Archive for the ‘Investment’ Category
Saturday, January 16th, 2010
By: Jason Markum
So you’ve got a few bucks put aside and are disgusted by the close to 1% interest your local bank is paying on your savings account. And you’re thinking that maybe it’s time to start investing in the stock market.
Well you’ve come to the right place!
First of all, I will tell you that I’m not a licensed financial planner in any way shape or form (though I did get a degree in economics with honors from one of the best schools in the world). And I don’t do this for a living.
That being said, I can help you greatly!
First of all, get the notion of investing in the stock market out of your head right now. You are not going to open a stock trading account online or with your local stock broker and pick some stocks to buy. That’s what most people do when they first get started and most people lose all their money.
But not you, you are smarter than that, you are doing a little research first and you are listening to me!
They say that the stock market returns an average of 6-8% per year. That’s only *sort* of true. That only works if you take the stock market on whole, and then average it over like thirty years or more. That does NOT mean that if you just buy some stock in some company, even a good company, that you are going to make 6-8% per year guaranteed.
So where does that leave us?
Index funds. There is a way to buy “the whole” stock market and they are called index funds. For instance, the S&P 500 index. You probably hear them talk about the S&P 500 every night on the news. When most people say “stock market” they are often referring to the S&P 500 or some other broad stock market index. It is made up of the top 500 leading companies as determined by S&P. See how that works?
The trick is to go to Vanguard or some other reputable mutual fund company and get an account with them that allows you to direct deposit X percent of your paycheck each month and have that money credited to your S&P 500 index mutual fund with no fees.
It doesn’t have to be much, a hundred bucks a month, fifty, a thousand, whatever you are prepared to invest each month have them direct deposit it from your paycheck or from your bank account on the same day each month.
If you do this, THEN you will receive that 6-8% stock market increase that is the historic average because you are investing in the market as a whole and not just a couple of risky companies. Of course this return is not absolutely guaranteed, anything could happen, but this is one of the safest ways to get into the stock market and almost guarantee those safe 6-8% returns.
That’s how it is done. This way you can set it up and forget about it and be assured that your money is as safe as possible for a stock market investment. That way you are diversified in case a few companies go down, which you are not if you simply pick a few stocks to buy.
Tags: index funds, investing, mutual funds, stock market, Wealth
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Tuesday, January 19th, 2010
By: Jason Markum
Checking accounts, savings accounts, money market funds, these are the things we usually think of as cash. On the other hand, you have your regular investments. Stocks, mutual funds, gold, real estate, art; these things are certainly valuable but not as easily converted into cash.
The problem is, how do you determine how much of your wealth to keep in cash, and how much to keep in non-cash items?
You never know when you’re going to have an unexpected emergency. Things happen and when they do you need to be able to put your hands on as much cash as you can. But if most of your wealth is in the form of your house for instance, and you suddenly had an emergency where you needed to raise a large amount of cash, you would be in trouble.
So it’s important to always keep cash or cash equivalents on hand, the problem is how to determine how much cash. Keep too little cash and inflation eats away at the value of your wealth. You always have to invest in some long-term assets that will at least keep up or beat inflation.
Everybody is different, everybody has different risk tolerance levels. Some people will be comfortable keeping $1,000 to $5,000 in cash available for emergencies, some people will not feel secure unless they have $50,000 to $100,000 in cash available. It really just depends on you.
A good rule of thumb to use is to figure out what you would need for 3 to 6 months of expenses. For some people keeping six months worth of expenses in cash is not a realistic goal. If that’s the case then I suggest keeping three months worth of expenses in cash. That way if something happened, for instance if you lost your job or your spouse lost their job, you would have enough money set aside in cash to pay all your expenses for three months.
Of course, hopefully you have your other long term investments that you can liquidate within those three months to tide you over when the three months of cash runs out. If your long-term investments are less liquid, that is, if you think it will take longer than three months to turn them into cash, you should plan for this and keep more cash available.
Whatever your risk tolerance ends up being, having a plan in place before hand can be one of the most important parts of any long-term financial plan that you may come up with. So many people don’t have any kind of plan in place at all. Even if your plan is slightly incorrect, any plan; even a poor plan, is better than nothing.
And as they say… when did the man build the ark? Before the rain…
Tags: Wealth
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Tuesday, January 19th, 2010
By: Jason Markum
I get asked this question all the time, its one of the most frequently asked questions I see. I get it especially from new people who have never invested in the stock market before and don’t know much about it.
Before we get any further along, I should mention as a disclaimer that I am not a certified financial planner or stock broker in any way shape or form. I did get a degree in economics back in college, but I am not a working banker either.
So, should you ever invest in individual stocks? The answer is a resounding NO!
The reason is no for several reasons. The first is common sense. You don’t know what you are doing. You don’t know how to properly analyze a company stock, and you don’t have the time needed to continually update that analysis each and every day as new information becomes available. Is someone suing the company? You don’t know. Did their latest product bomb in all the test marketing? You don’t know.
The second is more technical and deals with diversifiable risk. Mathematically speaking we can prove that buying many different companies in many different industries diversifies away one of the two main “risks” involved in investing. I won’t get into those two main areas of “risk” but just trust me when I say that the more companies you buy, the lower the risk becomes mathematically.
You can read up on market risk (beta) and individual company risk in any financial text book, just look up the Capital Asset Pricing Model or CAPM or Beta or market variance and you will get all you want to know including the math behind it if you have a skill in math.
The point is, you can diversify away some risk by buying more stock. Of course, you can’t individually buy many different stocks because it becomes prohibitively expensive in stock broker fees (which is WHY your local stock broker WILL suggest you buy individual stocks!).
What’s the solution? It’s actually quite easy. You buy shares in a stock market index fund like the S&P 500 or others that reflect the entire market as a whole. You can’t buy a share of every company in the stock market in order to diversify the risk away, but a mutual fund can!
What’s more, some mutual funds will let you set up your account to direct deposit a certain amount into your account each month, with which they will buy more shares of the index fund for you often at no additional stock brokerage fee.
Compare that to having to pay your stock broker every time he buys a share of stock for you and you quickly see how much money you can save year in and year out (hundreds of dollars or more!).
Vanguard is a good mutual fund type company that can help you out with this. They are reputable and experienced with helping out new investors who might not know exactly what they’re doing. Just tell them that you want a broad stock market index fund like an S&P 500 index fund that you want to invest a little bit in each month.
They will take it from there! (and no, I have no affiliation with them whatsoever)
Tags: investing, stock market, Wealth
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Monday, January 25th, 2010
By Jason Markum
Around the middle of 2008 the financial markets started to wobble. There wasn’t anything wrong per se, but there was a sense of something jittery in the air. People started to whisper amongst themselves, and everyone started to get nervous.
Summer gave way to Autumn and suddenly the housing market in the US collapsed and then the financial sector melted down. Banks started to go bankrupt, investment companies such as Lehman and Merrill folded overnight.
And the stock market plummeted.
2008 ended just about as bad as any year ever did excepting the years of the Great Depression, and 2009 didn’t look to be much better. In fact it wasn’t much better till about half way through it. Then miraculously, almost overnight, the stock market started to rebound.
Where the year before saw the stock market drop 40, 50, 60% or more; suddenly the stock market was rebounding 40, 50, and even 60% or more. It wasn’t a straight shot up, there were flows; ups and downs, but generally the 2009 stock market ended massively higher than anybody expected.
Now 2010 has begun and we’re in the middle to end of January at the time of writing this article. People are beginning to ask the question… is it time to invest in the stock market again?
It’s a very tricky question, and one that is potentially very dangerous. Yes the stock market has gone up massively since the lows of 2008 and beginning of 2009. But that doesn’t necessarily mean that it’s time to invest in the stock market again for us ordinary people.
It seems like whenever the stock market goes up, it soon drops down just as quickly again. The stock market is littered with a history of highs and lows, peaks and troughs, zigs and zags that would make any roller coaster designer envious!
I know it’s hard to stay away from the stock market when it’s shooting up so quickly but I advise caution at the moment. Why is that? Well I’ve got a very specific reason…
When the economy tanked towards the end of 2008 and early 2009 the government acted swiftly by pumping billions, even trillions of dollars into the financial system in various ways. That money took a few months to filter through the system as it always does, which leads us to the middle of 2009 and a quickly increasing stock market.
2009 is over, and the government has stopped - at least to a large degree - pumping money into the system, which could mean the stock market will stop rising. In fact, without government intervention the stock market may not be able to hold onto the gains it received last year.
If that is the case, then we can expect a sharp decrease in the value of the stock market throughout 2010 until the recession is well past us… which does not look to be the case at the moment. For that reason I suggest, at least for the time being, that you keep your money out of the stock market.
Tags: Great Depression, investing, Recession, Stock Marketing
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Wednesday, February 3rd, 2010
By Jason Markum
Inflation can really destroy the value of your investments, and yet I find that most people have never even heard of inflation before and if they have heard about it, they don’t really understand what it is.
So in this article I’m going to spend a little bit of time explaining the concept of inflation and telling you why it can destroy the value of your investments (whatever your investments are - retirement investing, college investing, whatever) and then I’ll give you some tips that you can use to make sure that inflation doesn’t hurt you - or at least, doesn’t hurt you quite as bad!
First off, what is inflation. Inflation is a term we economists use to describe the general price level of everything increasing.
Here’s a example…do a quick list in your head of everything you spend money on in any given year. You know, rent or mortgage, utilities, insurance payments, food, clothes, gym memberships, car payments, spending money to go to the movies and out to dinner….think of everything you spend money on.
Let’s pretend that you spend about $50,000 a year on everything.
Now let’s think about NEXT year. If you buy basically the same things next year, you can expect to pay more than $50,000 because the price of things goes up from year to year. THAT’S inflation…it’s that general increase in the price of…well, everything as time goes on.
As time goes on, the same amount of money buys you less stuff…that means that as time goes on, your money becomes worth less and less….that’s DEVASTATING to an investment account. Let’s say you set aside $10,000 this year. In only one year, that $10,000 will be worth LESS than it does today! Sure, it increases if you invest it, but let’s say it increases to $11,000 in one year. If inflation has also increased by 10% (which is high) then even though your investments have gone up to $11,000, it hasn’t REALLY gone up because inflation turns that $11,000 into only $10,000
Why? Because next year $11,000 will only buy you the same amount of stuff as $10,000 did last year, because the cost of everything has gone up too.
So how to you stop this from killing your investment account? Several ways.
One, invest in real assets like real estate and gold because these things usually increase faster during times of high inflation.
Two, invest in TIPS, which are US Treasury bonds that increase at the same rate as inflation each year, in effect hedging you from inflation.
Three, use options to hedge against inflation. This is WAY beyond the scope of this article, but you can do your own research on it to learn more.
There you have it, three ways to hedge yourself against inflation. Inflation is a terrible fact of life, and with our soaring budget deficits in the US, you can probably expect inflation to shoot up much higher in the years to come as a simple fact of life.
Tags: hedge against inflation, inflation, investing
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Wednesday, February 3rd, 2010
By Jason Markum
Investing isn’t easy. Hardly anyone ever gets rich investing. In fact, you goal should not be to get rich investing. Your goal should be to preserve your money, not to make your money. What does this mean? It means that if you invest your money looking for the next hot tip that will shoot to the moon then you are going to be disappointed, probably even lose all your money. But if, on the other hand, you invest your money with a focus on simply preserving it (growing it at or slightly above the level of inflation) then you will probably be pleasantly surprised in the long run because you will get lucky little bumps every now and then from breakout companies etc.
That begs the question…how exactly should one allocate their investment portfolio? Should you diversify? Stocks, bonds, metals, real estate? It’s all very confusing!
Many people, including major investment and mutual fund companies will suggest a balanced portfolio based on your age.
The logic goes something like this….the younger you are the more risk you can afford to take, therefore the more chances you should take in riskier stocks. After all, if you lose it all, you still have lots of time to make up for it!
Then if you are in middle age, you should start to put an eye towards safer, less risky investments because you have less time to make up for it if something goes wrong and you lose all your investment capital because of bad stocks.
And finally, the logic goes, that if you are at or near retirement age, then you should switch almost entirely out of the stock market and into super safe government bonds because you cannot afford to take any sort of risk with your money at this stage in the game.
There is a certain amount of logic in that argument, but I think it’s hogwash. I realize that everyone has a different risk profile, and appetite for risk, but in my opinion you shouldn’t play the stock market at all- ever- no matter what your age is unless it is your full time profession. That is to say, unless you WORK on Wall Street, you should not invest in individual stocks on the stock market.
Why? Because the stock market is a zero sum game. Some one always wins, and someone always loses. The professional investors will win, that’s their job, and they will often do it at the expense of the regular investor who can’t possibly be expected to compete against real professionals.
So what should you do?
No matter what age you are, I suggest you take this approach. Set up an account to automatically invest X dollars into a retirement account each month, no matter what, and have that retirement account purchase shares in a stock market index fund that mirrors the broad market like an S&P 500 index fund.
These are funds that try to mirror the entire market. Automatic monthly investment gets the law of averages on your side and you can expect to earn a nice 6% to 8% per year on your investment because this is the average yearly return of the stock market. It’s not much, but it will keep up with inflation and create a steady and safe portfolio that you can rely on.
Tags: index fund, Investment, retirement investing
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Wednesday, February 3rd, 2010
By Jason Markum
Investing is a tricky business and one that most people don’t know enough about. The fact of the matter is, if you didn’t study finance and economics in college and then spend a goodly amount of time in the finance industry working as an adult, you really can’t be expected to understand how investing really works, especially investing in the stock market.
Most books out there in the book store don’t help either because they are written by people with an agenda, and that agenda is NOT to teach you how to be a better investor. Plus, investing methods change yearly, sometimes monthly. What worked yesterday likely won’t work tomorrow. There’s even a term for that. Why is it the case? Because if something works, everyone starts doing it. If everyone starts doing it, it likely won’t keep working any more because too many people are doing it!
My point is that this is hard and isn’t going to get any easier. Let’s take diversification for instance. Most people don’t really understand what this means.
