Here's the best tip we can give you if the volatility in the market has spooked you or if you had seen a large profit wash away in the falling market: ignore your stocks right now and keep your investing attention to something else.
Focus all your efforts and time on the company your stock represents. That's because there are really two elements at work when investing: the stock, which is part of the stock market, and the company, something the stock is supposed to represent. But the company works in a different universe from the stock market, involved more in the real world of profits and losses rather than the emotional tide of fear and greed, the two major forces behind the stock market. With the uncertainty prevailing in the market, fear is rampant and some of it is justified, but there are lots of good companies that might be hammered by that emotion. That's why you'll do better if you research your companies in depth rather than trying to figure out if the morning sell off is the beginning of the end or just a hick up on the road to true wealth. But let's say you've done all your numbers, and everything looks great. You've checked for the latest news and you still can't tell why your stock is down. Then you might want to call the company directly and ask for the Investor Relations department. Don't expect the investor relations person to tell you any secrets or unpublished information but you can ask a few questions and get a better feeling about the company:
1. Why is the stock down so dramatically? Are there rumors the company has heard?
If so, what is the company's response to them.
2. Is there anything the company can say about the stock being down?
3. Are the officers of the firm buying or selling the stock?
4. Is the company buying its own shares right now?
You will hence get a sense of how the company is responding to its stock being down, and maybe hear about news that has just been published but you haven't read. Then, when you've done all you can to determine that the company in which you've invested is indeed doing everything well, you can ignore the stock and be assured that this too shall pass. If you determine that the stock is down for a good reason and seems to be going lower, then you can sell it and move on to another company. In either case, you can make a decision based on the company and not the stock.
Friday, July 20, 2007
Value, Growth and Income
Growth, Value, Income and GARP are one of the most rational ways of stock analysis. A brief on each of them is given here for your understanding.
Growth Stocks
The task here is to buy stock in companies whose potential for growth in sales and earnings is excellent. Companies growing faster than the rest of the stocks in the market or faster than other stocks in the same industry are the target i.e the Growth Stocks. These companies usually pay little or no dividends, since they prefer to reinvest their profits in their business. Individuals who invest in growth stocks should make up their portfolio with established, well-managed companies that can be held onto for many, many years. Companies like HLL, Nestle, Infosys, Wipro have demonstrated great growth over the years, and are the cornerstones of many portfolios. Most investment clubs stick to growth stocks, too.
Value Stocks
The task here is to look for stocks that have been overlooked by other investors and that which may have a "hidden value." These companies may have been beaten down in price because of some bad event, or may be in an industry that's looked down upon by most investors. However, even a company that has seen its stock price decline still has assets to its name-buildings, real estate, inventories, subsidiaries, and so on. Many of these assets still have value, yet that value may not be reflected in the stock's price. Value investors look to buy stocks that are undervalued, and then hold those stocks until the rest of the market (hopefully!) realizes the real value of the company's assets. The value investors tend to purchase a company's stock usually based on relationships between the current market price of the company and certain business fundamentals. They like P/E ratio being below a certain absolute limit; dividend yields above a certain absolute limit;
Total sales at a certain level relative to the company's market capitalization, or market value. Templeton Mutual funds are one of the major practitioners of this strategy.
Growth is often discussed in opposition to value, but sometimes the lines between the two approaches become quite fuzzy in practice.
Income.
Stocks are widely purchased by people who expect the shares to increase in value but there are still many people who buy stocks primarily because of the stream of dividends they generate. Called income investors, these individuals often entirely forego companies whose shares have the possibility of capital appreciation for high-yielding dividend-paying companies in slow-growth industries.
Growth Stocks
The task here is to buy stock in companies whose potential for growth in sales and earnings is excellent. Companies growing faster than the rest of the stocks in the market or faster than other stocks in the same industry are the target i.e the Growth Stocks. These companies usually pay little or no dividends, since they prefer to reinvest their profits in their business. Individuals who invest in growth stocks should make up their portfolio with established, well-managed companies that can be held onto for many, many years. Companies like HLL, Nestle, Infosys, Wipro have demonstrated great growth over the years, and are the cornerstones of many portfolios. Most investment clubs stick to growth stocks, too.
