An Industry Blueprint To Stocks And Shares
In this day and age, a lot of things have changed from how they used to be, which can be new and exciting for most.
Because of the large size of the stock market, beginner investors appear to feel overwhelmed as to where to even activate investing their money. To most people, the stock market presents a messy web of options but does not reveal the highway map of clarity to guide their way along way in their investment adventure. The key to investing in the stock market is to become as educated as it is possible so that you know exactly what is taking place at all times. This helps people to make plausible and sound decisions about their money, thus, dropping the stress involved with investing.
The usual person, when beginning to entertain the idea of investing in the stock market, falls into one of two categories. Class one is the gambler who feels that investing is definitely a form of betting and no question what they do, they are certain that they will drop money slightly than make money. It seems that this opinion of investing in stocks is either formed from friends and family that have been baffled by the stock market or private experience and lost money. If someone has personally made losses in the stock market, it is pretty evident that they were not educated enough at the time of their investment in the stock market. Therefore, they must become educated as to what exactly the stock market is as well as how its system works in order to become a successful investor. Class two, on the other hand, represents the go-getter investor, which is an individual who knows that they should invest into the stock market for the safety of their monetary future, but they have absolutely no idea where to begin. The go-getters lean towards avoiding their monetary decisions and leave it up to professionals; therefore, they are powerless to justify why they own a certain stock. A usual go-getter operates in blind faith, as one stock goes up in value, they more than likely will hold it. The go-getter is in poorer shape than the gambler in that they will invest like everyone else and then wonder why they receive an unsatisfactory or devastating outcome. This just proves that the typical person should become thoroughly educated about the stock market as well as stocks before investment takes place.
Essential to every economy is business…businesses that started out as small operations that have grown to become money making giants, raising capital by promoting stock in them to people who want to invest to make their futures financially secure. As small businesses start to grow, one of the supreme obstacles is generating enough money in order to develop into a superior operation. Businesses either scrounge the money in the form of a offer from a bank or venture capitalist, or someone that will invest money into a business in which they feel they will receive a high rate of return, or a reap from their investment into a business, in order to create the currency to expand. The most common choice for a business to gain money for the view of expansion is to take out a loan; however, there is no agreement that a bank will offer money to any given business.
What we have explored up to now is the most important information you need to know. Now, lets dig a little deeper.
In this case, business owners roam to the stock market for help in the form of issuing stocks. Firm owners relinquish a tiny fraction of control over their business and in reciprocation; the stock market provides that business money that does not have to be salaried back, in order to guarantee expansion. As an added bonus, the business is permitted to go public, a saying that means a brand is selling stocks for itself for the first time, so that business owners no longer are required to borrow money from banks because they can merely use their own stocks for getting monies to use for expansion. Thus, as the business grows and sells their stocks to people, the better chance a sponsor has on gaining a return on their investment as opposed to a loss.
As an investor, it is to your advantage to efficiently study each and every business in which you propose to hold stocks. The more facts you know about any certain business, the easier it is to make a plausible decision as to whether you should hold stocks or want a different business in which to work with.
Try searching for a particular keyword from the title of this article on your search engine and you are sure to find a wealth of knowledge.
Against The Top Down Approach To Picking Stocks
If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securities. If you think logically about this approach for but a moment, you will recognize how truly foolish it is.
A stocks earnings yield is the inverse of its PE ratio. So, a stock with a PE ratio of 25 has an earnings yield of 4%, while a stock with a PE ratio of 8 has an earnings yield of 12.5%. In this way, a low PE stock is comparable to a high yield bond.
Now, if these low PE stocks had very unstable earnings or carried a great deal of debt, the spread between the long bond yield and the earnings yield of these stocks might be justified. However, many low PE stocks actually have more stable earnings than their high multiple kin. Some do employ a great deal of debt. Still, within recent memory, one could find a stock with an earnings yield of 8 12%, a dividend yield of 3- 5%, and literally no debt, despite some of the lowest bond yields in half a century. This situation could only come about if investors shopped for their bonds without also considering stocks. This makes about as much sense as shopping for a van without also considering a car or truck.
All investments are ultimately cash to cash operations. As such, they should be judged by a single measure: the discounted value of their future cash flows. For this reason, a top down approach to investing is nonsensical. Starting your search by first deciding upon the form of security or the industry is like a general manager deciding upon a left handed or right handed pitcher before evaluating each individual player. In both cases, the choice is not merely hasty; its false. Even if pitching left handed is inherently more effective, the general manager is not comparing apples and oranges; hes comparing pitchers. Whatever inherent advantage or disadvantage exists in a pitchers handedness can be reduced to an ultimate value (e.g., run value). For this reason, a pitchers handedness is merely one factor (among many) to be considered, not a binding choice to be made. The same is true of the form of security. It is neither more necessary nor more logical for an investor to prefer all bonds over all stocks (or all retailers over all banks) than it is for a general manager to prefer all lefties over all righties. You neednt determine whether stocks or bonds are attractive; you need only determine whether a particular stock or bond is attractive. Likewise, you neednt determine whether the market is undervalued or overvalued; you need only determine that a particular stock is undervalued. If youre convinced it is, buy it the market be damned!
