By Moe Chernick
May 2, 2000

If you are new to the Foolish Workshop, you have probably been amazed by some of the great results that these screens have achieved. However, the idea of actually pulling the trigger and starting a Workshop portfolio, especially if you have never invested in individual stocks without a broker, can be intimidating. So today let's explore the first steps of putting together a portfolio.

Issue 1: How Much
The size of your initial portfolio depends on your situation. The absolute minimum investment, though, would be around $2,000. That would be my recommendation for someone who is new to this kind of strategy and is willing to restrict his portfolio to just four stocks held for a minimum of a year. Remember, the Workshop is not for novice investors.

If you are a more sophisticated investor, I would suggest starting with a minimum of $12,000. A $12,000 investment is enough to appropriately fund a 12-stock portfolio using three screens, which will give you some diversification. Even at this level, you would want to be very careful when investing in strategies that call for rebalancing more often than yearly. See "Costs of Screens" for an explanation of why you need a sizable stash before you trade frequently.

If you do not have the minimum amount to invest in screens but are building up your base, a good place to put your money is in an index fund or "index shares" that track indices such as the Dow, the S&P 500, or the Nasdaq 100.

Issue 2: Finding a broker
To keep investing costs low, it is best to open an account at an online discount brokerage firm. If you are starting small, try to keep your commissions under $15 per trade. The Discount Brokerage Center offers help in finding a broker. If this is your first venture into individual stocks, you might want to look for a broker that offers telephone trades -- just in case.

Issue 3: Finding the stocks
Each week we run the screens and publish the top 10 stocks from each screen. Each Friday afternoon, a new list of stocks come out under the Current Rankings link to the right of this column.

Issue 4: When to Buy
Many people like to do their trades on Friday afternoons or on Mondays because that is when the new list of screens is the freshest. However, this is not necessary.

Don't place your trades when the market is closed. Popular stocks often jump in price at the market open due to a pile up of overnight orders.

Some people prefer to start their annual strategies in December or January because those portfolios have had the highest returns. In my opinion you should not wait until the end of the year to get started because the odds are, it will cost you money. Most of the time, you will be better off starting now, and rebalancing your annual strategy for the first time in December or January even if your first year is a bit short.

Issue 5: How Much to Buy
This is one area where many new investors are confused since they think that stocks need to be bought in round lots (lots of 100 shares). This isn't true and it's a good thing, with so many Workshop stocks selling for over $100 these days. To decide how many shares of a stock to buy, get a real-time quote available from your online broker. The quote will list three important prices: the current price (or last trade), the bid price, and the ask price. To get the number of shares you want to buy, take the dollars you want to invest minus the commission you will pay for the trade, and divide that number by the ask price. Round down (you can't buy fractional shares) and that's how many shares you buy.

It is not really that difficult to open an account and place your first trades. The hard part is getting over the fear (created by the Wise) that it can't be done without them. Next week, I will discuss the first steps in putting together your initial portfolio from our list of screens.

Until next time, Fool on!