"mandg" gscanga[at]email.uophx.edu, you asked:

<< <i> Do you know how the $3/share of MSFT will be distributed? At owning 100
shares, I stand to make $300!! I was just curious as to whether that amount
would be cut as a check and sent to me or just added to my Scottrade
account. This'll be my first tax year owning stocks so I'll probably be back
in this newsgroup again...</i> >
It'll go straight into your Scottrade account. You'll see it show up in your
account's Financial History section. You should be able to go on line and
check it out.

"mandg" gscanga[at]email.uophx.edu, you asked:

<< <I> OK- I have another dumb question. I knew enough to invest in stock at my
age
(31)so I joined Scottrade and bought 100 shares of MSFT. The price at the
time was $25.68 and as everyone can see it's above $28 today. Logic tells me
that if I sell those 100 shares I'll make money on the difference in these
prices- simple enough.

Now however I'm wondering if there's any other way to make money on owning
stocks. Something like get a quarterly or annual payout of a percentage of
revenue to all stockholders or something like that.</I> >
As was mentioned previously, different companies pay dividends and many don't.
Whether they do or not is at the discretion of the company. Some companies try
to pay dividends regularly and many never have and don't plan to. MSFT has
been one of those companies that tend not to. Though this year I believe MSFT
has declared a dividend payout for the first time.

Also as previously mentioned, when one owns stock as you do one can "sell" a
call option contracts (known and selling a Covered Call). When done properly
this is done to reduce some of your risk AND give you some income from the
stock you own that you don't plan on selling. But you DO need to know what
you're doing to do it right. It's really not all that risky IF it's done
right. When done correctly the Call expires worthless to the buying of the
Call, you keep the stock as is and you've received a little income from the
sale of that Call. At the time of that sale, the money simply goes into your
account as cash.

<< <I> I know I'm showing my
ignorance because I dove head first into something that I knew little about.
Being 31 I'd like to sit and watch the stock price climb exponentially over
the next 20 years but, with MSFT, that doesn't seem plausible since it's
only gone up $2 in about 1 year. If there's no other way to make money at
owning stock I should just invest my money into an interest bearing CD or
something, right?</I> >
Well, as of closing this Friday, MSFT closed at 29.31. So, if you had sold it
at that price you would have made $3.63 per share. That's a return of over 14%
.. . . . which is certainly better than what you might get on any interest
bearing account or CD. But, such return comes at some risk that interest
bearing accounts don't have. So, you simply need to be well aware of that
risk.

There are indeed other ways to make good returns in the stock market on that
same MSFT stock. But it DOES require some good knowledge . . . .and I might
add, to do so with limited risk is something you can't just "sit and watch."
You'd need be an active trader rather than a long-term investor. For example,
you can trade Call and Put contracts. Calls increase in value with the stock
goes up and Puts increase in value when the value of the stock goes down. So
one can make money if on buys and sells either at the right time no matter
which way the stock might go. Again, let me emphasize that investing/trading
Calls and Puts requires a very good understanding how it all works and I might
point out that it's not rocket science either.

Buying Calls can actually reduce your market risk since you don't need to put
all your capital at risk to realize the same earnings. As in your case, you
bought 100 shares of MSFT. Well, you could have bought 1 Call contract (which
equals the same 100 shares) at a much lower price, like maybe $2.50 per share.
So instead of tying up $2,568 in 100 shares of stock, you might have only tied
up $250. As the stock moved up to its current price the share price for the
Call may have moved to $4.00 per share. So, if you sold the Call at $4, you'd
have made $1.50 per share . . . . or a profit of 60%. The balance of your
$2,568 you could leave in you cash account earning a safe interest rate or
investing more in the same or other investments. The point of what I'm trying
to illustrate how a Call might reduce your investment risk.

Once one has the knowledge and the tools, trading Calls and Puts doesn't have
to be all that much of a risk, as many people believe. But let me point out
too that this kind of investing/trading is not a passive activity as you
suggest you're interested in. So, I doubt that this kind of thing would be
your cup of tea. Currently, you're probably best suited to long term investing
in mutual funds until you get enough mass and knowledge to work with stock and
more advanced techniques.

