Judy Romero

7 steps to Increase Discipline and Master Your Trading Strategy

7 steps to Increase Discipline and Master Your Trading Strategy

In this article I will give you methods which will increase your trading discipline most of which are based on scientific discoveries which are unknown for most traders. This should enhance your ability to gain a trading edge over others competing in the same markets.

Many traders just use some indicators and price action formations and make random decisions based on that. But it doesn’t work and when you don’t have a plan then first you need to define how to trade. It is proven that you have some resources of energy which you use on making decisions. But there is little sense in using this energy every day on defining “how to trade”. You should use it only once (when you choose your strategy and create a trading plan) and save your energy on other important issues: analyzing setups, opening transactions, setting SL and managing your transactions. Unfortunately (or fortunately, because you can take advantage of it) most of traders waste their energy on defining how to trade and as a result often make poor decisions.

Trading

It is also important to consider that when you don’t have a plan then you make decisions which are somehow random. Because of that you always make them in a different context and you don’t learn from your mistakes. For example, taking a pin bar in some situations is good but in others it is not. When you don’t have a plan then you aren’t focused on this kind of important detail which defines if you are a loser or a winner.

If you just start using a strategy or don’t make money on an existing one then don’t include too many indicators and formations. It will make it too complicated for you and it will be harder to learn from your mistakes and start making money which leads to danger. When you start trading, or don’t have a positive experience with your existing strategy, then it is very easy for you to give up. It is therefore better to see some progress in your results and increase your motivation. Hence at the beginning don’t include more than one indicator and formation  in your strategy.

When you have a strategy then try not to give it up after first big loss. Of course taking a loss is unpleasant but you must sometimes initially lose to make more money in the future.

By changing your strategy too often you lose almost all of your experience gained by using your previous strategy. Hence if you just give up after the first big loss then you will never master your strategy.

Of course it may be that your strategy is unprofitable but it is often too early to determine this after taking one (even big) loss.

When you trade then you take different kinds of actions. You analyze markets, search for setups, open transactions and manage them. In fact each of these actions is a different step and you should think about each step separately.

Usually traders think that they are disciplined if they follow all of these steps, however, it can lead to decreasing your motivation. When you start learning something new then there is a tendency to make a lot of mistakes but you also make some progress. When you expect from yourself to be absolutely perfect then it is easy to focus on your failures and not seeing any progress leads to being less motivated.

It is also important to consider that when you think that you are disciplined only by following all steps from your strategy, then it is harder for you to spot your weak points. For example, imagine that you are good at analyzing charts and opening transactions but you wait too long with closing your losing transactions. Usually in this situation a trader will blame his or herself and think that he or she is an undisciplined loser. Blaming yourself or calling yourself a loser doesn’t give you anything and only decreases your motivation and self esteem. In fact in this situation you should be proud because you followed many important steps from your plan. Yes, you may have problems with closing your losing transactions but you should accept that, investigate yourself and find a reason of your failures.

You have a plan and you should also know exactly what are you going to do in any given situation so it can’t be vague. You can’t say “If I see a setup then I will think if it is good or not”. You should define exactly what a good setup is, what is not a good setup and how to define if it is good or not. Otherwise you will lose your time and energy on defining (in stressful conditions) what you should do and probably make poor trading decisions.

I previously suggested that you should divide your strategy into small steps. In addition to this you should also monitor your progress in any of these steps on paper as it will be beneficial for you in two ways in that you will see improvements and motivate yourself to an even bigger effort. You will also see where you have problems and it will be useful information for you that you need to correct something.

When you make any progress then you should reward yourself. Your progress doesn’t have to be big and could be enough if you have just opened your transaction when you should. It will make you proud of yourself and increase your motivation.

Rewarding yourself produces endorphins, (the hormones of happiness). It is how your brain convinces you to do something and in some situations it works, but in others it doesn’t. For example your brain produces endorphins when you watch, but are not engaged, in something exciting which may not be good because it doesn’t motivate you to take action. This process can be manipulated and used when you do something which is good for you.

How should you reward yourself? Well you may want to buy something but from my experience the best are inner rewards: just smile, applaud yourself or say “Good work”.

Posted by Judy Romero in Trading
Gold Trading for Beginners

Gold Trading for Beginners

Discovered at least 6000 years ago, gold still maintains its status today as a highly valuable metal. It is present in many artifacts created throughout history, as well as in beautiful jewelry passed down and traded through the ages.

But the value is not only tied to these feats of craftsmanship: gold has a role to play in the contemporary financial markets, mainly because it is a metal whose value is high and relatively stable over long periods of time. Because of these characteristics, it is an attractive option for investors in the capital markets.

Gold Trading

In the past, investing in gold was limited to people with great assets and capital. Today, thanks to the rise of the internet and the creation of online trading platforms and tools, everyone can access trading from any point in the world, regardless of financial constraints.

Your options when trading gold

Gold is treated as a currency in the capital markets. You can trade it just as you would pounds for dollars, or vice versa. Depending on the price changes during the day, traders can buy and sell gold and make a profit.

Contracts of difference (CFD)

One of the options offered by retail forex brokers are contracts of difference. In this setting, traders wage on the price changes of gold, keeping the profits when their predictions are confirmed in the markets. Since the investment is put on a wager, traders will never own physical gold but may still benefit from its market.

The main advantages of CFDs are that traders can enter the market with a lower investment, in a short term position, and that they’ll save money by not paying futures or for storing physical gold.

One thing to note is that this form of trading has its risks. The market changes quickly and frequently, leading to high volatility. This can create great gains but also great losses.

Exchange-Traded Funds (ETF)

An alternative to trading gold through contracts of difference, you can also choose futures, day trading or exchange traded funds. Like CFDs, these options don’t involve owning physical gold. ETFs are a collection of investments traded like stocks and can contain securities related to gold.

Gold futures give investors some leverage when trading gold, by contracting a future date and price to sell the commodity. The amount of capital needed to invest in futures is low. After all the investor’s funds are deposited on the broker’s account, he can then conduct large-scale investments that have the potential to have a better yield when compared to trading solo.

Market Analysis

Conducting market analysis is a vital process during the trading procedure. All retail traders must familiarize themselves with how the markets work before starting any trades.

In the particular case of gold, a trader must understand what can impact the price movements of the commodity, while observing past variations and prices. One of the factors that cause these changes are tied to supply and demand.

Gold Market

These two forces are very straightforward. When there is increased supply and reduced demand, the prices drop; then the opposite is true, more demand and less supply, the prices increase.