Clearly, the most prudent approach to investing is to evaluate each individual security in relation to all others, and only to consider the form of security insofar as it affects each individual evaluation. A top down approach to investing is an unnecessary hindrance. Some very smart investors have imposed it upon themselves and overcome it; but, there is no need for you to do the same.
A Spiraling Market and Rising Penny Stock Opportunities
It’s been a wild and wooly couple of weeks on the international stock markets. But is the recent slide grinding to a halt…or just taking a breather before tumbling some more? And more importantly, what does it mean to astute penny stock investors?
Wall Street recently stumbled to its worst week of the year, and global stock markets fell dramatically on concerns about rising interest rates and slowing growth. After rising almost 9% in the first four months of the year, the Dow Jones industrial average has fallen about 6.5% from a six-year high, reached May 10, 2006.
Stocks have been ailing because penny stock investors fear the Fed could be so focused on inflation that it ignores signs of an economic slowdown, raises interest rates too high and sends the economy into a recession.
Global stock markets were sent reeling last week after golden-tongued U.S. Federal Reserve Chairman, Ben Bernanke shocked penny stock investors in saying the Fed will continue raising interest rates to keep inflation in check.
And that decision will have a direct impact on the penny stock market. Higher interest rates hurt penny stock prices because investors believe it will curb economic growth and corporate profits.
But why is inflation heating up? Higher energy costs. Traders and penny stock investors are also worried that with the hurricane season officially under way, Gulf Coast refineries and oil production sites could be damaged again this summer and fall.
And higher interest rates have the ability to affect the entire economy. Finance charges on credit cards will rise. So too will rates on mortgages and home equity loans, putting additional pressure on homebuyers and a softening housing market. Ultimately, it will cost more to borrow for expansion.
But does this signal doom-and-gloom for the penny stock market? Au contraire. While the temptation to sell everything can be overwhelming, some see this as a great opportunity. “I would not be selling. I would tend to be buying,” said one New York analyst.
So how exactly is this an opportunity? It just so happens that many companies caught in the market’s downward spiral are cheaper than they were a few weeks ago. And as any seasoned penny stock investor will tell you, buying a great penny stock when it’s been beaten down isn’t a bad way to make money over the long haul.
If you can stomach some of the volatility that is. While many blue chip investors have difficulty handling the market’s unpredictability…it’s par for the course.
So, “snap out of it,” said another watcher. A month of dizzying selling has brought the markets into an attractive range. Is it possible the markets will fall more? Absolutely. After all, no penny stock is a sure thing. But one thing is certain: “Stocks are much cheaper now than they were two months ago.”
9 Survival Tips for the Market Shakeout Blues
Investors who bought during the top of the frothy commodities rally are now panicking or kicking themselves. Neither activity helps an investor or trader think straight. Below are a few tips in dealing with the current market shakeout.
1.If you believe you invested in the right stock(s), then turn off your computer and do something enjoyable. Exercise is a great stress reliever. The market has already begun its shakeout. If you didnt get stopped out, or failed to place earlier stops, your best opportunity lays ahead in picking up additional shares at a much lower price. Most of the experts weve interviewed tell us the next rally should start sometime between late July and Labor Day. In an attempt to interview the uranium guru James Dines in late May, we were told, Call back in a couple of months. That was a helpful clue that the markets were less than exciting. Mr. Dines is often eager to be interviewed, but recently he was not.
2.Do you believe the fundamentals which engendered the commodities boom have changed? If they havent, then the bullishness is only taking a breather. We dont see any fundamental change in the markets. Russia still wants nuclear power, and its oil production may be peaking. China hasnt announced the end of its nuclear expansion program. India wants to spend 40 billion on new nuclear reactors. If you are invested in uranium stocks, spot uranium jumped another pound to 45pound this past week. Hardly the end of the bull market.
3.If you worry about your investment in one stock or another, then stop watching the ticker and focus on the company fundamentals. Is the story still true or has it changed? See #7 A, B and C below.
4.Theres an old clich that the time to buy is when you feel like dumping everything you own in the category. At the exact moment you want to sell your entire portfolio of uranium stocks, it may be wiser to add to your holdings. This applies mainly to the retail investor. Most of the professionals did dump at the top and are now slowly accumulating the shares of the nave who waited until the washout to start selling off.