I just wanted to answer your questions and let you know that there ARE other
things out here for making good returns. It all goes back to that old axiom
that knowledge is power. And it takes some time and effort to acquire that
knowledge. So, don't be too anxious to jump the gun on things, as doing so can
be very costly.

Six months ago I started my 12 yr. and 17 yr old sons in short term trading and
helping him understand how to go about it. I gave them $1,000 to trade with
and to date my 12 yr old is up almost 42% on active trading over this time
period. My older son has not be anywhere near as active (likes to buy and hold
more) and is up about 10%. They often ask me for advice, but I don't give them
any as I'm making them make their own decisions so they'll learn. As long as
they use the tools I gave them they'll do ok. As I've said, it's really not
anything like rocket science.

Michael Sullivan <michael[at]bcect.com> wrote:
- quote -

I am giving him an alternative. He's young and doesn't have much to
invest in the market yet. Selling covered calls is a conservative
strategy and reduces the risk of owning stocks.

- quote -

Yes, it is important that plain stock investing be mastered since
options won't protect you if you buy over-priced stocks.

- quote -

Investment professionals do worse than the market averages. A person
needs to do research on their own and try out their ideas in order to
become a good investor.

--
Ron

Ron Peterson <ron[at]shell.core.com> wrote:

- quote -

I realize this is a correct literal answer to his question, but...

This guy apparently doesn't even understand the logistics of dividends
yet, and you are suggesting he mess with options?

To the OP -- listen to Tad. You don't want to touch options until
you've mastered the basics of plain stock investing. And once you have,
you'll be leery of them except for special cases.

Options are a zero-sum game, the only way to make *any* money long term
trading options is either to insure risk or guess the market better than
everybody else. What this guy is suggesting is something called writing
covered calls, it's actually not an especially risky strategy, but it
may not be what you want. The idea is that you sell a limited time
contract for the right to purchase N shares of MSFT at a particular
price (generally a little higher than the current trading price -- this
is referred to as the exercise price or the option price).

The buyer is hoping that MSFT will go up above the exercise price, s/he
will then exercise the option and buy your stock at the agreed price.
What *you* are hoping is that MSFT never goes above that price and the
option doesn't get exercised, because then you make what you were paid
for the option as pure profit. If it goes way up, you lose out on the
gain. This isn't a bad strategy if you're stuck (say for tax reasons)
holding onto a stock that won't likely go high fast. You might make
more money selling call options than just keeping the stock. But you
are giving up your potential gains, and the amount of money you get paid
for your call option is based on how often (and by how much) the buyer
expects the underlying security to go higher than the exercise price
within the contract period. The more volatile a stock is and the better
the market judges its growth prospects, the more they will pay you for
those call options.

Basically, you are betting that you know better than the market how
volatile your stock will be. When you are very new to investing, it's a
good first approximation to assume that the market as a whole knows a
whole lot more than you do about what is likely to happen to a given
security, since something like 90% of all trading decisions are made by
investment professionals.

But be really careful, a lot of option trades are *huge* risks. Writing
uncovered call options is incredibly dangerous because it puts you on
the hook to sell stock that you don't now have. If it triples and
somebody exercises the option, you have to go buy it for that very high
price, and then sell it at the lower price. Even the less risky tack of
purchasing options, is highly speculative. You may pay $100 for the
right to buy 100 shares of X stock at some price. If it goes a couple
bucks above that price, you double your money. OTOH, if it doesn't hit
that price at all, you lose everything.

Even when you are quite knowledgeable, most people will use options very
sparingly -- a very small pct. of your portfolio, primarily to hedge
risks or make speculative bets (but remember, those speculative bets are
more like gambling than like normal investing)


Michael

mandg <gscanga[at]email.uophx.edu> wrote:
- quote -

In that case, capital gains taxes for short-term holdings are different than
the capital gains taxes for long-term (> 1 year) holdings. Short-term
capital gains taxes tends to be more than your long-term capital gains
taxes.

Of course, any decision to hold or sell stocks should be based on what
you think you'll make after taxes, and not to minimise your tax rate.

If you think that Microsoft's price will fall, wiping out your paper
profits, sell now, and pay whatever tax rate the gov't charges you.

If you think that Microsoft's price will remain the same or rise
slightly, it might be better to hold on to the stock for over a year,
depending on your tax setup.

Hope that helps.

