Options as a Strategic Investment » Invest

You, The Dummy, And The Stock Market

admin — Tue, 26 Jan 2010 09:11:09 +0000

Ok, so you want to dabble in the stock market. Unfortunately, you don’t know how and where to begin. So what do you do?

Well, the first relevant thing to do is ask the basic question of what is a stock and its significance.

A stock symbolizes ownership of a company. Some view stock as certificates. So the more stocks a person owns of a particular company, the more of the company they own. And the more the company they own, the bigger the influence they have in running the company. This is called equity investment.

The next thing to do is familiarize yourself with financial terms such as ‘price-earnings ratio’, ‘margin’, ‘option’, ‘earnings per share’ and ‘leverage’.

Then, it’s on to knowing where and how to actually buy stocks.

There are two ways to buy stocks:

1. brokerage service
2. online exchanges (e.g. banks)

Exchanges are services that allow investors to access stocks all over the world. Here, they can buy and sell stocks without the need for a broker. Certain banks allow you to set up your own stock portfolio and buy and sell stocks online using the money you have in these banks.

Brokerage services are rendered by brokers. These middlemen do all the work for you. They research the stock market, give advice, and buy and sell stocks according to the wishes of their clients. These brokers earn a commission from the stocks bought or sold.

Once you have chosen how to buy and sell stocks, the next thing to do is to open an account. As stated earlier, exchanges allow you to monitor and control your stock portfolio personally. If you choose to enter the stock trade with a bank, then ask your bank the specifics of setting up your own account.

If you choose to trade stocks via a broker, find a reputable broker and ask them to open and manage an account for you.

After you have successfully set up an account, it’s time to study the stock market and plan your strategy: will you be conservative in investing your money? Or will you be aggressive? Are you in it for the long term? Or are you a day trader?

After you have identified your plan, it’s time to do some research on the stocks offered in the market. Having a broker will significantly make it easier for you as they will do the research and give you advice. But, it is still best to study the market yourself.

Be warned though, the stock market is volatile. Be prepared for a roller-coaster ride.

Changes Coming To The Djia?

admin — Mon, 04 Jan 2010 09:14:25 +0000

Are changes coming soon to the Dow Jones Industrial Average Components?By my reckoning, there currently are 5 DJIA Components of the 30 total trading under $10/share: Alcoa (AA), Bank of America (BAC), Citigroup (C), General Electric (GE), and General Motors (GM). Are changes to the Index imminent, and what are likely replacements?In my view, it would be highly unlikely that GE would be removed from the DJIA, as it is the ONLY of the original 12 companies from 1896 that is still in the Index. This is also why we have written in the past on the important effect of GE’s stock performance on overall market psychology — to some degree, it really is THE bellweather of bellweathers, regardless of the fact that somehow over the years GE basically became a finance/investment company with an industrial side business (this benefited their bottom line for many, many years but now is adding potential risk and downside pressure).It also seems unlikely that AA would be removed, and I’m sure that Dow Jones would dread at removing GM … but if the stock goes to 0, what are they to do but replace it? BAC and C seem likeliest that at least one will be soon removed. According to various sources, if GM, BAC, and C all dropped to zero at this point, the DJIA would only lose about 70 points. However, I would assume if one or more does go ‘worthless”, it will HAVE to be replaced eventually to keep the Dow at 30 stocks.The last changes to the DJIA were September 22, 2008, with Kraft Foods (KFT) replacing American International Group (AIG) and February 19, 2008 when Chevron (CVX) and Bank of America (BAC) replacing Altria Group (MO) and Honeywell (HON).Let’s look at some of the top market capitilization names currently to see what are potential DJIA additions in 2009. China Mobile (CHL) or another Chinese company would actually be somewhat logical due to the changing demographics of world economics, but this Index covers American companies only so that is a definite NO … unless that rule is altered in the future. Could Warren Buffett’s Berkshire-Hathaway (BRK-A) be a possibility? I would say that is also very unlikely due to the fact that BRK is basically a holding company/index/mutual fund in itself, with holdings in a wide variety of sectors.Now to some more likely possibilities in the over $25 Billion Market Cap list:In the Biotech/Pharma/Healthcare/Medical sectors, we have Genentech (DNA), Abbott Labs (ABT), Amgen (AMGN), Bristol-Myers (BMY), Eli Lilly (LLY) and even Medtronic (MDT) … in my view the Index may want to increase its Biotechnology exposure, as it has little outside of its Pharmaceutical names.There also are several giant Technology names that many are speculating could be added to the DJIA, including Google (GOOG), Cisco Systems (CSCO), Apple (AAPL), Oracle (ORCL) Qualcomm (QCOM) and Amazon (AMZN). But note that the DJIA has historically been hesistant on adding tech names. Other +$25 Billion Market Cap names that jump out to me as possible additions include Visa (V), Monsanto (MON), Goldman Sachs (GS) and United Parcel Services (UPS). These are a bit more of the traditional type companies that Dow Jones generally prefers.Bottom line, if the DJIA is basically forced to make 3 moves, a logical conclusion I could see would be 1 Biotechnology name, 1 Technology name, and 1 of the more traditional names mentioned above. However this is a tight, concentrated index that traditionally has remained fairly conservative and attempts to stick somewhat to the “Industrial” part of the name — so they may go with no Technology or Biotechnology — but on the other hand, it also needs to be relevant as a privately owned investment product and a market bellweather. Moby Waller,BigTrends.com