Value Stocks
The task here is to look for stocks that have been overlooked by other investors and that which may have a "hidden value." These companies may have been beaten down in price because of some bad event, or may be in an industry that's looked down upon by most investors. However, even a company that has seen its stock price decline still has assets to its name-buildings, real estate, inventories, subsidiaries, and so on. Many of these assets still have value, yet that value may not be reflected in the stock's price. Value investors look to buy stocks that are undervalued, and then hold those stocks until the rest of the market (hopefully!) realizes the real value of the company's assets. The value investors tend to purchase a company's stock usually based on relationships between the current market price of the company and certain business fundamentals. They like P/E ratio being below a certain absolute limit; dividend yields above a certain absolute limit;
Total sales at a certain level relative to the company's market capitalization, or market value. Templeton Mutual funds are one of the major practitioners of this strategy.
Growth is often discussed in opposition to value, but sometimes the lines between the two approaches become quite fuzzy in practice.
Income.
Stocks are widely purchased by people who expect the shares to increase in value but there are still many people who buy stocks primarily because of the stream of dividends they generate. Called income investors, these individuals often entirely forego companies whose shares have the possibility of capital appreciation for high-yielding dividend-paying companies in slow-growth industries.
Wednesday, July 18, 2007
FOREX TRADING
Can you really make money day trading futures? The answer, of course, is yes. The answer is only yes, if you know what to do and then you take action upon what you know.
Making money day trading futures is like making money trading in any financial market. It all starts with having a plan, and then executing the plan to the letter in order to make profits.
I believe what throws many people off when it comes to day trading futures is the fact that some are unfamiliar with futures contracts and their characteristics. This, of course, should not deter one from exploring the possibilities of profits in day trading futures. The fact of the matter is that you don't need to know every possible thing about every possible futures contract in order to make profits in trading futures.
Many futures contracts happen to be excellent vehicles for day trading. Again, it is not imperative that you understand everything about every futures contract in order to profit in day trading futures. I'll give you an example. What if everyone had to know the intricacies of the internal combustion engine before they drove a car? If that were actually the case then very few people would drive... yet there are millions of people driving cars every day. I only say this to illustrate the fact that you need to know a certain number of basic things in order to trade in any market successfully. A simplified list of those basic things would be as follows, when to get in, when to get out, and when to stand aside.
It is true that the above list may seem overly simplified. You will of course need some method to determine when to take the steps above in order to be successful. Your method will have to be one which is repeatable, therefore it will require some research on your part.
You'll need a day trading strategy in order to day trade futures successfully. You have the choice of either developing your own day trading strategy or looking for a commercially available day trading strategy. In any case, you will want to do your homework and due diligence, because in order to make money day trading futures your day trading strategy must be a good one. And remember that your level of discipline in following your day trading strategy is at least as important as the day trading strategy itself.
The Forex Trader’s Bill of Rights (2007) is a non-fiction book about the foreign currency trading market, published by OANDA_Corporation. It is primarily a call to arms for currency traders to call for greater transparency and accountability within the market. The overleaf provided with the printed version of the book states: “Big banks and confederated brokerages have overcomplicated forex: trading costs are inflated, unnecessary risk abounds, and the system is grossly unfair.” Essentially, the book elaborates on this premise, detailing ways in which traders are being unfairly treated and encouraging them to take action.
OANDA is a company that provides currency trading tools for investors, travelers, and businesses. As such, there is an unavoidable marketing aspect to this publication. However, OANDA is not mentioned throughout the book. There has been a clear effort to maintain a relatively neutral point of view. The back cover does state “OANDA is a leading provider of online currency trading…FXTrade…enables all currency investors to change the way forex trading is done”.
The authors believe currency investors have 10 basic rights which are being violated: each short chapter deals with one of these rights. They are:
1. The right to immediate, uncensored access to the marketplace
2. The right to trade real spot
3. The right to know
4. The right to trade whenever you want
5. The right to equal treatment
6. The right to choose and manage risk
7. The right to understand cost
8. The right to learn – on your own, or through free exchange with other traders
9. The right to full disclosure
10. The right to pay and receive interest
1) The right to immediate, uncensored access to the marketplace Chapter one argues that when trading traditionally (with banks etc.,) execution and price are affected by who you are (size of your order/ relationship with your market maker etc.), the amount of greed on the part of the market maker, and manual intervention which can delay the trade. The chapter calls for transparency, fairness, and efficiency for traders from market makers.