5.Has a major, earth-shattering event occurred? The last bull cycle in uranium ended with Three Mile Island (TMI). The last decent rally in the precious metals markets fell off a cliff after it was discovered Bre-X Minerals had perpetrated a fraud about its gold discovery in Indonesia. Something significant and newsworthy always transpires, and it is also far-reaching. That is the trigger. As with TMI and Bre-X, those were the first shots which launched a later chain reaction to end those bull markets.
6.Before pulling the sell trigger, ask yourself: Do I really want to give up these shares to a bargain basement hunter, who will make a killing on my losses?
7.
A)How much cash does the company have in the bank? During shakeouts, cash is king. Prescient companies, which completed their financings during the recent and robust rally, are sitting pretty. They can weather the short-term storm and are well-oiled to move forward when this correction bottoms and reverses. Those companies are the strongest ones to check out when this correction looks gloomiest.
B)Has the management remained the same? Unless the top financial andor technical people blew out the door, in recent weeks, the story probably hasnt changed much. Companies which built a strong technical team are resilient and powerful. They will move forward.
C)Have the properties come up dry? One of the reasons you invested in a uranium company was because it announced it had pounds in the ground. Some companies have more than others. Some went to the expense and trouble of completing a National Instrument 43-101, which independently confirmed the quantity and quality of the uranium resource. If that changed and the company announced, Sorry, nothing there after all, or announced, Hey, we were kidding, thats one thing. If you havent heard that, or read a news release announcing that, then the uranium didnt walk away or move onto a competitors property. Its still there.
Next time, when the markets are racing higher, and you feel like you won the lottery, consider this bit of biblical advice. The old joke goes, When did Noah build his ark? The answer of course is: Before it began to rain.
5 Tips for Investing in Penny Stocks
Investing in penny stocks provides traders with the opportunity to dramatically increase their profits, however, it also provides an equal opportunity to lose your trading capital quickly. These 5 tips will help you lower the risk of one of the riskiest investment vehicles.
1.Penny Stocks are a penny for a reason.
While we all dream about investing in the next Microsoft or the next Home Depot, the truth is, the odds of you finding that once in a decade success story are slim. These companies are either starting out and purchased a shell company because it was cheaper than an IPO, or they simply do not have a business plan compelling enough to justify investment banker’s money for an IPO. This doesn’t make them a bad investment, but it should make you be realistic about the kind of company that you are investing in.
2.Trading Volumes
Look for a consistent high volume of shares being traded. Looking at the average volume can be misleading. If ABC trades 1 million shares today, and doesn’t trade for the rest of the week, the daily average will appear to be 200 000 shares. In order to get in and out at an acceptable rate of return, you need consistent volume. Also look at the number of trades per day. Is it 1 insider selling or buying? Liquidity should be the first thing to look at. If there is no volume, you will end up holding “dead money”, where the only way of selling shares is to dump at the bid, which will put more selling pressure, resulting in an even lower sell price.
3.Does the company know how to make a profit?
While its not unusual to see a start up company run at a loss, its important to look at why they are losing money. Is it manageable? Will they have to seek further financing (resulting in dilution of your shares) or will they have to seek a joint partnership that favors the other company?
If your company knows how to make a profit, the company can use that money to grow their business, which increases shareholder value. You have to do some research to find these companies, but when you do, you lower the risk of a loss of your capital, and increase the odds of a much higher return.
4.Have an entry and exit plan – and stick to it.
Penny stocks are volitile. They will quickly move up, and move down just as quickly. Remember, if you buy a stock at 0.10 and sell it at 0.12, that represents a 20% return on your investment. A 2 cent decline leaves you with a 20% loss. Many stocks trade in this range on a daily basis. If your investment capital is 10 000, a 20% loss is a 2000 loss. Do this 5 times and you’re out of money. Keep your stops close. If you get stopped out, move on to the next opportunity. The market is telling you something, and whether you want to admit it or not, its usually best to listen.
If your plan was to sell at 0.12 and it jumps to 0.13, either take the 30% gain, or better still, place your stop at 0.12. Lock in your profits while not capping the upside potential.
5.How did you find out about the stock?
Most people find out about penny stocks through a mailing list. There are many excellent penny stock newsletters, however, there are just as many who are pumping and dumping. They, along with insiders, will load up on shares, then begin to pump the company to unsuspecting newsletter subscribers. These subscribers buy while insiders are selling. Guess who wins here.
Not all newsletters are bad. Having worked in the industry for the last 8 years, I have seen my share of unscrupulous companies and promoters. Some are paid in shares, sometimes in restricted shares (an agreement whereby the shares cannot be sold for a predetermined period of time), others in cash.
How to spot the good companies from the bad? Simply subscribe, and track the investments. Was there a legitimate opportunity to make money? Do they have a track record of providing subscribers with great opportunities? You’ll start to notice quickly if you have subscribed to a good newsletter or not.