Four Things to Consider Before Investing in the Financial Markets

admin — Sun, 03 Jan 2010 09:42:00 +0000

Are you ready to make money in the stock market? Investing is an important step towards building your personal wealth, and there are many things to consider before you begin.

Your present financial situation

You need to begin by evaluating your current financial situation. Consider your assets, your liabilities, your total household income and the amount of discretionary income that you have available to invest on a monthly basis. Your discretionary income is the income that you have left over each month after you pay all of your household expenses. Next, you need to evaluate your current level of cash reserves. Cash reserves can be defined as the assets set aside in the case of an emergency or for an opportunity. An example of an opportunity would be a great investment, a real estate property that you want to buy or a great vacation discount that you want to take advantage of. It is recommended that you keep between 3-6 months of your total household expenses set aside as cash reserves. The other factor to consider is the level of your personal protection. Your most important asset is your ability to earn an income. Protecting yourself, your home, your vehicles and your family is important. Evaluate your levels of insurance coverage to determine whether it is sufficient to cover your present needs.

What are you saving toward?

Everybody saves for a purpose. Some people save to ensure a better retirement. Some people are saving to buy a car, home or a new boat. Some are saving to ensure that their children have a great college education. Before you begin to save, sit down and think about all of your goals, and then prioritize them based on personal importance. Ask yourself whether these goals pass the acid test. The acid test asks if you would be willing to do whatever it takes to achieve these goals. For example- Would you reduce your lifestyle and expenses to save more money if it would ensure that you reached your goal? If a goal does not pass the acid test then you should remove it from your list. Next, define each goal with a time frame and an amount. For example- I need to have $50,000 saved for my oldest son by 2010 to pay for his education, is a clearly stated goal. Once you have defined your goals, determine the dollar amount needed to save to achieve them and the length of time you have to save for them. These factors will be taken into consideration when making your individual investment selections.

Do you understand your investment options?

Consider investing into mutual funds if you are a new investor into the stock market. Mutual funds are comprised of multiple individual stocks or bonds and usually offer a smaller initial investment amount to be contributed on a monthly basis. This smaller dollar amount makes it possible for a variety of investors to begin saving into the stock market without large sums of cash already set aside. Understanding stocks, bonds, mutual funds, real estate investment trusts, cash value life insurance, annuities and trusts is an important place to start when you are a beginning to invest. Research each investment option to determine which combination will best assist you in reaching your financial goals.

Define your Investment Risk Tolerance

Now that you have an understanding of the stock market, you need to determine your personal risk tolerance before you start to invest. Your risk tolerance refers to the amount of variance you are comfortable with in your portfolio, and is often defined by how far away the goals that you are savings towards are. Investors are typically categorized as Aggressive, Moderately Aggressive, Moderately Conservative and Conservative. Each investor type is characterized by their investment portfolio, their time frame to save, their expected portfolio returns and their overall tolerance to withstand portfolio value changes on an annual basis.

These are the most important things to consider before you invest into the stock market. Having a financial plan that you implement will increase your chances for financial success.

This is not investment advice. Before implementing any investment strategies, consult your financial advisor or financial professional.