2) The right to trade real spot
Chapter two addresses unnecessary delays in settlement of trades, which according to the authors increase risk for investors.
3) The right to know
The third chapter states that market makers share information based on who you are: in some cases they share information that should not be shared; in other cases they do not share information that should be publicly available. This leads to an unfair advantage.
4) The right to trade whenever you want
The chapter asserts that market makers may advertise 24 hour trading but they close the books on Friday. However, world events which affect currency price occur on weekends. The argument continues that since the technology for 24/7 trading is available, it should be offered by all market makers.
5) The right to equal treatment
Chapter five argues that every trader should be given the same price and spread, and that market makers should not discriminate between traders.
Making money day trading futures is like making money trading in any financial market. It all starts with having a plan, and then executing the plan to the letter in order to make profits.
I believe what throws many people off when it comes to day trading futures is the fact that some are unfamiliar with futures contracts and their characteristics. This, of course, should not deter one from exploring the possibilities of profits in day trading futures. The fact of the matter is that you don't need to know every possible thing about every possible futures contract in order to make profits in trading futures.
Many futures contracts happen to be excellent vehicles for day trading. Again, it is not imperative that you understand everything about every futures contract in order to profit in day trading futures. I'll give you an example. What if everyone had to know the intricacies of the internal combustion engine before they drove a car? If that were actually the case then very few people would drive... yet there are millions of people driving cars every day. I only say this to illustrate the fact that you need to know a certain number of basic things in order to trade in any market successfully. A simplified list of those basic things would be as follows, when to get in, when to get out, and when to stand aside.
It is true that the above list may seem overly simplified. You will of course need some method to determine when to take the steps above in order to be successful. Your method will have to be one which is repeatable, therefore it will require some research on your part.
You'll need a day trading strategy in order to day trade futures successfully. You have the choice of either developing your own day trading strategy or looking for a commercially available day trading strategy. In any case, you will want to do your homework and due diligence, because in order to make money day trading futures your day trading strategy must be a good one. And remember that your level of discipline in following your day trading strategy is at least as important as the day trading strategy itself.
The Forex Trader’s Bill of Rights (2007) is a non-fiction book about the foreign currency trading market, published by OANDA_Corporation. It is primarily a call to arms for currency traders to call for greater transparency and accountability within the market. The overleaf provided with the printed version of the book states: “Big banks and confederated brokerages have overcomplicated forex: trading costs are inflated, unnecessary risk abounds, and the system is grossly unfair.” Essentially, the book elaborates on this premise, detailing ways in which traders are being unfairly treated and encouraging them to take action.
OANDA is a company that provides currency trading tools for investors, travelers, and businesses. As such, there is an unavoidable marketing aspect to this publication. However, OANDA is not mentioned throughout the book. There has been a clear effort to maintain a relatively neutral point of view. The back cover does state “OANDA is a leading provider of online currency trading…FXTrade…enables all currency investors to change the way forex trading is done”.
The authors believe currency investors have 10 basic rights which are being violated: each short chapter deals with one of these rights. They are:
1. The right to immediate, uncensored access to the marketplace
2. The right to trade real spot
3. The right to know
4. The right to trade whenever you want
5. The right to equal treatment
6. The right to choose and manage risk
7. The right to understand cost
8. The right to learn – on your own, or through free exchange with other traders
9. The right to full disclosure
10. The right to pay and receive interest
1) The right to immediate, uncensored access to the marketplace Chapter one argues that when trading traditionally (with banks etc.,) execution and price are affected by who you are (size of your order/ relationship with your market maker etc.), the amount of greed on the part of the market maker, and manual intervention which can delay the trade. The chapter calls for transparency, fairness, and efficiency for traders from market makers.
2) The right to trade real spot
Chapter two addresses unnecessary delays in settlement of trades, which according to the authors increase risk for investors.
3) The right to know
The third chapter states that market makers share information based on who you are: in some cases they share information that should not be shared; in other cases they do not share information that should be publicly available. This leads to an unfair advantage.
4) The right to trade whenever you want
The chapter asserts that market makers may advertise 24 hour trading but they close the books on Friday. However, world events which affect currency price occur on weekends. The argument continues that since the technology for 24/7 trading is available, it should be offered by all market makers.
5) The right to equal treatment
Chapter five argues that every trader should be given the same price and spread, and that market makers should not discriminate between traders.
