The Daily Workshop Report
by Robert Sheard (TMF Sheard)

     Growth Screens
 14.96%  Relative Strength  
  7.93%  YPEG Potential  
  5.74%  Unemotional Growth  
  4.39%  Low Price/Sales  
  3.92%  EPS Plus RS  
  2.90%  S&P 500 Index  
  2.83%  Investing for Growth  

     Value Screens
  4.92%  Dow Jones Ind Avg  
  4.72%  Dogs of the Dow  
  3.21%  Beating the S&P  
  2.90%  Dow Combo  
  2.89%  Unemotional Value  
  2.89%  Beating the Dow  

A reader asked me to go over the price "spread" today, so let's take a look at what happens when you buy or sell a stock. (This is in the most basic terms; if you want the actual gory details, there are a number of people around the Motley Fool who have actual trading floor experience that I don't have.)

When you buy or sell a stock, there are actually two prices, the bid and the ask. The bid price, which is lower, is the price you can actually get at this instant when you sell your stock. The ask price, the higher of the two, is the price you'd pay right now if you were to buy a stock.

The difference, or the spread, is the fee for the middleman (the market maker or exchange specialist). The spread isn't the same as the commission your broker charges you to execute the order.

The spread can either be fairly small (an eighth) on large, very liquid companies like those in the Dow. But for smaller, less liquid companies, the spreads tend to balloon because the middleman wants more compensation for risking his own capital in making a market in such a stock. So one of the most important costs associated with micro-caps isn't so much the commission, but the outrageous spreads you lose on both ends of such a trade.

My vision for the future is that someday, the middleman is gone entirely. With the computer capabilities we already have, I would guess it's possible to set up a purely electronic "exchange" where investors meet face-to-face through their computers. If you want 100 shares of IBM, you open up that page of orders and see who's willing to sell you their 100 shares and for what price. if you agree to their price, you click a button and it's done. There would still be a fixed and reasonable fee to cover the costs of maintaining such a system, but the gouging individual investors suffer with the current archaic system would be done away with.

I know, it makes sense, which means it won't happen. I can dream, can't I?