Chapter 1 How to Buy
(Note: I originally wrote this book about ten years ago when Merrill Lynch Blueprint was the only way the small investor could get a break on commissions. I decided to keep the info on Blueprint even though as you’ll see later on, there are a lot of online brokers out there with very low commissions. I guess I’m nostalgic.)
There is an easy way for the small investor to play this investing system. The easy way is with the Merrill Lynch Blueprint Program. The Blueprint Program, formerly called the Sharebuilder Program, is ideally suited for us, the small investor. Briefly the Blueprint Program allows the investor to buy stocks, mutual funds, and precious metals at reduced commissions through a branch of Merrill Lynch, their "discount broker."
Merrill Lynch has over 1,000,000 Blueprint customers. The great advantage of Blueprint is that it allows you to buy and sell as little as $100 worth of stock as my system recommends, at very low commissions.
Here's how Merrill Lynch describes Blueprint:
It's a convenient and inexpensive way to build your investment portfolio of stocks, mutual funds, and precious metals. More than a million people are building shares in their future and preserving the purchasing power of their dollars by participating in the Blueprint Program. Besides helping increase assets, Blueprint offers these benefits:
Small incremental investments in the securities you select allow you to build your portfolio over time as you invest in stocks, mutual funds, and precious metals. You have an opportunity to buy full and fractional shares because you invest by the dollar, not the share amount. The Blueprint Program will buy you shares out to FOUR decimal places. For example your account could show 78.9856 shares. This is a tremendous benefit to the small investor. Investment alternatives allow you to diversify your portfolio among thousands of stocks and closed-end mutual funds listed on the New York, American and Over the Counter Markets.
Reduced brokerage fees on securities provide substantial savings off the regular Merrill Lynch commission charges for stocks. When you purchase stocks through the Blueprint Program, you can take advantage of transaction fees up to 55% less than regular Merrill Lynch rates. Below are the Blueprint rates as of April 1988:
TRANSACTION AMOUNT - BLUEPRINT COMMISSION
See how much cheaper current commissions are!!!! and no limits on $$ amounts of your trade
$ O to $ 125 - $12.50
$ 125.01 to $ 200 - 10%
$200.01 to $500 - 5% plus $10
$500.01 to $1000 - 1.5% plus $ 27.50
$1000.01 to $5000 - 1.2% plus $ 30.50
$5000.01 to $7500 - 1.15% plus $ 39.50
$7500.01 and up - Regular rates
Blueprint also charges $3.85 as a transaction fee for all trades and now charges $30.00 a year for account maintenance. There are no charges for Ready Asset, (money market) transactions.
The basic reason that Blueprint is better for us small investors is that all brokers including discount brokers, have a minimum commission. The regular Merrill Lynch minimum commission (not Blueprint) in August 1984 when I bought 100 shares of a $4.50 stock was $40. A comparison of several discount brokers from 1984 showed that the minimum commission ranged from $30 to $39. Also some discount brokers only dealt in round lots (100 shares).
For us small investors, Blueprint is perfect. If you look at the various charts throughout this book, you'll see that our buys and sells are small most of the time. Blueprint is an easy and inexpensive way to make them.
You always have immediate access to your investments under Blueprint. You may change from one investment to another any time. If you wish to buy or sell, Blueprint is only a toll-free (sorry only in the U.S.) And Blueprint has another advantage . . .
OTHER DISCOUNT BROKERS
Blueprint is a fine and inexpensive way to play the system but it's not the only game in town (actually Blueprint doesn't exist anymore!). There are other discount brokers out there. For investors who start with larger sums (for example $10,000 per stock) the savings can be substantial.
All the charts in this book use Blueprint commissions; if we had paid less in commissions by using another discount broker, our commissions would have been less and our profits more.
Below are the current low commissions for several brokers - one broker - Options Xpress - specializes in options trading.
Brokers on the Web
The Computer Age comes to investing. Now you can do your buying and selling by computer over the Internet. Many brokers and subsidiaries of major brokers offer trading via computer. Most brokers on on the Web which means everybody can access them. Some are on a on-line service (AOL, Prodigy, etc) which means you'd have to be a member on that service to use them.
I don't have any rating for these brokers. There are several investing Usernet groups on investing (misc.invest & misc.invest.stocks where people offer opinions). You should remember we are looking for low-cost brokers. So if you see a low-priced broker, you can bet they probably don't offer a lot of services that a full-service broker offers. You don't need those services because you have the system to tell you what to do and my monthly newsletter and other sources to help you pick the best stocks for the system in the book.
Below are several the brokers I found out in cyberspace. I'll give the essential information you need to find them. Check out their web pages and you'll probably find additional information and if you want, you can probably sign up. Remember to look for services you'll need - does the broker offer stop/loss?, confirm trades?, offer money market fund you can buy and sell from?, let you reinvest dividends into your money market rather than buy more shares.
Below are online brokers you can check out. I tried to put the necessary info you'd need to contact them.
ONLINE BROKER********************************************Minimum Commission*************************
Ameritrade******************************************$.9.99 per trade
Cyber Trader****************************************$9.95 per trade market or limit
E*Trade*********************************************$6.99 - $9.99 per trade
Fidelty*********************************************$Gold $8.00, $19.95 Bronze
Interactive Brokers*********************************up to 100 shares $1, up to 1000 shares $5
Merrill Lynch - See how they got worse since Blueprint! - $29.95 per trade
Charles Schwab**************************************$9.95 - $12.95 per trade
SieberNet******************************************$14.95 per trade
TD Waterhouse (now merged with Ameritrade)**********$9.99 per trade
Bonus - TD Waterhouse gives 50 free trades when you open an account
Terra Nova*****************************************$5.00 per trade
Wall St. Electronics******************************$9.99 per trade
Scott Trade***************************************$7.00 per trade
Options Xpress***************$15.00 for 10 options contracts; $14.95 per stock trade
(Specializes in options trading lots of useful help)