Additionally, whenever the world economy points to a slowdown or a recession, traders focus on gold trading as its value is relatively stable in the long-term. The tenser the economical, social or political circumstances become, the more investors turn to gold to assure future wealth.

Technical analysis is another way to understand how to trade gold effectively. By using trading tools and historical information, traders can create projections regarding the value of the commodity. These technical traders can also recognize conditions where too much gold was sold or bought. This knowledge can provide good indicators on when to assume buying or selling positions.

Considerations

The value of the Japanese Yen and of gold have a direct relationship. It’s common to see the value of gold rise at the same pace as the Yen, and vice versa. This relationship can be explained by the fact that the Japanese economy and financial system are perceived as dependable, the same perception that investors have of the value of gold. As a result, Yen and gold are a good safe place to store value during unpredictable periods.

Another currency in close relationship to gold is the U.S. dollar. But, unlike the case with the Japanese Yen, when the dollar is performing well, the prices of gold tend to drop. Conversely, when the dollar is losing value, gold prices rise.

When deciding how much to invest in gold, keep in mind that greater investments also increase your exposure to the market conditions for this commodity. While the potential to make good profit increases when you invest more capital, if the prices drop suddenly for any reason you will accumulate losses.

When you assign over 15% of your assets to valuable metals, you may lose the potential higher returns than other property classes might yield.

(Additional sources – The origins of gold: https://www.gold-traders.co.uk/gold-information/who-discovered-gold.asp)

Posted by Judy Romero in Investing, Investment, Trading
Day Trading is Finally Profitable

Day Trading is Finally Profitable

Day trading is the art of buying a selling stock over the course of the day at its low and high points, respectively, taking advantage of market volatility. Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable. Trading lore has it that the average day trader loses money in the markets. Some estimates put the proportion at 80% or even higher, when we think of the volatility of the markets it is not hard to believe that figure when the average day trader does not have a team of analysts providing researched trade ideas, does not have a team of IT and programming staff to support trading, and does not have access to the best trading software and news services.

There are many styles of day trading with specific qualities and risks.

  • Scalping is an intra-day technique that usually has the trader holding a position for a few minutes,
  • Shaving in a method which allows the trader to jump ahead by a tenth of a cent.
  • A full round trip is often completed in less than one second.

The major problem with day trading, as it’s currently known, is that the level of profit is extremely small. A day trader must make hundreds of trades per day, and must buy and sell at the right time in order to make any returns, and in many cases, the smallest error can be very costly. Thanks to OneTwoTrade, day trading is finally profitable.

StockMarket-Trade

The core principal behind day trading is simple: buy low, sell high. This strategy is easier said than done. How can one really know when the lowest point to buy is? And are you selling too soon? Did you wait too late? OneTwoTrade has eliminated the need for all those questions, and you no longer need to buy low and sell high. The only question you need to answer is; Do you think the price of an asset will increase or decrease by a predetermined expiry time?

OneTwoTrade is revolutionizing day trading by offering, high yields, quick profit turnover and fixed profit, well-known assets to trade, and low initial investment. Day trading Binary Options on OneTwoTrade is considered as one of the growing investments in the market and provides an opportunity to earn more income through day trading than ever before.

Your new day trading strategy is now simple

You place a trade by predicting whether or not you believe the price of an asset will go up or down. The old way of day trading brought in low returns – a trader would be lucky to make 10% in a month. Most day trading professionals make less than that figure, however, and only the very best traders can manage to make 100% profit on their portfolio over the course of a year.

Unlike traditional day trading, you can now profit on both the upswing and the downswing of an asset as your return is based on your prediction, rather than the assets performance. Binary Options on OneTwoTrade is fast becoming popular among the day trading community and gives the trader a chance to earn up to 80% profit of the original investment in as little as 15 minutes, the quickest form of return to the trader.

Best of all, your profit is fixed, so you make the same amount of profit if your asset moves in your predicted direction 1 point or more. Because the return is fixed between 60-80% depending on the asset, there is no need to leverage your trade like traditional day trading as profits are higher than traditional day trading, this also has the added advantage that you will never lose more than you invested so you know the level of risk before you enter the trade.

Experienced and professional traders can make profits of over 100% on their portfolio of assets in the course of 1 day, rather than 1 year. And, what’s more, because day trading has been simplified so radically, anyone with an interest in the markets can get in on the action and make tremendous profits from market volatility.

Traditional day trading also has the added drawback of the associated costs. Traders have to take this into account when trading so they make over and above what they need to cover these costs. Some day trading strategies require relatively sophisticated trading systems and software, which can cost in excess of $45,000. Many day traders also use multiple monitors or even multiple computers to execute their trades adding to their costs.
Day trading is only possible by going through a broker, who charges commission based on volume, so traders must make a larger volume of trades to take advantage of cheaper commissions. However, day trading on OneTwoTrade is completely free. With OneTwoTrade, there is no need for software download; everything is done online, there is no need for multiple monitors and we take no commission so any profit you make is 100% yours.

Don’t stick with old, obsolete day trading strategies and methodologies any longer when the chance to make higher returns more simply is just a click away. Visit OneTwoTrade and experience the profitability of day trading as it was intended.

Posted by Judy Romero in Investing, Stock Market, Trading
Stock Market Crash

Stock Market Crash

As a new investor in the stock market – and this hold true for many seasoned investors – one of the scariest possible events is a stock market crash. The idea of a crash fills an investors mind with thoughts of large losses, possibly to the point of wiping out some investments. The fear of a crash may prevent you, as a new investor, from participating in the stock market and not allow you to benefit from the long-term accumulation of wealth a well conceived investment plan will produce.

