March 13, 2000

Barron's Features

Now, Ben Graham Fans
Can Also Trade Online

How would you like to roll your own mutual fund? Two new online brokers, BUYandHOLD.com¹ and Netstock Investor (http://www.sharebuilder.com/²), effectively do that, by allowing investors to purchase stocks in dollar amounts rather than by the share.

For instance, you can buy $500 worth of Berkshire Hathaway -- whose Class A stock recently was quoted at $42,300, while its B shares were fetching a mere $1,400 -- and the fractional share would be held in your account. Commissions are low for these types of purchases. BUYandHOLD.com charges just $2.99 per transaction, and Netstock has three commission levels ranging from $1 to $5 per transaction.

You can set up your investments so that you purchase a set amount every month of a particular security, so you automatically dollar-cost average. You can create your own mutual fund this way, picking a variety of stocks in several different sectors of the market to invest in. Both brokers currently have a limited universe of stocks available to trade, but you can automatically utilize dividend reinvestment plans when you make a buy. And index-fund fans can purchase Spyders, Diamonds, WEBs, those increasingly popular exchange-traded baskets representing the S&P, the Dow and non-U.S. markets.

To qualify for the low commissions, however, you can place only market orders and you have to wait until the brokers' "trading window" is open to execute a trade. BUYandHOLD.com has two trading windows per day, 10:30-11:30 a.m. and 2:30-3:30 p.m. Eastern time. Netstock places buy orders only twice a week, but you can sell out of a position at any time -- albeit for a much higher fee ($19.95, more than many online brokers).

We prefer BUYandHOLD.com's simplicity to Netstock's system. BUYandHOLD.com executes buys and sells for $2.99 per transaction, though you're at the mercy of the market price on both sides. Netstock's commissions start at $1 per transaction for custodial accounts, $2 per transaction for recurring buys of the same stock, or $5 for a one-time purchase.

The philosophy behind these sites is that small movements in the stock price really don't matter for the long-term investor.

Because these sites are so narrowly focused, and their trading screens aren't designed for the quick in-and-out trader, our usual method of rating brokers results in very low scores. But we like the idea of regularly putting a chunk of change away for long-term dollar-cost buying, to augment your regular online brokerage account.

-- TWC

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