Least Commission Way to do 60 to 75 Trades a Year

[sengsational]

Just for fun, I am toying with the idea of executing on Greenblatt's "Little Book" magic formula thing. But at $8/trade (Fidelity), that would be quite expensive.

I have not done any reasearch, but I guess there are cheaper alternatives? Do the cheaper ones have bigger spreads or are there any other issues to think about? It would be in a traditional IRA account, if I go ahead with it.

 

[Lakewood90712]

If this is " Day Trading ", you are going to have a lot of paper to deal with, and , I have never been with Fidelity , but the other discount houses ( Schwab, E-Trade, Brown & Co) had approx 3 day settelement on IRA trades.

DUH edit, sorry , I misread, thought it was 60-75 trades per day.

 

[yakers]

My Wells Fargo PMA account gives me 100 free trades per year.

 

[LOL!]

My Wells Fargo PMA account gives me 100 free trades per year.

And that is per account, so if you have a spouse, that could easily be 500 or 600 free trades a year. Alas, this "deal" is no longer available and only folks who are grandfathered into the old rules have free trades.

One might take a look at Merrill Edge at Bank of America. That has lots of free trades and is probably the current free-trade leader.

Other possibilities are the free trades on ETFs. Vanguard, TDAmeritrade, Fidelity, and Schwab have free trades on the kinds of ETFs that one would want to own. Be sure to read the fine print or you will be charged commissions. Don't know about whether Greenblatt would want to own those ETFs though.

Finally, if you move enough money to a broker, there are bonuses to be had. Those bonuses could cover trading commissions if you don't get a bevy of free trades when you move. Currently, Merrill Edge gives out bonus cash, so they are paying YOU to trade. (I do not have a Merrill Edge account.)

Oh, you asked about spreads and presumably execution. I will say that WellsTrade give superb executions and low spreads. Fidelity uses some internal dark pool and I don't trust them. TDAmeritrade has not always been as good as WellsTrade in my experience.

 

[sengsational]

It doesn't sound like there are a lot of good options out there for me, but I'll check out Merrill/BofA, but I'm not a fan of that bank!

The idea is to buy 6 sets of individual shares of companies every 2 months. The companies would be too small for the institutional investors to bother with, but big enough (>50 mil market cap). After building up for a year (holding 36 different companies), I'd sell the 6 that were 1 year old and buy 6 others. That would keep me at a steady level of owning 36 companies. All that to say free ETF trading isn't going to do it.

As long as I explained the process in the previous paragraph, I might as well ask, if I do 6 sells and 6 buys every 2 months, will the executions I get make that much difference? These will be "odd lots" I guess, because if I seed it with, say, 100k, I'll be putting about $2,700 per company, and that might be only 30 shares or something, depending on the stock price.

 

[MRG]

Have you looked at Interactive Brokers? Their pricing model is different. You need to calculate it based on what you're thinking of owning. That said I've never dealt with them.

Sent from my SAMSUNG-SGH-I337 using Early Retirement Forum mobile app

 

[gomo]

I use Interactive Brokers, they charge $1 per trade up to 100 shares. There is a $10 per month SEC fee. I usually buy 5 - 10 shares at a time.

Not sure if you can trade the small caps you are talking about, but worth a try.

 

[NW-Bound]

It doesn't sound like there are a lot of good options out there for me, but I'll check out Merrill/BofA, but I'm not a fan of that bank!

I just checked, and Merrill Edge still gives 30 commission-free trades/month to account holders with more than $25K, a modest amount.

The idea is to buy 6 sets of individual shares of companies every 2 months. The companies would be too small for the institutional investors to bother with, but big enough (>50 mil market cap). After building up for a year (holding 36 different companies), I'd sell the 6 that were 1 year old and buy 6 others. That would keep me at a steady level of owning 36 companies. All that to say free ETF trading isn't going to do it.

As long as I explained the process in the previous paragraph, I might as well ask, if I do 6 sells and 6 buys, will the executions I get make that much difference? These will be "odd lots" I guess, because if I seed it with, say, 100k, I'll be putting about $2,700 per company, and that might be only 30 shares or something, depending on the stock price.

Hmm... That might be the way for me to use more of my 30 free trades/month, as I trade infrequently.

 

[LOL!]

As long as I explained the process in the previous paragraph, I might as well ask, if I do 6 sells and 6 buys every 2 months, will the executions I get make that much difference?

