What stocks to invest in
There’s some jargon involved in placing an order to buy or sell a stock, but the process is relatively simple. I’m going to proceed as if the order were being placed online, but you’d give identical instructions to your broker over the phone or in person.
An order consists of:
–the name, or ticker symbol, of the stock you want to transact in
–whether you want to buy or sell
–the number of shares you want to transact
–how long the order will be in force
–the type of order
–in the case of a sale, whether or not you want to specify the shares that will be sold.
This applies only to taxable accounts.
I believe that the merits of the stock should govern the buy or sell decision. My experience is that when the main reason an investor doesn’t sell is to avoid paying a capital gains tax, trouble invariably follows.
But there may be situations, however, like in trimming a position that has gotten too large, where it’s important to choose the best tax lots to dispose of. The general rule I’ve followed is to recognize the largest loss or smallest gain. But your own tax situation will dictate what you should do.
If you don’t select lots, the profit/loss your broker reports to the IRS will be based on the average cost of your entire position.
The two basic duration indications are:
–day, meaning the order is good only until the end of the trading day on which you place the order (your broker may also have provisions for extending the trade into after-hours trading), or
–good ’til cancelled (GTC), meaning that, if unfilled, the order will stay valid until you cancel it. Despite the name, your broker may require you to periodically revalidate the order. GTC is normally only important with limit orders. Unless you’re dealing with a highly illiquid stock, or in gigantic amounts relative to daily trading volume, market orders are usually executed pretty quickly.
There are several other types of order, none of which I’ve ever used:
–fill or kill, meaning the broker will buy as much of the order as he can immediately and cancel the remainder
–immediate or cancel, meaning the broker will cancel the order if he can’t fill all of it immediately
–on the open, meaning the first trade of the day
–on the close, meaning the last trade of the day.
Limits and stops tomorrow.
– What stocks to invest in