--
Want to listen to new music?
Why don't you look at iRATE? icq: 34583382
http://irate.sourceforge.net/ msn: dasunt[at]hotmail.guess
jabber: dasunt[at]theoretic.com

mandg wrote:
- quote -

Dividends for stocks that you hold in a brokerage account (like
Scottrade) will land in the account automatically, in the money-market
account or whatever cash account is part of the account.

Many brokers allow you to automatically reinvest dividends in the stock
that paid them. So if you want the cash, you might want to confirm that
your account is NOT set up for "AUTOMATIC DIVIDEND REINVESTMENT." And if
you want the dividend reinvested (it'd be at no commission) see if
Scottrade offers that.

Either way, keep in mind that this special dividend is kind of a wash
because the value of your stock is going to go down by $300. An owner of
a share of MSFT at $29 today really owns:
$26 of MSFT + an IOU for $3, paid in early December
After the dividend the stock price will be adjusted down by $3.

Normally dividends are much smaller, & these "ex-dividend" price
adjustments are so small that the day-to-day variations in the price of
the stock drown them out. This one will be an instant three-buck drop.
That's why I say that this one is a special case.

-Tad

mandg wrote:
- quote -

Added to your scottrade account

Thank you for the insight Tad. That's very useful info.

Do you know how the $3/share of MSFT will be distributed? At owning 100
shares, I stand to make $300!! I was just curious as to whether that amount
would be cut as a check and sent to me or just added to my Scottrade
account. This'll be my first tax year owning stocks so I'll probably be back
in this newsgroup again...

And thanks for the tip on options - when I read those responses I began
scratching my head even more.





"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:7iuid.17761$6q2.451[at]newssvr14.news.prodigy.com...
- quote -



======================================= MODERATOR'S COMMENT:
Please trim the post to which you respond.

mandg wrote:
- quote -


It's called a DIVIDEND, and Microsoft does pay one. It amounted to $0.32
per share over the past year, which is a YIELD of about 1.1%, based on
the current stock price (32 cents/29 bucks = 1.1%). You can find this
info on Yahoo or any other quote web site.

Many stocks pay dividends, especially older and more-established ones.
And in theory all stocks will eventually need to pay them, once the
company makes enough money and runs out of excuses for blowing the cash
on other things.

And sorry to complicate things, but MSFT is an unusual case...they have
a ton of extra cash so they recently declared a "special dividend" of $3
per share. So if you don't sell the stock before Nov 15 2004 you'll get
a $3 per share dividend on Dec 2 2004. The stock price will drop by
$3.00 after Nov 15, that's called "going ex-div." You'll be taxed on the
$300 you receive for the 100 shares you own, and you'll report that
income on Schedule B of your federal tax return. Info on the special
dividend:
http://www.microsoft.com/msft/FAQ/faqdividend.mspx

To answer your question, as you've seen with MSFT the way you make money
from owning stocks is:
1. buy it for one price and sell it for a higher price (this is also the
way to lose money in stocks - when the price goes down)
2. collect dividends while you hold the stock

The combination of these two is the TOTAL RETURN from owning a stock, or
a stock mutual fund. That's how you make (or lose) money in stocks.

I gotta say, someone who doesn't know what a dividend is should be
buying mutual funds and avoiding individual stocks until you learn
something about them. This is Investing 101 and just the tip of the iceberg.

-Tad

PS some other posters mentioned options...don't even think about options
at this point, they're not appropriate for a beginning investor.

mandg <gscanga[at]email.uophx.edu> wrote:
- quote -

Its called a dividend. Certain stocks from certain companies provide
them. Not all companies provide dividends, not all stocks from the same
company provide dividends, and dividends can fluctuate.

- quote -

Its gone up 9% in one year. The S&P 500 is up 1% over the year, and the
S&P 500 is up by about the same amount. So its done better then the
majority of the market.

CDs are under 3% a year. Now, figure out your broker fees, figure out
the risk (CDs are much, much lower risk) and see what made more money.

If you had any credit card debt during that year, you missed an
opportunity to reap a guaranteed return of your APR by not paying them
off. That tends to be around 20% a year. Which means you have a net
loss of 11% or so on any credit card debts you didn't pay off.

I would call a 9% year gain in a bear market rather good. Most
knowledgeable people would agree. On average, counting bear and bull
markets, Wall Street does an average of 10%-12% annually.