Although the stock market moves in an upward direction over the long term – building wealth for investors in stocks and mutual funds, the market also moves in cycles of positive value gains followed by periods of declining values. The periods of upward price movement are referred to as bull markets. Bull markets in the stock market last from a few years to a decade or longer. A period when stock values are declining is referred to as a bear market. Bear markets are sharp and abrupt compared to bull markets. A stock market crash is the worst type of bear market, when the market loses a significant amount of value in a few days or a few weeks. A market crash is big news and both the financial news sources and the mainstream news outlets will run with the story. The resulting flood of news stories concerning a crash will generate more fear in investors. Many unprepared investors will immediately sell out of their stock market holdings, taking large losses on their investments. Many more will wonder if they should also sell. The bottom line result is that a market crash is a scary event for investors and without a plan and most will probably make the wrong decisions and lose a lot of hard-earned money.

stock-investing

The first thing you as a new investor must understand is that the occasional market crash will occur. The investment strategies you select must take the probability of a crash into consideration. The second point is that crashes occur much less often than the predictions concerning a possible crash would suggest. There is big money to be made from selling doom-and-gloom, market crash predictions. What could be considered market crashes have occurred just three times in the last 40 years. However, in the current investment environment, crashes tend to be on investor minds with two very deep bear markets occurring in the last 12 years. Of those two, one – in 2000 and 2001 – was pretty easy to see coming, but the second – in 2008 – definitely looks like a crash on a long-term stock market chart. The final point a new investor must remember is that the market has always recovered from each crash and moved significantly higher in subsequent years. Arguably the most famous crash in the modern era – the 1987 crash where the market dropped by almost 40 percent in less than a week – is now a hardly visible blip on the long term market chart. The recent 2008 market crash will also look like a blip a couple of decades in the future when your investment portfolio is worth many times the value you have invested.

As an investor, your greatest danger when a stock market crash occurs is giving in to the fear and selling off your stock market investments just after the crash occurs. It takes mental strength to fight the fear and stay with the investment strategies you are using to build long term wealth. A market crash will make it seem as if all of your plans were futile and you have made a big mistake by investing in the market. If you stick to your investment plan, you will get past the crash and your wealth building will continue. In your investment planning, the possibility of a market crash should be included in your timing considerations of when you plan to withdraw money from your investment accounts. For example, if you are building an investment portfolio for retirement, the portion of stock market investments in the portfolio should be reduced as your retirement date approaches. It is not good planning to be 100 percent invested in the stock market if you need money each year from your investments as part of your retirement income.

The best way for you to avoid the “sell it all now!” fears of a stock market crash or lingering bear market is to establish and investing plan which eliminates any timing concerns in the market. One strategy is to use a plan of periodic investments, investing the same amount into your stock index mutual funds every month or every quarter. Another strategy is to set up a firm asset allocation plan and re-balance between stocks and other investments – such as a bond fund – on a regularly scheduled basis. Using a combination of these strategies plus the other information available here on Beginning-Investing-Made-Easy.com will put you far ahead of most individual investors. You will build your wealth with a minimum amount of time spent managing your investments and earn the maximum amount of sleep, without worries about your investment values.

Posted by Judy Romero in Investing, Investment
How to Get the Most Out of Reporting Season as an Individual Investor

How to Get the Most Out of Reporting Season as an Individual Investor

As we move into February (seriously, where did January go?), one of the “highlights” of the investment calendar approaches rapidly. I’m talking about reporting season – a roughly 3 week period during which almost all listed companies provide an update on the last 6 months of trading and typically provide some forward looking statements to guide investors. Today, I wanted to let you all know how you can get the best bang for your buck in reporting season.

Option 1 : Skip it.

This is going to sound a bit ridiculous, given the wealth of information provided over the next three weeks. To be clear, I don’t think you should ignore the information being provided. But with most results updates being webcast nowadays, I would not recommend listening in to results calls.

Firstly, the information in these calls is typically short term in nature and provided to the investment community in order to inform their financial modelling. This is obviously crucial if your job involves short term financial modelling. As an individual investor, I would hope that precisely zero percent of your research involves trying to predict the exact state of the income statement, cash flow statement and balance sheet in six months time.

Secondly, and rightly or wrongly, the information in these calls has an information hurdle. If you are not used to listening to calls like this, the information will be confusing at best and misleading at worst.

If you choose to skip the circus that is the next three weeks, I would advise you to sit down at the end of February, assess the headline results of the companies you own and have on your watchlist, and make decisions methodically and without time pressure. Use the 5-20 hours of investor calls that you skipped to something more beneficial! Here are some suggestions – call your parents (if you are young) – call your children (if you are old) – go to the beach (age agnostic).

IndividualInvestor

Option 2 : Participate, but have a plan.

In all likelihood, most people that read investment/dividend focused blogs are going to participate in reporting seasons in some shape or form. Here’s my suggestions if you simply can’t stay away.

Review your initial investment thesis before the result, and decide what numbers you believe are important.

  • For example, I know a lot of investors focused on dividends simply don’t care about any financial metrics except the dividend payment. I don’t think this is a great idea, but it is an example of something that you may want to track.
  • For me, I’m looking at dividends, operating cash flow trends and dividend coverage ratios. I also look at rolling 12 month sales trends.
  • Importantly, for all of these numbers, I have a long term expectation as to how they should look if my initial investment thesis was correct.
  • DO NOT DECIDE AFTER A RESULT WHICH NUMBERS ARE IMPORTANT. YOU WILL MAKE BAD DECISIONS.

Review the data provided by the company with respect to your long term thesis.

  • If my initial investment thesis was that the company should be able to grow revenues at high single digits over the next ten years but they “only” grow at 6% this rolling 12 months, is that a problem? Unfortunately, in investing, the answer is typically it depends. Luckily for me, my focus on high quality companies and high quality income means that I can typically answer this question with a reasonable degree of confidence.
  • For example, if a company that I hold grows at 5% rather than the 10% I thought was the case, it is typically pretty easy for me to determine whether it is a market issue or a company specific pricing issue. And if its transient, why would I care? After all, an average of high single digits isn’t going to me high single digits every year.

Do not expect straight line outcomes, and you should expect surprises.

  • Sometimes, activities and outcomes take longer or shorter than expected. Here’s the analogy I like to use:
  • Imagine you are doing your household budget for the next year. How close do you think you could get for all 12 months? Close? I’d certainly hope so – I’d imagine you are in the best position of anyone to know what your life will look like over the next 12 months.
  • What if I told you that a study which asked people to do this typically saw variances of 20% plus? Think about all the surprises that occurred in your own life over the last 12 months – dentist, doctors, car troubles etc.
  • The reality is, rarely ever does life move in a straight, easily predictable line. You shouldn’t expect a company (which is, after all, a lose aggregate of a number of people) to deliver the same.

Assess management statements through your investment thesis

  • One thing that individual investors possibly tend to gloss over is the fact that the CEO and management team are trying to “sell” their company. Not in the sense that they are looking for a suitor, but rather that they are typically incentivised to increase their stock price
  • Also consider that the CEO is typically not a long tenured position. A CEO puts his best foot forward in order to convince his stakeholders that he is performing optimally in his own role.
  • You should view these presentations as performance art, and judge the comments and guidance statement within that lense. Management and the CEO will not lie to you – but they will absolutely put their best foot forward.

