Stock Market

Are Penny Stocks Right For Me?

Are Penny Stocks Right For Me?

In order to determine whether investing in penny stocks is right for you, you’ll need to take a careful and honest look at various criteria, always being mindful of your risk profile and of course, of your available disposable capital possibilities. Some of these criteria have to do with your own abilities—that is, with things that you can control—while others have to do with things that lie far outside of your own control and thus, must simply be accepted for what they are. Let’s get you started by discussing what you should be considering, so that you can make the most informed choice.

Of primary concern to any investor should be careful consideration of their appetite for risk, and every investor should be able to state whether their risk appetite is low or high. Typically, investors with the lowest risk appetite are also the most conservative, and thus, such investors usually do not invest for growth; instead, they’re more prone to invest for long-term value, and may fill their portfolio with blue-chip stocks, dividend-paying stocks, municipal bonds and similar traditionally low-risk investment vehicles. Often, such investors represent an older demographic, and are switching their investment strategy from high-yield, growth-oriented products to such conservative investments specifically to protect the profits which they had generated earlier in their investment career, which is a well-known and highly worthwhile strategy.

Pennystockchart

Investors with a higher risk profile are typically younger and not necessarily yet concerned with building a portfolio that can assist them in maintaining their accustomed standard of living after having reached retirement age. They’re professional, and have a certain degree of disposable income which they’d like to use to maximize their investment earnings potential through more aggressive, and correspondingly risky, equity purchases. It’s often the case that investors with a higher risk appetite are those who have already achieved a measure of investment success and thus, being confident in their ability to research and identify solid growth picks on their own, want to continue to ride their momentum for as long as they can. Either way, such investors are perfect penny stock investment candidates.

The risks associated with penny stock trading are paradoxically both low and high at the same time, and your interpretation of these risks is simply a function of your attitude. Those who profess that the risks are unwarranted are those who focus on the less regulated climate of the penny stock market, equating regulation with safety, and who are put off by the high volatility of penny stocks. In general, those who view the risk of trading in penny stocks as being low are those who recognize that because the buy-in, that is, the amount of capital needed to purchase penny stocks, is so low, there’s only upside: the risk of loss is deemed to be minimal, yet the corresponding possibility of riding a small-cap equity  to its breakthrough to genuine shareholder value is high, particularly if the small-cap investor has done thorough research;  further, the opportunity to get in on the proverbial ground floor and realize exponential gains only exists in the penny stock markets.

While penny stocks may indeed be less regulated, they are by no means the equity version of the Wild West. The OTC markets are more regulated than the novice investor may realize, and a wealth of information is indeed available on penny stock issuers.  Although you may not be able to control the amount of official filings issued by small-cap companies, you can supplement whatever public information is available by undertaking your own research. Check industry and trade websites, check out investor boards and forums, and check in with the company’s own investor relations department o gain further insight into the larger picture and provide yourself with the material you need to make informed investment decisions. If you are skilled in the usage of analytical tools and charting, spend some time going over the stock’s history, in terms of share price and volume, to get a feel for momentum and trends, if any. It’s simply not as hard as people think to gain a complete picture of a small-cap company, and it’s obvious that if you cannot find the necessary information regarding a penny stock issuer, and if your research—and your gut instinct—tell you not to invest, then move on: there’s over 10,000 companies listed on the OTC Markets, and you should not reject them all out of hand. Keep looking, and you’ll be certain to find a few penny stock picks that fit both your risk profile and your research skill level. Start with a small investment to minimize your risk of loss, and gain confidence through your experience. With very few exceptions, penny stocks indeed are right for almost everyone.

Posted by Judy Romero in Dividend Stocks, Investing, Stock, Stock Market
Guide to Moving Averages

