Archive for Buying Stocks

Paper Trading - The Big Question For Stock Market Investment Beginners - Does Paper Trading Make Sense

Is paper trading the secret to safe stock market investment for beginners? New to the world of investing and a little worried about making an investment and losing money, maybe you need to look at paper trading. Paper trading is trading that does not involve any capital. It is simply trades that are made on paper only; this makes them a ideal learning tool, much like a study guide.
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Risk Allocation for Balancing Financial Risks and Investment Funds

Determining risk allocations begins with identifying risks. Once the risks are identified, they should be categorized according to the probability of the risk and determine how significant the impact of such a risk would be. Obviously, risk allocation has some speculative nature to it but there is also a lot of established research with results widely available on the Internet. Any fund manager must allocate risk when determining the makeup of an investment fund, just as the individual should manage risk when determining what funds to invest in.

Various types of risks occur in everyday business operations including, credit risk, country risk, market risks, etc. However, the good fund manager will do a good job scrutinizing risks that may be more probable in his managed funds. For example, a fund manager overseeing a Latin American fund that includes Venezuelan assets would have to consider the recent seizures of private assets in his risk allocation. This might be the biggest risk in investing in Venezuela right now. Country risk must always be considered when investing in foreign funds.

Private investors can do their own risk allocation when researching investment funds. A little research can provide a level of fund risk management that is more responsive to changing markets. One of the tools fund managers use that is widely published on the Internet is beta. Beta is calculated through regression analysis and shows the tendency of a security’s returns to respond to market changes. Beta is less than 1, 1, or more than 1. A beta of 1 represents the volatility of the market itself. A beta more than 1 shows the fund to be more volatile than the market and a beta less than 1 shows the beta to be less volatile than the market. By putting beta to practical use an investor would want a fund with a beta greater than 1 during bull markets and a fund with a beta less than one during bear markets.

US Global Investor Funds are Evolving

Global funds are mutual funds made up of firms headquartered outside of the United States versus local funds which are those funds concentrated on American domestic firms. At different times, it has been better to invest domestically or internationally though most of the time it has been more profitable to invest in the former. However, we may be in a time period when investing in the global funds may be more profitable.

Themes that drove the US economy so strongly and pushed local funds to regularly outperform the global funds are now practiced internationally. Even in the union-dominated labor forces of Europe, greater productivity is being squeezed out of the workers where it wasn’t before and lessening government regulations are encouraging competition in the European economy that, in turn, encourages consolidation of European firms. Consolidation ultimately brings a greater efficiency as the larger companies are able to exploit economies of scale. Sound familiar? Think about the booming United States economy in the 1990s.

Asian funds have been taboo investments since the market collapses after the US tech bubble burst in 2000-2001. These economies are now “righting the ship” and emerging from the doldrums. China is evolving from a centrally planned economy to a capitalist market economy as it seems to have learned when gaining full rights to Hong Kong from the UK in 1998.

With market globalization the ultimate buzzword of the modern economy what’s a global fund doesn’t really mean the firm’s focus of business is outside of the United States. Global funds today are “global” in the sense they operate globally with significant revenue portions coming from all over the globe. An excellent example of this is Porsche, the world’s most profitable automobile manufacturer, which is headquartered in Germany but its largest market is in the United States, accounting for 40% of annual sales.

Ultimately, global funds look to perform well as tried and true American market efficiencies take root in other parts of the world. This is not to say local funds will perform poorly but investors should at least look into diversifying their mutual fund portfolios by investing in global funds.

Stocks Trading - The Secret Of Making Money In The Stock Market

You may have wondered if there are people out there who consistently make money from the stock market. And yes, there are people out there who are consistently making money from the stock market because if they were not making money from market they would not be there and the markets would not be there too. These people are no smarter than you. They do not work any harder and neither are they lucky than you.
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Common Stock vs. Preferred Stock: What’s the Difference?