Tuesday, July 10, 2007
Interest rates head for 6% by year’s end
Interest rates look all but certain to hit 6 per cent by the end of the year after the Bank of England raised its main rate – for the fifth time in a year – to 5.75 per cent on Thursday.
Chris Giles, economics editor, on the Bank of England’s decision to raise UK interest rates
Financial markets and economists hardened their expectations of 6 per cent interest rates and many now believe there is a strong chance that rates will rise to 6.25 per cent next spring, a rate not reached in the UK since 1998.
The Bank’s move came as eurozone interest rates also looked set to continue rising as the European Central Bank signalled another increase was likely in September.
In raising rates by a quarter of a percentage point, the Bank blamed strong growth, limited spare capacity and indications that businesses were poised to raise prices.
The similarity in the thinking of Europe’s central banks was striking. While uncertain about the future path of inflation, they warned that rapid economic growth and limited spare capacity had heightened risks and demanded action.
A Reuters poll on Thursday showed that a little more than half the 57 economists surveyed expected UK rates to hit 6 per cent by the end of the year.
Sterling remained just above $2 at $2.01 although the markets had already priced in Thursday’s rise.
The Bank’s statement gave no hints about future rate rises but stressed that, although inflation would fall this year as gas and electricity prices fell, “most indicators of pricing pressure remain elevated”.
“The balance of risks to the outlook for inflation in the medium term continued to lie to the upside,” it added as it said that these risks had persuaded the majority on the committee to vote for higher rates.
Andrew Smith, chief economist of KPMG, the accountants, said the Bank’s monetary policy committee would relax only when growth slowed. “This could well happen of its own accord as past rate increases bite – but, if not, it is too early to call the peak of the rate cycle.”
Since December 2005, the ECB has lifted its main rate eight times to 4 per cent. No change was announced on Thursday, but Jean-Claude Trichet, ECB president, said he would not want to change market expectations on the timing of the next move. Markets had factored in a two-thirds chance of a September rise, with October a less likely possibility.
A September rise would raise the possibility of a further increase before the end of the year – likely to be seen by many ECB governing council members as justified given recent stronger-that-expected data on eurozone economic activity.
“I don’t see why they would slow down the pace right now,” said Erik Nielsen, economist at Goldman Sachs.
Chris Giles, economics editor, on the Bank of England’s decision to raise UK interest rates
Financial markets and economists hardened their expectations of 6 per cent interest rates and many now believe there is a strong chance that rates will rise to 6.25 per cent next spring, a rate not reached in the UK since 1998.
The Bank’s move came as eurozone interest rates also looked set to continue rising as the European Central Bank signalled another increase was likely in September.
In raising rates by a quarter of a percentage point, the Bank blamed strong growth, limited spare capacity and indications that businesses were poised to raise prices.
The similarity in the thinking of Europe’s central banks was striking. While uncertain about the future path of inflation, they warned that rapid economic growth and limited spare capacity had heightened risks and demanded action.
A Reuters poll on Thursday showed that a little more than half the 57 economists surveyed expected UK rates to hit 6 per cent by the end of the year.
Sterling remained just above $2 at $2.01 although the markets had already priced in Thursday’s rise.
The Bank’s statement gave no hints about future rate rises but stressed that, although inflation would fall this year as gas and electricity prices fell, “most indicators of pricing pressure remain elevated”.
“The balance of risks to the outlook for inflation in the medium term continued to lie to the upside,” it added as it said that these risks had persuaded the majority on the committee to vote for higher rates.
Andrew Smith, chief economist of KPMG, the accountants, said the Bank’s monetary policy committee would relax only when growth slowed. “This could well happen of its own accord as past rate increases bite – but, if not, it is too early to call the peak of the rate cycle.”
Since December 2005, the ECB has lifted its main rate eight times to 4 per cent. No change was announced on Thursday, but Jean-Claude Trichet, ECB president, said he would not want to change market expectations on the timing of the next move. Markets had factored in a two-thirds chance of a September rise, with October a less likely possibility.
A September rise would raise the possibility of a further increase before the end of the year – likely to be seen by many ECB governing council members as justified given recent stronger-that-expected data on eurozone economic activity.
“I don’t see why they would slow down the pace right now,” said Erik Nielsen, economist at Goldman Sachs.
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