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Let’s Settle the Debate: Futures or Stocks When it Comes to Trading?
Posted by admin in Common Stock on January 19th, 2010
Trading really is a matter of different strokes for different folks. Most traders won’t argue the superiority of the asset class they focus on over another. The fact is that traders trade what they trade because that is the asset they’ve gotten comfortable with over time and they found a way to make money trading that security. Some traders simply focus on the asset class that got them into the game and for most traders that’s stocks. Hey, there’s nothing wrong with that, especially if you’re making money. On the other hand, some traders start with stocks and use that as a launching pad to riskier fare such as forex, futures and options. Again, this is a fine approach. Start with an easy to understand product like stocks and move up to something more complex as your trading acumen grows.
To be sure, there are advantages and disadvantages of trading the various asset classes. As we said, stocks are great, especially for beginners, because they’re easy to understand and they are the most followed of all asset classes by the media. Traders can always get their hands on information about stocks due to increased technology. The bad part about stocks is the limited market hours (just 7.5 hours a day in the U.S.) and the ability of large banks and hedge funds to manipulate prices, adversely impacting smaller traders in the process.
Those are just a couple of the issues you’ll have to contend with in stocks, so let’s take a deeper look at futures compared to stocks and why futures trading may be the place to be.
More Hours, More Profits?
One of the great things about futures trading is that you trade 24 hours a day. Compare that to stocks and you’ll see just how limiting stock trading can be, especially if you’re a night owl living in the U.S. Futures can’t be traded 24 hours a day, but if you trade index futures such as Dow, S&P 500 and Nasdaq contracts, the trading day is far more extensive than that of stocks.
Futures trade electronically so there is no need for humans to be awake or present to ensure the market is operating smoothly. And since US stocks are so widely followed on a global basis, even when US markets close, traders in Asia and then in Europe “pick up the slack” and trade US index futures, so the market is moving, even after the sun goes down in New York. In addition, traders that like to stay up late can trade DAX and FTSE index futures to profit from moves in the German and British markets. Try doing that with regular US equities.
Bigger Profit Potential. Period.
The fact of the matter is that trading futures can result in bigger profits faster than trading stocks. Look at the comparison like this. If you’re a retail day-trader, the SEC requires you to have $25,000 in your brokerage and your broker extends you $100,000 in buying power. The amount of leverage you get as a retail day-trader will always be four times your initial capital deposit.
Now $100,000 may sound like a lot of money, and it is, but it’s not a lot of money to trade stocks with. If you’re trading a $50 stock, the most shares you could trade at any time is 2,000. So if you wanted to make $2,000, you would need that stock to move $1 and that could take a while. Seasoned futures can make $2,000 in the blink of an eye with just a couple of ticks. See, that’s the beauty of leverage. When you know how to properly harness and exploit leverage the way good futures traders do, you stand to make more money faster than you would with stocks.
Lots of Versatility
When you’re an active trader of stocks, all you can trade is common stock. Yes, there are choices regarding what sector you focus on, but switching from tech stocks to energy stocks just isn’t the same as being able to go from index futures to crude oil or gold futures. Not to mention, there is no “mini” alternative with stocks. If you want to trade smaller, you simply lower the amount of shares you trade. Doing this obviously lowers your profit horizons, which happens with the Eminis as well, but even the Emini futures pack a bigger profit punch than traditional stocks.
At the end of the day, we’re not going to malign stocks and if that’s where you’re comfortable, stick with it. Chances are, though, as you learn more about the advantages of futures, you’ll want to learn more about this alluring asset class and get into the game yourself.
Weighing Your Personal Situation When Investing In Stocks
Posted by admin in Preferred Stock on January 18th, 2010
Your age, the state of your health, the number of dependents you support, the kind of job you have, whether you are a man or a woman, what kind of goals you have set for yourself – all these, and more, are factors which will bear on your decision whether or not to invest.