When my parents started investing in the stock market they told their broker that they wanted to diversify because that’s what they had heard you should do. What did their broker do? He suggested they buy stock in several different industries, like the computer industry, and the telecom industry, and the industrial industries. Diversification!
But that’s not really diversification at all! It’s still all the stock market! Real diversification means investing in many different things, like the stock market, and the bond market, and in real estate, and in precious metals like gold and silver, and maybe fine art, and many other things.
You see, it’s not enough to be diversified into different stocks. And TRUE diversification in the stock market means that you own hundreds, if not thousands of different stocks…not five or ten. This simply isn’t possible for the average investor who doesn’t have the money to buy a thousand different stocks.
You can get around this as a small investor by purchasing index funds that tempt to mirror the broad index. These index funds DO buy thousands of different stocks. But you are still not diversified truly unless you put a large chunk of your investment money outside of the stock market into such things as government and corporate bonds.
Ah, but then WHICH government bonds do you pick? US bonds? UK bonds? Australian bonds? And which corporate bonds?
You see! It just never ends!
That’s why I suggest the average investor puts 65% to 75% of their investment into a broad market index like an S&P 500 index fund, through regular, automatic monthly investments straight from your paycheck. Put the rest in TIPS, inflation adjusted US government bonds.
And if you want to put a small portion in gold or silver, have at it…but I don’t suggest more than 5% or so of your over all investment.
Investing is complicated, even for the professionals! But this allocation that I just mentioned above will set you up as safely as possible and has proven to return solid returns that beat inflation and maintain your wealth for years to come. The stock market isn’t about making a killing, it’s about preserving what you already have and this diversified suggestion should do the trick.
Tags: diversification, diversify, investing, Retirement Planning
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Wednesday, February 3rd, 2010
By Jason Markum
Investing is really freaking hard (RFH) tm and you never know who to turn to in order to get investment advice. Some people listen to pundits on financial television shows like CNBC or Bloomberg but those people always have a vested interest and should never be listened to for advice.
Some people get “hot tips” from friends and family members. Think back over your life. Have you ever gotten a hot tip that actually worked out in the long term? I’m going to go out on a limb here and guess that the answer is a resounding NO!
And then there are the people that get their advice from a stock broker. What better, they think, than to get advice from some one who actually works in the field day after day investing lots of money in the stock market!?
There’s a major problem with this logic though…it’s flawed!
Stock brokers are not trained in picking stocks! They are not licensed to pick stocks! They actually don’t have anything to do with the stock market on a daily basis in almost every case.
Stock brokers are simply salesmen. Their job is to get you to buy stock. More specifically, their job is to get you to buy stock from THEM! Whenever you buy or sell a stock, they get a commission.
Sure, if the stock you buy doesn’t do very well, you may go to a different stock broker, but most people don’t. They grin and bear it, and decide that it was some how their own fault.
Technically speaking, a stock broker by law is not supposed to give you investment advice because of this massive conflict of interest. But most do anyway. That’s just the way it goes.
But now you know better. Now you will stop asking your broker for advice. Think of them as used car salesmen and you won’t be far from the mark. Would you ever go into a used car lot and ask a salesman which car is right for you? Of COURSE not! They are going to put you in the car that makes them the most money. So it is with stock brokers.
Now of course, I’m painting them with a broad brush here for dramatic effect. They aren’t all evil, some of them might actually be very good at sniffing out good deals for their clients. But by and large one of the main reasons that we have so many small investors lose their life savings in bad investments is because they listened to bad advice.
Don’t be a lemming and just do what your stock broker says. Create a plan and stick with it and you may not even need a stock broker at all! With the advent of online trading, why pay a broker $100 per trade when you can do it online yourself for $9 bucks?
At least that’s my opinion…but then again, I don’t think individual investors should be in the stock market at all. Just stick to a nice broad market index fund like an S&P 500 index fund by making annual monthly automatic investments into the fund straight from your paycheck and you won’t have to worry about any nonsense like this to begin with!
Tags: investing, stock broker
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Thursday, February 4th, 2010
By Jason Markum
Stock market investing is tricky and unless you have college training in finance and investment as well as massive investing experience, the chances are that you will make a serious mistake that can be devastating to your investments and therefore devastating to your future retirement.
Many people therefore look towards a stockbroker to get advice on how to pick the best stocks. What they don’t realize is that stockbrokers are not licensed or trained to give stock advice, ironically. In fact, it’s a horrible conflict of interest to get advice from a stockbroker because they have a vested interest in getting you to buy and sell as much stock as possible… because every time you do they make a commission and that’s usually the only way they make money!
So what other options are there if you can’t get advice from a stockbroker? Tips from friends? Hardly!
No, the main option left to you is to hire an independent investment adviser or counselor. The problem with this is that most people are a little put off by investment advisers. The ones that really know what they’re doing seem very rich and professional and you may be a little timid in approaching them. Don’t be!
Think of it as nothing more than hiring a new employee who works outside of your office. That’s really all they are! Use the same judgment and determination you would use to hire any employee when hiring an investment adviser
In the old days you had to be extremely rich in order to hire an investment adviser These days though, with the advent of computers and Internet technology it’s easier for advisers to take on clients with much lower net worth’s. Today advisers are willing to take on clients who have as little as $200,000 in assets to invest.
If you don’t have this much money at the moment, then I’m afraid there’s not many options for you. If you fall into this category, then your best bet is to purchase a simple broad stock market index fund like an S&P 500 fund that attempts to mirror the broad stock market as a whole. Using monthly automatic purchases, that take advantage of the law of averages, you can expect a return of between 6% and 8% per year on such index funds over time since this is the historic return of the stock market year after year.
When choosing an investment adviser there are three groups of counselors to avoid. The first are the one-man firms, in our interconnected global world you need a group of advisers; no one man or woman is going to have the expertise in the variety of areas you will need.
The next group to avoid are bank trust departments because they are often run by low level employees or by committee. Anybody with real talent in this area quickly leaves to get a much higher paying job elsewhere.
Finally stay away from brokerage firms such as the one your stockbroker works for. They usually give advice based on research that’s generated within their firm and also tend to push investments that are sold by their own company which is a conflict of interest you want to avoid.
So there you have several tips on finding the right investment adviser.
Tags: investing, investment advisers
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Thursday, February 4th, 2010
By Jason Markum
Investing in the stock market is nearly impossible if you don’t have a background in finance. You’re also going to want a background in economics and a specialization in investments. In fact even if you have training in all of these things, you also need professional work experience in the industry for many years in order to become good at.
Most people don’t have any of this. We don’t work on Wall Street and we weren’t trained in economics or finance; we are doctors and dentists and lawyers and steel workers and teachers and sanitation workers and whatever else, so what are we supposed to do… how are we supposed to invest wisely safely and securely for our futures?
The answer is to hire an investment adviser Now most investment advisers will not accept a client who doesn’t have at least $200,000 to invest. If you haven’t reached that threshold yet been your best bet is to simply invest in a broad stock market index fund such as an S&P 500 index fund. The trick is to make automatic deductions every single month straight from your paycheck into your index fund account. This method lets you take advantage of the law of averages and will ensure that you receive between a 6% and an 8% investment increase year after year because this is the normal return on the broad stock market on a yearly basis, historically.
But say you have reached a $200,000 mark and you are ready to hire an investment adviser; then you need to understand several myths that go along with it to clear up your disillusionment before hand.
The first myth is that you will have a custom designed portfolio done by your adviser for you specifically. The reality of the situation is that most of these firms have 100 to 200 clients per investment adviser and they simply don’t have the time to create specific portfolios for each customer so what they generally end up doing is creating a handful of specialty portfolios to handle a broad range of clients and you will get one of these hopefully one that is best suited to you.
The second myth is that you will receive personal attention. These people don’t have a lot of free time to speak with their customers and in fact have way too many clients to contact them all personally very often. At the most you can expect to hear from them once quarterly, if that often. Also you can expect to meet face-to-face with them once a year to talk about the new year and make any changes that are needed.
The last myth is that your existing portfolio will be scrutinized closely. When you hand your portfolio over to a new adviser he or she is going to run through and look at it very quickly and if they notice any of the stocks that they follow actively, they may keep them. If not; he or she is likely to just sell them and move on. If you don’t want those stocks sold then you shouldn’t go to an adviser to begin with.
Well, there you have several myths about investment advisers that have been thoroughly debunked. Now you’re ready to go out and find yourself a good adviser and you’ll know exactly what to expect.
Tags: investing, investment adviser, investment advisor
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Thursday, February 4th, 2010
By Jason Markum
There are not many things in this life more complicated than investing in the stock market. Make the wrong choice and years and years of hard work and savings can evaporate into nothing - instantly. I think that just about everybody knows somebody who has had to put off retirement because their investment account suddenly tanked through no fault of their own.
The fact of the matter is, if you don’t have massive experience and college training in finance, investments, and economics as well as years of experience working on Wall Street itself; then chances are you don’t know what you’re talking about when it comes to investing in the stock market. And that’s no way to plan for the future and invest for your retirement.
So what options do you have? You can’t ask for advice from your stockbroker because they have a vested interest in getting you to buy and sell as much stock as possible because every time you do so they earn a commission; which is just about the only way they make money.
And you can’t take advice off of financial news shows on TV because the people who go on those shows also have a vested interest. Often they buy large chunks of stock, then they go on TV and talk up that stock, then when all the people watching the news show buy the stock, its price goes up, at which time the person who was on TV sells their shares and make a killing.
And you simply can’t get tips from friends because I think we’ve all learned lessons in that area from one time or another!
No, the answer is to hire a professional investment adviser but this can be difficult for many people so I thought I’d offer a few tips on what to look for when you hire one of these professionals.
The first thing you’re going to want to ask about is their performance record. You don’t want just their personal record but the record for the entire firm that they work for and you want it for the entire time that the firm has been in business. If a company’s been around for 20 years but are only willing to show you the last five years of results, that’s a red flag and you should go elsewhere. Compare their performance for every single quarter in the last 8 to 10 years with that of the S&P 500 index. The company should have at least outperformed the S&P 500.
Next look to see if the firm is registered with the securities and exchange commission as an investment adviser You’re going to want to look for the ADV-II form to make sure that the same people working there today are were working there in the past and had success in the past for the firm.
Finally you’re going to want to meet the portfolio manager who will be handling your specific account. All companies are different and you’re going to want to know how the firm makes specific investment decisions for your account whether it will be through the portfolio manager or somebody else.
Also try and get client references if possible and not just for good times. But also get references during times when there were recessions and times were stock market had troubles. Sometimes these will give a better indicator of how the firm actually performs and how its customers view it during those bad times.
So there you have it, several ways for you to find the best investment adviser and know what to look for when searching for one.
Tags: investing, Investment, investment adviser
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Thursday, February 4th, 2010
By Jason Markum
I always thought that I would run my own investments as I got older. I’ve always saved a large part of the money that I’ve ever made because I feel that it’s important to invest for the future. As such, I wanted to handle those investments because I’ve always felt that nobody will be more inclined to make that money grow than me!
In fact many people feel the same way but there’s a problem. Unless you went to college to study finance and economics and investments, and unless you’ve worked on Wall Street for many years to gain experience and expertise, the chances are that any investment you make will fail. That’s just the way our global interconnected faster than the speed of light financial system works today.
The stock market is a zero sum game; in order for somebody to win somebody else has to lose, that’s just the way goes. Small amateur investors like us can’t stand a chance against people who do this full time for a living sometimes 18 hours a day. What chance do we have against somebody who actually lives on Wall Street and is connected straight into the industry in a way we can never hope to be?!
No, the only option the small time amateur investor has is to hire an investment adviser, somebody who works full time in the industry and can look after your investments in the proper professional manner. The only problem is, most investment advisers won’t take a client who has less than $200,000 to invest because otherwise it’s just not worth their time or effort.
If you fall into this category then your best bet is to simply buy a broad stock market index fund like an S&P 500 index fund. Set up automatic contributions on a monthly basis; that way you get to take advantage of the law of averages and you can expect a yearly return of 6% to 8% which is the historic stock market average return.
If, on the other hand, you do have over $200,000 to invest then you may have some questions about hiring an investment adviser For instance what can you expect to pay for such an adviser? That’s what I’m going to talk about right now.
Annual fees for many investment advisers can range from .5% all the way up to 3% of the amount in your account. If you have more money in your account, say over million dollars, then you have more negotiating room to get a lower fee. But if you don’t have much money then you can expect the .5% to 3% range.
Stay away from firms that offer flat fees because you want your adviser to have an incentive to grow your investment as much as possible because the more money your investments make, the more money the adviser makes! Flat fee firms tend to set and forget. That is, they make some investments and then they forget your name.
A good investment adviser is expensive, but they should be because they will bring you higher returns than if you were doing it yourself. If they don’t bring you those higher returns, find a new adviser.
Tags: How To Hire an Investment Adviser - What It Will Cost
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Thursday, February 4th, 2010
By Jason Markum
I don’t know about you but I have a terrible track record when it comes to investing in the stock market. I do my research, I read the Wall Street Journal and the financial Times, I even watch some of those financial news shows on TV and whenever I think I’ve finally got a good stock to buy, it almost always tanks on me!
The fact of the matter is, investing in the stock market is incredibly difficult. The people that work on Wall Street are some of the smartest people in the world. That may be hard to understand and maybe even hard to believe, but it’s true. The math involved in finance is incredibly complex and in fact many investment banks have entire divisions made up completely of mathematicians and physicists all at the PhD level.
We just can’t be expected to compete against people like that who spend their entire lives day after day finding scientific ways to make money on the stock market. But what we can do is hire a good money manager ourselves. Picking a good investment adviser or money manager is incredibly important because your stock market investments will be the core of your retirement account and will determine how well you will live when you retire, and even if you will be able to retire at all!
Okay, so you’ve got yourself a money manager… how do you know if they’re doing a good job? Sometimes its not as easy as simply looking at your statement at the end of the month or at the end of the quarter because these things can be deceptive and at best are hard to understand sometimes.
And it’s not as simple as simply looking at their past track record. If that was the case everyone would be rich because we would just find the money manager who has the best past performance and everyone would give them their money. Obviously this doesn’t happen.