Foreclosure Investing – a Smart Strategy

admin — Sun, 27 Dec 2009 10:14:04 +0000

Foreclosure investing is a form of real estate investment. It is one of the best investment options as far as returns on investments are concerned. Foreclosure investment opportunities are normally created when homeowners default on monthly installment payments and the bank confiscates their property. The property is then sold at a foreclosure auction. Foreclosure investment opportunities are also available when a homeowner tries to sell the property directly to the ready buyers, before the foreclosure is announced. Information about such auctions is readily available on the Internet. You can use the information to invest in properties that have the potential to maximize your investment returns, in the next few years.
It is a buyer’s market
The foreclosure investment market is often called a buyer’s market because buyers are in a better position to negotiate the price of the property and other related terms and conditions in a deal. A homeowner, who has not made timely payment towards a mortgage loan, is usually aware of the fact that the property will be confiscated and he will not be able to profit from the sale proceeds. To avoid foreclosure, homeowners try to sell their property and use the proceeds for applying for new mortgage loans or buying new properties. Generally, owners who want to avoid the impending foreclosure have only 60 to 90 days to sell the property, before it is evaluated at a public trustee sale. According to certain state laws, homeowners are even given the option to reclaim their property within 360 days. Homeowners, who do not use this option, if available, will not be able to stop the lenders from foreclosing the properties and eventually selling them at a public auction.
Cheap and low risk investment option
Investing in foreclosure properties is probably the cheapest way of maximizing your investment returns. If you conduct a thorough research, you can easily identify and buy properties at very reasonable prices. In the past, there have been properties that were sold at discounts as high as sixty to eighty cents to a dollar. The foreclosure investment market is considered a low risk one, since land is a scarce resource. The value of the land will definitely rise, even if the real estate market witnesses a downtrend.
Other benefits
There is no dearth of foreclosure properties in the market. In order to buy a foreclosure property, you may not even have to apply for a bank loan. You just need to identify a suitable buyer, who is willing to pay the right price. Foreclosure properties are either sold at auctions or the buyer sells it directly.
As compared to the regular real estate market, the foreclosure properties market has a fewer investors. This makes it a lot easier to find and buy properties below the existent market rates. It is anticipated that the foreclosure properties market is set to grow at a steady pace in the next few years. The investment thus made is worth all the initial effort and patience applied. The foreclosure investment market offers real value on the money spent and re-evaluation of the property always reveals that the price paid was well below the existent market value.

Beginners Trading Guidelines

admin — Wed, 23 Dec 2009 09:47:41 +0000

How difficult is it to make money trading the Forex market? How much time does it take to actually be able to make a living trading the Forex market? These and other important aspects of trading are to be discussed in this article.
Always Place Stop-Loss Orders
The most common and important risk management tool in forex trading is the Stop-Loss order.
A Stop-Loss order ensures a particular position is automatically liquidated at a predetermined price in order to limit potential losses should the market move against your position.
We recommend you always place a Stop-Loss order immediately after a new position is opened, as it can be very tempting to overrun losses on losing trades if a Stop-Loss order hasn’t been placed.
So often have I seen situations where a novice trader is 500 points out of the money when he only intended to make or lose 50! By not placing a Stop-Loss order the trader has lost much more than planned, and the Risk/Reward Ratio is exceedingly poor.
In order to avoid this scenario you must follow a simple rule – Always place Stop-Loss orders, liquidity of the Forex market ensures Stop-Loss orders can be easily executed.
Usually Place Take-Profit Orders
Aswell as placing Stop-Loss orders, we recommend in most cases to enter Take-Profit orders at the same time using the OCO order function that most trading systems now have. The reason for this is similar to that for placing Stop-Loss orders.
Whereas with losing positions it can be very tempting to overrun losses, with winning positions it can be just as tempting to lock in a profit too early. By placing limits you will eliminate the risk of not being patient enough and taking profit too early.
However, you may feel confident in your ability not to profit take too early, prefering to monitor the market and taking profit at an opportune moment. In this case placing only a Stop-Loss order is an option.
Positive Risk/Reward Ratio
You should always trade using a positive Risk/Reward Ratio. By a positive Risk/Reward ratio we mean “The amount you’re willing to make on a trade should be more than or equal to the amount you’re willing to lose”.
All successful traders trade using a positive Risk/Reward ratio. There is no sense in having five 30 pip winning trades, and then one 200 pip losing trade because at the end of the day you are 50 pips down!
Unfortunately, many novice and unsuccessful traders use a negative Risk/Reward ratio. When trading this way losing positions are always going to be greater than profitable ones, and it can be difficult to recoup the losses in the short term.
It is not uncommon for unsuccessful traders to increase trade size in order to recoup losses quickly, therefore greatly increasing trading risk relative to trading equity.
This is a recipe for disaster, you must trade with consistancy and control. The easiest way to manage your Risk/Reward is to use the Stop-Loss and Take-Profit orders mentioned above.
Overtrading
Some online forex brokers now offer 3 to 5 pip spreads in the liquid currencies such as EUR/USD and USD/JPY. These are very competitive prices which a few years ago were unthinkable. As recently as the mid 1990’s brokers were quoting 10 pip spreads in the major currencies plus a commission!
Thankfully due to the internet, the current boom in Forex trading and the competition between Forex brokers, those days are well and truly over.
The excellent value available from trading on tight spreads works very much to the traders advantage. However, you should avoid overtrading and entering trades for just a 5-10 pip profit or loss. Even trading this way on 3 pip spreads can adversely affect your profitability.
Below are examples of both a winning trade and losing trade when trading for a 10 pip profit or loss:
Winning Trade:
Buy EUR/USD at 1.2020 (price = 17/20)
Sell EUR/USD at 1.2030 (price = 30/33)
Market moves 13 pips before taking profit
Losing Trade:
Buy EUR/USD at 1.2020 (price = 17/20)
Sell EUR/USD at 1.2010 (price = 10/13)
Market moves 7 pips before taking loss
The above example highlights that the risk/reward of trading for a 10 pip profit or loss is poor.
For the same 10 pips P&L, the market must move 13 pips for your winning position, but only 7 pips for your losing position.
As a general rule of thumb, we recommend that your Take-Profit or Stop-Loss levels are at least 10 times the spread you have traded on. This strategy will help avoid overtrading and improve risk/reward.
Chasing the Market
If you are a day trader or short term trader, in general we recommend not to “chase the market”.
By this we mean you shouldn’t for example buy Euro after it has already risen 100 pips and is trading at the days highs. Or sell USD/JPY after it has come off 150 pips and is trading near the days lows. The rationale behind this is that in many cases the market will consolidate and there will be better opportunities to enter into a new position.
A common scenario when chasing the market is panic buying or selling when a novice trader reverses a position in the hope that they can quickly make back losses. Unfortunately what often happens is that they simply instead end up repeatedly buying the high, and selling the low. This situation must obviously be avoided.
Managing your Margin
We recommend you only risk a maximum of 10% of your total trading equity on a single trade.
10% may sound like too little risk considering many online forex brokers offer 1% margin or 100 times leverage. However, trading on high leverage can be very risky as you could lose everything in a single trade.
By risking only 10% of your equity on a single trade, you will still be able to make good profits from successful trades whilst avoiding the risk of being wiped out during a bad streak.
Even the most profitable traders can have losing streaks in which they could for example have 3 or 4 consecutive losing positions.
Finally
Successful forex trading is a long term investment which can produce excellent returns if traded with control, discipline, patience and consistency. Your target should be to make substancial profits over the course of anything over 3 months.
Wanting to double your money in a week is not the right mindset with which to start trading. The risks involved are way too high and belong in the casino!
In forex trading the old cliche definately rings true — knowledge equals power!