There is no rule, no prescription governing these factors, either singly or in combination. Again, the decision is yours. It is well to wonder, however, whether your personal situation contains any elements which might conflict with your freedom, need, or desire to invest.
There is, for instance, no age more appropriate than another for investment. But it is conceivable that a young man might find family obligations, such as a new house, absorbing all his resources, that a middle-aged man might prefer to invest surplus funds in his business, and that an elderly man might feel he is too far along for the amount he is able to invest to bring him any significant return.
On the other hand, a young man, if he is able to invest at all regularly, can look forward to a fairly considerable estate in 30 or 40 years. A middle-aged man who finds the premiums for a new insurance policy higher than he feels like paying might decide that investments might help cushion the requirements of the years past 60. And an elderly man, with family responsibilities and obligations behind him, might decide that a sturdy stock returning a comfortable 5 or 6 per cent is better than the interest rate he can get at a savings bank.
Whether you are a man or a woman will not have much to do with your readiness to invest. For, surprising as it may seem, the Stock Exchange survey referred to earlier showed that there are more women shareholders than men. Out of the 12.5 million total, nearly 6.4 million, or 52.5 per cent, are women. Naturally, a good many of them are shareholders in name only; their husbands have bought the securities or willed them. But for many others, investment has become a normal and acceptable way to put money to work. There is no telling, either, how many women, having inherited stocks, have since taken a lively interest in investment as part of the responsibility of preserving their capital. Certainly brokers will tell you that woman customers are no longer the rarity they once were.
The kind of goals you have will very often be bound up in just such things as whether you are young or old, in business or retired, childless or the chief of a tribe; and the achievement of many of them will require money. If that is so, investment is worth serious consideration. Some people, of course, may prefer to invest in books, or paintings, or travel, and for them the attention that must be paid to investment, or the attractiveness of the financial reward may just not be worth their while.
The story is told of the two salesmen who met in the club car on the train. “How’s business?” asked the first. “Oh, very good,” said the second, “and yours?” “Fine, fine,” said the first. “Got orders for a thousand gross last week. I sell buttons.” “Really,” said the second. “I’ve had one order in the last three years.” “You call that good?” said the first. “Well,” answered the other, “you see, I sell suspension bridges.”
Like the salesmen, the investor must have a clear notion of his goals and expectations, must realize that what is normal and acceptable to someone else might not be what he would choose for himself.
What are Penny Stocks? Top Ten F.A.Q. #1
Posted by admin in Common Stock on January 18th, 2010
What are Penny Stocks? Penny Stock Investing: Top Ten F.A.Q. #1 This topic is part of a series from Pennychase.com on the top ten Frequently Asked Questions from penny stock investors. They have also been filmed as FREE video tutorials which can be accessed from our homepage at: www.pennychase.com. Penny stocks are common stocks that trade from a fraction of a penny up to $5. These stocks are not listed in either the NASDAQ or NYSE. Penny stocks are traded over the counter through the Over the Counter Bulletin Board Exchange (OTCBB) or Pink Sheets. The SEC considers any stock below $5 a penny stock. The market capitalization of a penny stock is less than $50 million. Penny stocks generally represent the small companies that are spread across America. The attractiveness of a penny stock is that it does not cost much money to invest in them. Thus you can buy a large volume of shares in a given company relatively inexpensively. It offers you a chance to control a significant stake in a company without a high capital investment. If you can invest in penny stocks in the right manner, it can really give you huge return on capital, remember, even Bank of America was a penny stock at one point in time. The flip side is that penny stocks could be riskier than normal stock investments. Also information about these companies can be hard to find, thus making it extremely easy for the stock prices to be manipulated. Transparency into the operations of a penny stock company can often be next to nothing, so it can be hard to predict future growth prospects of a given company. Penny stocks also offer a tremendous return potential. There are instances where a stock has grown from 20 cents to $20 in a matter of months. That is a whopping 10,000% profit! Thus you can get spectacular gains from investing in penny stocks in a matter of days or sometimes even hours! These are high risk, high reward, instruments and you will need the advice of a professional firm specializing in penny stocks to help you avoid losing your investment. Penny stock prices fluctuate widely and a stock can be absolutely worthless if you don’t sell it at the right time. You also need to heavily research the penny stock that you plan to invest in and constantly keep track of price fluctuations. At PennyChase, we offer you verified penny stock picks which can increase up to 500% in a single day! We have a dedicated team that constantly monitors price and volume information on a real time basis to identify buy and sell signals. We’ll even give you our opinions on your stock choices absolutely free. To learn more about penny stocks, and to get hot tips about them, subscribe to our ‘Pink Sheet Picks’ penny stock selection newsletter. www.pennychase.com/Pinksheetpicks.html Thanks, TJ Pennychase Editor, Pink Sheet Picks
Stock Market Heading for Another Down Fall
Posted by admin in Preferred Stock on January 17th, 2010
After showing impressive couple of days of rally stock market is globally showing broad base weakness today. Yesterdays split finish in US markets resulted in lot of nervousness in Asian and European market.
