Buying Stocks: Reader Q & A

stock questions

Maj left these questions for me on my buying stocks Facebook page. Thanks for the questions Maj and here are my answers.

1) When a company buys another company, the stock of the company that is being bought often goes up in anticipation of the event or after it is announced if the deal is a surprise. One company can’t usually buy another company for the going stock price – they usually have to pay a premium to get the stock holders of the company being bought to agree to the deal.

The share price of the company that is doing the buying will move up or down depending on how the stock holders of the acquiring company feel about the deal.

Your example: Stock holders of company X at $5 would likely see their shares immediately go up higher than $5 because their company is suddenly worth more. Anyone who owns the stock of X can then decide to sell their shares (at that higher price) or wait until the deal is finalized at which time they would  automatically get an appropriate number of shares of company Y. Company X’s stock ticker would no longer exist and all stock X would transfer to a percentage of stock Y. 

2) As far as I know, there are no monthly charges for TD Ameritrade. The only fee you will ever pay is the trade charge.

3) (its free) is a good one where you can start your own portfolio with virtual pretend dollars. Their buy and sell platform is similar to all the platforms of real online brokers. 

4) If you are talking about buying IPO’s before they come public then no, you will no be able to do that with any stock broker. Only people who have a lot of money and some sort of high up connections are able to get in on an IPO before the general public. Once any IPO goes public though, you can buy the stock the same day as it opens. For instance, if you want to buy stock of the Alibaba IPO, you will be able to buy the stock once it starts trading on the exchange but not before.

5) I do prefer buying stocks for the long term because I believe that is the safest way to build up your portfolio. Long term, the market stands a good chance of going up but who knows what will happen to stocks in the next week, month, or year? Frequent trading and trying to time the market’s roller coaster movements opens you up to more trading charges and is something only very experienced traders should do. 

That being said, I it is not bad to occasionally take a shot at a stock you think will go up in the short term. I did it myself when I bought China Mobile (and it didn’t turn out well with me deciding to hold on for the longer term). 

Also, anytime you have a short term gain and feel the stock price hit your goal or expectations quicker than anticipated, it is okay to sell. Likewise, it is okay to sell a stock for a loss after a short time if you just don’t feel comfortable owning it. Remember, it is important that you sleep well at night and worrying about a stock often hinders that. If selling a stock will make you more comfortable, you should at least think of doing it. 

As for your question about stock tips of what companies to buy: Sorry 🙂 Don’t we all wish we could get reliable stock tips? I have never found anything that I  could reliably give you were I felt confident about the results. But there are tips from hundreds of “pros” and “analysts” that you can read but you must remember that a free tip is probably worth what you pay for it. 

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