Strategic Moves on Stock Market Investment

admin — Sat, 12 Dec 2009 09:50:52 +0000

Stock market investment is a risky stance, but it should not stop any aspiring investor from taking the first step. The choice to make the stock market endeavor succeed lies upon the investor.

1. Knowledge

A wise investor would only delve into stock market investment upon being apprised with the necessary and crucial information. It is a must to invest on companies only upon learning everything about it, from its past records, current performance and future plans.

Stock market investment advice should be sought considering the difficulty of locating that right stock that will give big returns. The investor must fully know the fundamental value of the stock he or she will buy.

Invest in a company which belongs to a familiar industry. The stock market investor must have a good understanding of the business in order to realize more the value of the stocks. This will also make the investor less dependent to analysts and advisers.

The sources of information to rely upon must be carefully chosen too. Tips offered in the market should be avoided as much as possible. These are usually given by people with vested interests.

2. Long-term goal

An important consideration in stock market investment is setting a long-term goal. The long-term goal would determine the approaches to be taken and influence the decisions to be made.

The adherence to that goal would ensure regularity in instances of indecision when the stock market gyration comes to play. It would avoid whimsical decisions adversely disturbing the finances. A long-term goal could result to a more stable financial future through steady purchases investments. The key word here is consistency.

3. Calculated Risks

There are risks in any business endeavors. However, this must be calculated to minimize the probability of loss and to increase the expectation of profits. Speculating is not an option.

Never gamble and risk losing big money in the stock market. Investments should not rake in huge losses. It is easy to buy stocks, but money lost would be difficult to gain back. One cannot afford costly mistakes.

The established system in realizing the long-term goal must be strictly followed then. This will reduce the probability of putting too much money just to incur big losses.

5. Discipline

To make the most of the stock market investment, the investor himself must possess the proper determination and discipline to continually persevere in realizing the long-term goals set.

Stock market investment today requires passion and courage to come out as a winner. The stock market gives the opportunities; all that is required of the investor is being prudent.