Heller-Ingebretsen TSC Chat: The Pair Tackle Online Trading Queries

Jamie Heller, editor-at-large, and Mark Ingebretsen, special commentator to TheStreet.com chatted on TSC Thursday, March 15 at 4 p.m. EST.

TSC-RealMoneyLaura: Thanks for joining us this afternoon. We've got Jamie Heller and Mark Ingebretsen here to take your OnlineBroker and Personal Finance questions.

TSC_Jamie: Hi, this is Jamie Heller; thanks for joining us.

TSC_Mark: Hello, my name is Mark Ingebretsen.

chat76 says: What's the difference between Level II and streaming quotes? Which is better?

TSC_Mark: Streaming quotes are also called Level I quotes. They show just one price for a stock, which is the best available buy and sell price.

Level II quotes not only show the best price but all the quotes that are fractionally off that best price. Hope that helps.

chat-guest106 says: As a small investor, what should I do at this point?

TSC_Mark: If you're a small investor, my advice would be to wait things out for the next several weeks.

If you have a small amount to invest any gains you're liable to make wouldn't be that great.

On the other hand losses could significantly reduce your portfolio. Take 6 percent from a money market fund and sleep well at night.

chat guest linda says: Do any of the online brokers provide a reliable service as part of their service, or is that an extra?

TSC_Jamie: Linda, I presume you're talking about a streaming quote service?

Datek offers this to all account holders as does E*Trade.

With several other firms the service is available to their "active" traders or big accounts.

chat-guest says: Will all online brokers let me short against my IRA? If not, is it worth it to switch?

TSC_Mark: Certainly you can't take short positions within an IRA. However, any broker that lets you open a margin account would allow you to create a short position that could be used as a hedge for your IRA.

I would seek competent tax advice before implementing this strategy. You don't want your IRA to be disqualified.

chat 091 says: With a Folio, can I opt to buy more shares of a particular co. that's doing well, instead of putting more money into the group that I hold?

TSC_Jamie: At Foliofn you can trade as much as you want, within the firm's two daily window periods.

So yes, you can reallocate and pick new stocks, up to 50 per folio, but you have to trade in their windows, otherwise you incur extra commissions beyond the $29.95 per month.

This is at www.foliofn.com.

chat45 says: If I'm trying to short a stock, why would I need to know the tick?

TSC_Mark: Regulations only permit you to short stocks on an uptick -- that is when the price of the most recent transaction is higher than the price of the previous transaction.

This regulation helps minimize market volatility. Exceptions to the uptick rule are so-called exchange traded funds that you can find at www.nasdaq.com.

guest-Kat says: I'm 18 and have been working at the same place nearly a year now and will have the option to buy into a 401k soon, I'm considering buying some good long-term stocks at the same time, do you have any recommendations a youngster could get into without having to wait to inherit granny's money to buy in?

TSC_Mark: The sooner you can open up a 401k, the better, since the money will grow tax free until you withdraw it.

And if you start when you're 18 you should exceed your grandmother's net worth long before you reach her age.

I can't tell you what stocks to buy except to say that generally for this sort of long-term investment you should look at the best-managed companies with the best long-term growth potential.

TSC_Jamie: Another thing to consider, if you are a stock trader, and are able to trade within your 401k, that's a better place to do it than in a taxable account, because you can avoid taxes.

chat34 says: Can you explain how to get a positive return on a close-ended international fund?

TSC_Jamie: If I had the answer we could all retire.

But the theory with these closed-end funds is that you buy them at a "discount" to their net asset value -- which represents what the stocks in the portfolio are worth per share, and then, ideally, other people buy shares of the fund, thereby bidding up the price and increasing your return.

The problem is when other investors don't follow you into the fund in that case, even if the manager does well, your shares will not.

That's why I'm not a fan of closed-end funds, one reason at least as alternatives consider exchange-traded "iShares," which you can learn more about at www.ishares.com.

Or int'l folios at foliofn.com.

nightshade7-guest says: What do you think of the foreign markets, would they be a wise decision in investing?

TSC_Jamie: Lots of folks have been looking to foreign markets these days because of the problems in the U.S.

But if you look around, some of those markets are equally or even more troubled. If you're not certain, your best bet is a regular mutual fund that invests overseas.

Like an international fund or a global fund. One fund I like, and own, is Tweedy Browne global value.

With global funds the manager may also invest in the U.S.