Take note of what areas management focus on as signposts to managements intentions

  • If management spends a tonne of time talking about new growth initiatives when you believe their debt load is an issue, you should be somewhat concerned. Either management doesn’t understand the key value driver of their company (in this case a stretched balance sheet) or they are trying to avoid answering questions about it.

Think Long term:

  • Reporting season can absolutely through up some excellent opportunities. This is mostly due to the fact that no one wants to walk into their bosses office and explain why they want to maintain a position in a stock that just had a massive downgrade.
  • For long term investors, particular those focused on building high quality income streams, this can be an absolute boon. Low prices in high quality companies are, on average, opportunities, not risks.
  • Remember, again, to assess the numbers released in reporting season from that long term viewpoint. We are looking at ten year holding periods here, minimum – but the vast majority of turnover following results comes from institutional investors who are under pressure to beat the index over the next 1, 3 and 6 months.

Last but not least

  • Do your own research:
    • Understanding the stocks you own and why is incredibly important to investment success. Piggybacking off others is a bad idea, as is outsourcing your investment research on individual stocks.
    • Do not use the AFR as a good guide for the importance of results. The papers (with some exceptions) will simply rewrite the puff media release written by the company. They often confuse the difference between actual and reported results, will confuse earnings for revenues, and will downplay important b[parts of results while highlighting unimportant parts.
  • If you don’t know, ask!
    • If you don’t understand something, you are well within your rights as a shareholder to contact the company. Try the investor relations team, who should be able to answer your queries and clear up any confusion.
    • Don’t forget, that shareholders are the ultimate owners of companies, and that means investor relations technically works for you!

Good luck out there, team. Its likely that I will have some difficulty keeping post volume up over the next month, owing both to reporting season and life. I wish you all large profit upgrades and dividend increases!

Posted by Judy Romero in Investing, Investment, Stock Market
How Stock Market Works

How Stock Market Works

Financial wealth is a term often used by financial planners, advisers and investors. But what does financial wealth creation really mean to the average person?

Everyone has a dream to be financially free of debt and to have financial security and to be able to live a quality lifestyle. Many people make different attempts to become financially wealthy but never seem to succeed. By having a better understanding of what financial wealth is and how the stock market works may help you achieve it.

Financial wealth put simply is freedom of debt, financial security and the ability to live the lifestyle you want. The terms wealth and success can mean different things to different people depending on their goals and personal perceptions of the idea. However, what most people would agree on is the importance of clearing debt and securing yourself and your family’s financial future.

In today’s society people are turning to more modern ways to make money and the Internet has made this very easy to do. The stock market has many different investing methods that can help generate extra income that can be contributed towards paying off debts, the mortgage, personal loans and credit cards. By having an understanding of how the stock market works and learning some stock market strategies then it can be a great cash flow generator. The aim of financial wealth creation is to clear debts and start building up capital. Today millions of people are investing in the stock market online to generate good money that requires very little human effort, and many are learning through online stock trading courses.

stock-market

The general principle of trading stocks is to purchase shares when their value is low and to sell them when they have increased in value. Although, the stock market is a great place to make money it is also may be risky if you do not understand how the stock market works. With high risk often the higher the return you may earn. However by having a solid education and understanding of how the stock market works there are numerous stock market strategies that are considered low risk that can produce consistent monthly returns of 3-9% per month! One such stock market strategy is “share renting” and it is an excellent way to generate consistent cash flow on a monthly basis regardless of stock market direction. This is one of the fastest and easiest ways to make money and build financial wealth. However, it takes time and knowledge to be able to understand the various patterns in the stock market, so investing in an online stock trading course that can teach you a stock market strategy like share renting and preferably provide you with mentoring support is a recommended investment in learning how the stock market works.

Financial wealth creation is an essential step in achieving financial freedom from debts and to secure a stable financial future that will help you achieve the lifestyle that you deserve. A solid understanding of how the stock market works prior to investing money is a wise decision.

Dr Cash Flow is an investor who purchased and online stock market education and was able to go from novice investor to replacing his income within a six month period. He has become passionate about making others aware of how they can learn to reduce debt, invest and create their own secure financial future.

This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction
How to achieve consistent returns by renting shares

A basic and low risk stock market strategy is the share renting method. The share renting strategy is very popular because it is very conservative and has been proven to be a very low risk investment for a relatively high return. It is not uncommon for stock market investors using this strategy to consistently earn 3-9% per month.

The basic logic behind trading on the stock market is to buy shares when they are sitting at a low price and sell them when their value increases. By renting shares however there is a slightly different approach. The sale price of the stock is agreed on ahead of time by the investor who is renting the shares, which is referred to as the strike price. Meanwhile another investor rents the shares which gives them the right to purchase the sellers stock at the strike price within an agreed time period. The investor who is renting the shares pays a premium which is then a capital gain for the seller of the shares. However depending on the strike price set by the person renting out the shares they may also wish to get capital gains in the value of their shares by setting a higher strike price.

The share renting strategy is such a popular stock market strategy because if the price of the shares does not increase to the strike price and the person who has rented the shares does not exercise their rights to purchase, the seller of the rent still earns the premium paid by the purchaser. Therefore, the positive aspect of share renting in the stock market is that even if the price of the shares remains constant or even decreases, the seller is still earning money from the premium paid by the investor paying the rent. The share renting stock market strategy is a fantastic cash flow strategy for any stock market investor wanting to generate cash flow to fund their other investments. It is also a great strategy for those just trying to get out of, or pay off unwanted debt and do not know a lot about how the stock market works.

The buyer’s advantage with share renting comes when the price of the shares on the market exceeds the strike price which they have already secured. The investor who has paid to rent the shares can immediately exercise their option to purchase the shares at the strike price and can realise an immediate capital gain and profit. To simplify this further, with the share renting strategy if a stock’s value on the stock market is $20 and the strike price is set at $24. If suddenly there is a fluctuation in the stock market and the value of the share becomes $30. The investor who rented the shares can exercise their right and purchase the share at the strike price of $24 and immediately sell it to another investor on the market for its market value of $30, realising an immediate profit of $6.

The obvious loss here with the share renting strategy, is that the investor renting out their shares, known as the writer, sacrifices the opportunity of selling the shares for the market price of $30. However, this is also the benefit of share renting because the writer secures a profit even when the price of the shares remains constant. The writer still earns the profit through the premium paid by the rental buyer, even if the purchase rights of the shares are not exercised.

