Online Trading: Buying My First Stock

Time to buy my first stockBig news – I have officially taken the plunge and have become a shareholder! Allow me to introduce you to my first stock: Dollarama (DOL.TO), five shares of which I snapped up on the TSE last Friday at $60.47 each.

There are a few reasons why this particular stock made the cut. First, it’s a company that I recognize, and have had my own positive, personal experiences with (it’s an absolute mecca for those setting up an apartment on the cheap). Second, I think it’s poised for growth – big time. How did I come up with this grandiose future prediction? Rather than a crystal ball, I dove into Dollarama’s background.

The Company Lowdown

Dollarama is a family-owned, Montreal-based discount retailer with merchandise priced between $1 and $2. The company is part of the consumer-defensive sector, and employs 14,824 people at 721 locations across Canada.

Dollarama debuted its IPO in 2009 at $17.50, and share prices have ballooned since. While the perfect time to invest in this company for a BIG payoff may have been three years ago, I’m both comforted and motivated by their track record of revenue growth year-over-year. The company saw a net income boost from $73,000,000 in 2010 to $117,000,000 in 2011, and that has grown further still to $173,000,000 this year. As of the fiscal period ending in April 2012, sales have increased 14.2 per cent, and expansion plans are aggressive, with 17 new locations introduced this year. As earnings per share have also steadily increased, why should I believe this coming year to be different?

Keeping Tabs On Change

However, one change in policy has caught my eye – as of August this year, Dollarama introduced a higher price point for some non-grocery items, at $2.50 and $3. Whether consumers will be dissuaded by shelling out slightly more on already rock-bottom prices is something I’ll need to keep tabs on.

The company also received approval for the cancellation of  2,583,264 common shares in June –  a move the company believes will increase shareholder value. Let’s hope they’re right about that!

Assessing My Strategy

I’ve mentioned that this stock won out partly due to familiarity. While it may not be the most technically sound method of choice, I was drawn to the familiar face amongst a sea of commodities on the TSE – hey, you have to start somewhere! While at first glance it appears to be an expensive stock with a high P/E of 24 (compared to the industry average of 16), I believe it will continue its upward price trajectory over the year to come – a great fit for my “wait and see” approach.

I Need A Dolla, Dolla

My mind was made up – but buying Dollarama wasn’t as simple as going with the moment’s snap quote. Rather, making my move became a lesson in patience. I’d been eyeing DOL.TO for about a couple of weeks, but had been initially frightened off due to its high P/E and August’s downward trend. What finally prompted me to move, though, was checking out the company’s performance on a six-month candle chart. Seeing as the stock price has gone up steadily since the IPO, I figured checking out more recent support and resistance indicators would clue me in to a good entry price.

How Does Support and Resistance Work?

Analyzing these two factors determines the “ceiling” and “floor” of your stock’s price – invisible limits placed on price fluctuations by the nature of the market. For example, looking at a charted area of time, you may notice a stock has a hard time breaking above a specific price point. This is the resistance, and it generally means that shareholders recognize a peak in value, and sell as a result to reap the profits – and prices begin to fall. On the flip side, support is a barrier preventing a stock’s value from dipping too low – traders watching the stock snap it up when it reaches competitive entry-level prices, thereby driving the value back up.

Making My Move

In the case of Dollarama, I determined the resistance barrier for the past six months to be around $65 a share, and the support at $60. I attempted by first order on Questrade’s IQ Web platform on September 6, as bids hit the $60.95 mark. Feeling optimistic, I placed my order of five shares with a stop limit at $60.55 – turned out, that was wishful thinking. Twenty four hours later found me with a cancelled order – and still no shares. Checking back almost hourly on September 7, I finally saw what I was looking for: a window at $60.47. Mine!

How We’re Doing… So Far

In the week to follow, I’ve seen fairly flat activity, bobbing slightly above and below my buy price. I’m feeling confident, though,  that I’ve come in on a good thing and at a smart entry point. If time is any indicator, we should be going up in the short term, and higher still in the long. Check in next time to see if I’m on the money!

Are you an online trading newbie? Read the previous entries to my series and follow along as I make heads and tails of the stock market:

Set Rules For Risk Management

Trading Stocks with Mobile Apps

What Is The Forex?

Picking Your Stocks? Do Your Homework

Choosing Your Best Online Brokerage

Learning to Trade Stocks Online: A Newbie’s Experience

Do you have trading words of wisdom to share? Shoot us a comment, or check us out on Facebook and Twitter!

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