Global markets are in firm downturn. Globally Banks are worst hit and most volatile sector followed by allied financial and investment sector. Due to reduced consumer spending white goods sector is also taking good hit with home builders and real estate developers.
Indian stock market also reacted to global cue and NSE ended down by 1% . Except Nifty Junior which raised by 1% all other sectors were in red. ICICI bank was again badly hit and closed down by 4.17%. Other major looser were Bharti airtel and DLF which both ended up shedding 3.75 and 3.07% respectively.
Major gainers were Tatasteel, HDFC and ITC but they also closed significantly lower than day?s highs. We recommend shorting banking stocks and manufacturing to benefit from tomorrows expected fall. It is advised to keep bets small as market is near support levels which may result in some degree of choppiness.
On global commodity front Gold has nearly recovered half of its 10% fall since last week and trading at $949.6 per ounce. We release a buy recommendation on Gold on Monday so our subscribers have gained 5% in two days!! Today we have recommended half sell to book partial profits. In our view gold will again touch its last week?s low or start another leg down creating golden opportunity for long-term investors to accumulate.
Silver is another big feather in our hat as we recommended buy at $17.11 and it?s currently trading at $18.40 per ounce a healthy gain of 7.5% in 2 days. Silver fell by 22% last week after making double top around $21.40 per ounce. According to our analysis silver has brilliant appreciation potential and one year target of $40 per ounce. Silver is heavily used industrial precious metal and slowly and steadily its gaining popularity as preferred jewelry metal due to very high price of Gold.
Investors which are not actively trading this is very good time to start investing in mutual funds. It is prudent to make equal combination of high yield fund and growth funds. It is preferred that investor be operating its own demat account and may use any linked broker to execute their own buy and sell decisions. We have came across the investors who try to trade Mutual Funds like stocks and end not making any profits as they shed out entry and exit load each time they switch.
Reduce Stock Investment Risks
Posted by admin in Common Stock on January 17th, 2010
Investors, Drive Down Wall Street with Care!
With all the hullabaloo about speculation, an amateur investor may naturally assume that Wall Street is strictly for gamblers. This is a great pity, because probably a long-term investor can get better results in the stock market than elsewhere, provided he follows a few fairly simple rules. Also, it would help in the public understanding of how free enterprise, and especially big business, is owned, if more of our non-gambling citizens participated in owning corporate stocks.
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Let us compare stockholders with motor-vehicle drivers. Every year automobiles, trucks, and their drivers cause a fantastic number of deaths and personal injuries, not to mention property damage. The great majority of drivers are careful at least nearly all of the time! Most accidents are caused by a comparatively small number of careless and reckless drivers. A cautious citizen, knowing that he or his family may be the victims of the next accident, could conceivably protect himself by refusing to use motor highways. But the trouble is that motor vehicles save us so much time and energy, and give us so much pleasure when used sanely, that we know their good qualities far outweigh the bad. So we continue to drive, and to hope that the wild drivers will behave, while in our vicinity! In Wall Street, the speculators, in spite of the commotion they raise, are only part of the community, the same as the reckless drivers on the highways. And in contrast to the highway problem, a cautious amateur can invest in such a manner that he runs low risk of having his finances wrecked by the gambler mindset.