The share renting strategy is excellent for individuals wanting to invest in the stock market with a low risk tolerance level. The share renting strategy is used by many investors using the stock market for cash flow generation which is a good way to achieve financially security and freedom. The share renting stock market strategy may be learnt from reputable online stock trading courses where students are consistently generating between 3-9% per MONTH!

Dr Cash Flow is an investor who purchased and online stock market education and was able to go from novice investor to replacing his income within a six month period. He has become passionate about making others aware of how they can learn to reduce debt, invest and create their own secure financial future.

This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction
In the past a beginner stock market investor found out how the stock market worked through a stock market school or by using a broker who generally charged a premium price for their market knowledge in the form of brokerage.

However now with the advent of the Internet savvy, astute, educated and successful investors are being created mainly through the use of online stock trading courses.

There are various online stock trading courses out there, however there are some things you should consider before selecting the correct one for you. What are your goals and what do you want to achieve as a result of your stock market experience?

For many stock market investors they are looking to create a life where they are completely financially free and they no longer have to go to work for a living. Think about this now, nearly everyone has at some point, but most people never really stop to think what financial freedom really means to them personally. As a result they never know what questions to ask to understand what decisions need to be made to change the way their life will be shaped in the future. Do you want to travel more, spend more time with family, concentrate on your health or simply just not have to worry about money?

What are the potential benefits for you?

Think about it, there is the potential to work in an environemnt where there are no staff or customers, no competitors, and be totally time flexible. You can trade your own hours when ever you wish, in any global market. Everyone has the exact same opportunities so there is a level playing field. It does not involve physical labour, has low overheads and can be done with very low starting capital. So being an online stock market investor potentially is a true dream business.

Therefore when you think about all these things what is it you want from your online stock trading course?

Do you want consistent reliable returns? Are you after some simple stock market strategies where you can spend a minimal amount of time analysing trades and be able to make money whatever direction the market is moving?

Being a successful stock market investor is potentially the powerful tool to give those who want to take assertive control of their financial future. However before investing you need to understand how the stock market works.

When I started investigating the stock market I was fascinated in the concept of using it for cash flow to help fund my real estate investments. I invested in an online stock trading course that provided me with simplified terms, an online mentor that I could access and talk to personally for the majority of the day and a number of low risk yet profitable stock market strategies. I was able to replace my income within the first 6 months of investing in the program and I have consistently earnt between 3-9% PER MONTH whilst utilising the stock market strategies I have learnt.

This online stock trading course may not be for everyone, some may think it is too simple and want to spend more time reading more complex charts, or looking up company technical analysis data. However I think it is something that all people interested in investing in the stock market should at least investigate, especially if you are looking for a great introduction on how the stock market works and how to make steady consistent returns.

Dr Cash Flow is an investor who purchased and online stock market education and was able to go from novice investor to replacing his income within a six month period. He has become passionate about making others aware of how they can learn to reduce debt, invest and create their own secure financial future.

This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction

Posted by Judy Romero in Financial Statement, Investing, Investment
Financial Wealth Creation and the Stock Market

Financial Wealth Creation and the Stock Market

Financial wealth is a term often used by financial planners, advisers and investors. But what does financial wealth creation really mean to the average person?

Everyone has a dream to be financially free of debt and to have financial security and to be able to live a quality lifestyle. Many people make different attempts to become financially wealthy but never seem to succeed. By having a better understanding of what financial wealth is and how the stock market works may help you achieve it.

Financial wealth put simply is freedom of debt, financial security and the ability to live the lifestyle you want. The terms wealth and success can mean different things to different people depending on their goals and personal perceptions of the idea. However, what most people would agree on is the importance of clearing debt and securing yourself and your family’s financial future.

In today’s society people are turning to more modern ways to make money and the Internet has made this very easy to do. The stock market has many different investing methods that can help generate extra income that can be contributed towards paying off debts, the mortgage, personal loans and credit cards. By having an understanding of how the stock market works and learning some stock market strategies then it can be a great cash flow generator. The aim of financial wealth creation is to clear debts and start building up capital. Today millions of people are investing in the stock market online to generate good money that requires very little human effort, and many are learning through online stock trading courses.

key-to-wealth

The general principle of trading stocks is to purchase shares when their value is low and to sell them when they have increased in value. Although, the stock market is a great place to make money it is also may be risky if you do not understand how the stock market works. With high risk often the higher the return you may earn. However by having a solid education and understanding of how the stock market works there are numerous stock market strategies that are considered low risk that can produce consistent monthly returns of 3-9% per month! One such stock market strategy is “share renting” and it is an excellent way to generate consistent cash flow on a monthly basis regardless of stock market direction. This is one of the fastest and easiest ways to make money and build financial wealth. However, it takes time and knowledge to be able to understand the various patterns in the stock market, so investing in an online stock trading course that can teach you a stock market strategy like share renting and preferably provide you with mentoring support is a recommended investment in learning how the stock market works.

Financial wealth creation is an essential step in achieving financial freedom from debts and to secure a stable financial future that will help you achieve the lifestyle that you deserve. A solid understanding of how the stock market works prior to investing money is a wise decision.

Dr Cash Flow is an investor who purchased and online stock market education and was able to go from novice investor to replacing his income within a six month period. He has become passionate about making others aware of how they can learn to reduce debt, invest and create their own secure financial future.

This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction

How to achieve consistent returns by renting shares

A basic and low risk stock market strategy is the share renting method. The share renting strategy is very popular because it is very conservative and has been proven to be a very low risk investment for a relatively high return. It is not uncommon for stock market investors using this strategy to consistently earn 3-9% per month.

The basic logic behind trading on the stock market is to buy shares when they are sitting at a low price and sell them when their value increases. By renting shares however there is a slightly different approach. The sale price of the stock is agreed on ahead of time by the investor who is renting the shares, which is referred to as the strike price. Meanwhile another investor rents the shares which gives them the right to purchase the sellers stock at the strike price within an agreed time period. The investor who is renting the shares pays a premium which is then a capital gain for the seller of the shares. However depending on the strike price set by the person renting out the shares they may also wish to get capital gains in the value of their shares by setting a higher strike price.

The share renting strategy is such a popular stock market strategy because if the price of the shares does not increase to the strike price and the person who has rented the shares does not exercise their rights to purchase, the seller of the rent still earns the premium paid by the purchaser. Therefore, the positive aspect of share renting in the stock market is that even if the price of the shares remains constant or even decreases, the seller is still earning money from the premium paid by the investor paying the rent. The share renting stock market strategy is a fantastic cash flow strategy for any stock market investor wanting to generate cash flow to fund their other investments. It is also a great strategy for those just trying to get out of, or pay off unwanted debt and do not know a lot about how the stock market works.

