Archive for August, 2007

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.

Stock Option for Dummy: How do Stock Option Trading work?

Stock options are perks employees gain from their employers. Basically, stock options give an employee a right to purchase a set amount of shares of company stock during a specific time period at a set price. The strike price (the option price of company stock) is discounted and can be the price of the stock at the time the employee gained options rights or, in the case of privately held firms, it is the internal valuation of the stock at the historical time period that is then voted on by the board of directors.

For example, an employee is hired on at a publicly traded firm and has this perk; the strike price will be the price of the stock on the day the employee was hired. This same company may allow the employee to exercise the option 1 year later in the volume of 100 shares. So, this employee will be allowed to buy 100 shares of the stock, 1 year in the future, at the price it was a year before when the employee was hired. The hope is that the stock price goes up during the period and the employee gains real benefit from exercising the options. Usually the amount of shares the employee can buy is vested over a period of time. If it were 4 years, the employee would purchase 25% the first year at the strike price, another 25% the second year at the strike price, etc.

The tax implications depend upon whether the options can be classified as incentive stock options (ISOs) or non-qualified stock options (NSOs). NSOs are more common than ISOs and carry more of an immediate tax burden than do ISOs. NSOs are far simpler for a company to structure for their employees, but don’t meet all the qualifications for an ISO that are established by the IRS. In the case of an ISO, ordinary income tax is paid when the option is exercised meaning the difference between the strike price and the market price is treated as ordinary income. For ISOs, the tax implications do not come into play until the stock is sold. Simply exercising the options by turning them into stock shares does not carry any tax burden. Capital gains taxes on ISO stock options are only figured when the stock is sold. NSO stock options are effectively taxed twice if the shares are held onto after the options are exercised and when sold capital gains taxes must be paid. Obviously, there is a big difference in the amount of taxes paid between ISO and NSO options and its very important to understand which type an employer is offering.

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.

Mutual Funds for Dummy : Advantages and Disadvantages of Mutual Funds

Mutual funds are collections of stocks or bonds that are managed by an “investment professional.” Mutual funds cover the whole spectrum of investment possibilities – specific sectors, objectives, etc. These objectives are outlined in the mutual fund prospectus. The mutual fund investor purchases shares in the fund; the price of the fund varies daily according to its’ trading price – just like other publicly traded assets. Purchasing shares in the fund gives the investor a position in the fund.

The mutual fund shareholders pay an annual fee to an investment representative who buys and sells stocks for the fund. However, the prospective mutual fund investor must be careful in selecting a mutual fund. While they may advertise in being professionally managed, the truth is most mutual funds underperform average stock market returns. Another difficulty with mutual funds involves understanding the fees involved in owning shares in a mutual fund. Lots of “fine print” can be involved. It is very important to read the prospectus.

But if you do your research as you would with any other investment, there are good mutual funds out there worth your hard-earned dollars. Read the prospectus on the mutual fund and study how the fund has performed over the years. Make sure the fund has been around for a while so a good, lengthy track record can be established. The diversification within a well-managed mutual fund can guard against market adjustment periods. The real advantage the investor gets with a mutual fund is the level of expertise gained in the fund’s management. Seeking out funds that are actively managed and managed well is essential when researching mutual funds. Some of the best managed mutual funds are not run by the big investment companies, but by smaller firms. Another advantage in mutual fund ownership is the fact that transaction costs are lower due to the high volume buying and selling of shares involved. Minimum investment is also usually low, sometimes as low as $100.

What are “Futures Contracts”?

Future contracts, also known as futures, are standardized legally binding agreements between a buyer and seller to receive (known as taking a “long” position) or deliver (known as taking a “short” position) a commodity or financial instrument sometime in the future, at a price that has been agreed upon today. These contracts are identified according to the previously agreed maturity date an example can be, an August 2008 Wheat futures contract or a June 2008 S&P 500 stock index futures contract.

Futures are often traded in open-outcry and auction-style trading pits, at designated stock exchanges. Electronic trading systems like, Chicago Mercantile Exchange’s (Globex System are also used, in certain exchanges. Chicago Mercantile Exchange was the first to introduce futures trading. The exchange clearinghouse guarantees the performance and counterparty risk elimination, by substituting itself as the buyer to the seller and as seller to the buyer. The futures trade customers are required to post margin deposits, not against the market value of the commodity in the futures contract but as a performance bond or “good-faith deposit”, with an exchange member firm which, in turn, must deposit margin with the exchange, which ensures the market participants’ ability to honor their financial commitments and cover any obligations which might arise out of their trading activities.

