How to be a conservative online investor

December 29, 2009

Conservative online investors tend to be rather conservative in their investment style. They began thinking and saving for retirement long before their friends, who are not so concerned about the future. But they aren’t afraid to take thought-out, reasonable risks and will routinely perform the due diligence required to feel fully informed before putting their money on the line.

They are comfortable with mutual funds that are balanced, not too heavily oriented toward aggressive-growth stocks. They tend to pay attention to asset allocation models that tell them not to place too much weight on any one risk category.

For example, they appreciate the concept of including “boring” bonds in their portfolios and are not past considering CDs that pay little interest but let them sleep at night. They think of their home as a secure, appreciating investment that diversifies their portfolio of stock holdings.

Anything too volatile, like high-flying Internet stocks, sends chills down their spines. They think people who go after them will ultimately get skinned. But that doesn’t stop them from reading about the companies and wanting some of the fast money that comes with the big moves when they are hot.

If they designate a small portion of their investment capital for high-risk plays, they may even take a chance and buy some of the latest “dot com” that has hit the market. But then they watch it like a hawk and may very well exit it prematurely when they can’t handle the volatility. Options trading is too risky for them, unless they research them thoroughly and then dabble very sparingly. They believe it is best to leave options to the professionals.

Because they tend to be conservative and methodical in their investing style, they will not be tempted to overtrade online. Nor are they comfortable trading on margin (money loaned by the brokerage that allows you to gain leverage, buying more stock than you otherwise could).

Margin is secured by stock and cash positions, and the stock may be sold by the brokerage if you get too far in debt and are unable to come up with added cash to secure your positions. If this type uses margin at all, it is only for short periods of time. They are most comfortable using margin to give themselves a short-term loan.

This trading type will value a discount broker who offers service as much as speed of execution or the lowest cost, since they are not likely to be attracted to active trading. They will also like a discount broker who offers research reports and tools to analyze their portfolio, as this kind of stuff is enjoyable to them. For a respected web site that offers objective, in-depth comparison reports between discount brokers for the whole spectrum of online investors, visit www.sonic.net/donaldj.

When it comes to individual stock selection, they often feel most comfortable picking well-known, large-cap companies that are solid performers. They like to think of themselves investing in companies, not just stocks. In fact, they are among those who may become married to a stock, never wanting to give it up.

Some of those with this investment style become what are called chartists. These people like to analyze the technical aspects of stocks. When the market is closed, they plot the daily price movement of stocks and pore over the charts to determine entry and exit points, based on the stock’s history. Of course, what used to be done painstakingly by hand may now be found at numerous online discount brokerage and stock analysis web sites.

Much like looking at constellations of stars in the sky, chartists find all kinds of patterns in the charts that are deemed to be meaningful. The whole market of custom charting software has them in mind. Online, when the market is open, technicians like to monitor intraday price movement graphs, volume, ratio of new highs to new lows, and various other technical data.

The obsessive-disciplined investor who spends a lot of time online loves to stay up to the minute on all breaking news and how it may affect his or her stocks. Some like to know the quarterly earnings results of a stock just as they are released and then stick around to listen in on the company’s conference call.

Obsessive-disciplined investors also enjoy participating in some of the many online stock message boards, closely following the conversation “thread” related to one of their favorite stocks. In fact, they often become part of the core of regulars who are valued contributors to these boards.

Obsessives tend not to be lurkers who sit back, read others’ posts, but never “come out of the closet” and actively participate. This is because they have opinions and like to get involved with other posters. Their enthusiasm for the stock and their obsessive nature makes them tend toward attachment when they find the right mix of contributors.

Just as can happen with anything else in cyberspace, some even become overly attached to these boards, spending large amounts of time in dialogue. When forced to stay off the boards, they may experience withdrawal symptoms in the forms of agitation, mild anxiety, and feelings of loss. The stock bulletin boards may serve the same function for them as do social chat rooms for others. Yes, it’s easy to want to say to the most dedicated, “Get a life.” But they would tell you how well they get to know other posters, how friendly they become, and how sometimes they even end up getting together in the “real” world for face-to-face interaction.

Because they are thorough and attentive to detail, if they have a strong interest in the market, they might make good active traders, perhaps position or speculative traders. Short term for them is a few days, weeks, or even months.

But to become a position trader, they would have to overcome some anxiety that is common for obsessives to feel when taking short-term positions. By their nature, obsessives are prone to worry too much about the risks they take.