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Reader Questions about the Stock Market – WW #59

I love to answer reader questions because the chances are that many of you have similar questions. For this post I’ve featured 2 great questions about the stock market… one about covered calls and another regarding recommendations.

stock market reader questions

Reader Question:
Andrew, First of let me say thank you for sharing such valuable information at no cost to the reader.

I’m a newbie just looking to begin investing and came across something called “Covered Calls”. After searching and reading online materials about it I now have a basic understand of covered calls but was wondering if you have written an article about this yet and if you haven’t yet, will you?

I’m particularly interested in your take and if you use this concept or not in your investing. Regards

My Answer:
Thanks for reading I’m happy to help. Covered calls is a strategy in the options market which implements margin (investing with debt). I don’t use options now but there are some great strategies to use with them which I haven’t gotten into yet on the blog.

You have to have a considerable amount of cash to use options, so it’s not a great place for beginners to start. Options are also extremely risky due to the debt aspect.

That being said, I know of a fantastic options strategy that is highly effective when you couple it with good stock selection. I may write about it in the future, and I will definitely write a post about covered calls, puts, and other options sometime soon. Thanks for the question.

Reader Question:
I just bought my first shares of stock and would like your opinion. My greatest challenge is knowing which companies to invest in and my greatest fear is choosing the wrong ones.

I feel like I followed all your advice and analyzed as much as I know how before making my selections. Also, I am using TradeKing per your recommendation! Below is my initial investment:

BBOX – 7 shares @ 20.84
ISH – 5 shares @ 27.67
KBR – 6 shares @ 25.18
SVT – 4 shares (tried to buy 20) @ 7.82

This was all I could afford for my initial investment and I plan on following your advice to invest a set amount each month.

How often do you publish recommended buys and who do you look to the most for recommendations on buys? 

My answer:
Firstly, congrats on taking the first step. You’re well on your way.

I can’t legally give you individual advice, but I can say what I’d do. Those picks look great, and I’d be sure to watch my trailing stops closely.

Depending on risk tolerance, the smaller stocks (the ones with market caps in the 100s of millions) may cause nervousness, or may not. These micro caps can be very volatile, but again you’ll limit your downside by watching trailing stops.

KBR looks fantastic, little downside, no debt, just the kind of stock I’d be looking for. The fact that it has a market cap in the billions will make the stock less volatile.

With all that said, I wouldn’t sell out of any stocks you have second thoughts about. Just keep a trailing stop, and worse case if you have to sell, you’ll have more money to reinvest the next month. Most likely, you won’t hit a trailing stop for a while and you might be able to catch some gains.

I publish my own buys monthly in my monthly reports: http://einvestingforbeginners.com/category/my-monthly-reports/.

I don’t follow any particular person’s recommendations. Instead, I read quality investing books and learn “how to fish” instead of “being given a fish”.

I hope all this helps and again congrats! I’m excited for your potential.

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**Reader Questions about the Stock Market – WW #59**