Traditionally, being an equity owner of business involves serious risk, sometimes complete failure. An investor, knowing the instances of bad results in small business ventures, may assume that in buying corporate stock he must expect to run somewhat comparable risks, and so he makes no attempt to learn how to reduce the danger. Apparently a great many shareholders have attitudes more or less like this. They may not want to gamble, but they don’t bother even to inquire how Wall Street investment risks could be lowered. A serious market investor, wanting to avoid gambling in stock investments, must do some serious investing thoughts. The 8 main ideas for reducing the risks are mentioned below:
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1. Avoid Investment Egotism. Realizing that there are several million stockholders in this country, admit to yourself that probably quite a lot of these people are just as smart as you are. Be satisfied with results a little better than average. Don’t let your ego runs for 50% if the market average is performing 25%.
2. Avoid Prophets, especially the positive ones. The stock market reflects events and rumors from all over the world, and no man or any group of men can be sure of what is going to happen, or when. Some prophets are paid to write for some companies. They do not always deliver genuine opinion. I would refer to their comments and analysis, but rely on your judgment of market sentiment and stock fundamentals for investing decision.
3. Don’t Borrow on Stock. Market price might drop and wipe you out. You do not want excessive interests to incur, and in the worst case, you do not want a lender’s call back that affects your key assets like home or business ownerships. Maintenance of your personal and family’s stability is a priority over stock investment.
4. Diversify your Stock Portfolio. Don’t put all of your capital into one investment, or into just one type. Put part of your savings into common stock, the other part into fixed-price items cashable at any time, to preserve the dollar value. Own stocks in a good number of companies. The larger the number, the better the chance of getting average results. And for real diversification, the companies should be in several different industries. For instance, pick a steel manufacturer, an oil refiner, an electric-power company, an electronics manufacturer, an IT firm, a department-store chain, and so on.
5. Check stock Marketability. Before you buy, make sure that you can sell or redeem it easily and promptly. Stocks of big blue-chip corporations like Microsoft, GE, Google are more liquid and hence easier to be transacted in the market.
6. Choose Skilled Management team. Find out how to pick a stock with great management level of proven competence. Warren Buffett investigates into a company’s leadership, credibility in its past performance delivery and the management’s capability to propel further growth.
7. Time your Buying and Selling. Adopt rules on timing of your buying and selling stock. The time of action is a major risk in owning stock. After you buy, maybe the price drops; and after you sell, perhaps the price rises. Maintain a standard ratio between the current market value of your stock and your reserve. Also, buy and sell stock only in small installments, never moving a large portion of your capital within a short time. By spreading installments over many months, you obtain a fair average price per share. Patience has a big factor in success of stock investments. If you could sit and wait for the correction times to buy quality stocks, you are on your way to success!
8. Review periodically. Don’t put stock away and forget it. At regular intervals, as for example after the close of each week, check back to see how well your stock has performed during the past few weeks or months in comparison to other stocks you might buy.
Can you afford Investment Risks? Drive Carefully! A reader’s reaction to these ways of reducing risk may be: “Those are nice ideas, provided a man has considerable capital, but they are impractical with only small savings. A broker’s charge is a high percentage on a small transaction, so a little investor cannot afford to make a large number of small purchases and sales. Also, the fee for first-class advice is too high for an ordinary investor to pay.” This reader’s complaint is valid, provided he insists on owning stock in the customary old way-that is, being a direct owner of stock in corporations engaged in manufacturing, mining, transportation, retailing, and so on. But the mutual funds, the open-end type of investment companies, make it quite practical for a man with only small savings to use every one of the ideas listed above for lowering the risk of owning stock. An investor learns and matures through time. I urge you to take the above 8 ideas, study deeper into them for applications. Risk avoiding tips given here need to be internalized before positive results could happen. I wish you well in your stock investment venture!