I believe there are four or five main things you should look at when evaluating your money manager. If any of these things are out of whack, you should start looking for a new money manager or investment adviser
These four things I like to call the 4 P’s, and they are performance, process, personnel, and philosophy.
Performance is very easy, it’s simply their long-term track record and whether or not it has beaten the S&P 500 and by how much.
Philosophy is a little trickier. Everybody thinks about the stock market differently and I want a money manager who thinks about stock market like I do not somebody who’s looking for a get rich quick stock to pump and dump. We’re looking for long-term steady growth here.
Personnel is easier to quantify. In this day and age of interconnected fast-paced global finance, no one person can know everything at once. You need a team working together each with different specialties pulling together to hit the main goal of making you money.
Finally processes are the specific ways that you are manager looks at building a portfolio. Do they focus on growth stocks, do they focus on emerging market stocks, do they focus on precious metals, do they focus on bonds; how your portfolio manager looks at crafting a portfolio is important overall.
So there you have several ways to evaluate an investment money manager that will help you get a clearer idea of how well they are doing and how well they have the potential to do in the future.
Tags: investing, investment adviser, money management, money manager
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Thursday, February 4th, 2010
By Jason Markum
Investing in the stock market is incredibly difficult under the best of circumstances. Make a few wrong moves and years of hard work and savings can be wiped out in the blink of an eye. The problem is, most of us don’t have any sort of training or background in finance, economics, or investments; and we certainly don’t know anything about portfolio management and the high-level math that goes into it.
The best option is to hire a professional investment adviser or money manager to handle all of our investments for us. The problem is, most investment advisers won’t even take you on as a customer or client unless you have over $200,000 in assets to invest. Many of us simply don’t have that much money to invest and therefore we aren’t worth the time and effort of a professional adviser
In that case, the best thing to do is put your money in a broad stock market index fund like an S&P 500 index fund. The trick is to make monthly contributions to the fund automatically and directly from your pay check or bank account. Making monthly automatic contributions allows you to take advantage of the law of averages which allows you to buy when the stock market is both down and up. Following the strategy you can expect to receive an investment return of between 6% and 8% per year because this is the historic average return of the stock market and your broad S&P 500 index fund will mirror the broad stock market.
The problem with that is that most people won’t be happy with a mere 6% return. Heck, with inflation pushing towards 5% per year, that whittles your return down to a mere 1% which is unacceptable to many people. In that case the only other option you really have is to find a good stockbroker who can advise you on how to make a little more money with your investments.
You can’t afford to switch from stockbroker to stockbroker in an attempt to find a good one because if you do that; all it takes is one or two bad stockbrokers to wipe out your entire investment portfolio. No, you have to be able to determine before hand whether the stockbroker is any good or not. Here are several questions you can ask your stockbroker right from the start.
What average return can you expect from your account? If your Stockbroker gives you wildly high figures than watch out!
Does your stockbroker invest his or her own money in the stock market? If so what kind of return do they usually get themselves? If your stockbroker doesn’t invest in the stock market, then why in the world would you give him your money?.
Ask what your stockbroker’s other clients are like. Do they fit into the same economic ranges as you? Do they have roughly the same amount of money invested as you do? What kind of returns have they received in the past?
Finally ask how long your stockbroker has been in business. Experience counts when it comes to the stock market and if your stockbroker is fairly new to the game then you may want to look elsewhere.
So there you have several questions to help you determine whether your stockbroker is worth their salt or not. Above all though keep your eyes open and listen to your gut instinct. Many times you can tell just by talking to a stockbroker how serious they are and how committed they are to making you money.
Tags: investing, investment advisers, stock brokers
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Thursday, February 4th, 2010
By Jason Markum
I used to love hunting down stock market investments. Finding “gems” was something that I just loved to do. It’s not easy finding a stock to invest in that will go up in value over time…and I soon found that out the hard way! Almost all of my investments have failed in some way or another over the years.
I finally decided that I needed to stop doing my own stock research and get myself a good full service stock brokerage company to help point me in the right direction. The fact of the matter is that most ordinary people are not good at making investment decisions, especially decisions about the stock market. We simply don’t have the necessary training needed to make a good run at stock market investing!
One option that an ordinary investor has is to hire a professional investment adviser The problem is, professional investment advisers usually won’t take on a new client unless they have at least $200,000 to invest; and that’s a minimum amount. Most of the time you won’t be taken seriously unless you have at least $1 million or more.
I don’t about you but I don’t have $1 million or more, so for me the best route is to hire a full-service brokerage firm. I find that most people don’t know what one of these companies are or what you can expect to get as far service goes so I thought I’d write a little article today to explain how to choose a good full-service stockbroker.
Here are a few basic questions that you can ask your stockbroker in order to determine just how well you will work with them and how good they are at their job.
First ask them how long they’ve been a stockbroker. As far as Wall Street goes, experience matters and the longer your stockbroker has been in the industry, the better off you are. Try to stay away from stockbrokers that are fairly new to their job and by that I mean have only worked for less than five years in the industry.
Next ask them how long they have worked for the specific firm. Stockbrokers that hop from firm to firm are a clear indicator that they may not be as professional as you want them to be. Good stockbrokers stay at firms because the firms pay to keep them. On the other hand, bad stockbrokers quickly get the boot.
Next ask them what types of clients they have. Are they the same income level as you, and do they have the same general amount of money to invest as you? This is important because you want to deal with a stockbroker that works at your level. If they’re focused on people with much more money, then your account may tend to get swept under the mat.
Next ask them if they specialize in any one area. Some stockbrokers focused only on growth stocks while others focus only on income related stocks and finally some focus on small cap stocks or emerging markets stocks. Knowing which area of focus your stockbroker is interested in can be very important.
Finally ask them what their attitude is towards risk. The stock market is all about risk and if you have a stockbroker that takes on too much risk for your appetite to handle, you may want to look elsewhere. On the other hand a stockbroker that doesn’t take enough risks may be equally dangerous.
So there you have several ways to determine how to pick a good full-service stockbroker.
Tags: investing, stock broker, stock brokerage
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Thursday, February 4th, 2010
By Jason Markum
If you are at all like me, then you are absolutely terrible at picking stocks to invest in. Every time I have ever tried to do this, it has ended up badly. I mean REALLY badly. I once bought a thousand shares of a certain telecom stock only to watch it plummet down to zero several months later. I watched it go down, all the while thinking to myself “it’s bound to head back up!”….but the company went bankrupt and I lost everything!
So I decided shortly after that to stop using the bargain stock broker firms over the Internet that let you buy stocks yourself for like $9 bucks. Instead I went looking for a good full service stock brokerage firm that could give me good advice about what stocks to pick, and sort of tell me when I have made a terrible decision.
What I didn’t expect was how dogged they would be! Now I get phone calls from my broker every now and then with tips on stock to buy. The thing I didn’t realize at first is that stock brokers make nearly 100% of their income off of commissions.
The only way they make commissions is if you actually buy or sell stock! Stock brokers, therefore, are NOT buy and hold kind of players! They like to churn! Buy, sell, buy, sell, and a little commission goes into their pocket every time.
Ok, as long as I know that this is the game, I’m ok with it…and I’m still willing to play.
The problem is, sometimes my stock broker is a little too enthusiastic when it comes to offering me the latest hot tips. One of the most important things I have learned is how to say “NO” when my stock broker calls me with a tip. In this article I want to give you some advice on when to say no to your own stock broker.
The first time you should say NO to your broker is if they have a hot tip that about some coming “News” that is just about to come out. “We’ve got to get in before the news announcement!” they will say. You’ve got to ask yourself, if your little lowly stock broker already knows about it, then everyone else and their mother probably does too…so pass.
The next time you should say NO is when the stock market is falling. Often your broker will say something like “The stock is WAY down, now’s the time to buy on the bottom because it has nowhere else to go but up!”. That is not necessarily true…a stock that is falling is falling for a reason and until you know what that reason is, you should stay away.
Finally, you should say NO to your broker whenever he attempts to get you to “average down”. This means that the stock has fallen a great deal and if you buy more now then your average cost of owning the stock will go down making the potential gain (if a gain ever comes) that much bigger. Like the second tip, stocks go down for a reason and you should not buy, even to average down, until you know that reason.
So there you have three solid times when you should always say NO to your stock broker.
Tags: investing, stock broker
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Thursday, February 4th, 2010
By Jason Markum
I love investing, and I love just about everything about the stock market in particular. But I find that many people get confused and don’t really know what to watch for when it comes to paying attention to the stock market.
Sure, if you flip on the news in the evening they will probably tell you what the Dow Jones Industrial Average did for the day, whether it was up or down, but that doesn’t really give you the overall view of how the market is doing on any given day.
In this article I want to spend a few minutes discussing several other things you should keep your eye on besides the Dow Jones index that will give you a broader picture of exactly what the market has been up to on any given day.
So the first thing to watch besides the DOW is the S&P 500. It is an index fund made up of 500 of the best stocks as chosen by the good folks over at Standard and Poors. When people say the “Stock Market” many times they are referring to the S&P 500. It’s a fairly good indicator of what the market is doing on the whole. Also, most evening news shows and radio news spots will mention this index each night.
Next you should pay attention to the TRIN, which is the trading index, because it attempts to measure the volume of trading that was done on any given day. If the TRIN goes from above 1.20 to below .70 during any day, that usually means that the stock market has turned Bullish. On the other hand, if the TRIN goes from below .70 up to 1.2 then the market has turned Bearish. A TRIN of 1.0 means that the market was mostly steady throughout the day.
Next you may want to watch the activity on the Over-The-Counter market, which is a market of thinly traded very small companies. If it outpaces the general stock market, that might be a sign of a BULL market. Likewise if its volume is much less than the broad market, that might indicate a Bear market.
Also you should keep an eye out on the old Quotron change because it measures the daily percent change for all the stocks on the New York Stock Exchange with it’s QCHA index and all shares on the American Stock Exchange with its QACH index. Many mutual funds pay especial attention to this index, even more so than they do to the Dow Jones index.
And of course you are going to want to keep an eye or two on the general financial news of the day. There are many ways to do this, but my favorite is to read both the Wall Street Journal and the Financial Times Newspapers every day. The Financial Times is a newspaper out of London, but they deliver daily to most major cities in America and daily or every other day via postal mail outside of most major cities.
Both these papers are excellent sources for staying up to date in all the financial news of the day. I’m sure with the advent of the Internet there are even better ways to keep current on financial news, but for me I like my daily routine of reading the old fashioned newspapers!
So there you have it, several things to watch each day to keep abreast of the stock market and stay informed to protect your investments.
Tags: investing, investing news, investments
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Friday, February 5th, 2010
Jason Markum
Everybody loves a stock market rally; well, ALMOST everybody loves a stock market rally. There’s one kind of person who hates the stock market rally and that person is the person who MISSED the stock market rally! (well, them and short sellers, but that’s a subject for another article!)
There’s nothing more frustrating than watching the market climb without you, only to buy it at the top once the rally is over. When this happens usually there’s nowhere left for the stock to go but down again!
So how do you recognize a stock market rally before it’s too late so that you can take advantage of it on the way up and make some money? Luckily for you, there are several ways to do it and that is exactly what I’m going to talk about in this article today.
Most stock market rallies don’t start without some sort of warning of some kind. Many times these rallies have been signaled for a long time before they actually start. You can get the data that you need in newspapers for the most part and also online if that is easier for you.
Here are just a few fairly accurate indicators that you can use to help predict when the market is likely to start staging a major advance, or rally.
First look at the declining member short sales ratio. People who are members of the New York Stock Exchange are usually pretty good traders and when they have stopped short selling, there’s usually a reason and that reason is usually that a big rally is on its way. Ratios of 78% and below are signs of optimism.
Next watch the Federal Reserve. When they lower interest rates it is usually a pretty good sign for an upcoming bullish stock market advance. Likewise if they drop the discount rate two times in a row without an intervening rise, this tends to indicate a long bull market as opposed to a shorter one.
Next watch for nonmember short sales that are increasing. When the general public has the most pessimism and is the most bearish you can often expect a market upturn, which may seem counter logical but it’s true nonetheless. To figure out the nonmember shorts, divide the amount of shares sold short by the public in any given week by the total trading volume of the New York Stock Exchange on that given week. If you see short sales in excess of 1.75% of total trading volume this is a good indicator of a market turnaround.
Finally be sure to read newspapers and magazines and watch financial news on TV because when the public media tends to be overly bearish for an extended period of time this can often indicate that the market is getting ready to rebound because the media always follows, it never leads. That’s their - job to report not create.
So there you have several ways for you to recognize a stock market rally before it gets going. Hopefully this will keep you from missing out on a really big gains in the future! But if you DO miss out, just remember….there’s always another bull market rally just around the corner!
Tags: bull market, investing, market indicators, short selling
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Friday, February 5th, 2010
By Jason Markum
Investing in the stock market can be tough, really tough. This is life and death we’re talking about here because the decisions you make affect your retirement; whether you can afford to feed yourself and keep a roof over your head during the years when you’ll be too old to work. So making the right investment decisions is vital to each and every one of us.
The problem is, the stock market goes up, and then it goes down… then it goes back up again, then it goes back down again. This see-saw ride up and down can be nerve-racking for the best of us! We all like to see the market go up and none of us want to be caught with our pants down when the market takes a turn for the worse. That’s exactly what I want to talk about in this article today; how to know when the stock market has risen too high and is about to turn downwards.
Getting out of the stock market is a fine art as well as a science. Some people call this “timing the market”, but it doesn’t have to be as wishy-washy as that. There are certain scientific things you can do, certain indicators that you can watch out for that will give you a heads up and let you know when it may be time to take your money out of the market while things cool off.
Don’t fall into the trap of falling in love with your stocks. Just because the stock has risen tremendously over the last few months or even the last year, doesn’t mean it can’t drop out of the sky at a moments notice. You have to be able to pull the trigger and sell your stocks as soon as you see that the market is starting to take a downturn.
We live in a cyclical capitalistic society. The first thing economists learn when they start taking classes in college is about the business cycle of booms and busts, peaks and troughs, and how this affects everything. What that means is you can be sure the stock market’s going to fluctuate, it’s perfectly normal for it to do so. But that doesn’t mean you have to lose money because of it!