With international, it's overseas, but if you're going to do this, you should put some research into selecting the manager.

TSC_Mark: The trick with international investing of any type is to see that money as a percentage of your overall portfolio.

Some analysts say to put 10 percent of your portfolio in global funds.

Then again, there are plenty of opportunities at home, and Jamie's absolutely right that any problems here are amplified by the time the get overseas.

chat-guest856 says: Is there any law that says a fund in x category has to invest in x -- regardless of its prospectus and/or advertising, or can for instance a biotech fund invest solely in PC stocks if it wants?

TSC_Jamie: The SEC recently passed a new rule regarding this truth in advertising, pushing funds to stick closer to what they say they do.

So you probably won't find a fund that says it's an apple when it's an orange.

That said, it's wise to check the top holdings, which you can find on Morningstar. Sometimes you'll see a tech fund includes biotech on the theory that the latter is a subset of the former.

The top holdings should give you a sense if the fund is what you're looking for.

chat-guest471 says: Jamie, great work on trading in international markets. Still sounds pretty complicated for individuals. A couple of questions. First, do you get SIPC insurance coverage with people like IntlTrader.com and Globeshare if you have an account. Second, how can individuals judge the quality of trade execution in the foreign markets. Thanks!

TSC_Jamie: According to their Web sites, both intltrader.com and globeshare.com clients are covered by the SIPC insurance scheme.

As for judging the quality of trade execution, that's even hard to do here in the U.S.! It's one of the reasons I liked Schwab, which requires phone help.

At least you can get an intuitive sense of how experienced the help is; I've also received reader email from folks very satisfied with intltrader help.

The bottom line, unfortunately, is that this remains a pretty opaque area.

chat-guest says: I have about 15k in my retirement fund, and i want to use that as a downpayment on a home. in this market, could shorting build that to a more solid amount?

TSC_Mark: First of all you can't short funds that are contained within a tax-deferred account. And even if the 15k in question is not.

I'd be very wary of shorting in this market to augment returns on money that's earmarked for a specific purpose -- buying a home.

Better to save a little more, take an extra job or renegotiate the loan terms.

The problem with shorting in this market is that you can have swift rallies that can destroy your short position and lead to a margin call.

Be conservative.

chat-guest856 says: Is there any rough rule of thumb regarding the size of a fund (other than index) versus its ability to perform... can a fund's performance drop just because it's too big?

TSC_Jamie: The conventional wisdom is that the bigger a fund, the harder it is to outperform.

That's because it's tough to take positions in small stocks, which often have the biggest growth potential, when you have a lot of money to put to work.

So the bigger funds tend to invest in the bigger stocks thereby mirroring S&P index funds.

But there are exceptions.

Robert Stansky at Fidelity Magellan -- one of if not the biggest fund has had terrific years at the helm of that fund.

But that's probably more an exception.

Bottom line: It's a good sign if a small-cap manager closes a fund rather than allowing it to balloon to unmanageable levels.

chat-guest807 says: Hey Mark, which online brokers will let you sell short in the after hours. Thanks.

TSC_Mark: I believe any broker that allows after-hours trading will allow you to short. But you still have to pay attention to the uptick rule that I mentioned earlier.

nightshade7-guest says: Where can I find more information on global funds and the management, a good source for researching?

TSC_Jamie: If you're talking about regular or "open-end" mutual funds a good place to start is morningstar.com.

And you can sort by international.

If you're interested in closed ends -- and I'm not recommending that -- then go to cefa.com which is the Web site of the closed-end fund association.

Also, individual fund company pages often have good info, e.g. Fidelity.

TSC_Mark: Go to www.nasdaq.com for a list of exchange traded funds that are country funds.

chat-guest547 says: Hi Jamie-des from the bigGreen here:) -- got a question about Mutual funds/ IRAs/tax -- how and when are mutual fund disbursements taxed on a SIMPLE IRA.

TSC_Mark: Funds within an IRA are not taxed until you withdraw them. But the catch is you normally can't withdraw them until age 59 -1/2.

Otherwise you pay a 10 percent tax penalty. As long as the funds are inside the IRA they can continue to grow tax free.

chat-guest says: Will my online broker let me write covered calls? I use Ameritrade.

TSC_Mark: To my knowledge Ameritrade allows qualified investors to write covered calls, which is the simplest most conservative options strategy.

However, you will be asked to sign a margin agreement and you may be asked to demonstrate an understanding of options trading. The broker does this because it has your best interests at heart.

