equities | Financial Crooks

It’s very easy to place an order to buy stock using a BMO InvestorLine account, a RBC Direct Investing account, or a CIBC Investor’s Edge account. In fact, it may be a little TOO easy. Before you click that Submit Order button, there are some things to stop and consider. This article discusses a few things to do while you get ready to buy shares.

Things to Decide Before You Place an Order to Buy Shares

How many shares do you want to purchase?
Do you want to buy all of your shares in one purchase, or ease in over several months? (Note that each time you buy or sell shares you will have to pay a trading commission.)
What is the maximum price you are willing to pay per share?
Are you willing to take a risk of the price going up above what you expect to pay?
Are you willing to pay “too much” if the price drops below the current ask price if you set a fixed price to buy at?
What is your cost (commission) to make a purchase trade?

Remember that if you place a large order to purchase a stock that has a low volume of trades, you may not be able to buy all of your stock in one business day. If so, you will have to pay one trading commission for each day it takes to fill your order. (To be honest, though, if you can afford to buy that many shares I doubt the trading cost is going to matter to you!) Click to read a bit more about “partial fills”.

Decide Within Which Account You Wish to Own the Stock

You may have a non-registered regular trading account with your self directed brokerage. You may also have a TFSA account, a RRSP account and a RESP account. You will need to select which account the new shares are for before you make the purchase.

You can only make the purchase with cash already in the account, or with cash your will move into the account before the trade settles. If your contribution room is zero for a TFSA, RRSP, RESP or other registered account, remember you can not simply add more cash to the account. In that case you would have to sell another investment to be able to re-invest the cash into a new set of shares.

Click to review an article which describes How to Review Your Holdings in a BMO InvestorLine account. You can follow its instructions to:

check the Cash Balance in your account
check the status of your other investments

Funding Your Purchase

If you want to sell a mutual fund to pay for the stock, it will take at least today (if today is a business day, and if you are entering the order before the mutual fund cut-off time, usually 2:00 P.M. ET.) plus one additional business day for the cash to land in your account the morning of the second business day.

If you want to sell a deposit in a high interest savings account, it will also take today (if it’s a trading day) plus at least one additional business day for the cash to be ready to spend. For BMO’s own AAT770 there was an explicit warning message several times that it might take longer to get the cash. In my test, however, the cash was reported properly in my account on the morning of the second business day after I placed the sell order. This is not a guarantee it will work that way the next time though!

If you want to transfer money in from another account be prepared for it to be slow. Personally, I wouldn’t execute the trade until the cash was in the account.

If you want to make a new contribution I wouldn’t execute the trade until the cash was received. I find it slow to get new money into my account.

Review the Pricing History for the Equity

It’s usually a good idea to do a quick review of how the stock has been trading before entering a purchase order.

Click to review an article which describes How to Check the Trading History for a Stock Using InvestorLine. You can follow its instructions to:

Review the day’s information about bid, ask, high, low, open and previous close.
Look at the 52-week high and low, the EPS and P/E ratio.
Check today’s trading history.
Check a chart of the trading history for 5 days; 1 month; 6 months; 1 year and 5 years.
Check the dividend information.

Review the Dividend Yield, Timing and Ex-Dividend Date to See If You Will Get Paid the Next Dividend

If it’s of interest, check the Ex-dividend date. You must have your purchase request filled BEFORE this date to receive the next dividend. So if it is April 29 and the Ex-Dividend date is April 29, it’s already too late to get the next dividend payment.

Check the Dividend Yield based on the current price, if it’s of interest. (Note the yield will flip up if the stock price drops and flip down if the stock price rises. You won’t get that exact yield unless you pay that exact price.)

Also remember that for some shares, there is often a dip in price both the first trading day after the stock goes Ex-dividend and the day the dividend is paid. You may want to defer your purchase to one of those days, although market conditions could eliminate any dip with no warning.

Last Thoughts Before You Place Your Buy Order Using a Self Directed Brokerage

So before you place your purchase request, you should have considered

How much you can pay and therefore what is the maximum price you can afford to pay for each share
What your commission (fee) is to buy the shares
Where the cash is coming from to pay and whether it will be in the account in time
Whether you will get the next dividend payment or not and whether that matters to you
Whether the stock is currently trading in a price range that appeals to you or whether it’s trading higher than you are prepared to pay

Related Reading

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Are there other considerations that should be made before clicking on that Submit Order button? What have you learned, perhaps the hard way, about purchasing shares? Please share your investing insights with a comment.