So here are a few indicators to look for that may tell you the market has risen too high…
The blue chip stock averages keep hitting new highs but the secondary stock markets, that is the smaller stock markets like the NASDAQ composite and value line, are stalling. This may be an indicator that the market is about to turn.
Next watch the Dow Jones industrial average to see if it has stopped rising. Many times the overall average stops rising but certain sectors within it keep rising, this may be an indicator that the market is about to turn.
Finally watch for the number of New York Stock Exchange members that are selling short. Members tend to be experienced professional investors and if they start selling short it may be an indicator that the market is about to turn down.
However you determined that the stock market is about to turn for the worse, the most important thing is to be able to pull the trigger and sell your stocks within a moments notice. Many people have trouble doing this because they get attached to their stocks as I’ve already mentioned. But as long as you can do this, you stand a good chance of saving your skin no matter what.
Tags: bear market, bull market, investing, stock market
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Friday, February 5th, 2010
Sometimes I wonder if stock market investing is more science or art. Do you ever wonder that? It seems like the people who know in advance what the market is going to do (and take appropriate action to make money off of that) seem to work as if they have a crystal ball in front of them. I’m not sure if it’s voodoo or insider trading or what, but some people just seem to know… do you know what I mean?
For instance, how come some people just know when the stock market is about to crash? How do these people get their money out in time so that they don’t lose all the value that they have built up? Well the answer may be easier than you think. It’s not a crystal ball, and it’s not voodoo… and it’s certainly not insider trading!
In this article today I’m going to give you a few indicators that you can use to determine whether the stock market is about to take a turn for the worse. These indicators aren’t the gospel truth, but they will give you a heads up and an idea that the market is about to take a turn for the worse.
The first thing to look out for is heavy New York Stock Exchange member short selling. Members are professional investors who spend their time day in and day out on the floor of the exchange investing for themselves and for their clients. These guys and girls have a fairly strong record of being able to determine when the market is about to turn… I won’t go so far as to say that they cause the market to turn, but they’re certainly the first ones to see it happening and when they do see it happen the first thing they do is sell short.
Selling short is when they borrow shares and sell them in the hope that those same shares will decline in value at which point they can buy them back at cheaper costs and return them to those whom they borrowed them from… pocketing the difference in price as profit.
When member short sales exceed 87% of all short sales within a given week, then you have a pretty good idea that the market is about to turn for the worse. You can find this information in Barrons and in the Wall Street Journal and through many private financial newsletters.
The next indicator is to watch the for Federal Reserve Bank for an interest rate increase. Stocks are very sensitive when it comes to the Federal Reserve and especially when it comes to interest rates. Low interest rates means a lot of stock market activity and precludes bull market advances usually. On the other hand, rising interest rates usually restricts stock market investing and causes the market to take a downturn.
Finally watch for heavy stock churning. When people buy and sell lots of stock, it’s an indicator that the market is becoming unstable and therefore likely to take a downturn. You can watch volume levels fairly easily online.
So there you have several indicators that you can use to determine when it may be time to sell your stocks before they start falling.
Tags: bear market, bull market, Federal Reserve, interest rates, investing, stock market
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Friday, February 5th, 2010
By Jason Markum
Stock market investing is difficult and dangerous in the best of times. When times turn bad and the stock market begins to tumble, the danger levels increase exponentially. Make the wrong move under these circumstances and your entire net worth could be wiped out in no time at all. Years and years of careful savings and investment can dissolve in moments, leaving you stranded and your retirement unsecured.
Of course, there are things you can do when the market starts to turn downwards to protect yourself and your investment portfolio from being ravished and destroyed. That is exactly what I want to talk about in this article today.
Determining that the stock market has turned is almost an art form in itself. Sometimes it’s hard to tell exactly when the stock market has turned because stock market volatility is perfectly normal. The stock market might go down today but jump right back up tomorrow. In fact the stock market may go down for several days or even several weeks only to rebound to a higher level than it was before. Determining that the stock market is in a new semi-permanent trending downturn or bear market as they call it is difficult to do.
But if you have determined that the stock market is in a bear downturn here are some things that you can do to protect your portfolio.
The first thing you can do is lighten your holdings as soon as you determine that the market is about to turn down. Don’t panic because the market generally won’t crash overnight. The bear markets trend downwards for weeks, even months… so you don’t have to feel like you should go out and sell all your stocks tomorrow. During this time, though, you should be sure to pay off any margin debt that you have and start to hoard cash if at all possible. Maintaining a strong cash position during these times can become essential.
The next thing to do is identify stocks that you own in your portfolio that are no longer rising. Some people suggest that you sell these stocks immediately, but I prefer to place stop-orders on them instead. When you do this, you continue to own the stocks but if the market starts to trend further downward your broker will automatically sell the stocks at prearranged prices spelled out in your stop order. This way if the market turns up unexpectedly and the stock starts to rise again you’ll be able to take advantage of it.
Next if you have excess cash to invest during the beginning of the market downturn be sure to only invest in cash equivalents and highly fungible items such as money market funds and treasury bills… which are short-term treasury bonds. The last thing you want to do is to be investing in stocks as the market is turning downwards.
Finally sell any mutual funds whose net asset value has dropped 5% or more. Many times it’s important to get out of mutual funds that have aggressive growth at their core because these are some of the first to turn down in a bear market.
The most important part of a market downturn is getting liquid, or at least as liquid as possible so that you have a strong cash reserve available. Why is this important? Because eventually the market will bottom out at which time you will be able to find incredibly cheap deals for the same stock you used to own, which is now selling at bargain prices. Having cash handy allows you to swoop in and grab a steal of a deal.
Tags: bear market, investing, market downturn, stock market
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Friday, February 5th, 2010
By Jason Markum
Investing in the Stock Market can be very exciting, but at the same time it can be terrifying to make the wrong bet on a stock or the wrong bet in your underlying investment strategy. All it takes is one or two mis-steps to wipe out your entire investment portfolio. Overnight you can watch years and years of careful savings and investment evaporate like it never existed!
One huge trap that many investors fall into, both amateur investors as well as professional investors on Wall Street, is to fall for a Bear Market Rally. They are incredibly easy to get sucked into and are probably some function of hope and human nature that can be devastating if you don’t watch out!
First of all, what exactly is a Bear Market Rally? Well, generally speaking, a Bear market rally is a rally that occurs during a bear market. Stocks fall across the board for a long period of time during a bear market. After days, weeks, even months of watching stocks fall, suddenly you notice that they are starting to rise again!
You wait a few days, maybe even a week or two, and see that the rally has continued! Maybe the Bear market is truly over! That’s when you fall into the trap and start investing again! Inevitably the same thing happens in every Bear market…they turn back downwards. No, the bear market was NOT over…it was just taking a little breather on its way back down.
What causes a bear market rally? Usually it has to do with short sellers, who have been selling short for some time and making a killing. Eventually the short sellers need to cover their positions and buy back in. If enough short-sellers buy back in any one time, this excess demand can make the stock prices increase. A short increase in prices can fuel speculation from people like you who think the bear market may be over and buyback in.
Of course eventually all the short-sellers will have covered their positions and demand will decrease back to its present downward level and the bear market will continue, often wiping out the increases that you just saw.
Bear market rallies generally tend to last about five or six weeks and not much longer than that. In fact, once a bear market rally ends, it usually ends abruptly and the stock prices across the board usually drop dramatically right away.
I know that it is incredibly hard to watch the stock market increase day after day and week after week after an extended bear market has shown nothing but plunging prices for months on end. It’s just human nature to hope for the best, and hope that the bear market is actually over.
That’s the trap that most investors fall into. You have got to be able to look past that emotional side of it and instead focused solely on market fundamentals. If the fundamentals of the market have not improved, then the bear market is not going to be over even if prices are increasing across the board.
So keep an eye on fundamentals, and as always in the stock market, try to keep your emotions out of it and you should be just fine in the long run.
Tags: bear market rally, investing
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Friday, February 5th, 2010
By Jason Markum
Stock market investing is incredibly difficult, and becomes even more difficult if you don’t have the right information available to you. The trick is, finding the right information and sifting the nonsense from the important stuff to get the info that you need to make informed accurate scientific decisions on your investment portfolio.
In this modern day and age of global interconnected faster than the speed of light information; with the Internet at our fingertips 24/7 and financial news networks blaring loudly 24 hours a day as well, it can often be hard to know exactly where to look. Many times two different sources will give you two different opinions and each will feel equally valid!
That’s why I wrote this article for you today. I’m going to talk about some of the best ways to find information about a company that you would like to invest in as well as the broad stock market in general.
Right off the bat let me just say that you don’t have to read every newspaper and financial publication or listen to all the rabble investment advice that you might find on TV in order to get a solid working picture of the stock market at any given time.
At the same time, you do want to take information gathering seriously because it will always be a cornerstone and the base or foundation of all stock market investment decisions you will ever make. The wrong information can be dangerous, but not as dangerous as having no information at all!
First you should pick one or two financial newspapers to read daily to get a broad overreaching idea of how the overall stock market is working. All stocks, no matter what industry they are in, are connected to the broad market to some degree and therefore if the market in general is down, or up, it will affect your individual stocks. Personally I like to read the Wall Street Journal for domestic United States news and the Financial Times for global business news. The Financial Times newspaper is published out of London but delivers daily to most major cities in America and will deliver to your mailbox outside of most major cities.
Next many people subscribe to stock market newsletters which are written by a wide range of market participants including stockbrokers, stock traders, bond traders, currency traders, portfolio managers, and even pundits. These newsletters can give you specialized looks into certain industries at a level you may not be able to get on your own but the good ones cost a lot of money; in fact, they usually cost many times more than a good newspaper subscription would in a year. Still with a little bit of experience you can find a few good newsletters that work well for you.
Finally corporate publications are a very important information gathering part of your investment strategy. Here I’m talking about balance sheets, income statements, and other financial statements that the companies themselves put out not just during their end of year wrap up, but quarterly as well. You’ll need these financial statements to run your stock analysis to determine fundamental values of stock.
There you have several ways to find solid information that cuts through most of the nonsense that you find out there. Using these sources will certainly give you a leg up over most investors.
Tags: investing
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Friday, February 5th, 2010
By Jason Markum
Making heads or tails of the stock market can be an extremely difficult thing to do under the best of circumstances. Sometimes it can be flat out impossible to know just what to invest in. Many people turn to investment newsletters in order to get ahead of the pack and find investment ideas that you normally wouldn’t be able to find on your own.
There are several immediate problems with these sorts of newsletters. For one thing, they can be extremely expensive, sometimes hundreds or even thousands of dollars per year. They may be well worth it if the advice they render turns into profitable investments. But how can you know that in advance before you subscribe?
Another problem is that some of these newsletters attempt to do little more than sell you other investment products themselves from investment club memberships, to higher priced newsletters, to training videos etc.
Figuring out a good newsletter to subscribe to, or even several good newsletters to subscribe to can be almost as challenging as investing in the stock market itself! In this article today I want to mention a few things to look out for when choosing an investment newsletter to subscribe to. Hopefully, armed with this information, you can save yourself some serious money and heartache (because of bad investment advice) in the long run.
First off, watch out for newsletters that make seemingly impossible claims. If somebody claims to be able to show you 100% returns on your investment year after year or even a 1000% return on your investment then look somewhere else. The smartest investors in the world don’t make more than 20% a year or so, year after year after year on their investments. I’m talking about billionaires who do this for a living. Some guy selling a newsletter out of his basement is not capable of showing you how to make 100% returns ever.
Next watch out for newsletters that don’t offer a trial subscription. The only way you’re going to know whether these newsletters are worth your money or not is if you can read a month or two of their back issues and see for yourself just how well their advice has performed. A newsletter that doesn’t offer a trial is usually up to no good. If they don’t trust their own efforts enough to give you a peek before hand, then chances are their advice isn’t going to be worth much.
Watch out for newsletters that make lots of suggestions for different stocks. It’s an old trick to suggest many different stocks and then forget about the ones that didn’t work out and then point back at the successes and say “See! We really know are talking about!”. If you see this in a newsletter that you subscribe to, consider dropping that newsletter fast.
Finally watch out for newsletters that don’t make specific recommendations. Some newsletters give very broad recommendations that aren’t actual recommendations so that they can be proven to have not given bad advice in the past. If you’re going to pay hundreds of dollars a year for a subscription to the newsletter, you should be getting solid tangible advice and recommendations that you can immediately implement without having to put any more effort into it on your own part.
Finding the right investment newsletter for you can be an important part of your stock market investing mix. I subscribe to several myself and the ones that I have come to rely on over the years are worth their weight in gold. It may take you some time to find a really good one to suit your style of investing, but once you do it will be well worth your effort.
Tags: investing, investment newsletters
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Friday, February 5th, 2010
By Jason Markum
I don’t know about you, but stock market investing is incredibly difficult for me! There’s just so much to know, and it can all be so confusing at times, that the slightest little error on my part can wipe out everything I’ve worked so hard to build over the last ten to fifteen years! But I keep plugging away, learning more and more as I go, and slowly but surely I make progress.
Over the years I’ve learned several valuable things about the stock market. Today I want to write a short little article about one of those things that you may not ever have put a lot of thought into, but is vitally important to your stock market strategy.
The thing I’m talking about is Stock Buy Backs.
First of all, what exactly is a stock buyback? Often times a company will offer to buy back shares at a premium price. That means they’re willing to give you more money than the stock is currently worth. Many times investors aren’t sure whether or not to accept such a deal and that’s one of the reasons why I wanted to write this article today.
Why do companies offer to buy back their stock? Well, there are many different reasons. Sometimes a company is sitting on a large pile of cash after having a particularly good quarter or a particularly good year and they need to do something with that cash besides let it sit there. Buying back some of their stock is a good way to return that money to their investors at a lower tax rate.
Otherwise they may have to pay taxes on it and then pay it out in the form of a dividend, at which point the investors themselves will have to pay taxes on the dividend. Stock buybacks can get around some of the.
