Hello Lou,
I have been intrigued by the stock market since I was 8 years old when asked my father for shares in Nortel. He gave me 10 shares at $34.70 a share. I bragged daily to my friends of my new found $347.00. Of course, Nortel is bankrupt, and my $347.00 has dwindled to less than a cent. I always wondered what if Nortel had skyrocketed, instead of crashed?
Ten years later, I've decided to enter the market again. I've been looking at Sirius Satellite Radio. The coverage of their new plans from this year's CES was intriguing, and they look like they have potential progressing into 2013.
My main question to you is where would you advise an 18-year old student with $500-$750 of investment money to start in the stock market?
Looking forward to a response,
Neal
Hey Neal,
Congratulations on taking an interest in your financial future at such a young age. There is a lifetime of learning ahead of you so we might as well examine the case of Nortel Networks.
The lesson to be learned is that you don't want to ride a stock all the way to zero. You must be able to admit that the factors that got you into a stock may have changed and that you have to preserve capital. Nortel didn't go from $34.70 a share to zero overnight. It was a grinding water torture retreat providing plenty of opportunities to get off the ride. Regarding the issue of what might have happened if the shares had taken off instead of crashing keep in mind that you should forget about the past and get on with your next decision. Toying with the loss is a distraction.
In addition, when I talk to young people like yourself who have a limited amount of capital I generally recommend using mutual funds or exchange traded funds as an instrument. In the case of mutual funds you get diversification and professional management. With ETF's you get diversification without management but lower costs. In any event you are interested in Sirius XM Satellite Radio Inc. so a case study of the shares will prove educational.
The thee-year chart informs us that the shares have been on a steady advance since early 2011 when it traded below $0.80. It traded as low as $0.12 in 2009 and over $60.00 in 2000. The break above resistance at $3.00 sets up a test of resistance at $3.50 and then at $4.00. If it moves through $4.00 it can move to $6.00 without much in the way.
The six-month chart provides a close-up of the support that comes in along the 50-day moving average and the buy and sell signals generated by the MACD and the RSI. What is also evident is that the uptrend line has not been broken. Right now SIRI looks like a case of buy high and sell higher. The company has either met or beaten the street in the last seven reporting periods.
They are expected to report fourth-quarter 2012 on Feb. 7, 2013. When you own the shares of a company it is vital that you know the date that when they are going to report their financial results.
Again congratulations on wanting to improve your investment knowledge it will serve you well over the course of a lifetime. Make it a profitable day and happy capitalism!
Have your own question for Lou? Send it in to lschizas@globeandmail.com.
Lou Schizas