SAN FRANCISCO (06/12/2000) - Is the roller-coaster stock market making you feel a little queasy? No wonder: The daily gyrations of key market indexes is enough to make anyone reach for the Dramamine. Another remedy--when taken in appropriate doses--is staying abreast of the market using the Internet.
Investment Web sites can help you quickly research stocks for free, a task that once took days and hundreds of dollars to do.
But using the Internet for research does not guarantee good results. The Internet is "rife with disinformation that has cost hapless investors dearly," says John Emshwiller, author of Scam Dogs and Mo-Mo Mamas, a colorful account of Net-based investment gurus and scalawags. "For example, many people bought into the hype on some of the more speculative tech stocks this March and April, and many got badly burned."
In this article, we'll introduce you to some first-rate online resources (and a few personal favorites) for investors, and we'll provide tips for using them safely and profitably. We've grouped sites according to the type of investor they cater to. First up is a look at sites for new investors. Then we'll explore offerings for each of the three basic types of stock market players: long-term investors, swing traders (more-active traders who can stand more risk), and day traders.
We'll focus on the most frequently traded securities, common stocks. But sites offer information on many other types of investments, including bonds, mutual funds, and more esoteric moneymakers such as real estate investment trusts, or REITs. If you already use an online broker, that service probably offers resources you should become familiar with. The pickings are slim at some sites, such as Ameritrade, but Charles Schwab impressed us with its wealth of resources, especially for new investors.
Newbies Start Here
Don't know a stock from a stockpot? One of our favorite recipes for newcomers is at The Motley Fool. Founded and run by brothers Tom and David Gardner, The Fool excels at making investing fun and approachable. Click the Fool's School link at upper right on the home page, which takes you to "Investing Basics" and "The 13 Steps to Investing Foolishly." These articles will give you an evening or two of highly entertaining reading and a great introduction to the markets.
The 13 Steps are full of attitude, at times hilarious, and exceptionally responsible in their counsel. Most tutorial sites dump you right into investing-specific matters, but The 13 Steps devotes an early chapter to getting your personal finances in order. Only then does it move on to cover everything from index funds to opening an online brokerage account to sifting through company financial data. Meanwhile, Investing Basics offers clear, lively descriptions of the most common securities, including common stocks, bonds, preferred stocks, and REITs.
What don't we like about The Fool? It's sometimes too strident. For example, it recommends against buying conventional mutual funds run by fund managers who attempt to beat the market by actively trading stocks. Instead The Fool recommends buying index funds, which mimic the performance of key market indexes. The Fool then goes on to lambaste conventional mutual funds. This is questionable advice: Some well-known mutual funds, such as Eaton Vance Worldwide Health Sci A and Harbor Capital Appreciation, have consistently outperformed the S&P 500 index.
Money.com also offers a comprehensive, if less entertaining, investment tutorial. Other good learning sites include The Investment FAQ, LearningToInvest.com, and ElderNet Money and Investing.
After you've nailed down the basics, you're ready to decide how you want to participate in the market: buy and hold for the long or medium term, or trade actively.
For Long-Term Investors
Long-term investing is the most popular method and the simplest: Research the companies, buy the stocks, and lock them away for years. Long-term investors care most about two things: the financial health of companies and their growth prospects.
To judge a company's financial health, you should consider aspects like: What are its revenues and profits? How much long-term debt does it carry? Which movers and shakers are trading the stock? Publicly traded companies in the United States have to answer these and many other burning financial questions in documents filed with the Securities and Exchange Commission. You probably don't have the time to plow through reports for thousands of companies, so you'll want to start with a stock screener. A screener lets you create filters for weeding out companies that don't meet your criteria.
MSN MoneyCentral Investor offers one of the best screeners we've seen. The custom search feature sports a huge range of filters, including 17 preset filters based on popular investing strategies. To get to Investment Finder, click the Finder menu item on MoneyCentral Investor's home page.Zacks Investment Research Inc.'s Zacks.com also offers predefined stock screens. If you want to read the SEC filings, check out EDGAR Online and 10K Wizard.
