity.
  • You could be working out, reducing future medical bills.
  • You could be watching a movie, entertaining yourself and adding time to the internal "countdown to psychological meltdown" clock.
  • You could be talking to your mom, reminding you that you love her, so that in forty years when she kicks it, you won't feel as bad about the frequency with which you called her.
  • You could have a job, you lazy ass.
In future posts, I'm gonna talk a lot more about how much stuff costs, but I hope you understand my point: monetary cost isn't the only cost; sometimes stuff costs more than it costs.