Another reason why a company may offer to buy back some of its stock is because that it feels that the stock is under priced at the moment and therefore is a good investment in itself. This is a bit of a self fulfilling prophecy because when a company buys back its stock, it by definition increases demand and decreases supply whenever you increase demand and decrease supply, the price always goes up.
Another reason why a company may offer to buy back some of its stock is a little more cynical. Many times company insiders own a lot of stock themselves and having the company buy back that stock is a way for them to, in effect, pay themselves a bonus. No company will ever say that this is the reason why they are buying back stock, but you can always find out by watching the levels of corporate insider stock holdings which are publicly available.
So should you accept a stock buyback? The answer is almost always yes! Many times a company will offer a premium over the current stock price, sometimes as much as 10% or more above market levels. Studies have shown that if you hold onto your shares, the chances that they go up more than 2% or 3% in the months that follow are slim. Meaning you would have been much better off accepting the buyback offer.
There is a bad side as well because when a company buys back stock it means that they’re using their own cash, which means they won’t have that cash anymore to invest in the company by way of hiring more employees, building more factories, increasing marketing, etc. which may impact the profits of the company in the future which may cause the stock to go down in the future. Which means you should have sold your stock when you had the chance!
So there you have it, everything you ever wanted to know about stock buybacks. Now you can make a much more informed decision the next time a company offers to buy back its stock from you.
Tags: investing, stock buy backs
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Friday, February 5th, 2010
By Jason Markum
Investing in the stock market can be an incredibly hard thing to do. There’s so much to learn about, and things seem to change overnight. Just when you get something figured out, the rules go and change themselves and you have to learn about a thing all over again!
One thing that seems to confuse people the most is the Stock Split. Most people don’t know what to do when a stock that they own splits. Should you be happy? Should you be worried? Should you sell your stock? Should you buy more? Is it a good sign? Is it a bad sign? No one really seems to know. It SEEMS like it should be a good thing, but how can you be absolutely sure?
That’s exactly what I want to talk about in this article today. When you’re done reading, you should have a fairly good idea of everything you ever needed to know about stock splits and whether or not they are actually a good thing for your stock market investment portfolio or the end of the world as some people might have you think!
So before we get into this in any greater detail, I should first explain exactly WHAT a stock split is. Basically, a stock split is exactly what it sounds like. Your stock splits in every way.
If you owned one share of stock that was currently priced at $100, you will now own two shares of stock that each have a value of $50. Your current price level is the same….which is $100 (1 share at $100 or 2 shares at $50 each, it all comes out to the same $100).
Because of that fact, many people who really know what they are talking about suggest that a stock split is a non-event! What’s the difference? (they say). Well, for the most part, they are right. But there are some things to take into consideration.
People buy stock based on price points. Some investors may not be able to afford an expensive stock that’s trading around $100, but they would like to buy the stock if it was trading around $50. So splitting stock may cause more people to buy it in the future. When more people want to buy a stock, its value generally increases due to the effects of supply and demand. While technically not true (any first year economics student can explain that you haven’t actually increased demand, you have just moved to a lower or higher point ON the demand curve) the logic seems to appeal to most everyday investors.
The two for one (or 2:1) split that I described is only one type of stock split that we see in the stock market today. Another common split is the four to one split (or 4:1). In this case if the stock was trading at $100 per share and splits four to one, you would now own four shares of stock that are each valued at $25 per share. Again we see that you are still left with $100 worth of stock (1 share at $100 is the same as 4 shares at $25 each).
Many times companies that split their stock are up to something. They may want to use shares of stock to go after other companies, purchasing them with their own stock. A stock split gives a company more shares to use to buy another company.
Likewise, a company may issue s stock split as a way to create a takeover defense against another company taking over them! Sometimes stocks will be split, creating different stocks with different voting powers that make it difficult for outsiders to gain control of a company.
Whatever the reason, you should be wary of a stock split because technically, as I’ve mentioned above, they serve no actual purpose. So if a company takes the time and expense to split it’s stock, it is almost certainly up to something and you should keep your eyes open!
Tags: acquisitions, investing, mergers, stock split, stock splits
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Friday, February 5th, 2010
By Jason Markum
The Stock Market is very complicated. Just when you think you’ve got it all figured out, something changes right out of left field and you have to start all over again.
There are a few best practices that you can follow that seemingly give you a leg up on most investors, or at least give you a little bit of a head start…and sometimes all you need is that little bit of a head start! Am I right? Of course I am!
One of my most secret little tricks is timing. Most people don’t realize that WHEN you buy your stocks can determine how good of a deal you will get! Hey, every little bit helps and if I can gain a few pennies here and a few pennies there just by making my trades during certain times during the day, you can bet your bananas that I’m going to do it!
And it’s not just best times of the day, there are also best days of the week to trade stocks on as well. If you can believe it, there are even best days of the month and best months of the year. Don’t believe me? Well, read on!
Let’s start by taking some of the best times of the day… stocks generally reach low points every day at around 10:45 AM and also around 1:25 PM and then finally at 10 till 3 in the afternoon. If the stock market is generally rising, then these are the best times to buy.
Now let’s look at the best days of the week. Mondays are usually bad days for the stock market especially Monday mornings. You can usually expect Tuesday to be a little bit stronger but Fridays tend to be the best days for stocks especially right at the close when stock prices often jump up little bit, so don’t buy then!
The best days of the month are a little more tricky. The market is usually the strongest around the last day of the month, or at least the last trading day of the month. Generally speaking the first four trading days of the month are usually strong too. So keep your buying to a minimum then.
The best months of the year are very interesting. You can usually expect to see lows in the stock market in late June and also during October and November. June, because traders go on vacation in the summer… and October November because of the Thanksgiving holiday season. Because of these lows, it’s often a good time to buy. It’s often risky to buy stocks in September because they may be at highs that will go down because of the October and November low that I just mentioned. Often when January is strong the rest of the year will follow and vice versa.
Holidays are another strange part of the stock market. The markets are often strong one or two days before a holiday for some reason. The stock market also is usually strong right before the Fourth of July and also between the Christmas and New Year’s period when many people buy and sell for different tax reasons at the end of the year.
So there you have several different scenarios when the stock market is strong and weak based on days of the week, weeks of the month, and months of the year as well as holiday seasons. If you don’t believe me, it’s easy to go back and check the historic data for those time periods and see for yourself!
Tags: investing
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Saturday, February 6th, 2010
By Jason Markum
Investing in the stock market can be tricky under the best of circumstances. The average investor needs every trick available keep ahead of the game. Why is that? Because professional investors work day in and day out on Wall Street; they are right in the heart of things and are the first ones to know just about anything. It can be very difficult for the average amateur investor trading for their retirement account to keep pace with the experts.
But knowing a few things that the experts know can help the ordinary investor stay ahead of the game. Knowing when the experts trade on the stock market is something very useful for all amateur investors and that is exactly what I’m going to talk about in this article today.
The fact of the matter is, a popularly traded issue usually shows very distinct tendencies during the course of any given day. The reason for this is simple, traders usually like to buy and sell during certain hours of the day. If you are careful, you can take advantage of these patterns.
Day traders often by early in the morning. If the market seems to be weak, then traders will sell short as soon as possible. Many positions that are held on the NYSE, that’s New York Stock Exchange, are often equalized between 3:30 and 3:45 in the afternoon, for the most part.
On days when the stock market is nominally stronger, you can expect temporary weakness usually around 3:30 in the afternoon because most traders are closing up their long positions at this time. If you are a buyer, then you should try to place an order during this time period. If, on the other hand, you are planning to sell, you should wait until just near the close when prices often recover.
If you get right down to it, another time the day that often shows market weakness is right around noon to 1 PM. If you think about it for a moment, you can determine why this is the case!
If a day tends to be weaker, then you will usually notice that short-sellers can expect some price recovery around 3:30 in the afternoon because it is at that time of the day normally that many traders will begin covering their short positions.
So there you have several distinctive patterns of trading that happen on most days that you can take advantage of with a little careful watching and quick fingers.
Like I said earlier, the average individual amateur investor needs every little trick they can to stay ahead of the game and beat the pants off of the professional investors who work on Wall Street. With these tips, now you can!
Tags: investing, stock market, trading
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Saturday, February 6th, 2010
By Jason Markum
There are not many things in this life more difficult than stock market investing. Make the wrong decision and years and years of careful savings can evaporate in the blink of an eye. As amateur individual investors, we need all the help we can get in beating the professionals on Wall Street.
One tool that we can use to get a leg up is to understand stock cycles to help time our investments for maximum advantage. If you track the price cycle of your particular stocks then you have a good chance to time them for maximum effect.
The first thing you’re going to want to do is plot a chart that has the 30 week moving averages for stocks in your portfolio. You can use the closing prices of the last day of the week as found in daily newspapers like the Wall Street Journal or online. From this charting process you can usually find four or five stages in each cycle which I’ll describe below.
The first stage is the base stage. You’ll notice that daily prices start to go above the 30 week average in this stage. This usually happens after the stock has been decreasing for a while. You probably shouldn’t buy the stock at this stage though you will really want to at the time!
The second stage is what I like to call the advanced stage. Usually during this time the prices jumps ahead of the 30 week average. This is a pretty good time to buy the stock while the upswing is just getting going. Don’t wait too long though to buy!
The third stage is what some people refer to as the top stage. During this stage the daily prices are no longer consistently going higher than the 30 week average. Instead they usually move inside of a very narrow range above and below the average price. You’re also going to notice a general increase in the trading volume that is steady but sure. Think about selling the stock during this phase.
The fourth stage is called the declining stage. During this stage the stock usually trades below its moving average more and more. You’re going to want to stay away from the stock during this phase as much as possible. Or you may consider selling short during this time if you have experience in this sort of thing. Short selling is only for those who really know what they are doing though.
So there you have for stages of the stock cycle that you can use to time your investment to get the ultimate return at the lowest risk. Use this cycle and you’ll have a leg up over most investors who have never even heard of it!
Tags: investing, stock market
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Saturday, February 6th, 2010
By Jason Markum
Investing in the stock market is incredibly hard to do, or at least hard to do correctly! Make even one simple mistake and you can see years and years of hard work and careful savings disappear quicker than the blink of an eye!
Because of this, it’s not hard to understand why so many investors, both professional investors as well as amateur individual investors like you and me try to find methods of trading to stack the deck in our favor.
We all wish we had a magic crystal ball or special tea leaves that would tell us the future. But those tools were the tools of the dark ages. Today we live in the computer age where our tea leaves come from technology and things like charts and stock market technical analysis.
But does technical analysis really work? That’s exactly what I’m going to discuss in this article today.
First off, what is technical analysis? To define it simply, it is the use of past historical charts of a stocks performance in order to predict how that same stock will act tomorrow or down the line even further.
It uses very snazzy looking charts, and difficult seeming math and statistics (and statistical software packages) to give “signals” that are supposed to give you a leg up and predict how well a particular stock will do.
Many traders live and die by these charts (they even call themselves “Chartists”). But does this method really work?? I have the answer.
College researchers have long ago answered this question. The answer is a resounding NO! Even so, the charting industry lives on….it “seems” like it should work, but it doesn’t for a very specific reason. Well, two reasons actually.
The first main reason why it doesn’t work is called transaction costs. Charting DOES work. It WILL show you ways to make a penny here, and a penny there, almost guaranteed. But it doesn’t take into consideration the transaction costs. You might be guaranteed to make 12 cents on the trade, but it costs $9 to trade stock at your online brokerage account.
Also, many times to make a profit you have to buy and sell hundreds of times, earning pennies per trade. Again the problem is transaction costs eating away at those profits.
The second reason charting doesn’t work is more esoteric. If everyone can read a chart and buy a certain stock based on what the chart says, then suddenly you get a bunch of people all buying the same stock for the same reason. This massive out of the ordinary buying changes the supply and demand picture of the stock and moves the price on its own, throwing off your charts projections!
It’s sort of like when the world found out that stocks go down right before Christmas. Investors noticed this, and started buying right before Christmas when they “knew” stocks would go down. So many started doing this, that their own buying started making prices go up around Christmas. It’s the same problem that chartists face.
So there you have it…stay away from technical analysis and all chartists!
Tags: chart investing, chartists, investing, technical analysis
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Saturday, February 6th, 2010
By Jason Markum
Stock market investing can be tougher than tough! You work very hard and have done so for years and years to save up money for your retirement. Make just one or two wrong decisions about how you invest that money in the stock market, and all your hard work can evaporate right in front of your eyes leaving you with absolutely nothing. That should be a terrifying thought to you!
So what can we do to make sure that our stock market portfolio doesn’t drop out of the sky? The answer is through insider trading!
I hope I’ve got your attention but unfortunately I have to break it to you, I’m not talking about the kind of insider trading that you probably think I’m talking about. No, I’m not talking about any kind of Martha Stewart illegal insider trading, I’m talking about watching what insiders of a particular company invest in themselves. Today I am going to show you exactly how to do that in this article.
Watching how corporate insider purchase or sell stock is much easier than you may think and there’s nothing illegal about it, unlike that other kind of insider trading you probably thought I was talking about.
When an insider from a corporation buys or sells stock you should follow what they’ve done. The reason why is because they have the kind of information about the company’s future that you may not be able to get even if you have carefully read that company’s financial statements. Besides, those executives lives, their careers, and their own wealth are usually tied in to these very investments because they get paid, especially in bonuses, with company stock a lot of the time. Because of this they are very cautious and are not often wrong.
Usually speaking, when three or more insiders of the company are buying… that’s a pretty good sign that you should buy as well. It doesn’t matter usually how much they’re buying, even if it’s just a few hundred shares that’s still a pretty good indicator.
One thing to keep in mind though is that many times insiders buy stock for very long-term purposes. They feel that the company has a very long-term stability possibility. That doesn’t necessarily mean that next year the stock is going to rise, but that over the years to come there’s a good chance that it will rise. So this isn’t necessarily a way to find a quick kill or a get rich quick type of trade.
Company insiders have to file forms with the SEC which is the securities and exchange commission. You can look up these forms right off of the SEC website for any company within your investment portfolio. You can do this quickly easily, and for free so there is no reason not to do this.