I don't think it will matter at all. I think you will still underperform a small-cap index fund or ETF. How about this? Take half your intended investment and put in a small-cap index ETF and play with the other half. If you feel you must trade, then sell one small-cap index ETF and buy another one. For instance, sell VBR and buy IJS whenever you get the urge to do some trading.

 

[sengsational]

I just checked, and Merrill Edge still gives 30 commission-free trades/month to account holders with more than $25K, a modest amount.

That would work! Thanks for the research.

Hmm... That might be the way for me to use more of my 30 free trades/month, as I trade infrequently.

I'll chew-up less than 30, but I won't trade for tradings sake; if I do this, it will be with Greenblatt's magic formula.

Take half your intended investment and put in a small-cap index ETF and play with the other half. If you feel you must trade, then sell one small-cap index ETF and buy another one. For instance, sell VBR and buy IJS whenever you get the urge to do some trading.

I was convinced that I couldn't beat the market until I read "The Little Book That Still Beats The Market". I'm still skeptical, but I thought it might be fun to take a smallish fraction of my US equities allocation and run with the process defined in the book. The web site magicformulainvesting.com lists smallish "good companies" that are currently priced low (this is based on analysis of each company's financials). One holds 20 or 30 of these stocks for one year each. Historically, the process has done well (beat the market) but it can takes 3 plus years. These companies are too small to attract capital from ETF's and mutual funds, so they are supposed to be "under analyzed". I'm re-writing the book here, hehe, and doing a bad job of it.

 

[clifp]

I think it is a grand experiment. I familiar with book and the website, but have not read it.

Merrill Edge sounds like the right way to go. OptionsHouse is another low cost alternative $3 stocks or maybe $4 for new customers with lots of 50+ free trade promotions. So even with Optionhouse less than $300 for 70 trades or .3% ER on 100K

The problem with small cap index funds is they are just too damn big. Take Vanguard small cap it has $50 billion in asset and 1450 holding or so on average it owns 35 million worth of stock. Which is why the average holding has market cap of almost $3 billion, hardly small company. For example slightly larger than typical Vanguard Small cap holdings, are Alaska Airlines, E-Trade, and Avis, which hardly qualify as small companies in my book.

Vanguard can't buy shares in $50 million companies cause even a $3 million investment requires disclosure and moves the market. It only takes a couple of these 50 million companies to turning to a $1billion company to have very nice investment. (Assuming the rest don't broke of course..)

I'll think LOL is wrong, I'll bet you outperform the index over the next 3 years.
it only takes a couple of these 50 million companies to turning to a $1billion company to have very nice investment. (Assuming the rest don't broke of course..)

As an aside I think it would fun to have some way of doing friendly wager more for bragging rights than money on the board.

 

[sengsational]

I think it is a grand experiment. I familiar with book and the website, but have not read it.
...
The problem with small cap index funds is they are just too damn big. Take Vanguard small cap it has $50 billion in asset and 1450 holding or so on average it owns 35 million worth of stock. Which is why the average holding has market cap of almost $3 billion, hardly small company. For example slightly larger than typical Vanguard Small cap holdings, are Alaska Airlines, E-Trade, and Avis, which hardly qualify as small companies in my book.
....

Based on that reflection, you probably don't really need the book. The book contains a lot of "convincing", and if you're already sold that the idea is sound, well, the book doesn't do a whole lot beyond that. It does explain various ways to value a company and why they use return on capital over other valuation methods. Not reading the book, you might not learn that if a particular industry doesn't produce a useful return on capital figure due to how they do their book keeping, they throw the company out of the mix.

I think that a bragging rights thread might be in order. I've looked around and found some portfolio simulation sites and stock picking sites that (apparently) don't let the user go back and cook the books after the fact to get better returns. And I've found people who have been doing the magic formula on those, but I haven't tried to compare their returns with the market as a whole.

 

[target2019]

Motley Fool site has a stock screener that made it simple for me to find micro caps.

I looked at a few of these companies, and it merits more research. The ETFs that cover this space seem to get a thumbs down in the articles I read.

 

[LOL!]

As an aside I think it would fun to have some way of doing friendly wager more for bragging rights than money on the board.

Simply start a competing Market Timing Newsletter and post trades in real-time as they happen. It would be fun to see.

