How To Buy A Coffee With A Single Stock Trade In 10 Minutes

I’ll admit, I struggled with the title for this post. Mainly because it puts a lot of pressure on me. As I write this, I’m just at the start of the strategy. That said, I have full faith in the strategy, and wanted to give myself something to push me forward. The strategy that I’m talking about is trading stocks (surprise) with Robinhood.io. Why Robinhood?

Free commissions.

Moo, bitches...

Say what?

That’s right. Free commissions. I’ve talked about Robinhood.io before, but it wasn’t until this week that I was able to finally trade with the app, because it took them this long to get an Android app put together. I invested $10 to test it out. That’s where the title of this post comes in. My goal isn’t to make millions, it’s to trade enough in a single trade to buy myself a cup of coffee.

My coffee costs $2.80.

So there we have it, I have to trade 28% of my original $10 in a single trade. Will I do that in a single trade? Hell no. It’s going to take some build up. And in fact, I’ve actually already been working on that.

I deposited my initial $10 on August 18th, 2015. Today is August 26th, 2015 as I write this. My portfolio sits at $10.72. For those keeping track at home that’s a 7.2% of the original invested amount. And I’ve even lost money on a trade. Once. Just once.

So what’s my strategy? It’s actually really simple. Small gains. I head over to Yahoo Finance or Capital One Investing (Previously Sharebuilder) and look for penny stocks that are showing high fluctuations for the day. I want them to be pretty consistent spikes, or at least trending one direction or the other. Once I know the trend, I aim to buy at the low end of the spike, and sell at the middle of the spike.

Why the middle?

I don’t want to risk too much, so I put a limit sell order on the middle price, and then I watch. I do the middle because it let’s me change the price if I think it’s skyrocketing again, but it also let’s me have a point to hold out for if the spike is slow. You see, I want to be in and out of a stock within a few minutes. I don’t want to hold for an hour or two. That’s too risky. I want to be able to pick it up at $0.40/share, and sell it at $0.425/share within a few minutes.

I’ve made some decent trades this way. Once I make a profit, I buy more stock. This let’s me compound the benefit. The plan is to cash out once I hit $20, which will let me risk as much or as little as I want, because at that point my initial investment, my cash capital, is out of harms way. I will only ever break even at that point. Thus, I can’t lose.

Yea, yea, but what about the Coffee?

My average profit on a trade is 6.5%, which means to make the $2.80 in a single trade, I will then surpass my $20 goal, and be able to cash out. Do I think that’s going to happen soon? Who knows. You’re only as profitable as your last trade.

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Frequent Trading VS. Pre-planned Investing

Coming up is my 1 year anniversary with active investing. For the last year I’ve used a trading style of frequent trading. To this point, I have a total profit of (-$47.20). That’s a negative amount, because currently my portfolio is worth less than what I paid for it. This, obviously, is not a good thing. But it was expected. Frequent trading means frequent commissions, and as I’ve posted in the past, commissions kill you.

So today I’ve setup my next type of investment strategy. For the next year I am going to move away from frequent trading to pre-planned investing. I’ve setup my automatic investments, as well as my automatic dividend reinvesting, on Sharebuilder. I’m setting up automatic deposits each paycheck, and once my account has reached the threshold of $522, I will invest in my diversified collection of stocks–all monthly dividend payers. I have used my 3 months to profit calculation to figure out this $522 figure, based on the dividend amounts, and the current price for each share.

To be open, below I will list the results from my last year of trading. Included is a dividend payout which will not close until tomorrow, but will be a difference of pennies.

STOCK TOTAL PURCHASED TOTAL SOLD PROFIT
TEU 65.0221 65.0221 $6.84
BAB 4.0772 4.0772 (-$17.40)
INTC 3.0778 3.0778 $13.24
O 4.9326 1.5408 (-$49.89)

Patience, biding your time

When doing what I like to call “entry level” stock investing, it’s as important to bide your time as it is to know when to jump. By entry level, I mean when you want to do it, but only have a few dollars that you can spare towards it. Why is this? Commissions. Trading fees. I use ShareBuilder, which doesn’t cost anything to have an account, and only costs a low fee when I trade. It’s also run by Capital One, which I’ve had business with in the past and trust.

The thing is, with such a low ability to invest, if I traded whenever I had the money to buy a share, I’d drown under the comission fees. ShareBuilder’s trading accounts are FDIC insured for the cash balances. Meaning the money that’s just sitting there, waiting to be traded. Those balances also earn interest, just like a normal savings account. That said, what I tend to suggest is taking your time, transferring over what you can afford, and setting up their Auto Investment system to auto-invest once your account has reached a good threshold.

Now, this threshold will be different for everyone. I tend to figure in the potential dividend payouts with mine, and shoot for a 3 months-to-profit range.

What does that mean?

Well, it means this:

Say the shares cost me $36.83 each, and the auto investment system costs a $4 flat rate per trade. Now, if I wanted to limit my risk based solely on the desire to get that flat fee down to $0.01 per share, for the trade, I’d need to invest in 400 shares, which would cost $14,732, plus the $4 trading fee. That’s not exactly a small amount of money. But, it would mean if the market sneezed and the price of my stock went up 2 cents, I’d be profitable.

But, I’m looking at 3 months to profit. I’m also looking at dividend payouts.

Now, let’s say this same stock pays out a dividend monthly. Now let’s also assume that dividend is $0.18 per share. Just for the sake of the math we’ll assume that for every share that I own, I’m guaranteed that the price of the stock won’t fluctuate, and that I will always receive that dividend. Obviously this is not true for normal stock purchases, but that’s the risk we take. Like I said, I aim for 3 months to profit, but when the stock starts to decline, sometimes it can’t be avoided.

The first thing I need to do at this point is figure out exactly how many shares I need to purchase so that in 3 months I will be seeing a profit. And by profit here, I literally mean $0.01 or more. The first thing I need to do is figure out how I’ll go about breaking down the commission. Well, that $4 can now be divided by 3, because it’s going to be spread out over 3 months. That drops it to 133 shares. But this still has it at $0.01 per share, and it’s still a relatively high number. Due to the dividend payout of $0.18/share, I could actually drop the number of shares I need to purchase, by allowing the commission to stay higher. So I’ll make the commission break down to the same fee as the dividend, $0.18.

That allows for 22.22 shares, we’ll round up to 23. That’s a total cost of $847.09, which isn’t anywhere near the $14,000 range. But, we’re still looking for 3 months to profit, not 1 month. So, we’ll take the 23 and divide it by 3. That brings us to 7.6, which we’ll round to 8. 8 shares, at $36.83 per share, a total cost of $294.64, with a payout of $0.18/month.

To figure out if this will be our 3 month to profit mark, we can do a little more math. Each share pays out $0.18 each month, so a single month will bring in $1.44 in dividends. After 3 months, that is a total of $4.32 in dividend payouts. As you can see, that is a $0.32 profit.

Now obviously the market won’t stay the same for you like that. This isn’t about “profit” in the classic sense, so much as limiting the risk and damage of the trading fees. Dividend paying stocks are powerful tools that any investor should be using. Including them in your portfolio, especially strong monthly dividend payers, will allow you to trade more carefully, while at the same time reaping the benefits. 

If you have any suggestions or other methods for limiting the trading fees, leave them in the comments!