Your problem appears to be that you invested about $2600 without having
any clue what you were doing.

I would recommend finding a good investment book about stock, bonds,
mutual funds, and index funds.

You seem to have no understanding how stocks work, and although you were
lucky this time, you could have easily lost a good percentage of your
investment. DON'T INVEST IN SOMETHING WITHOUT KNOWING WHAT IT IS AND
WHY YOU ARE DOING IT.

I hate to insult the honest, hardworking financial planners and brokers,
but do your homeworker before visiting a financial planner or picking up
a book. Using books for examples, "Rich Dad, Poor Dad", "Motley Fool
Guide to Investing", and "Beardtown Ladies" are/were all popular books
that have had serious questions raised about their credibility. In the
same light, some (not all) financial planners are more about steering
you into choices that make money for them, not you. Brokers can be the
same way -- they always make money when convincing you to trade, you
don't.

I strongly recommend getting your personal finances in order, if
you don't already. Figure out where you are spending money, and if its
a good or poor use of your money. Its amazing how much spending you cut
without feeling it. Some of the spending can be cut without any changes
in the quality of your life -- taking 15 minutes to call around for auto
insurance quotes can save you a hundred dollars a year. While I don't
agree with large parts of "Your Money or Your Life" (especially the
investment advice), many people find its financial planning advice very
helpful.

For long-term investing, I prefer a certain popular index fund. Other
people here probably considers that a poor choice, and their reasons are
valid as well. Heck, in certain circumstances, I consider it a poor
choice. But I know my reasons for preferring that fund, and I know
why its a target for my money.

Since you are ignorant about investing, you need to educate yourself
first before deciding where your money will go. Devote a month's worth
of weekends to learning the basics. Find some recommended books. I
advise looking at books which are 5 - 10 years old. In addition to
being able to search for reviews on groups.google.com and low-rated
reviews at amazon.com, its simple to track how their investment advice
did on paper over the past few years.

Out of the limited amount of investing books that I've read, "Investing
For Dummies" seems to have been a pretty good introduction, even if it
tends to digress. I wouldn't invest any money based on that book alone,
but it will give you an overview of the basics. Other people here will
probably recommended better books then this, so watch for their advice.

"A Random Walk Down Wallstreet" also appears to be a good book, but I
haven't gotten around to reading it.

While slightly flawed, "The Millionaire Next Door" is an informative
book, but its not neccessary to read it for financial planning. I would
read it for the perception and facts about wealth in America, more than
for any investing advice.

[ All of the above books should be available at your local library, or
through an interlibrary loan. At the worst, it should be easy to find
them used, so don't waste money on buying them new. Any updated
information can be found on the web. ]

Just my $.02,

Jesse Meyer

Disclaimer: The above is not any professional advice. As with any
financial advice, its possible to lose your shirt.

--
Want to listen to new music?
Why don't you look at iRATE? icq: 34583382
http://irate.sourceforge.net/ msn: dasunt[at]hotmail.guess
jabber: dasunt[at]theoretic.com

- quote -

You could sell (or buy) options on those stocks.
--
Robert J. Romano, CPA
Arlington, Massachusetts

mandg <gscanga[at]email.uophx.edu> wrote:
- quote -

If you would have bought MSFT 5 years ago, you would have lost $15.

- quote -

You can do better by selling calls against the stock that you own.

Newsgroup misc.invest.options has some posts that will help you get
started.

--
Ron

OK- I have another dumb question. I knew enough to invest in stock at my age
(31)so I joined Scottrade and bought 100 shares of MSFT. The price at the
time was $25.68 and as everyone can see it's above $28 today. Logic tells me
that if I sell those 100 shares I'll make money on the difference in these
prices- simple enough.

Now however I'm wondering if there's any other way to make money on owning
stocks. Something like get a quarterly or annual payout of a percentage of
revenue to all stockholders or something like that. I know I'm showing my
ignorance because I dove head first into something that I knew little about.
Being 31 I'd like to sit and watch the stock price climb exponentially over
the next 20 years but, with MSFT, that doesn't seem plausible since it's
only gone up $2 in about 1 year. If there's no other way to make money at
owning stock I should just invest my money into an interest bearing CD or
something, right?

Thanks in advance for the insight-