Guide to Moving Averages

Moving
average is a term that is often being used when there is talk about trading,
but what exactly is it and how can you use it in your own analysis? You
probably know how to calculate the average of a pool of numbers but let us
start with the basics.
Average- and moving average- calculation
When you
have a series of numbers and you for some reason want the average of those
numbers you simply add all those numbers and divide the sum by how many numbers
you have. E.g. you have these five numbers: 8, 9, 10, 8 and 10. The sum of
these numbers is 45. Divide 45 by 5 (as you have five numbers here) and you get
an average of 9.
If the five
numbers listed above were price data for company ZZZ we could say that the last
five days average price for ZZZ is 9. Next day we read that ZZZ closed at 13.
If we were to calculate the new five day’s average it would become:
13 + 10 + 8
+ 10 + 9 = 50 and five day average will now become 50 / 5 = 10 (Fig. 1). What
we have done here is to “move” the five day period one step forward by
including the latest close and excluding the now sixth day close thereby
creating what we call a moving average. This procedure is repeated for every
new day so that we will get a series of moving average numbers that we can plot
as a line in our charts.
Fig. 1. Five day average calculation.
Plotting moving average
When doing
technical analysis we analyze charts where price and other data are plotted. To
be able to get something useful from moving average we should plot the data in
our charts together with the price curve (Fig. 2). In figure 2 you see price data
plotted along price and volume (light blue bars). On top of the price bars we
have plotted a five day moving average as a dark blue line. Taking a closer
look at this line we see that it is smoother than the actual price movement. If
we were to plot a longer moving average using e.g. 50 days moving average we
would see an even much more smoothed curve as the value plotted for a specific
day is the average of the number of days we have used in the calculation for
the moving average.
moving averages
Fig. 2. Plotting of a five day moving average. The
blue line seen in this chart is the five day moving average of the closing price
for this stock.
Types of moving average
The moving
average we have talked about in this article so far is what we call a simple
moving average. There are many other types of moving averages as well but the
most common one beside simple moving average is exponential moving average.
When applying exponential moving average, last days values are being weighted more
than earlier days thereby making last days movements “more important”. The
result of this is that the graph will react quicker to the price changes that
occur. In Figure 3 we have plotted two moving averages. The blue line is a 20
day simple moving average and the green line is a 20 day exponential moving average.
It is easy to see that there is a difference between the two lines. Even though
it is the same number of days that is being used in the calculation of the
moving averages we see that the green line (exponential moving average) is
following the price development a bit more closely than the more smoothed blue
line.
We earlier
said that we plot moving average along with price data, but it is also
important to remember that moving averages can be applied on all kinds of data
and not just on price data. Other examples could be moving average of volume
and relative strength index (RSI) to mention a few.
Fig. 3. Plotting of 20 days simple moving average
(blue line) and 20 days exponential moving average (green line). We see that
the green line react more to the price changes that occur than the blue line.
A basic moving average trading system
To see how
a moving average trading system could be used we will now design a very basic
moving average trading system consisting of two moving averages. The coding and
plotting of data shown here is done in a software called Amibroker
which is a technical analysis
software where you can plot data, program trading systems, optimize- and test-
your own trading ideas.
In this
example we will use a short 5 day simple moving average and a medium long 25
day simple moving average to form the framework for our trading system. What we
want to do next is to design our trading system to buy the stock when the 5 day
moving average crosses above the 25 day moving average and sell when the 5 day
moving average crosses below the 25 day moving average. The coding done to make
this system is seen in figure 4.
Fig. 4. Amibroker code for the moving average trading
system
When we plot
these two moving averages we see why we want to buy the stock when 5 day moving
average crosses above the 25 day moving average and sell when the opposite
occur. Basically what we want is to be on the “right” side as the stock price
moves upwards or downwards (Fig. 5).
Fig. 5 We want to own stocks in this company when the
blue line is higher than the green line, and sell (or short) the stock when the
blue line falls below the green line. The light blue bars seen in the lower
part of the chart is the trading volume for the different days.
From the
plot it looks like this system is quite promising with regard to being
profitable but to make sure that it is actually profitable we need to do some
more testing. What we want is a trading system that will perform well over time
and in all kinds of market conditions. Although the trading system seems
promising at a first glance the testing of this system shows something else. As
seen from the test report produced by Amibroker the system performance was
rather poor over the test period from mid June 2004 to mid June 2008. With a
win percent of 33.3 this is probably a trading system that we should leave and
not trade as is today. Although the trading system does not perform as wanted
the overall idea for the system might still be something to build further upon
(Fig. 6).
Fig. 6. Profit distribution for our trading
system. We see that we have a few nice returns of investment here but when we
just have a few winners we choose not to go further with this system. What we
want is a much more even profit distribution that could be e.g. 20 winners in
the 5% to 10% range rather than one winner of 100%. Only then can we say that
we have a more robust trading system.
It has to
be said that the testing done here is very simple and
stocktradersbulletin will look deeper into testing of
trading systems in an article at a later stage. Also it should be noted that
the testing here was done on one stock which is not a good enough foundation
for validating trading systems. 
Conclusion
Moving
average is a tool that could be used in a meaningful way if it is applied correctly.
From our
analysis in the previous section we can say that using moving average alone for
your trading will probably not give you the profit you would like to see in the
long run. You will simply see too many false signals for when to buy and sell.
To minimize the false signals you should use moving average in conjunction with
other technical analysis tools. What tools and how you want to do that is
entirely up to you but what you should remember to do if you have the chance is
to test, test and test your system and make sure that you are not just seeing
wishful things before you go ahead and do actual trading with real money.
Final note
What you
have read here is just one method of how you could use a moving average. As we
have seen the method presented in this article is not a very profitable one but
the intention here is to give you some information about moving average and
possibly also give you some inspiration from where you can continue with your
own ideas and development of trading systems. 
Posted by Judy Romero in Stock, Stock Market
Learn Stock Trading

Learn Stock Trading

If you seriously want to learn stock trading then you are in luck because with today’s technology its easier than ever before. The internet not only transformed the way we trade but it transformed the way we learn things. There are a number of great ways to learn how to trade stocks and I will quickly look at each one of these and how it can help you to become a lucrative trader as quickly and as painlessly as possible.