 

[target2019]

I took part in a market timing thread on Morningstar a while back. It started with a handful of participants. Most lost interest during the year. I learned a great deal from the experience. It took quite a bit of my time each week to organize the data and keep track of it so that I could publish a monthly result.

I made my study internally competitive. I put an actual 10K into an energy fund, and tested 4 other buy/sell approaches. My buy and hold method beat the other internal methods I looked at.

There are many similar threads like this on Morningstar forums. If a competition of friendly nature started here, I would probably join.

 

[Totoro]

Posted this before: I bought shares of 10 small "magic formula" companies in february. So far the mix is about break-even so actually lagging the market.

Not worrying though, I'll keep running the experiment for a while.

What I mostly notice is the high volatility in each individual company so far. Interesting to watch it develop. I think next year in february I'll expand the list to 20.

 

[sengsational]

...
What I mostly notice is the high volatility in each individual company so far. ...

Did you just place a market order? Based on your observation of volitility, I wonder if it would be worthwhile to pick, say, 10 or 12 stocks and go in with limit orders at a few percent lower than market and wait for 5 or 6 orders to get filled, then cancel the rest.

 

[slouch]

Your question seems more appropriate for elitetrader.com than early-retirement.com. As others have said IB is a good choice for frequent trading. I've used MBTrading.com in the past as well, though their commission structure is now higher than in the past. If you don't like IB / direct access, then something like optionshouse or tradeking (~$5/side) may work for you. Finally, vanguard offers $2 trades plus some number of free trades based on account value. https://investor.vanguard.com/what-we-offer/personal-services/view-benefits-at-a-glance. I haven't used their brokerage service; I would research "slippage" on any broker you consider for volume trading before pulling the trigger.

 

[sengsational]

Thanks for the additional ideas, slouch. I'm not serious enough with idea yet to dig real deep. Besides, I never know what to expect when I join a new board. Here on ER, I know there are nice, smart, and helpful folks! IIf I do go ahead with this scheme, I'll probably use limit orders since timing is not critical.

 

[clifp]

Thanks for the additional ideas, slouch. I'm not serious enough with idea yet to dig real deep. Besides, I never know what to expect when I join a new board. Here on ER, I know there are nice, smart, and helpful folks! IIf I do go ahead with this scheme, I'll probably use limit orders since timing is not critical.

Do report back on the results please. A couple of years ago Utrecht was writing weekly puts on the S&P, I followed his lead. I made slightly lower return (but still slightly above the S&P) but the hassle involved wasn't worth small amount of dollars. Doing something every 2 months or so sounds more doable.

BTW, how did you arrive at the decision to sell them after 1 year?

 

[Totoro]

Yes, I placed market order. Putting in limit orders won't help though I think. The volatility is not of that kind.

For example one company tanked 30% in one week after announcing they lost a major contract (LQDT). Same thing with Ruger - they couldn't keep up with the hype sales growth of the past years.

After those swings they tend to hold steady. Again, just 10 stocks for half a year, so anecdotal at most. Some others aren't going anywhere, and yet others have been steadily climbing. In aggregate roughly break-even.

It's just basic small company behavior I guess: relatively small events can cause huge swings in value, both inherent and perceived. Guess that's one of the reasons why there seems to be a small cap excess return in the longer run.

 

[sengsational]

BTW, how did you arrive at the decision to sell them after 1 year?

That wasn't my decision, it's what Greenblatt first backtested (in 2004 or whenever the first version of the book came out). Since then, and when the updated book came out (2010), that's the prescription: sell after one year. It does seem arbitrary except for it's designed for after-tax accounts where you can sell losers a few days before the one year mark and sell winners a few days after the one year mark.

 

[Rickt]

Sengsational, It would be interesting to see how it works out for you. I wasn't prepared to buy 30 stocks with all the investable cash but can try with a starter amount and see how it works. The key point he makes is to follow the system for 3+ years.

 

[sengsational]

Posted this before: I bought shares of 10 small "magic formula" companies in february. So far the mix is about break-even so actually lagging the market.

Not worrying though, I'll keep running the experiment for a while.

Is this still going? I still haven't done a thing with it...I've had enough other financial things to tinker with. But those are running out lately.

 

[Totoro]

Thanks for the reminder. I'm posting an update in http://www.early-retirement.org/forums/f44/the-magic-formula-experiment-74510-2.html#post1707103

Long story short: bad results in the 2nd year after a neutral first year.