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Stocking Fillers – Fill Your Boots With Perfect Christmas Gifts
Posted by admin in Preferred Stock on January 16th, 2010
Even the most ardent believers that Christmas is a time for giving and not receiving will readily admit that the anticipation of finding a stocking full of goodies â whether they be of any practical use or not and no matter how old you are – quite enchanting. Stocking Fillers can be the perfect opportunity to surprise and amuse, to be as personal and indulgent as you like. But for anyone who can still remember a time when they had to be grateful for a sock full of fruit on Christmas morning; times have changed. The list of treats and trinkets intended especially for the stocking is literally endless, so here are just a few tips on how to select the perfect Christmas gifts.
Who Cares About The Calories?
Including someone’s favourite chocolates in their Christmas stocking might be common practise, but what about something a little more unique? You could invest in some personalised sweets for that ultimate declaration of affection, or make someone smile with just a little bit of thought and what better way than a ‘Silver Love Heart Sweet’, or give your last ‘Rolo’ to the one you really love? Complete with a presentation box, those familiar with these famous sweets can purchase a solid silver or gold version with their own personalised messageâ¦a beautiful gift, but not to be eaten.
Growing Your Own
Horticultural gifts can be a great way to get everyone interested in all things natural, and with little effort required, the house could soon be filled with an array of magical plants. A ‘Grow Itâ¦Chilli Plants Gift Box’ provides everything you need to grow five of the world’s spiciest varieties of chilli plants, including the growing pots, compost discs and plant markers. There’s also a Chilli Pocket Garden for those who like the taste but prefer minimal effort; simply add the seeds to the cleverly designed foil packet and wait for the chilli to grow. But for those who prefer the more gentle approach and have a little bit more patience, then a Bonsai Tree Gift Box might make a more ideal and personal gift. Perfectly sized for a window sill or desk, the bonsai tree has a calming quality and by its own nature would suit someone who has the fortitude to let it gradually bloom. For any member of the family who isn’t quite awake of a morning until they’ve had their intake of tea or coffee, then a ‘Grow It â Tea and Coffee Gift Box’ combines the unique with the personal. Very few people can probably boast that they grow their own tea leaves or coffee beans in their home, and with all the equipment and tips needed to help the plants flourish, it really couldn’t get much easier. For the younger botanists in the family, then the ‘Grow your Own Mr Grasshead’ is a fun way of getting children interested in nurturing plants. By simply adding water, they will soon get to see him sprouting his own green hair which can be styled and trimmed in any way.
Getting Creative
For those budding Blue-Peter presenters in the family, then why not help them to embrace their creative flair by including a choice of card-making kits for a much more personal Christmas message, or encourage a heart-felt thank you note for those who have given generously. The ‘Cheeky Monkey’ card making kit is ideal for all seasons and offers hours of creative fun for thoseâ¦wellâ¦cheeky monkeys in the family. For those who like to give Delia a run for her money, or even for those who need a kick start when it comes to creating something in the kitchen, then why not send them a little encouragement with a traditional recipe book? ‘Mrs Manley’s Christmas Treats’ is a stocking sized satin embroidered book with a host of recipes for those traditional festive delights.
Gadgets and Gizmos
T’is the season to be jolly and the Christmas stocking is a great excuse to introduce those curious and Fun Christmas gifts that we soon come to wonder how we ever managed without. As Christmas can prove a costly time of year for many, what better opportunity to encourage money-saving than a money bank? The ‘Money Maze Bank’ offers a unique twist on the traditional piggy bank in that a puzzle must be completed before money can be taken out. A humorous gift for those more spend-thrifty members of the family perhaps, or a simple way of reminding children than money needs to be earned. For the latest in Japanese mobile phone accessories, a ‘MoPod’ might make an ideal stocking filler. The pod interacts with mobile phones, with a range of characters that light up and dance when the phone rings or a text message arrives. These great little gadgets can be attached to any phone or even a jacket or bag â making them particularly handy for those who tend to lose their mobile phones at the bottom of their handbags!