A “long” position is the one in which we buy, i.e. receive a futures contract, and selling, i.e., delivering a futures contract is referred to as taking a “short” position. A long futures position profits when the futures price goes up, and a short futures position profits when the futures price goes down. Maturing futures contracts expire on specific dates, usually during the contract month. The futures trader may also offset or exit his obligation at any time before the contract matures, by selling what was previously bought, or buying what was previously sold. This way, a trader is relieved of any obligation to make or take delivery of the underlying commodity or financial instrument.

Futures contracts have standardized terms and trade on centralized exchanges. Its participants in futures trading can be divided into two broad categories: Hedgers, who actually deal in the underlying commodity or financial instrument and seek to protect themselves against adverse price fluctuations, and Speculators, who seek to profit from price swings.

The vast majority of futures contracts, in fact, are closed out by offsetting market transactions prior to their maturity, rather than through the delivery process.

Futures trading also carry significant risk, since; the futures contracts generally entail high levels of leverage. Due to this they have been at the heart of many market blowups. The most famous of all may well be Long Term Capital Management (LTCM); despite of having the best financial brains on their payroll, LTCM managed to lose so much money so rapidly that the Federal Reserve Bank of the United States was forced to intervene and arrange a bailout to prevent a meltdown of the entire financial system. Enron, Nick Leeson and Barings Bank have also faced the brunt of “futures” mismanagement.

In the United States, futures transactions are regulated by the Commodity Futures Trading Commission.

Stock - Unit Investment Fund (Uif) And Internet-Trading What Is In Common?

Every second more or less informed person, if doesn’t know thorough mechanism of the investments and the principles of unit investment trusts’ work, but the words ‘UIF’ and ’share’ heard for sure. As for internet-trading - its popularity is not the same. Fund shares are considered as one of the most popular investment instrument.
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Online Investment Club for Dummy - Finding the Right Investment Club

So you think you would like to join an investment club? The first thing you need to do is find the right fit. Investment clubs come in all types, just as the investment world is composed of all types of investing styles. Do you know how you want to invest? This is the first question that must be answered before finding the right club. Are you an aggressive investor? If you’re under 40, you probably are on the aggressive side, and less risk-averse. However, as we age our investment styles should become more conservative as we approach retirement age and become more risk-averse.

The best way to find out the details about the club would be to attend a meeting. Most clubs have monthly meetings where they get together and decide what stocks they want to research and discuss the club’s policies. Well-organized clubs should have some established bylaws and written partnership agreements detailing the club’s goals and how they intend to reach these goals. Local clubs may meet in person; virtual investment clubs may have a chat or BBS discussion. Its here you’ll be able to decide whether or not the club is a good fit for you.

After finding the right club that suits your investment style be sure to scrutinize the club’s track record. Has the club reached any of its goals? Has the club outperformed the S&P 500? Has the club averaged better than 10% returns on a yearly basis? If they are getting returns over 10%, the club has done a great job getting their money to work for them.

Some clubs may have a steep buy-in expense, requiring the new member to buy an equal share of the pie. Other clubs will have detailed accounting systems in place that allow a new member to buy a percentage. Some clubs may require a new member to “buy out” another member. Once again, all these details can be found out at the club meetings.

Stcok Market Trading Tips - How Common Stocks Can Strengthen Your Investment

As might be expected, one of the most “common” types of stocks is also known as the “Common Stock”. Categorized by rate, income and growth, a common stock signifies ownership interest in a corporation. Therefore, a common stock might have an aggressive growth although it is categorized as low-income and vice versa.

Companies that are considered part and parcel of the high-growth stage, are the companies that issue commons stocks and at the same time, do not pay dividends. As an investor, you might have a growing stock (in terms of prices) even though you are getting no dividend income.

On the other hand, some companies might pay dividends of common stock to its shareholders. Such companies are usually old, established entities that have already gone through phases of major growth, hence, their capability to produce a steady flow of dividend income to the shareholders. Such issued stock, whether it is common or preferred, is known as the “blue chip stock”.

Thus, when you decide to invest in stocks, you must identify your investment objective at first, whether it is growth or income. This will help you to choose the right company in which you can invest your dollars.

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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