What about a company's growth prospects? Companies that lead in rapidly expanding sectors (such as Internet infrastructure or semiconductors) tend to have excellent growth prospects. SmartMoney.com offers a fun, graphical tool called Map of the Market that lets you quickly pinpoint the leading companies, sector by sector.
Many investors consult analyst ratings, but we advise caution here. Many analysts work for big financial houses, such as Goldman Sachs & Co. and Merrill Lynch & Co. Inc. Such houses often invest heavily in the companies being rated--a potential conflict of interest. If you're going to check ratings, make sure you get an average based on at least a half-dozen opinions. Zacks.com offers some of the most complete analyst estimate charts. Want mutual fund info? Morningstar.com offers lots of fund resources, including funds-only news headlines and a mutual fund screener.
For Swinging Traders
If Austin Powers played the market, this might be his favorite method. Swing traders buy and hold stocks for shorter periods for time, namely weeks or months, trying to take advantage of intermediate market movements. Swing trading can put the "grr" in your growth stocks, but it's also riskier than long-term investing and it requires a lot of extra work.
In addition to a company's fundamentals, swing traders consider at least three other factors:
NEWS. When does the company announce earnings? When does the Federal Reserve meet next to decide on interest rates?
TECHNICAL ANALYSIS. What sort of trend is a stock's price showing? How is the trading volume?
MARKET SENTIMENT. How do other investors feel about the stock? What's the "word on the street"?
News is the lifeblood of the active trader. Even the best companies hit rough patches, so you need to keep up with the news affecting your holdings.
Excellent news sites include:
Most investing sites offer news feeds from one or more of the above sites, as well as from Reuters, Business Wire, and AP. We also like News Alert because you can customize it to show only the headlines you want.
To keep up on interest rates and other government news, try The Dismal Scientist Economic Calendar, which lists dates for important economic policy meetings, such as the Federal Reserve's Open Market meeting, where the Reserve chair and regional Reserve bank chiefs thrash out interest rates. Budding economics wonks will love this site, too. The similar Yahoo Inc. Finances Earnings Calendar is another good resource.
Quasi-News: Rumors and Whispers
Beneath the level of "official" news lies the murky realm of "whisper numbers."
These unofficial earnings estimates have become a big part of the online investing scene. They sometimes prove more accurate than official numbers, possibly because they're based on fresher data. Analysts leak whisper numbers a few weeks before a company is due to report but long after they've calculated the official figures. Several sites offer whisper numbers:
Take care to distinguish between the opinions gathered from actual Wall Street leaks and the opinions of investors just visiting the site. Some of these sites, such as WhisperNumber.com, invite your recommendations and add them to a chart.
Technical analysis is the creation and interpretation of stock charts to predict price movements. Experts sharply disagree on its value, calling it everything from serious science to astrology. We offer no judgment, but we can point you to some of the most useful free charting tools.
We're partial to MSN MoneyCentral Investor's charting tool. Like most free charts, it plots both prices and volume curves and lets you customize the time period. But it also places tags on the chart noting when (and by what ratio) a stock was split, as well as when the company issued dividends and their amount.
The charting app also provides lots of analysis tools, such as moving averages, Moving Average Convergence Divergence (better known as MACD) lines, and money flow.
Other good charting sites include:
Thomson Investor's Network
News, numbers, charts are only part of the game. Investor sentiment or mood also matters, and message boards are a popular way to gather it. Many large investment sites offer separate boards for each stock symbol.
As with technical analysis, experts hotly debate the value of message boards.
TheStreet.com's Herb Greenberg told us "investors should avoid message boards like the plague" because of the rampant disinformation there. MoneyCentral's Risa Kaplan and Jon Markman are more sanguine, saying message boards are great places to learn and swap ideas.
If you want to use message boards, you should do three things: Verify, verify, verify. Double- and triple-check information by going to several sources, including the company's own Web site. (It's surprising how seldom investors think to go to company sites, yet these sites are often the most accurate.) The following four sites offer the best message boards:
The Motley Fool
Yahoo Message Boards
The Motley Fool and Silicon Investor are our favorites. Many of the postings are intelligent and well reasoned, and both sites are especially vigilant about checking for spam and dumping offending posts. We like The Fool a little better than Silicon Investor because you can both lurk and post there for free; Silicon Investor charges $120 per year for posting privileges. The Fool's boards are also easier to navigate. You can jump from one message to the next with a single keystroke and search for favorite-author posts within specific boards.