So, what are the best ways to learn to trade? Here are some ideas to get you off to a flying start…Its important to mention that learning to trade is not that easy – especially if you have no experience with investing. More than anything, trading requires a certain mindset and this is perhaps the biggest determining factor in becoming a winning traders versus those people who fall by the way side and give up before they even have any winning trades.

1. Attending Classes
This is the closest thing to a “traditional education” and it certainly works for a lot of people. In most cities you will find night classes that are usually offered by community colleges or even by private trading institutions. Being in a structured learning environment you can help you if you lack the self discipline of home study courses. Also, having an instructor or tutor can be a massive advantage to clear up any questions you may have. This is what I like most about attending classes and learning through completing a structured course.

What I don’t like about this is the fact that many of these classes are just not very good – and there is no real way of telling before hand. Private classes are by far the best way to go since you will often get tutored by ex-traders with real world experience and success. It can be quite expensive though. It can also be slow – especially if you only do 2 or 3 hours a week.

woman-using-phone

2. Self Study
You only need to walk into a bookshop these days and find dozens and dozens of great books about trading. Books are a great way to learn because you work at your own pace. It takes a certain kind of person to be able to follow self study of any kind. Books give you direct access to some of the best traders in the world and it can be one of the best ways to learn.

What I don’t like about this is that books can often leave you with a lot of questions – and no real way of getting them answered. There are also many self study courses that you can purchases and it often comes with audio or video to accompany the course. These can be quite expensive and have been replaced by online courses for the most part. Books are great regardless of your method of study simply because it can help you to continuously expand your trading expertise.

3. Online Courses
With the advent of online trading there’s been numerous online courses that teaching virtually every aspect of trading. Having it online is not just convenient but it makes learning via live streams and video possible. Some of these courses are fantastic while many are just not worth the money. Its hard to tell before hand because you never know if the person(s) offering the course are really as good as they claim to be. One of the most powerful aspects of online courses is the fact that many of them have active forums and communities where you can interact with other traders and find personal advice and answers to your questions.

What I don’t like about it is the fact that many wannabe traders create courses and present themselves as experts. Whom you learn from is very important because learning bad habits in your trading can have a lasting effect on your results. The convenience, the way its delivered and the nature of it being online makes it one of the best ways to learn stock trading.

4. Seminars
This is by far my highest recommendation. There are numerous trading seminars that usually last for anything from 1 to 5 days. Many of them are presented by top traders and being immersed in that environment for a few days can help you learn faster than anything.

What I don’t like about seminars is the fact that the good ones are really expensive and when you are first starting out, whipping out $5000 on a course may seem excessive. I also don’t like the fact that its usually just too short and you can have a lot crammed into a few days. Regardless, its still the fastest and most effective way to get started on the right track.

5. Mentors
If there ever was a holy grail to becoming a successful trader then this is it. If you can get mentored by a successful trader you can condense years of learning into a few short months. Having someone next to you and having someone on call to show you exactly how to do it is priceless. Its probably the only way to guarantee that you success as a trader.

The hard part is finding a mentor – and finding a mentor that is willing to give you his time and expertise. If you have a family member that can be that for you, grab it with both hands. If not, try and find a way that you can give something back to whomever will be mentoring you. Do whatever you can to find a mentor. Its really worth it.

These are just 5 basic ways to learn stock trading. Its not really about choosing one because the truth is that you will likely combine many of them. When you first start out, don’t overwhelm yourself. Pick one that appeals to you and get started!
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Posted by Judy Romero in Stock, Stock Market
My Dividend Portfolio Sector Allocation

My Dividend Portfolio Sector Allocation

A while back now, I looked at US stock sectors and the number of dividend champions they produced to see if there were any dividend-champion friendly sectors. I’ve used this train of thought to overhaul how I am weighting my stock portfolio. Are you sitting comfortably? Then I’ll begin…

 

What’s gone before

Previously in Dividend Life, I weighted my portfolio fairly equally across all 10 market sectors, as opposed to how the S&P Index is weighted. My thinking here was that if one sector in my portfolio lagged behind the others, then it must contain relatively cheaper stocks so I should add to that sector and get some relative bargains. In reality, because the new capital was significantly larger than market variation, the new purchase disturbed the results so I would end up cycling through each sector with little variation between the sequence. This effect would be less pronounced the larger the portfolio when the market price is more of a factor than new capital added.

Going forward

I already have one self-weighting rule in my Charter that I really like:

Never let any single stock contribute more than 5% of my annually projected dividend income.