One thing to keep in mind, insiders don’t have to report to the SEC immediately, there is a time lapse of weeks or months before they have to file. So keep that in mind.
Tags: insider trading, investing
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Saturday, February 6th, 2010
By Jason Markum
I love stock market investing. It’s a passion of mine, make no mistake about it. But it can be incredibly dangerous if you’re not careful. Make just one little mistake… just one error in judgment about a particular stock and you can see years of hard work and careful savings evaporate in the blink of an eye, or even faster!
Because of this, I’m of the opinion that every little trick, or tip, or inside track that I can get a hold of that will help me make better decisions about my stock market portfolio is something that I’m going to spend a lot of time trying to find.
One signal that you can often take advantage of to make some money, or protect yourself and your portfolio is major block share trades. Very often, large blocks of shares are sold on the stock market or are bought on stock market. Determining that these block shares are about to be traded before hand can give you a substantial leg up over everybody else and hand you a chance to make some nice money very quickly, or protect yourself very quickly whichever the case.
For instance, if you know before hand that a large block of shares are about to come up for sale, you may sell your shares quickly at the current high price because whenever a large block of shares comes up for sale, the price often drops because there aren’t as many buyers for large blocks. When there aren’t many buyers, the only thing to do is to drop the price until there ARE buyers. If you know about this before hand though, you can sell your shares at the current price, and buy them back at the depressed price later that day or within the next week or so..pocketing the difference.
The opposite holds true if you find out that large block of shares is about to be purchased. Whenever there are more buyers than sellers, the price goes up. So if you can buy shares before somebody else tries to buy a large block, then you can sit back and watch the price rise and sell your original shares after the price has risen once the new block has been bought.
So how do you find out if large blocks of shares are about to be bought or sold on the stock market? That’s the million dollar question!
The first thing you want to do is watch mutual funds. These entities by definition move in large blocks of stock because they’re buying and selling for hundreds or thousands of individual investors at the same time. They just don’t move in little blocks. Mutual funds won’t advertise that they’re about to buy or sell large blocks, but many times this information sort of leaks out and if you’re careful and pay attention, sometimes you can get wind of it.
Watch the trading range of different issues because a major indication that the block is about to come up for sale is that you will see a quick shrinkage of the trading range.
If you get into the habit of watching out for these particular things it can get much easier, and you might be surprised how much fun it is to sniff them out!
Tags: investing
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Tuesday, February 9th, 2010
By Jason Markum
Investing in the stock market can be, shall we say, difficult! One way to increase your odds of success are to find companies that are about to be taken over or merged with other companies. These tempting takeover targets can pump up the stock price several points in a matter of days!
The problem is finding these companies before the takeover has been announced, which is no easy feat, let me tell you! If you don’t have a crystal ball there is not a lot you can do to find them… or is there?
One way to find these tantalizing takeover targets is to watch investors with top track records in finding them and to follow their buying patterns. You can follow the buying patterns of individual investors by following their SEC 13D filings. You can download these for free from the SEC’s website on the day that they are filed (or thereafter).
Individual investors are required to file these forms within 10 days of any purchase of 5% or more in a company’s outstanding stock. Of course, if somebody is interested in taking over a company then a 5% buy in is essential to get the ball rolling.
But that’s not an absolute clear indicator that you should follow them! You should also always analyze the companies financial statements including their balance sheets and income statements as well as their statements of cash flows so that you can determine on your own what a valid price for the stock is.
For instance, if you determine that a stock is worth $10 a share and it is already trading at $30 or $40 a share, just because somebody is acquiring large chunks of their stock doesn’t necessarily mean that the merger will add value above what the stock already trades at. So be very very careful!
Something else to watch out for when looking for target takeover is a companies tax loss carry forward. Companies that have high tax loss carry forwards may be takeover targets because that carry forward is a huge benefit to another company. Sometimes other companies will buy a company just to take advantage of the carry forward on their taxes.
Another area to watch for is a companies price to earnings ratio or PE ratio. What you are going to want to do is benchmark that PE ratio against other companies within the same industry. This will tell you if a company is undervalued or overvalued compared to other companies within its industry. As far as takeovers are concerned, it’s better to be undervalued compared to the rest of the industry. If a company is undervalued, then another company can come in and gobble them up in the hope that the merger will create enough buzz to prop the stock price up to a more reasonable level.
So there you have several ways to determine whether a company is a likely takeover target. You don’t need a crystal ball after all, just some common sense and a little technical analysis and research. Find just a few likely takeover targets and you can engineer quite a nice boost to your overall portfolio returns.
Tags: acquisitions, investing, M&A, mergers
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Tuesday, February 9th, 2010
By Jason Markum
If you’ve been investing in the stock market for very long you know only one thing for certain, and that is that there is no certainty when it comes to stock market investing! This means that we’ve got to constantly chase profits anyway we can!
One way to find quick profits in the stock market is to find a company that is about to be taken over by another company… what we call a merger target, or sometimes an acquisition target.
If you can find out, or just guess correctly, that a company is about to be taken over by another company… you could stand to make a lot of money very quickly.
The problem is, there are no guarantees in life and even less so when it comes to guessing stock market mergers! Not to mention the fact that there’s an entire industry of people who do this for a living called arbitrageurs who engage some pretty sophisticated mathematical modeling to help them guess the right way.
But don’t despair! You don’t need a PhD in mathematics or applied financial modeling in order to guess right on a merger target if you’re careful and pay attention to a few specific things or areas that I’ll discuss in detail in this article today.
The first thing to watch out for are SEC 13D filings. A 13D is a form that every single investor has to file with the securities and exchange commission every time they purchase shares of stock in a company that equal at least 5% of the outstanding shares in that company.
An individual investor is required to file this form with the SEC within 10 days of making such a purchase. Now it is true, just because a person purchases 5% of the stock of a company… it doesn’t mean that they are about to take over the entire company. Many many times people are simply making strategic purchases for any number of reasons, or it simply may be a mutual fund, because they usually only make larger purchases of this scale or near this scale.
Still, as far as indicators go, a 13D is fairly strong. Like anything in life and certainly anything in the stock market, you should always do your own analysis and not simply rely on a 13D filing. Do your research on the company itself, analyze its balance sheet and analyze its income statement. Review things like off-balance-sheet items and be on the lookout for things that are undervalued such as real estate listings which may be worth more than their face value or book value. These things can all be indicators that the company is undervalued and thus ripe as a takeover target.
While you’re doing your research, run a tax analysis as well. Many times companies with large tax loss carry forwards are prime merger targets because other companies covet these tax write offs that they can use themselves once they acquire the company.
Investing in pre-mergers and acquisition companies is a very exciting and challenging investment strategy that should not be engaged in without serious understanding of all the things involved. But if you do your homework, it can be a lot of fun.
Tags: acquisitions, investing, investments, M&A, mergers, stock market
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Tuesday, February 9th, 2010
By Jason Markum
In all my years investing in the stock market there’s one thing that I’ve come to understand with absolute certainty; and that is… there is nothing absolutely certain about stock market investing! As soon as you learn a surefire way to make money, everything changes and you have to learn something new or get lost in the dust.
A great way to make money in the stock market is to invest in mergers and acquisitions before they happen. But before you do that you have to know several things about mergers and acquisitions.
One reason why mergers are so lucrative from an investment point of view is that most times when one company buys another company they have to pay significantly more than the current stock price in order to convince the company to sell. If a stock is currently trading at $20 a share for instance, a company may have to offer $45 or $50 per share in order to convince the company to sell out. That’s quite a jump in share price virtually overnight and if you own that stock while it’s at $20 you stand to make a lot of money very quickly.
It’s hard as a small investor to take advantage of these things because merger leaks often filter to large institutional investors first. This has one significant effect… the institutional investors run out and buy massive chunks of stock immediately if they think the merger is going to take place. This excess buying drives the stock price up close to the target price for the merger.
Taking our original example, if a stock is $20 a share, the institutional investors will start buying it until it reaches nearly $45 or $50 a share, which is the price that the new company is going to pay in order to buy out the old company. Many times this buying activity will occur before you as an individual investor can get wind of it (and profit from it!).
But if you do happen to hear about it or deduce it yourself, the ride up can be exhilarating!
People who buy stock at low prices in the hope that the stock will rise due to a merger are called arbitrageurs. They hope to profit from the arbitrage between the original price and the merger target price. They often have an advantage over small investors in that they can buy in bulk without the high trading costs that individual investors usually have to pay which makes arbitrage profits higher for them then they will be for you.
Finally, there is significant risk in this sort of an investment strategy because mergers and acquisitions don’t always go through even when they’ve been announced. Many times two companies start haggling over different things and the merger talks fall through and the stock price sinks back to its previous level or sometimes even lower. That is the main risk involved in this sort of investing and is something that you are going to want to account for in a significant manner.
There may be a lot involved in speculating on mergers and acquisitions, but the fact remains the same… all it takes is a few guesses correctly and you can stand to make a lot of money very quickly. It’s a heck of a game!
Tags: acquisitions, arbitrage, investing, mergers
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Tuesday, February 9th, 2010
By Jason Markum
The one thing that I love about stock market investing is the broad range of options that you have. You can invest in large cap stocks, you can invest in mid-cap stocks, you can invest in small-cap stocks. You can invest in mutual funds, you can invest in bonds, you can invest in money market funds, you can invest in gold, silver, other precious metals, and you can even invest in currencies if you like…
And one very exciting and, I’ll admit it, fun area of investing is the Penny stock market or pink sheets as they are sometimes referred to. Penny stocks are stocks of companies that are very small and have just gone public at prices between one cent and five dollars per share.
They allow you to buy in to a new company that has a lot of potential, at least potentially a lot of potential as not all of these stocks grow. In fact most of them don’t! But when they do, they provide incredible opportunities for over board profits. Just think about it; if you bought one million shares at a penny each you will have spent $10,000… imagine if that share price rises to $20 a share! You’d have $20 million off of a $10,000 investment.
Now this is an extreme example and chances are you’re never going to see that sort of a movement, but you get the idea of why this can be so much fun. If $10,000 is too much of an investment, and it may very well be since these are higher risk companies, you can still have a lot of fun with just a few hundred dollars since these prices are so low to begin with.
To have the best chance of winning in the Penny stock market, be sure to look for high-quality new issues that are underwritten by brokerage firms. This may be harder than it sounds! There simply aren’t many penny stock underwriters out there.
There are several ways to track down a good investment in the Penny market. One way is to follow a variety of different newsletters that focus just on penny stocks. Let the newsletter do all the heavy lifting and find these for you as many of these newsletters will be able to track underwriters over time and will have a better idea of the best underwriters to follow.
Be sure to do your own research. A penny stock is just like any other stock in that it is bound by the fundamentals of the company that issues it. If a company has a strong balance sheet and a good business model and steady cash flows, the chances are that the stock will perform better than a company that doesn’t have these things.
Finally it’s hard sometimes to buy penny stocks because the best ones are offered to the underwriters best customers first. Eventually you may become one of the underwriters “best customers”, but until then simply keep trying to find quality issues as best you can.
I suggest you limit your purchases to $500-$1000 and no more because it’s easy to spend more as you get caught up in the action but this amount is fairly adequate to take advantage of some nice price movements if they happen.
Penny stocks are a lot of fun and you can make some significant money; but as with all investment opportunities be sure to understand the risks involved and do your homework!
Tags: investing, penny stocks, pink sheets
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Tuesday, February 9th, 2010
By Jason Markum
Investing in the stock market is a lot of fun but it also takes a lot of skill. Investing in the over-the-counter stock market is another beast entirely! Over-the-counter stocks are generally companies that are much much smaller than a regular publicly traded company on the NASDAQ or the New York Stock Exchange. These companies are very thinly traded, meaning you may not be able to buy or sell the quantity you want on any given day.
Because of this, large sways in prices, both up and down can be completely normal and if you aren’t willing or able to handle the psychological effect this may have on you, you’ve got to seriously reconsider investing in this market. But if you think this is the place for you, I’ve got a few tips to help you evaluate over-the-counter stocks and I’m going to share them with you in this article today.
First of all, the growth potential of the company is the most important consideration you will ever have, single-handedly. The earnings increases for the company should be at least 10% a year on average for the past six years or else you should stay away from the issue.
Next look at the cash, investments, and accounts receivable as well as the materials and inventories for the company. These things should normally be at least twice the size of the liabilities that are due within the next year for the company. This is because smaller companies need a larger cushion to weather all storms.
Next take a look at working capital per share. For over-the-counter companies the working capital per share should be larger than the market value of the stock. For instance, a $12 stock should be backed by a good solid $14 per share in working capital; at least.
Next, the company should be owned by a least 10 institutional investors as reported in the S&P Stock guide. This may be hard for many OTC stocks but it is important nonetheless.
Next look at the balance sheet for the company. It shouldn’t show any deferred operating expenses at all.
Next look at who also owns the stock. You want to look for public ownership that is between 500,000 and 1 million shares of stock. A good indicator is that no more than 10% of the company is controlled by a single individual or institution.
Next look at recent dividends or at recent stock splits. What happened after the dividends were issued? Did the price of the stock continued to increase or did it drop? Increase suggests that the company is financially solid and it’s investors feel strongly about it. A decrease suggests that insiders are cashing out and running away… which is a horrible sign and a clear indicator to stay away.
Finding a good over-the-counter stock can be a lot of work but at the same time it can be incredibly rewarding because all it takes is a few of these gems to be uncovered in order to make you a lot of money very quickly!
Tags: investing, OTC, OTC Stocks, over the counter stocks
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Tuesday, February 9th, 2010
By Jason Markum
I don’t have to tell you that when it comes to stock market investing it’s a dog eat dog world! Make one small mistake and you can see years and years of careful savings and investing evaporate in the blink of an eye. But the over-the-counter stock market, that’s a whole different beast completely! The OTC market is the wild wild west where just about anything goes. If the regular stock market is dangerous, then the OTC market is life threateningly dangerous…
Why is that? Because the OTC market deals with small stocks that are very thinly traded. Even without shenanigans, a stock may just drop out of the sky because the company is simply not very good. But under the worst of circumstances there are all kinds of crazy things that can go on including manipulation and insider trading because this market isn’t as tightly regulated as the major stock markets are.