Preferred Stock is a very different creature from what is generally referred to as common stock. Common stock is what most investors think of when they purchase stock. It really is the most “common” type of stock traded. Stock is that equity in a company that an investor purchases. Preferred stock is quite the opposite. Preferred stock is ownership within the traded company, but with added perks. It is almost like a bond, with guaranteed rights to a company’s assets if the firm were liquidated.

Preferred stockholders have a greater claim to the firm’s assets than common stockholders do. For this reason, when dividends are paid, the claims from preferred stock are paid first – before any dividends are paid to common stock claims. This difference in classification is most essential during times of insolvency by the firm, however. If a company were to be liquidated, preferred stockholders are paid before common stockholders get a single penny.

Also, the dividends that are paid to preferred stocks are quite different from common stocks. Dividends are generally paid at regular intervals, not intermittently when a company’s board decides to, which is commonly how dividends for common stock are paid. Oftentimes these dividends are guaranteed by the firm.

So with all these added perks to common stock what are the disadvantages? First off, preferred stock is not issued by every publicly traded company. The cost of raising capital through preferred stock for a firm is 35% greater than through issuing bonds because the dividends paid are not tax deductible. Preferred stock represents a fraction of the total stock market in the US at around $200 billion in August 2006, compared to $16 trillion for equities and $5 trillion for the bond market. Also, there are corporate tax advantages available to corporate ownership of preferred stock that can never be realized by individuals. For this reason, it is common to see corporations snapping up preferred stock issuances.

Finance - Buyback Versus Dividend

There are two ways company can give out its profit to shareholders. One is to give out dividends. The other is to buy back its own stocks. Which one is more appropriate? This article will explore the topic further.
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Penny Stock Advisor - Advantages & Risks of Day Trading, Buying & Selling in Penny Stocks Investment

Penny stocks are the normal stocks which a share can be traded for for less than $5. In the US financial markets, moreover, “penny stocks” are traded outside NYSE, NASDAQ or AMEX and are sometimes looked down upon, hence, considered pejorative.

Nevertheless, SEC defines “penny stock” as the stock that has a low price and a speculative security that matches a small company whether it works through exchanges like NYSE or NASDAQ or the OTCBB and PINK SHEETS (two forms of “over the counter” listing services). “Penny Stocks” are also sometimes referred to as “nano caps”, “microcap stocks” and “small caps” although penny stocks are mostly determined by share price and not listing service or market capitalization.

On the other hand, in the UK, penny stocks- or shares- mean the shares in small cap bodies that have a market capitalization of less than £100 million or whose share price is £1 and whose bid spread more than 10%. The British penny stocks, moreover, are issued with the FSA (Financial Services Authority) warning. In France, the same term refers to risky stocks whose price is lower than 1 Euro.

Having market caps that are less than $500M, penny stocks (especially those trading on low volumes over the counter) are usually considered very speculative. They, moreover, are sometimes difficult to sell due to the fact that it is not always easy to find quotations for certain kinds of them. In other words, if you are thinking of investing in penny stocks, be prepared for the possibility of losing all your investment.

 

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Implications of the Bottom Line And Getting That Guaranteed Bottom Line

The common term “bottom line” comes from the structure of the income statement. Profits (or losses) are recorded on the bottom line of the report. But how does the “bottom line” affect stock prices?

Quarterly financial reports detail how profitable a company is at that time when the report is filed. Bean counters spend a lot of time poring over these numbers before the report is filed with hopes that their numbers will meet or exceed analysts’ expectations. These are the busiest times of the year for corporate accountants and financial analysts.

If a company’s profits do not meet analysts’ expectations, the stock price of that company is virtually guaranteed to fall the next day. Oftentimes, companies will realize this several days before the reports are publicly available and the firm will release a statement outlining this fact. Companies do this hoping they are “softening the blow” for not meeting analyst expectations.