TSC_Jamie: Let alone its own liability!

vchat-guest978 says: There is one item that I find missing from all surveys of online/direct-access brokerages: whether or not cash beyond the $100,000 SIPC limit is insured or not. In times of financial stress like we have right now, I would regard such outside insurance as quite important if one has a larger account. Are there any firms which do offer insurance for cash beyond this limit?

TSC_Jamie: This is an excellent question; I can direct you to SIPC.com, which explains rules about having more than one account and how much cash is covered in those cases.

But I don't know of brokers that give insurance above and beyond the 100k; let's face it, they don't want you sitting there with your money in cash. They want you trading!

Sorry -- sipc.org.

chat-guest856 says: Is there any effort to force mutual funds to publish their positions in greater detail... either more often and/or more than just the top 10 stocks owned?

TSC_Jamie: There have been efforts underway to make this happen. However, I don't think there's been much headway; funds do publish their portfolios in their semiannual reports.

TSC_Mark: There have also been experiments where funds have tried to be more accountable. But these have been small scale so far.

An example would be www.openfund.com.

chat-guest581 says: Mark, do you think that Datek Direct will have trailing stop losses and time and sales, like MB Trading.

TSC_Mark: I'm not sure. Good question. Generally, an outfit like MB trading is going to give you a lot more choices in the types of trades you can make.

Datek can't compete with the full-featured day trading brokerages. If it tries, the day trading brokerages can easily add even more complicated types of orders.

TSC_Jamie: Please permit me to add something about the "fund names" question from earlier the new SEC rule requires funds to invest 80% of their assets in securities that reflect their name rather than 65%.

Here's a url: http://www.thestreet.com/funds/funds/1261190.html about the topic.

chat-guest547 says: I'm only starting to research mutual funds. There are so many in the cream of the crop that it's hard to differential. I see it as boiling down to word of mouth from those who know the reputation of the respective managers -- is this merely lazy thinking on my part?

TSC_Jamie: Even if it is arguably lazy, it's not unusual. Picking mutual funds has, unfortunately, become as complicated as selecting stocks a great place to start, IMHO is with the columns of TSC's fund junkie, Ian McDonald.

He has written up some good "model fund portfolios."

chat-guest says: Which online broker will let me secure my puts with cash?

TSC_Mark: Just about any broker should allow you to sell cash-secured puts.

By the way, this can be a great way to acquire stock at better than the prevailing price or earn extra income, or both.

TSC_Jamie: Again, please permit me to come back; here is a good column by Ian Mcdonald for a fund selector: http://www.thestreet.com/funds/fundjunkie/1305713.html.

chat-guest says: Will my broker let me use long puts as "insurance" against a stock?

TSC_Mark: Any broker that allows options trading should let you buy long puts. This is an excellent way to protect your portfolio in a volatile market.

Some people sell a covered call at a price higher than the prevailing stock price and use the proceeds from the call sale to help finance the put purchase. By the way this strategy helped a lot of dot-com millionaires protect their holdings during the tech wreck.

TSC_Jamie: And lest I drive you all crazy here's another helpful fund junkie column for the person getting started with funds: http://www.thestreet.com/funds/fundjunkie/1272804.html.

chat-guest978 says: Mark, Ameritrade for one does not allow shorting in the after-hours session, just going long and closing positions.

TSC_Mark: Thanks for the info.

Policies are going to vary from broker to broker and they may also vary from ECN to ECN since after-hours trading takes place on ECNs.

If you're going to try after-hours trading, it's best to do it with a broker that allows you access to multiple ECNs -- that means you'll have a better chance at getting a fill.

Such brokers would be direct-access brokers and they'll be liable to have more liberal shorting policies.

Street-guest says: Thanks for a great hour Jamie and Mark, any final thoughts?

TSC_Jamie: There have been many questions about mutual funds and that's probably a good thing because as many investors have learned, diversification is a good hedge against risk however, keep in mind that not all mutual funds are highly diversified, some are very concentrated so just as with stocks... you need to know what you're getting.

If it's diversification you're looking for, then broad-based index funds, like Vanguard's S&P or total stock -- both of which I own -- can supply that at low cost.

TSC_Mark: Thanks to everyone for attending.

It was great to receive so many questions about long-term investing during a period when the markets are obsessed with each day's performance.

In the long run it'll be long-term investors that get us out of the mess.

So let's all keep the faith.

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