I’ve been thinking about trading in stocks and bonds lately.  For example, E-trade charges a $12 transaction fee every time you buy and every time you sell a stock.  This means that to buy and sell one or even a million shares of stock, it would cost you 24 dollars in transaction fees. 

So, if you have 10 dollars to trade in stocks, you can buy one share of stock at $10.  If you sell it at $11, then you have made $1 in gain.  But, you would have to worry about the $24 dollars of transaction fees.  This means that you would incur 1 dollar in gain, but would have 24 in transaction fees.  This would leave you with a net (23) dollar loss.  So, the less money you have to trade, the larger impact the transaction fees have in determining when and where you trade.

But what if you had 1,000,000 dollars to invest.  You could buy 100,000 shares at $10.  Once the price increases to $11, you have a $1 profit per share.  This means that you would have 100,000 in profit, plus the minimal $24 transaction fee.  You net gain or loss would be $99,976.  So, the more money you have, the smaller impact the transactions fees have in determining your trading strategy.

So, those with more money to trade can take advantage of small changes in the market.  This is how it works.  The stock market adjusts stock prices based on supply and demand.  If a billionaire purchases 100 million in stock, the public market is going to react in that it seems as though the demand for that stock has gone up.  Since there is a limited amount of outstanding shares, the price of that stock goes up…and more people buy it!  So, our billionaire friend, then sells the stock at a small profit per share.  But, due to the fact that he has so much money and so many shares involved, he loads up on profit.

One caveat to this scenario is the fact that if he had purchased Dell stock in the 1990’s and sold all this stock for a small profit in 1991, he would not have reaped the advantages of holding the Dell stock when it boomed in the new millennium.  The way that our Billionaire friend gets around this is due to the fact that he diversifies his portfolio.  He puts a couple million in short-term stocks, and another million in long-term stocks.

Another caveat is given the fact that I have not taken risk into consideration.  What if the share LOST money instead of gained money.  It would be much better to invest less money since you would be losing less money.

Also, you have to take into consideration that since these are stocks, the IRS will not tax these gains under ordinary income, but rather would tax these as investment income and would tax it under capital gain treatment.  Normally, this wouldn’t matter, but George Bush instilled tax laws that gave Capital Gain treatment a 15% tax rate rather than taxing it at ordinary income.  So, this actually encourages investment into the stock market.

Pass FSOT: 40%
Submit QEP Answer: 90%
Pass QEP: 50% (though I believe this varies significantly by cone)
Attends OA: 90%
Pass OA: 35%
Pass clearances: 90%
Enter A-100 : 85% (some folks expire while other decide the FS is not for them)

Let's assume that all peple decide to go to the next round...So, if there are 100 people trying to get it, 40 of them pass the written, 20 pass the QEP (personal narrative), 7 pass the oral, 6 pass the clearance, and 5 actually get the job and get posted overseas.

I know 20,000 to 30,000 people take the exam every year.  Let's say 25,000...so, out of 25,000 people who want to join the foreign service (assuming that each one competes in the following stages if they pass), only 1,250 get the job offer.

My friend Nicole and my friend Toumil both know people who have passed.  I am also part of the yahoo Foreign Service group, and out of those who were serious about the career, about 80% passed.  So, I think the passage rate for the written exam is very low due to the fact that people take the exam just to take it...they don't actually study or actually have a background in this field.

This is the pole from the yahoo group:

Who knows!  Back to the Economist!

Lani