Still, there are some things that you can do to help insulate yourself from most of the danger and that’s what I’m going to talk about in this article today.
The first rule is to only invest when you have a clear idea of why you want to invest. Many times we buy OTC stock simply because it’s so cheap and we stand to make a killing if it increases even a little. That is no reason to buy a stock. You should only buy stock for sound fundamental reasons, i.e. the company is a good company that has good prospects for future growth. Without that future growth, there’s no reason to invest ever.
The next rule is to realize that over-the-counter stocks are almost always short-term plays. This means that you should never buy one without a clear selling target in mind. The stocks tend to fluctuate wildly in prices and in no time at all your sell target may be reached, sometimes quicker than you expected. If this happens, pull the trigger and sell immediately even if you’re tempted to ride the wave a little longer. What goes up quickly can drop down just as quickly in the OTC market!
Next, realize that up to 85% of all new issues will usually be selling below their issue price within the first year and a half because most of these new stocks are overpriced when they are first issued and after the first year or so the buzz has worn off and the stock drops.
Next, pay special attention to the auditors of a new issue. You can find out who the auditors are by reading the prospectus carefully. If you’ve never heard of the auditor, that’s a red flag and you should maybe consider running away. Auditors are all about reputation. Without a reputation and auditor’s numbers are just that… numbers, they may not mean anything!
Finally, do some research on the underwriters. If the brokerage firm that is underwriting the OTC issue has been in trouble in the past with the SEC, this may be a clear indicator that your OTC stock is not as solid as it may look. Good companies use good auditors and good brokers for their underwriting. Less solid companies take what they can get.
Investing in OTC companies can be a lot of fun, just as I’m sure living in the Wild Wild West way back when was also a lot of fun. If you think you’ve got the temperament then I wish you all the luck in the world, not that you’ll need it!
Tags: investing, OTC, otc stock market, over the counter stocks
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Tuesday, February 9th, 2010
By Jason Markum
Investing in the stock market can be incredibly difficult, but a lot of fun in many ways! One of the more enjoyable areas, or maybe one of the more frustrating areas depending on how you look at it, is the IPO market or initial public offering market. The problem is, many individual investors don’t know how to crack into the IPO market and take advantage of these hot stocks on the way up.
In this article I’m going to talk about the initial public offering market, how you can take advantage of IPOs, what to look out for, what to stay away from, and how to find brokers who are willing to sell shares of IPO to you as an individual investor.
Finding IPO shares can sometimes be an incredibly difficult journey to undertake. Brokers tend to offer IPO shares to their very best clients as a sort of incentive or thank you for using them as their broker. Let’s face it, there are an infinite number of stockbrokers out there and there’s no real reason to stick with one broker or another… so any way they can sweeten the pot for their best customers and clients, they’ll take advantage of. One of the main tools they have in this area is the issuance of IPO shares.
What this means to you as a smaller individual investor without a huge stock portfolio and a lot of money behind you is that you will often be frozen out and unable to get a hold of IPO shares before they come on the market. Of course the point of owning IPO shares is to take advantage of that seemingly constant jump in price that many, if not most IPO shares tend to make.
This becomes an even bigger problem when the stock being issued is incredibly popular, which is the exact stock that you want to own! But there are some things you can do and I’ll talk about them now…
First you’re going to need to get advanced information telling you which IPOs are about to occur. Your best bet is to find this information from the SEC, the securities and exchange commission.
You want to tell your stockbroker as absolutely far in advance as possible which upcoming IPO shares you are interested in. Almost all IPO shares are priced at the very last minute meaning you’re not going to know before hand how much you’ll have to pay for them. Be sure to let your broker no that you’re willing to pay the top limit of the price range that’s offered (of course, make sure that you are willing to pay that much!). This lets your broker no that you are very serious about the issue.
Of course, you can change your mind before the stock is issued if you think you’re going to be offering too much per share, but if you do that, your stockbroker will remember it the next time around and will not be as apt to offer you IPO shares. So keep that in mind.
Remember, the larger your trading account is with your broker, the more likely it is that they will work with you to find you pre-IPO stock. If your broker can’t promise you IPO shares, it may be in your best interest to find a smaller stockbroker who is more willing to put in the effort on your behalf.
The fact of the matter remains, many times in the IPO market it all comes down to tenacity. If you’re just willing to keep pushing and pushing, sometimes that’s the only thing that will work. No matter what though one thing is for sure, IPOs will continue to be very exciting for years to come.
Tags: initial public offerings, investing, IPO
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Tuesday, February 9th, 2010
By Jason Markum
Investing in the stock market can be a challenge under the best of circumstances. But there is one area of the stock market that is often much more challenging than the rest…I’m talking, of course, about small stocks.
Why are small stocks so much harder to invest in than large stocks? There are a number of reasons. One reason is that small companies are simply untested yet. Management hasn’t yet proven that they can deliver growth and earnings. Another reason is that small stocks are often thinly traded making buying and selling the actual stock difficult and prone to large sways in price from high to low. This zig zag stock price movement can be psychologically hard for many investors to watch.
Even though it is a difficult sector to invest in, there are often great opportunities to make a killing investing in these small issues. That’s what I’m going to talk about today.
The first thing to understand if you want to play in this area of the stock market is that you are going to have to do much more of your own homework. Many times these companies aren’t being followed by the gig research brokerage firms and there are no analysts following the stock. All this means that you will have to crunch your own numbers most of the time…but then again, it’s important to run your own numbers anyway!
Here are some things to look for in a small company…
First, look for a 15% annual revenue growth. If a company doesn’t have at least that much growth going on, then the chances are slim that it’s stock price will go up dramatically in the years to come barring some strange unforeseen merger or new secret product line (unlikely). Dividends are also unlikely for a company at this stage of growth rate.
Next look for companies that have as large a market share as possible. I like to look for companies that have at least 20% market share. Small companies are prone to struggle with every economic downturn. Having a large market share is often times one of the only (if not THE only) cushion these small companies have.
Next look at their management team. Good management is absolutely essential. Large companies can some times get away with mediocre management at some levels, but small companies absolutely CAN NOT! Read up on the companies 10K and 10Q SEC filings. These will give you a good idea if the companies performance has lived up to the managements expectations or not. Also take a look at their 8K filings as this will show extraordinary management changes that have been made in recent times.
However you decide on a small company for your investment portfolio, one thing is for sure. Small stocks offer a huge upside potential if you can find a good company. Find a bad one though, and you can lose your shirt!
Tags: investing, small cap
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Tuesday, February 9th, 2010
By Jason Markum
Investing in the stock market is hard, really hard. There’s nothing worse in the world than investing in a stock that turns out to be overvalued. The same thing happens every time; the stock starts to dip, then it starts to drop, then it falls out of the sky and there’s nothing you can do about it.
Sometimes a stock will drop so much that it may take years to climb back to the level at which you bought it. Nobody wants to be caught in a situation where their stock price is underwater and there’s nothing they can do about it. Hopefully this article will give you some tips so that you never find yourself in this exact situation.
So how do you decide or determine whether or not a stock is overvalued? There are many ways to do this and all of them include research and analysis on your own part before investing.
One of the very best ways to determine whether a stock is overpriced is to look at the price/sales ratio or PSR as it is sometimes referred to. The PSR is the price per share divided by the sales per share. If this number is greater than .75 then the stock is way too expensive. This means basically that investors are paying a premium on the future growth of the company. If this is the case then the stock price doesn’t have anywhere to go but down in most circumstances.
Another really great indicator that the stock may be overvalued is insider selling. If management doesn’t want to own shares in the company stock, this is a very good sign to tell you to stay away. You can see what company insiders are doing as far as buying and selling stock by checking with the SEC and looking up the company at the SEC’s website. It doesn’t cost any money to do this, it just takes some time to read the reports.
If you don’t like doing that sort of research on your own, there are newsletters you can subscribe to… for a fee… that keep an eye out on stocks and monitor insider selling of the stocks. Some of these newsletters are fairly expensive but if you do a lot of trading and you have a substantial investment account, the price may be well worth it in terms of time-saving on your part.
Finally, look at the book value of the stock. High PSR stocks more often than not also have high price-to-book values. A book value is usually just the companies assets minus all their liabilities. If a company is selling at less than book value then chances are it’s undervalued and the stock price may increase over time. On the other hand if a stock is already selling at higher than book value then the potential for future growth may already be factored into the overpriced shares of the stock.
However you do it, make sure you have a recognizable strategy when it comes to valuing stocks to determine whether or not they’re overvalued or not. A little bit of extra effort before you buy a share can pay off in spades in the long run.
Tags: investing, stock speculation
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Tuesday, February 9th, 2010
By Jason Markum
Investing in the stock market is arguably one of the hardest professions anyone can undertake these days. Make just a few simple errors and a lifetime of saving and investment can be wiped out in the blink of an eye.
If there’s one thing that’s harder than stock market investing, that is investing in companies that have gone through bankruptcy or are in the process of going bankrupt. Most sane investors run kicking and screaming from bankrupt companies but if you keep your head about you and apply certain common sense measures, then investing in bankrupt companies can be quite lucrative if you know what you’re doing and that’s exactly what I’m going to talk about in this article today.
I’ll be perfectly honest and straight up with you… buying stocks of bankrupt companies is an incredibly high risk investment. On the other hand, high-risk usually translates into high potential payoffs and that is why most people get into the bankrupt stock game.
There are two main rules when it comes to investing in bankrupt companies. Follow these rules and you stand a better chance of surviving. The first rule is to wait until the company actually goes bankrupt. Many times investors feel the urge to jump into the breach too soon. The first thing to be wiped out in any bankruptcy is the original shareholders stock. So if you buy your shares before the company declares bankruptcy, you will most likely see your shares evaporate in court and be worth zero with no future claim on the company.
The second rule is that after the company has actually declared bankruptcy you have got to find as many ways as possible to reduce your risk. Many people do this by investing in several different bankrupt companies at one time thus spreading the risk as much as possible.
I suggest you watch a bankruptcy closely before you invest in one… do sort of a dry test run. You’ll notice several things; for instance the stock prices will plummet before bankruptcy but then when the bankruptcy is announced the stock will drop usually again sometimes as much is 50% more before leveling out for quite a while. The point is, there is a certain ebb and flow to these things that you’re going to want to familiarize yourself with before jumping in and investing with actual money.
Another way to spread out your risk is to invest in companies that have been in Chapter 11 bankruptcy for quite a while already. A brand-new bankrupt company is usually incredibly unpredictable and unstable as they go through systematic dramatic changes that are hard to foresee before hand. It can take up to a year to a year and a half before bankrupt company starts to stabilize in any noticeable fashion.
Finally if at all possible look for companies that still have profitable divisions. Many times bankrupt companies go bankrupt because one major division fails while at the same time many other divisions within the company still function perfectly well. These companies have a much greater chance of making it through bankruptcy because of the constant cash flow from the still viable divisions.
However you finally decide to jump into the game just be aware that this is not a play for everybody. Never commit the majority of your investment portfolio to bankrupt strategies, keep them a minor part of your portfolio mix and you’ll be much better off in the long run.
Tags: investing, investing in bankrupt companies
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Wednesday, February 10th, 2010
By Jason Markum
Investing in the stock market is one of the more difficult endeavors to engage in, but it doesn’t have to be as hard as you may think. One way to increase your chances of success in the stock market is to search for and invest in the stock of companies that are currently undervalued and getting ready to shoot up.
Finding these gems isn’t as difficult as you may think, and that’s what I’m going to talk about in this article today.
Making money in the stock market is usually mostly about recognizing value. Value usually doesn’t have much to do with whether a company is a good company or a bad company. Sometimes excellent companies have overpriced stock that you should therefore not purchase because there is no value in doing so.
On the other hand, however, a company that is not such a great company may have outstanding growth potential that is not factored into the current stock price which means even a small turn around calculates into larger than average stock price increases under certain circumstances… hence it may be a valuable stock.
So how do you find companies with undervalued stock prices that are poised for a quick jump? It is much easier than you think!
First look for stocks that are currently resting at new lows within a 12 to 14 month period. Also look for companies that have a higher probability of being liquidated or are even in the process of liquidation at the moment. Sometimes a company is worth more after it has been liquidated than its current share price reflects.
Next watch out for companies that have recently attempted mergers unsuccessfully. If one company is interested in merging with that company, others may be as well and just because the merger didn’t go through the first time doesn’t mean other candidates won’t follow through completely.
Next look for companies that have recently eliminated their dividend payout, or even companies that have just reduced their dividend payout. Many times when this happens shareholders freak out and sell the stock, which depresses the stock price sometimes further down then it should… which creates a buying opportunity once the stock settles to a more realistic price.
Finally look for companies that are in financial difficulty but at the same time have shareholders who are larger companies with a stronger balance sheet. Many times if a company has a large shareholder in the same industry or in a similar industry they can infuse capital which should bump up the share price.
There you have several ways to find depressed stock prices that have a fairly good chance of making a sudden increase or turnaround. As with all investing opportunities, be sure to do thorough research before making a final investment decision.
Tags: investing
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Wednesday, February 10th, 2010
By Jason Markum
Anybody that suggests that investing in the stock market is easy is probably trying to sell you something! The fact of the matter is, investing in the stock market is tough. Make just one or two wrong moves and if you’re not careful you can wipe out years and years of careful savings and retirement safety in the blink of an eye.
But there are several things you can do to help stack the deck in your favor, and that’s part of what I’m going to talk about in this article today. Mainly I’m going to focus on how to follow the rules for picking good common stocks.
The first rule is to try and buy the stock of a company that is a clear industry leader. If you can’t afford the industry leader, at least try and get a hold of stock in a company that has a fairly important position within its specific industry.
The second rule is to try to find very specific industries that have limited amounts of competition. The less the competition the stronger the companies within that industry tend to be and the easier it is for them to make oversized profits year after year.
The third rule is to avoid industries, if at all possible, that are visible figures within the consumer price index or large players within a countries GDP, or gross domestic product. I’m talking about the auto industry, or the food industry, or the steel industry just to name a few.