When you buy or sell an investment with BMO InvestorLine you will usually get a statement in the mail [or by the MyLink secure email system] for the transaction. But when you receive a dividend, interest or distribution payment the only record is your e-statement and a line item in your Transaction History. I find the Transaction History screen quite useful as a simple list of everything going into and out of my account. Unfortunately, InvestorLine only keeps a 24-month version of the report available online. So periodically, I save the data to my own computer to keep my long term records simply and easily available. There are a few things you should be cautious about in the report, though.

What Does the Transaction History Report for my BMO InvestorLine Account?

Here’s a quick refresher of what info is stored in the Transaction History:

Transaction Date
This is the date you issued the order, earned the distribution or payment, requested the contribution or withdrawal etc.
Settlement Date
This is the date you became the owner on record for a new investment, or ceased to be the owner.
Activity Description
This is a simplified description of what happened. For example: Dividend. Interest.
Description
This usually is the (shortened) name of the company that is involved in the transaction. For example, K-Bro Linen or Dundee Investment Sving Acct.
Symbol
This is the trading symbol for a stock or mutual fund. For example, AW.UN for the A&W Revenue Royalties Inc Fund T.
Quantity
If the transaction involves a volume of shares or units etc that value is reported here.
Price
If the transaction involved purchasing or selling units at a specific price that value is reported here.
Total Amount
This is the total dollar value of the transaction.

Cautions about the InvestorLine Transaction History Report

While the Transaction History screen and report is very useful it does have some quirks you should be cautious about.

Reporting the Sales of Fractional Mutual Fund Units

The method of reporting the sale of units of a mutual fund can be misleading. As I detailed in How to Sell a Mutual Fund Using BMO InvestorLine, I found the report of the sale of one of my funds confusing.

I owned both whole units and a few fractional units. For clarity, I’ll say I owned 100.25 units of ABC fund. When I sold, the Transaction History reported I had sold 100 units for $1002.50. It then reported a day later that I had sold 0.25 units for $0. It looked like I wasn’t paid for the 0.25 units. In reality, I was paid $1000 for the 100 units and $2.50 for the 0.25 units. It just wasn’t reported clearly.

Neither the Transaction Date nor the Settlement Date is the Actual Activity’s Date

BMO InvestorLine back dates deposits to the date they should have been available in your cash or trading account.

That can be a bit frustrating when trying to determine exactly when you really received something. For instance, when one of my stocks split off a sub-company to shareholders it was supposed to be effective on a certain day, call it June 1. The shares of the new company did not appear in my trading account though till about June 9. When they appeared, the transaction was back dated to June 1. I understand why they did that, but it does make it a bit confusing.

Dividends are Not Really Paid on the Transaction Date

Again, the dates can be a bit misleading. A dividend payment or other distributive payment will not show up in your cash account or in your transaction history until at least the next day. When it is posted, though, it is back dated to the true distribution date. Again, while not a major issue it is a minor annoyance.

Oversimplified Activity Descriptions

The activity description may be so simplified that it’s not really accurate. For example, the transaction history may report: Interest when a payment was actually not interest.

The 2012 monthly distribution from AW.UN, for example, is listed in the Transaction History as Interest. According to the tax information for 2012 provided on A&Ws on website, the payment is actually a Non-eligible Dividend.

Please look at your more detailed statements (such as a T3) if you need to confirm what type of distribution you received.

Foreign Currency Transactions

To keep the screen simple, InvestorLine does not report everything about a transaction visibly on the screen.

I’m trying to determine whether InvestorLine reports whether a distribution or payment was originally made in a foreign currency on the Transaction History screen and what foreign currency conversion rate was used. (It shows this information on the e-statements.) If your account is in Canadian dollars only, then the transaction will be reported in CDN $ after conversion.

It’s tricky because the Canadian stocks I own which pay dividends in US dollars will directly pay the dividends in Canadian dollars if advised to do so by the brokerage. I need to own one of the many Canadian resource and mining stocks that simply pay their dividends in USD and let the brokerage handle the conversion. I don’t particularly want to buy one of these stocks just to check, though! Maybe I’ll have to. Hmmmmm. (If you are in this exact situation, please let me know what InvestorLine is reporting by adding a comment below. It would be greatly appreciated!)