The buyer’s advantage with share renting comes when the price of the shares on the market exceeds the strike price which they have already secured. The investor who has paid to rent the shares can immediately exercise their option to purchase the shares at the strike price and can realise an immediate capital gain and profit. To simplify this further, with the share renting strategy if a stock’s value on the stock market is $20 and the strike price is set at $24. If suddenly there is a fluctuation in the stock market and the value of the share becomes $30. The investor who rented the shares can exercise their right and purchase the share at the strike price of $24 and immediately sell it to another investor on the market for its market value of $30, realising an immediate profit of $6.

The obvious loss here with the share renting strategy, is that the investor renting out their shares, known as the writer, sacrifices the opportunity of selling the shares for the market price of $30. However, this is also the benefit of share renting because the writer secures a profit even when the price of the shares remains constant. The writer still earns the profit through the premium paid by the rental buyer, even if the purchase rights of the shares are not exercised.

The share renting strategy is excellent for individuals wanting to invest in the stock market with a low risk tolerance level. The share renting strategy is used by many investors using the stock market for cash flow generation which is a good way to achieve financially security and freedom. The share renting stock market strategy may be learnt from reputable online stock trading courses where students are consistently generating between 3-9% per MONTH!

Dr Cash Flow is an investor who purchased and online stock market education and was able to go from novice investor to replacing his income within a six month period. He has become passionate about making others aware of how they can learn to reduce debt, invest and create their own secure financial future.

This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction
In the past a beginner stock market investor found out how the stock market worked through a stock market school or by using a broker who generally charged a premium price for their market knowledge in the form of brokerage.

However now with the advent of the Internet savvy, astute, educated and successful investors are being created mainly through the use of online stock trading courses.

There are various online stock trading courses out there, however there are some things you should consider before selecting the correct one for you. What are your goals and what do you want to achieve as a result of your stock market experience?

For many stock market investors they are looking to create a life where they are completely financially free and they no longer have to go to work for a living. Think about this now, nearly everyone has at some point, but most people never really stop to think what financial freedom really means to them personally. As a result they never know what questions to ask to understand what decisions need to be made to change the way their life will be shaped in the future. Do you want to travel more, spend more time with family, concentrate on your health or simply just not have to worry about money?

What are the potential benefits for you?

Think about it, there is the potential to work in an environemnt where there are no staff or customers, no competitors, and be totally time flexible. You can trade your own hours when ever you wish, in any global market. Everyone has the exact same opportunities so there is a level playing field. It does not involve physical labour, has low overheads and can be done with very low starting capital. So being an online stock market investor potentially is a true dream business.

Therefore when you think about all these things what is it you want from your online stock trading course?

Do you want consistent reliable returns? Are you after some simple stock market strategies where you can spend a minimal amount of time analysing trades and be able to make money whatever direction the market is moving?

Being a successful stock market investor is potentially the powerful tool to give those who want to take assertive control of their financial future. However before investing you need to understand how the stock market works.

When I started investigating the stock market I was fascinated in the concept of using it for cash flow to help fund my real estate investments. I invested in an online stock trading course that provided me with simplified terms, an online mentor that I could access and talk to personally for the majority of the day and a number of low risk yet profitable stock market strategies. I was able to replace my income within the first 6 months of investing in the program and I have consistently earnt between 3-9% PER MONTH whilst utilising the stock market strategies I have learnt.

This online stock trading course may not be for everyone, some may think it is too simple and want to spend more time reading more complex charts, or looking up company technical analysis data. However I think it is something that all people interested in investing in the stock market should at least investigate, especially if you are looking for a great introduction on how the stock market works and how to make steady consistent returns.

Dr Cash Flow is an investor who purchased and online stock market education and was able to go from novice investor to replacing his income within a six month period. He has become passionate about making others aware of how they can learn to reduce debt, invest and create their own secure financial future.

This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction

Posted by Judy Romero in Default
How to start a dividend portfolio?

How to start a dividend portfolio?


The question how to start a dividend portfolio was asked by Phillip, a teenager from Edinburgh. He has saved several thousand pounds in a building society savings account currently earning next to nothing. He is fed up with the low returns and is keen to benefit from lowly priced dividend paying companies, starting his own share portfolio.

So, how do you start building a dividend portfolio?

No matter how old you are or what your income currently is, anybody can build a dividend portfolio. Just invest in the ‘right’ companies at the ‘right’ time, and, over the years, the returns from your portfolio – dividends – will increase and increase and make a significant difference in your lifestyle.

Let’s get started . . .

Phillip, if you follow the following steps, you should be able to take that initial amount (you mentioned you have around £5000) and build yourself a solid dividend portfolio that can help supplement your employment income in years to come.

SoftwareGlobal

1- Open an online stock brokerage account

The first step is perhaps the more “complicated” one as you need a stock brokerage account before you can buy and sell shares. Being a teenager complicates that process a bit further, unfortunately.

However, there are a variety of ways to do this. Start by comparing which online stock brokers offer competitive terms. I suggest you stay away from stockbrokers who charge annual fees and/or ‘in-active’ fees.

What you are looking for is a broker that charges little for buying and selling shares (usually under £10 per trade is a good benchmark).

If you are below 18, ask your (grand-) parents to open an online stock brokerage account on your behalf. They will need to fill out a few forms, which you can download from the stockbroker’s website and then once it is all completed, you just transfer money into the account.

If you are between 16 and 18, you may want to wait until later this year when so-called stocks and shares ‘Junior’ ISA’s become available. Or, alternatively, once your brokerage account has opened, you can use the shares and cash therein and transfer this across to your Junior ISA.

Unfortunately the maximum deposit into a Junior ISA is just £3,000 in cash or shares. However, there are clear long-term benefits in holding dividend paying shares in a stocks and share ISA. So, worthwhile doing.

2 – Buy shares in two dividend paying shares

As you pay commission and taxes every time you buy shares, you do not want to buy too many different shares all at once. Consider buying shares every time you have at least £2000 in your account.

Obviously, with £5000, you can buy shares in two companies. The general rule is that you want to buy shares that:

    • operate in different sectors, see our comments on diversification, and
    • have consistently increased their dividends for years, but also, are likely to increase their current dividend pay outs, see our comments on the benefits of investing in companies increasing their dividends

 

3 – create an automatic savings and investment plan

While you will start earning dividends with the two dividend paying companies in order to build you dividend portfolio you will need to put more money in.