Avoiding Stock Market Scams
Posted by admin in Common Stock on January 15th, 2010
With all the prices going high these days, people would instantly grab the opportunity on anything that will make them earn money. And this is basically where fraudulent people take advantage of.
Today, there are many scams as there are starts in the sky. They had been so rampant that people became so aware of its alarming condition. But still, even if they know that there is a bound to be a scam out there, they could not yet distinguish what is a scam and how can they avoid it.
In the industry, one of the proliferating scams is the stock market scams. A lot of people are getting enticed to join these simply because their offer seems so hard to resist.
Why? Because who wouldn’t resist a “get rich quick” strategy? These are just petty things but are actually bigger problems than what you thought it is.
For people to know what stock market scams are and how to avoid them, here’s a list of the common stock market scam lurking mostly in the Internet today:
1. The “Pump and Dump” stock market scam
This type of stock market scam is mostly disseminated in the Internet. Here, people usually get to see messages posted in the Internet advocating them to purchase a stock at once. This type of scam also urges those who have stocks already to sell their stocks immediately before the value depreciates.
These deceptive scammers claim that they have reliable sources about a threatening development. They even assert that they utilize a foolproof combination of the stock market and the trade and industry data so as to get some stocks.
The bottom line is that this type of stock market scam is detrimental especially to those who are starting small. In reality, people behind this scam would want to manipulate the stock market through small time businesses because small businesses are easier for them to manipulate.
2. Pyramid scam
Just like its motherboard, this pyramid scam in the Net tries to hoard money from the consumers by letting them invest their little amount of money and grow it really big provided that they recruit more people into the company.
These two are the most common stock market scams lurking in the Internet today, and the only way to avoid them is information. It’s a must that people should be aware of them, know their styles, and how they recruit people. If in case, they cannot determine if it is a scam or not, they should verify the claims from the right people. That’s the simplest thing to do.
How to Make $1,000,000 From Stock Market – 5 Tips From Successful Investor
Posted by admin in Preferred Stock on January 15th, 2010
Formulate Specific Goals
You must have heard this many times before but have you done it yourself? In many cases I find most beginners unable to design specific investment goals. “Want to be Rich in 3 Years” is not good enough. You must specify how much money you need, what kind of return you expect and how long you can wait.
Bottom-line, you must have goals that are specific, measurable, attainable, realistic and timely. Otherwise, you’ll easily lose sight along the way.
Analyze Your Risk Tolerance
If you think that nobody understands yourself than you do, think again. More importantly, people tend to be emotional than realistic when it comes to money. That is why you can easily notice significant price volatility in stock market as a result of human’s feeling of over-pessimistic or over-optimistic.
There is nothing wrong with your emotional feeling. What matter is how you can control your emotion should anything happen. You can do this by first objectively evaluate your risk tolerance through various questionnaires. Compile all of the results and summarize what is your investing personality.
Identify the Best Strategy
Once you’d discovered your own investing preferences, start digging which investing strategies suit your personality. Stock investing strategy that suits my personality might not be working very well for you. Thus, it is your job (and not your financial advisor) to look for those investment strategies; namely short-selling, swing trading and momentum investing.
At this point of time, you need to do a lot of research. You might have to spend hundreds or even thousands of dollars buying books and hours of reading them. If you think it is a waste of money, probably investing is something you should consider outsourcing straightaway. Even then, you still need to know where your money will be invested.
Develop Long Term Plan
By now you should have definite idea on how to invest your money. At least, you must be aware of various financial instruments, stock investing strategies and how all of them are related one to another. Only then you can develop effective long term stock investing plan.