These high profile industries are usually the first to go down during times of recession (by definition) and also are the companies that have a higher chance of being over regulated by the government. Over regulation almost always translates into lower profit and depressed stock prices.
The fourth rule is to look for companies that have a price to earnings ratio which is at least the same as or lower than the S&P 500 index’s price-to-earnings ratio. Sure, you may have a difficult time finding these companies, but they’re out there.
The fifth rule is to search for companies that have an extended history of paying out dividends, but not just paying them out; you are going to want to look for companies that have a history of increasing their dividends over time. Dividends are a very nice signal for stock price.
Finally, try to stay away from companies that are highly leveraged and hold a lot of debt on their balance sheet. Especially now in 2010, credit has dried up and the gravy train is over for many of these companies. Stock prices are beginning to reflect high debt burdens adversely so you’re going to want to stay away from these types of highly leveraged companies if at all possible.
So there you have six easy-to-follow rules for picking the best common stocks. As with any investment decision, be sure to do your own research and fundamental analysis of the underlying company’s performance before investing in any stock for the long run.
Tags: common stock, investing
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Wednesday, February 10th, 2010
By Jason Markum
2009 was a surprisingly great year to invest in the stock market. Even though we were still deeply in the recession, the stock market rebounded 30%, 40%, sometimes even 60% at a time. In times like that it’s fairly easy to make money… what happens though when times are tough and the stock market is down?
2010 has started off rocky, to say the least. It looks like the stock market is going to be tough to invest in all year long. That doesn’t mean you can’t make money, even in these bad times with the recession still raging on and unemployment seemingly climbing forever to new highs with no end in sight.
Today I’m going to talk about how to make money during good stock markets and how to make money during bad ones.
No matter what kind of market you are trading in at the moment, good or bad, it is very important to have rules about when to buy stocks and when exactly to sell them. Make sure these rules are very strict and make sure that you fallow them to the letter. Having a strategy of when to get out of a stock can make all the difference between a profitable portfolio and a disaster of a portfolio no matter what the market.
Next, focus almost completely on the company’s earnings. Even in a bad market, a company might still pull through with decent earnings and that’s all that is important in the long run. On the other hand if a company’s earnings fall out of the sky along with the broader market, you know it’s time to sell, and sell quickly!
Next look for ideal companies which are ones that dominate their particular industry or market place. I like to think of these as unregulated monopolies and they’re out there so you can find them. Companies like this tend to do better when the market turns down because of the inelasticity of demand. In noneconomic terms, their customers have nowhere else to go.
Next look for companies that grow at a higher rate, generally 20% a year or more growth in both earnings and sales are great indicators. Companies like this may experience a downturn in a bad market but the 20% a year growth gives a fairly good cushion for them to draw upon. For instance, if sales drop 50%, their earnings growth may go from 20% to 10%… of course, they’re still growing!
Next focus on buying stocks that are undervalued during a down market. If a company has grown 30% a year over the last five years but their price to earnings ratio is still less than half that rate, say 15%… then that company is very attractive no matter what the state of the market.
Finally, dump your stocks that report declines in earnings as quickly as possible. Even if the decline is just four a quarter, it may be an indicator of rougher times to come so I suggest you do a cut and run, and invest your money in companies that aren’t declining.
So there you have several very simple to follow tips and rules that should help you make money in both a good and bad stock market.
Tags: investing
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Wednesday, February 10th, 2010
By Jason Markum
Investing in the stock market is not the easiest thing in the world to do. Even when you do absolutely everything right, you can still get smacked with a recession that drives down your profits. Make the wrong move and you can see years of hard work and savings evaporate before your eyes.
One way that some people have tried to mitigate failures in stock market investing is to invest in blue chip stocks. Blue-chip stocks usually pay high dividends and are thought to be safer or at least less risky than other stocks.
Another great benefit is that when the economy dives into a recession, blue chips usually stand up better than other stocks! This isn’t always the case, but it is much of the time. That’s why they call them conservative stocks as they can act as a cushion for your portfolio in times of trouble.
I don’t recommend that you invest only in blue chips, because there is such a thing as being too conservative… but if you keep blue chips to around 30% of your overall portfolio, you should be okay. Some people feel a little safer at around 40%, and that’s okay to… just don’t overdo it.
Blue-chip stocks generally won’t increase in price very much or very often. You’re going to make a lot of your money on the stocks in the form of dividend payouts. Still the secret to making money with blue-chip stocks is to engage in rapid turnover. Any time one of these stocks increases, even just a little bit, you need to sell immediately and reinvest the money into another blue-chip stock.
That’s right; sell your successes as quickly as you can because if one of these conservative stocks goes up, chances are it’s not going to go up again anytime soon and in fact may drop back down to its previous levels. But if you’ve sold as soon as it increased, you can take that money and reinvest it into other blue chips that haven’t yet gone up and are poised to.
From time to time these stocks will drop out of the sky if the fundamentals of the company have changed dramatically. That means you should always run constant stock analysis on each company in your portfolio and keep abreast of news so that you know how your companies are doing with their overall strategy and market share. Yes these companies can implode… it doesn’t happen often, but it can happen and you need to watch out for this just like you would watch any other stock in your portfolio.
Technology changes all the time and sometimes conservative companies are so set in their ways that they aren’t quick to re-explorer their strategies to change with the times. I guess this is the definition of conservative. Whatever you call it, it’s something you need to be aware of and keep an eye on so that your money stays protected.
So there you have several ways to profit from conservative stocks. Like any investment strategy, be sure to do your own due diligence and strategic fundamental analysis before investing any of your hard earned money.
Tags: Add new tag, blue chip stocks, investing
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Wednesday, February 10th, 2010
By Jason Markum
Investing in the stock market is one of the hardest things in the world to do. Everyone wishes they had their own crystal ball that helped show them which stocks to pick. Wouldn’t it be great to know in advance which stocks were going to make a ton of money and which were going to turn out to be complete duds!?
Fortunately there are ways for you to get a leg up and lower the odds of picking bad stocks and at the same time increase the odds of picking super stocks and that’s exactly what I’m going to talk about in this article today.
Everybody dreams of finding the next Google or Berkshire Hathaway stock that jumps right off the charts almost immediately. I call these kind of stocks super stocks or superstar stocks and I don’t think I need to explain to you why I call them that!
The problem that most investors have is that out of the thousands upon thousands upon thousands of stocks that are available for them to invest in, only a small handful of them will ever turn into super stocks. Fortunately after doing some pretty extensive research on past super stocks, I’ve come up with five or six characteristics that these guys tend to show.
First they all start out as small or medium-sized companies with annual sales of 20 to $100 million annually. Usually these companies are signaling a lot of growth potential as well.
Next these stocks tend to show a rising unit sales volume. Ask yourself how fast sales should be rising? Most of the time you’re going to want to look at companies whose growth is not less than 12% to 15% a year during a strong recession free economy.
Next look for companies with low but rising dividends. Newer companies don’t tend often to pay out dividends but potential superstar stocks will, early on, and you will notice that their dividends are increasing, even just slightly, from year to year.
Next look for companies with a low debt ratio. Superstar companies are often not saddled with massive debt that some other companies may be saddled with. Usually those companies should not exceed 35% of their total capitalization. If current interest rates are very high than the debt levels should be much lower than that.
Finally look for companies that have few institutional investors. You can find this information from services like Moody’s or Standard & Poor’s. After a growth company has 20% or more of its stock owned by an institutional investor or investors that usually means that everybody knows about the company already. It has been discovered, if you will. This means that many people have already bought in to the stock, meaning that future price appreciation due to excess demand is unlikely.
So there you have five ways to identify a potential superstar stock. As with any investing opportunity be sure to do your own careful analysis before investing any of your own money.
Tags: investing
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Wednesday, February 10th, 2010
By Jason Markum
There are so many different sectors available to invest in with the stock market. Sometimes it can become confusing or downright impossible to know which sector to focus on. Today I would like to talk about investing in the high-tech sector of the stock market. I’m going to talk about several questions to ask yourself that will help you decide which high-tech stocks are poised to bring you the most profit.
Do some research and you’ll see that over most five-year periods and even most 10 year periods, the high-tech market has outperformed the general market on an average basis by 3 to 6 times. The reason for this is that many high-tech companies, if not most high-tech companies, tend to grow much much faster than the rest of the economy.
Will this trend continue? I’m willing to bet that it will because our economy, in fact our entire world, has come to rely on electronics and computers so heavily that I just can’t foresee us not continuing to rely on those things into the future… can you?
The fact of the matter is, you don’t have to be an engineer or even a computer scientist in order to make a lot of money investing in the high-tech sector. Most of the time it just takes a little common sense and, of course, a sound investment strategy.
The first question to ask yourself when trying to determine whether to invest in a specific high-tech stock is this… is this a company I should invest in at any price? That may be a little confusing so let me explain.
You’re going to want to look at three or four main factors including the management of the company, the market that it is then, and the product or service that the company sells. The most important of these factors is management since good management is essential for high-tech companies. Next focus on the market and try to figure out if the market is increasing and will continue to do so into the future. As far as products go, these things change so often that it’s the least important thing to look at, but still important.
The second question to ask yourself is this… what price should I buy the companies stock? If the company meets the first three criteria that I mentioned above then your next question is to simply determine what a good price for that stock would be.
Everybody does their own stock analysis based on their own set of criteria, and the level of mathematics that they’re comfortable with but there are several things you can look at such as the price to sales ratio as well as the book value per share and the price to earnings ratio. These three things alone will give you a fairly good idea of what the value of the company’s stock should be as a matter of price.
So there you have several quick tips on how to determine which stocks to invest in within the high-tech industry. Of course, you’re going to want to be sure to do your own research before you make any investment decisions regarding your own money.
Tags: high tech stocks, investing
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Wednesday, February 10th, 2010
By Jason Markum
Making money in the stock market can be tough during the best of times but when the economy takes a downturn and spirals into recession, making money in the stock market can seem to be nearly impossible. In this article today I’m going to give you some tips and tricks on how to profit even during tough times in the stock market. With these tips you’ll be pretty far ahead of the game compared to everybody else.
The most popular strategy for making money in a tough economy is to engage in short selling. Short selling scares a lot of investors, especially a lot of smaller individual investors because either they don’t quite understand the strategy or they get nervous about the potential open-ended losses that are possible based on the nature of short selling itself.
The fact of the matter is, short selling can be much easier than you may think. Yes, it is quite risky but there are ways you can mitigate that risk fairly easily if you know a few simple tricks.
Before I get any further along I should define what short selling is in case you haven’t ever heard of it before. Short selling is the act of borrowing shares, usually from your stockbroker. You then sell those shares at the current market price and pocket the money. Let’s pretend that you sold one share short for $100.
Now you simply wait. When you sell short you have made a bet that the market is about to turn down or at least that the particular share that you sold short is about to drop in price. Now let’s pretend three weeks have gone by and the stock that you sold short has tanked in the market and is currently now selling for $30 per share.
What you do now is simply take your hundred dollars that you earned by selling your original borrowed share and use $30 of it to buy a new share of stock at the current market price (of $30). You now take that share and give it back to your stockbroker because remember, you have borrowed a share from them and you now have to pay them back.
That’s it! You’ve made $70 by borrowing a share when it was trading at $100, selling it, pocketing the hundred dollars, waiting for the share to sink in price, buying back in at the lower price, paying back your stockbroker the share that you borrowed, and pocketing the difference. That’s all short selling is!
There is a substantial risk involved in short selling What happens if the stock doesn’t drop in price? What happens if it in fact increases? Let’s say that the stock went from $100-$150. You still owe your stockbroker one share of stock and when he wants it back you’ve got to give it to him which means you have to go out onto the broad stock market and buy a share for whatever it’s currently selling at, in this case $150 which means you will have lost $50.
People consider short selling very risky because there is no ceiling to how high the shares can skyrocket and as long as the shares keep climbing in price, you keep losing money until you eventually buyback in to cover your position.
So there you have one very quick and easy way to make money in a down stock market.
Tags: investing, selling short, short selling
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Wednesday, February 10th, 2010
By Jason Markum
Investing in the stock market is one of the hardest things in the world, in my opinion. There are few things within the world of stock market investing that are as difficult for many people do understand as short selling. In fact most of the investing world tends to look on short-sellers as second-class citizens who are somehow profiting from the misfortune of others. But is this really the case?
Isn’t short selling just another investment strategy like all the others? The answer is yes. There is nothing inherently evil about short selling and there is certainly nothing unethical about it either.
Short selling is fraught with danger, in fact short-sellers take much greater risks than other investors day in and day out. The reason for this are ceilings. A regular investor has a ceiling on how much money they can lose. If I invest $100 in a stock and that stock goes bankrupt and hits zero dollars, then I’m out $100.
Short-sellers on the other hand have no ceiling on how much money they can lose on any given trade. If I bet that this stock is going to decrease and then sell short, and something happens and out of the blue that stock shoots up in price then my potential loss is as high as the share goes… and there is no limit. That stock can climb up $120 a share, or $150 a share or $100,000 a share! Does that sound far-fetched? Shares of Warren Buffett’s Berkshire Hathaway have often risen above $100,000 per share and it may be abnormal for a stock to raise that high but it certainly can happen which means there is no limit on the amount of money a short seller can lose, making them incredibly risky investments.
Fortunately we live in a world that is run by a system that rewards risk. The greater the risk the greater the potential reward… that’s just how the stock market works and there’s nothing evil about it as many people would suggest.
So why do so many people frown on short selling? I suppose it’s the notion that you are taking advantage of someone else’s misfortune. In order to make money as a short seller, a company stock has to go down in price. In fact you are betting just that. Some people have gone so far as to suggest that short-sellers cause a stock to drop in price when it otherwise wouldn’t.
How is this possible? Well if enough people start selling a stock short then word gets around and people start to wonder if there’s something wrong with the stock even if there isn’t a single thing wrong with it. In this way short-term market speculation can cause a stock to decrease the doesn’t necessarily deserve to decrease. Of course in the long run these things usually sort themselves out but in the short term they can cause havoc for a lot of different people.
However you feel about short selling, one thing is for sure… it’s here to stay no matter what.
Tags: investing, selling short, short selling
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