The Yahoo and Raging Bull boards offer up too much spam for our tastes. Yahoo edges out Raging Bull because of the sheer volume of postings--open enough oysters and you'll find pearls.
Want an easy way to keep up with boards on all four sites? Enter a stock symbol at TheLion.com, and it will bring the latest message subject lines from all boards to one page. This is a huge time saver when you're trying to keep up with a popular stock in a fast-moving market. Our main beef: TheLion.com doesn't let you follow message threads.
For Day Traders
Day traders are stock market guerrillas, jumping in and out of stocks within hours or minutes. Day trading advertisements on CNBC suggest that anyone with half a clue can amass a fortune trading this way. Good luck. In practice, most people lose money this way. Our advice: Practice long and hard before committing real dollars. Here's how you can take a test drive without spending a dime.
First and foremost, you need to use real-time quotes, not the delayed quotes most sites offer. Our favorite freebies are the streamers from Money.net and Datek Online Brokerage Services LLP; you can use the latter even if you don't trade through Datek. The Money.net streamer gives you continuous "Level I" quotes for up to 50 stocks, and Datek gives you quotes on up to ten stocks.
Many day traders study Level II quotes, which show not only the highest offers to buy (bids) and the lowest offers to sell (asks), but also the bids and asks for a given stock. Some traders swear by Level II screens, claiming that they give the most complete picture for predicting stock price movements. We're not aware of any free real-time Level II quote systems, but MyTrack offers a free delayed Level II display--useless for actual day trading, but perfect for practicing. Java Island BookViewer also gives you a sense for how a Level II screen works.
Many traders like to check out the chat rooms. If message boards are the Wild West of online investment research, chat rooms are the saloons, and are to be visited with extreme discretion. The same caveats apply to them as to message boards, but the furious pace of trading often keeps you from checking up on what you read. It's even more important that you get to know the people posting before even thinking about acting on any information you read there. We recommend #Daytraders, because its site managers carefully monitor activity and kick out the offenders, including spammers. ActiveTrader.net is another popular chat service.
Putting Practice Into Action
Okay, you've paper-traded for months and you even have an aptitude for it. If you're ready to commit real money, you should sign up with a direct order-entry firm, such as MB Trading or MyTrack, which can cost several hundred dollars per month.
We found few sites that evaluate such services; most rate only the standard discount brokers, like Suretrade and Ameritrade. One option for getting the latest scoop on users' experiences is to plow through the last few months' worth of messages in Silicon Investor's Brokerages/Investment Resources boards and Motley Fool's Day Trading--The Devil's Den. Also check out Don Johnson's report on day trading platforms. The author, former publisher of the Online Investment Letter, provides a quick informal comparison of the major day trading platforms available.
One more caveat: U.S. tax laws favor the long-term investor, not the day trader. You could get nailed by nasty surprises such as the Investment Loss Limits regulation, which lets you deduct only up to $3000 a year in trading losses; and Wash Sales, which can prevent you from taking loss deductions in certain cases. Check out The Motley Fool's Taxes section, which covers basic tax issues, and Publication 550 at the IRS Forms and Publications Site, which details Wash Sales rules.
Online investing is clearly a hot area. According to Gartner Group Inc., the number of households accessing the Net for investment purposes has more than doubled in the last two years, from 10 million to nearly 26 million, and the growth shows no sign of letting up. Gartner Group analyst George Barto says that continued advances in technology and even keener competition will continue to pull in new users and stimulate more rapid trading.
Several sites, including freetrade.com and freetradez.com now offer no-fee stock trades. The end result? "The consumer wins," says Barto, "because you have a vigorous and liquid market. Online investing is a prime example of how the Internet has shifted the balance of power from the company to the customer."
Bryan Hastings, a former editor for PC World, now works at home and doesn't miss rush-hour traffic at all.