Once you start earning a wage, automate the process of transferring a fixed amount from your current account to your cash ISA savings account. Start with a small amount, that you know you don’t really need.

As time goes by, you can increase this amount. For example if you get a salary increase, you could put all or most of the increase into that automatic transfer.

Once you have £2000 or so in your cash ISA savings account, it is time to transfer it into your brokerage account and purchase shares in another dividend paying company.

4 – Compound your dividends

If you can, you should leave your dividends in your stock brokerage account in order for these to accumulate. Reinvesting your dividends is invaluable in the long term.

These dividends and the automatic contributions from your cash only ISA are what will make it possible for you to create a bigger and more diversified dividend portfolio.

Of course, the dividends will seem small, especially in the first years but compounding does work and therefore it is important to keep the money inside your stock and shares ISA account.

5- Have £2000, buy new dividend paying shares

When building your dividend portfolio what you want to do is to make a purchase every time you have £2000 available. Ideally you want to diversify into 20-30 dividend paying companies across different industries, etc.

Over time, make sure that no one company represents more than 5 per cent of your dividend portfolio in case any of them turns out to be a dud.

Consider subscribing to Dividend Income Investor.com in order to read up on when dividend paying shares are historically undervalued or overvalued.

And, finally . . .

6 – Increase the amount over time as your income increases

As your income increases, be sure to put a higher amount into your share portfolio. You will not even notice the difference but your dividend portfolio will grow much faster as will the returns.

Conclusion

No matter how old you are or what your income is, anybody can build a dividend portfolio. Of course, it’s easier said than done. Buying the right shares is important but getting started, and actually building the dividend portfolio is the real critical part.

Have you started building your own dividend portfolio? Why? Why not?

Posted by Judy Romero in Financial Statement, Investing, Investment
Main Players in the Stock Market

Main Players in the Stock Market

Going up? The Bulls

Here’s the fun part – The bulls, betting the markets going up; the bear betting the market is going down. This is the battle that’s waged every day… And a lot of people profit while they fight it out! Time to get in the game.
Let’s talk about the positive guys – the Bulls
Not exactly the eternal optimists, these are the guys betting up the market. And when times are good, it seems like everyone’s a bull. When the markets on the way up it’s called a bull market. Recently the US (and most of the world) has been riding a nice wave of increased stock prices, this making it easy for those who be up to be right. Not always the case but when you learn how to read the charts most of the time you can hit at about 70% when you’re trading for the term. Some people like to ‘buy and hold’… there’s an inherent risk in this, and that is the market goes up, you’re happy, market goes down you’re sad. More on this later…

Back to reality | The bears – Party killers or reality check?

As we saw with the tech bubble burst, and with the GREAT recession of the later part of the last decade, the US (and most of the world) entered into a ‘bear market’, one in which the market took a down turn. For the knowledgeable trader, this doesn’t mean anything more than instead of trading for the stock price to go up, the trade is made for the stock to go down or ‘short selling’. This is how you make money in the market on the way down! Those who have 401ks would be wise to move their assets to ‘cash’ (meaning to get the money out of the market and sit on the sidelines until the drop bottoms out) instead of watching their net worth plummet! You are going to be smarter than that and capitalize on the downturn by learning the proper strategies.

what-is-a-stock-story

The Other Animals on the Farm – Chickens and Pigs

Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it’s true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk,
The ‘stock’ (not shares)

There are two other types of folks on this farm, a couple of terms which I picked up off of Investopedia.com. Those are the chickens and the pigs; let’s talk about both of them here…

The Chickens

You can probably guess this, the chickens are the ones in the market  who can’t stand to take any losses. Fear is their driver and they lose sleep every night waiting for the ‘inevitable’ downturn, take their money out of the market and severely limit their potential gains. While it makes sense to use good judgment (and get properly educated), making trades you aren’t comfortable with isn’t a good idea to begin with. Trading on fear will most likely end badly.

The Pigs

Ok, to be completely transparent… these are guys who ‘get slaughtered’ (hence the pig term). High risk trades into companies they don’t know much about, making decisions based on emotion and not doing their due diligence are the trademarks of this class. They get the hot stock tip, get greedy, have no patience, ‘bet the farm’ and don’t get the proper knowledge of what they’re doing before making investments. To the delight (and I mean this in the nicest possible way) of the Bulls and Bears, the pigs get slaughtered because they zig when they should zag and the knowledgeable ones on the street get paid off.

Time for you to decide… Who are you going to be?

This isn’t necessary a fair question as you can be playing bear and bull at the same time depending on what investment you’re looking at. However, there’s clearly one type of animal you don’t want to be and that’s the pig! The pigs do not win… As the old saying goes: “Bulls make money, bears make money, but pigs just get slaughtered!” Don’t be a pig. However, don’t be a chicken either! There’s risk in everything we do from the time we wake up in the morning and our feet hit the ground. The right answer here is be educated and actively track what you’re going to invest in.

If you haven’t done so already, get your brokerage account opened up. I’m not suggesting you go make a trade today, but if you don’t have a brokerage account, you can’t get in the game. I suggest again going to etrade, but you can use whoever you like.

Get some knowledge:

There are a couple of vehicles out there to get yourself on the right track, I recommend picking up a couple of things. One is a site for a penny stock trader, this has had a good track record and will allow you to start tracking some stocks which don’t require a lot of capital to start making trades with.

The other is a more advanced technology called Auto Binary Trading, a must have for you if you are ready and have some capital to start making trades.

Thanks again for reading!

Michael

How Does the Stock Market Work

Getting start with Exchanges

So, now you have a general idea of what a stock is, why companies issue them and some of the basics of trading. Let’s move on to where to go to start trading stocks and get going with your own brokerage account! Stocks can be found on ‘exchanges’. This is where traders, both buyers and sellers come together to determine what price shares will be traded at. Some exchanges, such as the NYSE (New York Stock Exchange) are at a physical location while others, such as the Nasdaq, are electronic (or virtual) based. As exciting as it would be to be on the floor of the NYSE, screaming prices and running around making deals, I prefer the electronic version while sitting comfortably in my office. The entire reason for a stock market to exist is to aid in the trading of stocks (securities) worked out by the buyers and sellers. This way there is a risk reduction of the trading of the securities (stocks) by consolidating them into one place. Realistically, a stock market – either the NYSE or the Nasdaq – are a common meeting place for buyers and sellers to hook up to trade stocks. Let’s take a closer look at the different types of markets – these being ‘primary’ and ‘secondary’ markets. What is meant by a primary market is one that handles the initial offering of a stock or IPO (this is covered another blog post). A secondary market handles stocks which are not newly issued, these are the stocks that are truly in the ‘stock market’. At this point it is important to note that when you are trading stocks, you are not trading specifically with the company you are buying or selling, simply that you are working within a marketplace.