Let’s start with elements that you should include in your definitive long term plan.
First of all, you must have deep thought on the asset allocation strategy. Secondly, finalize which strategies you intend to pursue. Last but not least, prepare enough cash for emergency funding should significant opportunity arise. I personally prefer 40 to 60 per cent for long term stock investing, 20 to 35 per cent for momentum investing and 10 to 15 per cent for some speculative trading.
There is no right and wrong decision here. As long as it fits your investing personality, you should be fine.
Follow the Plan and Track Progress
Above all, you must implement what you should have planned before. Otherwise, you are putting your efforts to waste. And most importantly, track how your investment performs at least on half-yearly basis. From the performance review, you may (or may not) want to re-strategise your stock investment portfolio accordingly.
Online Trading and International Stock Markets
Posted by admin in Preferred Stock on January 14th, 2010
The innovations of the Internet have contributed to numerous changes in the ways that we lead our lives and our affairs. We can pay off our accounts online, shop online, deposit money online, and even go dating online! We may even buy and sell stocks via the Internet. People enjoy having the power to view their accounts whenever they prefer to, and agents like having the ability to accept orders over the Internet, as contrary to the phone.
Just about all brokers and securities firms now provide web trading to their clients. Additional beauty of trading online is that fees and commissions are much lower. Although online trading is neat, there are a few drawbacks. If you’re fresh to investing, holding the power to actually talk to a broker could be rather beneficial. If you aren’t apprehend in stock exchange field, online trading might be a risky thing for you. If this is the event, make certain that you pick up as much as you can about dealing stocks before you begin trading online. It’s as well an effective idea to go with an online brokerage house company that has been in business for a while. You will not discover one that has been around for 50 years naturally, but you can line up a company that’s been in this line of work that long and now provides online trading services.
There’s a whole universe and trillions to be made in markets outside the NASDAQ. Foreign online stock dealing has made it attainable for bold investors to capitalize on investing in some of the secondary stock markets around the globe. When USA financial market is inconstant or if you just wish to distribute your investment dollars across the boarders, sometimes it’s worthy to determine what some of the transnational market professionals are executing.
US, Asian, European, Australian and Canadian stock exchanges can have varied parties and stocks in their financial markets exchanges, but the fact is a wise investor studies the yields of the individual company’s stock and scans what the charts tell him about the history of that stock prior to investing hard earned cash in international businesses, countries and economies. Due to the high flexibility of many online trading systems, this implies you can broaden your investment portfolio and possibly profit from the overseas markets trends.
Employing an online program to transmit your global stock trading also means you may order your trades wherever and whenever you decide – even in the middle of the night. You could even prefer to place trades across various stock markets, but the finest part about a multinational online trading account is that you can do it from a uniform account, instead of having to log into many different ones to get into the international markets you want.
Make certain you explore your international stock dealing information exhaustively and take some time to learn about numerous of the outstanding opportunities that await you around the globe.
Picking Stocks – Stock Investment
Posted by admin in Common Stock on January 13th, 2010
Stock Forecasting?
If forecasting in the stock market is dangerous, how can an investor time his buying and selling of stock? The simplest answer is to ignore the price level, to buy stock whenever he has savings to invest, and not to sell unless he must. And he must also own fixed-dollar deposits because it opens an opportunity to buy stock at lower-than-average prices and to sell at higher than average, without forecasting.
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The Investment Ratio.
Momentarily ignoring the question of timing of stock purchases, let us suppose A has $1,000 of new savings to invest on the first day of each month. With half of this he buys common stock, and the other half he puts it into a savings deposit. His savings are always divided equally between stock and cash reserve. During the first year he deposits $6,000 in the savings bank and pays $6,000 for stock, buying 120 shares, an average of 10 shares a month, at an average price of $50 a share. (For simple illustration the expense of buying and selling stock, also the income on investments, are excluded here.)