Conversely, when companies’ internal bean counters come up with numbers pointing to a bottom line that exceeds expectations, often companies will not make any press releases before the report is due to be filed. This is because they want to have the full effect of a “positive” surprise on the stock price. So, when analyzing stocks around when quarterly reports are filed it’s a good rule of thumb to judge what a company is “saying” by making a press release, or, not making one.

Perhaps the bottom line wasn’t as good as expected. That doesn’t mean the stock is a stinker. There could be external market influences affecting the company’s ability to meet expectations. For example, right now the markets seem to be a bit jittery over mortgage firms. With all the press lately about skyrocketing Americans foreclosures, investors are naturally wary. Plus, the jitters don’t stop there. Investors have become fearful that foreclosures outline a deeper problem – overextended credit in the economy. Obviously, feelings that credit has been overextended as a whole in the US can affect a company’s “bottom line.” But, as these feelings disappear the stock can prove once again to be strong. At times when investors are fearful there can be great opportunities for picking up great stocks at bargain prices.

Buying a Bank Certificate of Deposit - The Advantages and Disadvantages of Certificate of Deposits (CDs)

In the World of Finance, A CD does not mean a compact disc; it stands for a “certificate of deposit”. Thus, if you manage to buy a CD through savings and loans or through banks that is worth a certain amount of money, then the bank will be paying you in return a specific interest rate for a certain time. Consequently, if you buy a thirty-month CD, you may get a 3%, which is equivalent to $5000. Although a bank might not issue CDs for less than $1000, this is not the case all the time. Usually there are no requirements for issuing CDs.

You are free to choose when to get your interest, whether annually, quarterly or monthly, or even with the maturity of the CD. Just take care that whatever your interest is, it will never be added to your original amount of the CD. This stands in open contrast to a normal savings account. Nevertheless, you can choose to be paid by check or to have your earned interest deposited in a new account.

It is preferable not to redeem your CD before the maturity date agreed upon. If you cash earlier than agreed upon, you might lose 3 to 6 months of interest payments; such a penalty is known as the “penalty for early withdrawal”.

One of the advantages of CDs is their being insured by the government (usually the FDIC program) and this is because they are certificates issued by banks. In other words, buying CDs is a risk-free investment.

Another advantage is the freedom to buy and sell your CDs just like any bond or stock, for example, through a brokerage house. By selling your CD this way, you will avoid the penalty payment.

You should also put into your consideration that CDs usually come with a minimum, mostly $5000 and they must have round numbers (multiples of 1000).

Personal Balanced Portfolios Guard Against Recession

Creating an evenly balanced investment portfolio by dividing assets among such diverse classes as stocks both foreign and domestic, bonds, mutual funds, real estate, cash equivalents, and private equity can help guard against recessions. Determining how much to invest in each asset group depends upon the investor’s individual situation and future needs.

Throughout most of American history it has been more profitable to invest in stocks rather than bonds. However, there have been times when stocks are unattractive compared to other assets. For example, right before the tech bubble burst in late 1999 these stocks had prices so high earnings yields were non-existent. The wary investor could have weathered this situation by diversifying stock investments into real estate investments or other types proven to be less risky.

Making major changes in one’s portfolio should be done at various stages in the investor’s life. A young investor is less risk-averse, that is, he is less susceptible to market corrections for the simple fact that he has a lot of years left to make up for the losses. This investor is looking more to the long-term and wealth accumulation in the distant future. This investor’s portfolio would be mostly invested in the riskier assets such as carefully researched foreign and domestic stocks. Still, the young investor needs to have some balance to guard against market setbacks.

As retirement approaches, perhaps 10 years before, the investor should start diversifying holdings into income-oriented assets. These include government and corporate bonds that pay a fixed return rate on the investment. Certain blue chip stocks with long, proven track records of dividend payments can also be included as an income-oriented asset. Yearly, as retirement approaches, a larger percentage of the investor’s portfolio should be income-oriented until that total is 100% at retirement. After all, as an investor, the ultimate goal should be a comfortable retirement. Once at retirement the time to take risks is over and income must be guaranteed.