One other tip I would offer to you is not to invest more than 20% of your overall portfolio in penny stocks. You are investing to make money and preserve capital to fight another battle. If you put too much of your capital at risk, you increase the odds of losing your capital. If that 20% grows, you’ll have more than enough money to make a healthy rate of return. Penny stocks are risky to begin with, why put your money more at risk?
5 Steps To Researching a Stock Trade Before Investing
Once you determine which business cycle the economy is currently in you can start researching for a trade. It is best to have some sort of a system in place that will be used before EACH trade. Here is a simple 5 Step formula to help get you started.
5 Steps to Investing Online:
1.Find a stock
This is the most obvious and most difficult step in stock trading. With well over 10,000 stocks to trade a good rule of thumb to consider is time of the year. For example, as I write this, it is the beginning of spring. It would make sense to consider stocks that traditionally make runs, or slide if you are bearish, during this time of year.
2.Fundamental Analysis
Many short term traders may disagree with the need to do ANY Fundamental Analysis, however knowing the chart patterns from the past and the news regarding the stock is relevant. An example would be earnings season. If you are planning
on playing a stock to the upside that has missed its earnings target the last 3 quarters, caution could be in order.
3.Technical Analysis
This is the part where indicators come in. Stochastics, the MACD, volume, moving averages, RSI, CCI, support levels, resistance levels and all the rest. The batch of indicators you choose, whether lagging or leading, may depend on where you get your education.
Keep it simple when first starting out, using too many indicators in the beginning is a ticket to the land of big losses. Get very comfortable using one or two indicators first. Learn their intricacies and you’ll be sure to make better trades.
4.Follow your picks
Once you have placed a few stock trades you should be managing them properly. If the trade is meant to be a short term trade watch it closely for your exit signal. If it’s a swing trade, watch for the indicators that tell you the trend is shifting. If it’s a long term trade remember to set weekly or monthly checkups on the stock.
Use this time to keep abreast of the news, determine your price targets, set stop losses, and keep an eye on other stocks that you may want to own as well.
5.The big picture
As the saying goes, all ships rise and fall with the tide. Knowing which sectors are heating up stacks the chips in your favor.
For example, if you are long (expecting price to go up) on an oil stock and most of the oil sector is rising then more likely than not you are on the right side of the trade. Several trading platforms will give you access to sector-wide information so that you can get the education you need.
3 Steps To Profitable Stock Picking
Stock picking is a very complicated process and investors have different approaches. However, it is wise to follow general steps to minimize the risk of the investments. This article will outline these basic steps for picking high performance stocks.
Step 1.Decide on the time frame and the general strategy of the investment. This step is very important because it will dictate the type of stocks you buy.
Suppose you decide to be a long term investor, you would want to find stocks that have sustainable competitive advantages along with stable growth. The key for finding these stocks is by looking at the historical performance of each stock over the past decades and do a simple business S.W.O.T. (Strength-weakness-opportunity-threat) analysis on the company.
If you decide to be a short term investor, you would like to adhere to one of the following strategies:
a. Momentum Trading. This strategy is to look for stocks that increase in both price and volume over the recent past. Most technical analyses support this trading strategy. My advice on this strategy is to look for stocks that have demonstrated stable and smooth rises in their prices. The idea is that when the stocks are not volatile, you can simply ride the up-trend until the trend breaks.
b. Contrarian Strategy. This strategy is to look for over-reactions in the stock market. Researches show that stock market is not always efficient, which means prices do not always accurately represent the values of the stocks. When a company announces a bad news, people panic and price often drops below the stock’s fair value. To decide whether a stock over-reacted to a news, you should look at the possibility of recovery from the impact of the bad news. For example, if the stock drops 20% after the company loses a legal case that has no permanent damage to the business’s brand and product, you can be confident that the market over-reacted. My advice on this strategy is to find a list of stocks that have recent drops in prices, analyze the potential for a reversal (through candlestick analysis). If the stocks demonstrate candlestick reversal patterns, I will go through the recent news to analyze the causes of the recent price drops to determine the existence of over-sold opportunities.
Step 2.Conduct researches that give you a selection of stocks that is consistent to your investment time frame and strategy. There are numerous stock screeners on the web that can help you find stocks according to your needs.
Step 3.Once you have a list of stocks to buy, you would need to diversify them in a way that gives the greatest rewardrisk ratio. One way to do this is conduct a Markowitz analysis for your portfolio. The analysis will give you the proportions of money you should allocate to each stock. This step is crucial because diversification is one of the free-lunches in the investment world.
These three steps should get you started in your quest to consistently make money in the stock market. They will deepen your knowledge about the financial markets, and would provide a sense of confidence that helps you to make better trading decisions.