A quick history of the major exchanges

NYSE | The New York Stock Exchange

This is probably the most famous of all exchanges, and has been around the longest in the professional sense. Sometimes called the ‘Big Board”, this exchange focuses only on a limited number of the most successful business in the United States. Companies such as 21st Century, Cigna, and Ford Motor Company. The NYSE is based on face-to-face trading, known as a listed exchange. This may seem like an old school way of doing things, but old habits are hard to break. They still employ ‘specialist’ who get the buyers and sellers together and place the orders at the trading posts. Now this is all great information, but not going to help you get started with your own trading because unless you want to fulfill a degree in financial management, we’ll stick online trading (you can still trade these stocks through your online broker… I recommend eTrade)

And in second place…. The Nasdaq

Really made famous by the fantastic technology boom of the late 90’s and early 2000’s, this is an ‘over-the-counter’ (OTC) market. This exists is a virtual market place (there are several others discussed later). All of the trading of securities is done electronically, congratulations on moving into the 21st century! Some of the stocks found on the Nasdaq include Kraft Foods, Intel, Sirius, Cisco, and Comcast. The difference in how stocks are traded on the Nasdaq (unregulated) as compared to the NYSE (regulated) is the Nasdaq depends on a ‘market maker’. This is a person who monitors and provides the ‘bid’ and ‘ask’ prices within a certain tolerance or ‘spread’ for the shares of companies they represent. This person gets the buyers and sellers together and keep a percentage of shares available in their market to ensure availability when traders come looking to make transaction.

And all the others:

There a bunch of other exchanges out there you can check out including a couple of the more notable ones being the the LSE (London Stock Exchange) or the HKSE (Hong Kong Stock Exchange) Now I don’t personally play in those markets, these would be considered FOREX (Foreign stock exchanges), but they can be extremely lucrative (more information on FOREX markets here) The stocks I mainly focus on are Penny Stocks… and why would I do that? Simple answer: a 30% gain is a 30% gain, whether the stock goes from .03 to .039 as it is if it goes from $30 to $39. The point: I can make a whole lot more trades for substantially less money and make the same gains! The risk: there is little to no regulation in these markets. The bottom line always comes down to getting trained and making educated decisions.   Take away: Get your own etrade account set up here Highly suggested: Get up to date tips on penny stocks here For those of you ready to REALLY get serious check out Autobinary trading Thanks for reading and taking action!

Posted by Judy Romero in Investing, Investment
Market Versus Book Value, Common and Preferred Shares

Market Versus Book Value, Common and Preferred Shares

RJ, a coworker of mine just finished setting up his first trading account through a discount brokerage and made some initial purchases. When the shares settled a few days later he was a little confused by the different sets of numbers in his account, why they were different and what they meant. He was talking about market value and book value listed at the bottom for his holdings page. Another issue came up before he actually made the initial purchases. While searching and selecting the shares to buy he found common and preferred shares, and some companies had different classes of common shares. He was wondering what it all meant. I gave him the quick version and promised him a post with a more complete answer, so here you go RJ…

Market Value versus Book Value

Your first question is pretty straight forward RJ. Simply put, market value is what your shares are currently worth if you were to sell them on the market today. This will go up and down depending on how the market is doing, and of course over time you are looking for this to consistently increase in value. Book value is what you paid to attain those shares, which includes the price of the shares themselves plus any trading fees and additional costs, and this number will never change for as long as you own them. Let’s say you bought 1 share of Giant Widget Corporation 1 years ago when it was $100. Add in a $5 trading fee, and your book value is $105. Your market value would only be $100 at that time, so initially the book value was higher (I think this is what you noticed, RJ.) Now jump ahead to 1 year later, the book value is still the same at $105, but the stock has gone up in price considerably, and now the market value is somewhere around $200. Looks like it was a good investment.

Year 1
Book Value $105
Market Value $100

Year 2
Book Value $105
Market Value $200

Shares

Both numbers are good to keep tabs on in your portfolio and are important for gauging how well your investment is doing. A market value higher than book value shows you’ve made a good choice and made money, while a lower market value than book value means you’ve had a loss. So RJ, if and when you decide to sell you would want your market value as high as possible beyond your book value, showing that you made a profit (or capital gain) on your shares.

Common versus Preferred Shares, and Share Classes

Your second question is a little more complicated. Common shares are your general every day shares, which grant you a partial ownership in a company and voting rights to go along with it. You may receive a portion of the company’s profits through dividends and could see the value of your shares go up or down based on the current market. Preferred shares are a higher level of shares, and receive preferential treatment, hence the name. Preferred shares usually have a fixed dividend pay date, to the point of being considered a fixed income investment, though they may not have voting rights. Preferred shares are traded on the same market with common shares, but will have a slightly different name and symbol, so be careful when you buy. They also tend to have less fluctuation in market price compared to their common brothers.

The common shares are the low man on the priority totem pole, meaning you are the last to get paid. This is not a problem when things are going well and there is more than enough money to go around.  Any dividends or distributions are paid out to preferred share holders first, and common share holders after. But when times are tough you can find the common shares having a dividend cut or even suspended while the preferred shares continue to collect their full amount. If things really go sour and the company goes under, cash gained from liquidating assets goes to creditors and lenders first, followed be preferred share holders, and if there is any left over it will finally make it’s way down to the common share holders. This can be a pretty devastating blow to common share holders, who could be left with a bunch of worthless stocks in a worse case scenario.

Sometimes a company may offer additional classes of common shares as well, often designated by the letters A, B, C, and so on. The most important difference between the classes is their voting rights, with one usually being much higher than the others, counting for 5 or ten times what the lesser shares votes are worth, sometimes even more. For example, class B shares may give you 1 vote per share, while class A shares give you 10 votes per share. Different classes therefore have different share prices on the market. These aren’t the same as preferred shares however, as all common share classes have the same rights to profit distributions.

I hope that clears a few things up for you RJ, and will help you as you continue to build your portfolio. Keep the questions coming, and thanks for the idea for this post.

Posted by Judy Romero in Investing, Investment