Now let us look at A’s market or redemption values. On January 1st of the second year the current value of his savings deposit, disregarding interest, is the same as his cost. But the market value per share of his stock has dropped to $40, giving his 120 shares a value of $4,800, or $1,200 less than his savings deposit. With this drop in price, his usual $500 monthly purchase would pay for 12 shares, as compared to his previous average of 10 shares a month.
At this point A decides he wants the market value of his stock to equal his savings deposit, and that he should adjust his buying to accomplish this. So on January first he makes no savings deposit but puts all of his $1,000 monthly saving into stock, thus raising the total stock value to $5,800, as compared to $6,000 in the savings deposit. With the $1,000 he buys 25 shares, 2.5 times as many as his former monthly average. Later on, when a rise in price causes his stock value to exceed his savings deposit, he offsets this by putting all or most of his new savings into the savings deposit.
Action Plan.
Now let us expand A’s action into a plan. First, an investor selects a standard ratio that he will maintain between the market value of his common stock and his cash deposit. The idea can be applied to any ratio an investor prefers.
To maintain a stable lifestyle for the family, some additional reserve says $5,000 would be needed for personal emergencies outside the investing portfolio. On starting to save $1,000 a month, he might adopt a standard ratio of $800 stock to $200 fixed-dollar deposit, but not counting $5,000 in his emergency reserve. For the first 5 months all his savings go into this special reserve, thus completing his goal for emergencies. In the sixth month, observing his standard ratio, he puts $200 into cash deposit and $800 into stock.
Having chosen a standard ratio, he must not allow current stock-market conditions to persuade him to change the ratio. If he adopts one ratio when stock prices are dropping, and changes to another ratio when prices are rising, he is slipping into forecasting. A standard ratio has no chance of success unless, after an investor adopts it, he parks his emotions outside.
Buying under a standard ratio goes this way: When an investor has new savings available, before placing them he finds out what the current values are of his total stock and his total bank deposit, not counting the emergencies reserve. Then he puts his new savings into whichever one is low in value compared to his standard ratio, as A did with his $1,000 monthly savings.
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No New Saving Situation.
When an investor has little or no new savings, he can gain the benefit of the standard-ratio plan by applying the same ratio to both selling and buying stock. Suppose B’s annual spending is exactly equal to his income, so that he has no new savings, nor is he spending any capital. His standard ratio is 1 to 1, and the current value of his capital agrees with this; 2,000 shares of stock at $10 a share total $20,000, and $20,000 in a savings deposit.
Then the value of a share drops to $8, making his total stock value $16,000. To restore his values to agreement with his standard ratio, he withdraws $2,000 from savings deposit and buys 250 shares of stock. This cuts his reserve to $18,000, and also raises his current stock value to $18,000.
Next, the value per share rises to $10, the same as the original figure, and his 2,250 shares have a current value of $22,500. Again acting to restore his values to his standard ratio, he sells 225 shares of stock for $2,250, and adds this to his savings deposit. This leaves him with 2,025 shares of stock, valued at $20,250, and $20,250 in bank deposit, his total capital being $500 larger than at the start. (For accuracy, the expense of buying and selling should be subtracted from this gain.)
Stock Value Movement and Value Gap.
A switch of old capital between stock and bank deposit should not take place until stock value has moved far enough away from the standard ratio to justify the expense and trouble of changing. In the above example, B bought stock when his stock value was 20 per cent below his reserve value. And he did not sell stock until his stock value was 25 per cent above his bank deposit value. The desired gap can be provided automatically by setting up a standard ratio for selling stock that is different from the buying ratio.
Ratio System Requires Discipline.
It helps you decide when the share price moves down, how many shares to buy into your stock, drawing from your available bank deposit. It also prompts you during the stock soaring months, how many shares to sell in order to keep to your initially set ratio.
This Standard Ratio Investing System has to be followed with discipline in order to achieve winning goals. The buy low and sell high obviously comes into fruition here as you see your combined stock and bank deposit value grows over time.
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