This is simple risk management – if one of the stocks in my portfolio melts down and cancels its dividend then I lose no more than 5% income. This rule can’t be achieved if you own only a few stocks, so it inherently forces diversification which is a good thing – the 5% number itself is entirely arbitrary.

I’ve decided to take a step further and weight my portfolio based on dividend income percentages rather than market capitalization dollars. This has several impacts which I’ll eventually get to further below.

travel-money

New dividend portfolio sector allocation

The sectors I use are those defined at Morningstar and they match those used in the US Dividend Champions List (although with slightly different names). Category is a higher level grouping also from Morningstar which groups stocks into one of three ‘super-sectors’: Defensive, Sensitive and Cyclical.

I started out with an base allocation for each sector based on their category, added a relative weight within that category and total the amounts to get the following.

SectorCategoryBase % AdjustmentFinal %
UtilitiesDefensive12+1 13
Consumer DefensiveDefensive120 12
HealthcareDefensive12-1 11
Communication ServicesSensitive10+1 11
EnergySensitive10+1 11
IndustrialsSensitive10-1 9
TechnologySensitive10-1 9
Consumer CyclicalCyclical8+1 9
Basic MaterialsCyclical80 8
Financial ServicesCyclical8-1 7

Comparison to dividend champions per sector

These weightings match reasonably well to the percentage of dividend champions per market sector that I reviewed previously. I didn’t try to match the exact percentages but I did use the order of the previous ranking to help guide my decision. The table below compares them.

New%Ratio of Champions per sector%
1. Utilities131. Utilities17
2. Consumer Defensive122. Consumer Defensive14
3. Healthcare113. Communication Services12
4. Communication Services114. Energy12
5. Energy115. Healthcare9
6. Industrials96. Consumer Cyclical8
7. Technology97. Basic Materials8
8. Consumer Cyclical98. Industrials8
9. Basic Materials89. Financial Services7
10. Financial Services710. Technology6

I favor the Healthcare and Technology sectors more and have reduced Basic Materials allocation compared the dividend champions percentage values.

Using the weightings

Using these values is quite simple – I’ll use the percentages here to stop purchases stocks in a sector if the annualized dividends from that sector exceed the target percentage plus one percent. Here’s my current portfolio allocation comparing the actual and target values.

Current dividend portfolio sector allocation

My current dividend portfolio sector allocation as of 07-March-15

So I won’t be buying Communication stocks for a while, but as I add stocks from other sectors the over-allocated sectors will decrease and eventually balance out in one big happy portfolio.

And just for fun…

Here’s the comparison between my dividend portfolio sector allocation based on dividend percentages and the allocation based on market capitalization.

Comparison to dividend percentage allocation vs market value allocation

Dividend portfolio sector allocation two ways: Dividend percentage allocation vs. market value allocation

The main factor here is dividend yield which links market capitalization (share price) and dividend income (dividend per share). High yield stocks such as those in the Communications sector do not need as much market value to contribute a higher percentage of dividend income. And conversely, a larger amount of lower yielding stocks are needed to contribute the same overall income percentage than higher yielding stocks.

Summary

Based on the market capitalization above, I shouldn’t expect my portfolio to beat the S&P 500 in terms of total return since it’s oriented towards defensive, lower growth stocks. I should expect higher dividend income however which is what this is all about. Because I’m planning to use only dividend income from this portfolio in retirement and not sell the stocks I’m not particularly worried about total return or capital gains.

The goal of this allocation is to try to mitigate risk of reduction in dividend income by favoring market sectors that are more reliable for long term dividend growth and to limit the dividend income from each sector. Only time will tell if this allocation is successful or not!

Posted by Judy Romero in Dividend Stocks, Investing, Investment, Stock Market
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
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
Beating The Stock Market

Beating The Stock Market

Why you should invest in the stock market? Simple, financial freedom. What other investment form can you start off with $500 and possibly turn it in to millions. It’s a story you heard of 1000’s of times before.

You don’t have to open a corporation, have accounts and spend $1000 of dollars to open a store front, no products to buy, no employees to hire. You simple open an account with an Investment broker and you’re on your way. But what stocks to buy? First, knowledge is power, read, read & read. There are so many investment books out there to choose from. I would say three books on learning growth stocks, three on learning earnings reports and three on learning charting. The reason I suggest three books is that it will give you a few different views in each area and from the three of them you’ll be able to put your own winning strategies together.

After you read all the books you may find that you excel in one of them better then the others, for me it was the charting. It was like wow I can see it. What a turn on to look at a chart and say this company is going up or down in just a couple of minutes. It’s a feeling I would like all of you to have and once that happened for me I went out and got as many books on charting as I could find.

I have a friend who can read an earnings report as well as I can read charts. It’s amazing to see him work as he runs through the numbers like a machine. I came to the conclusion that everyone has their own strengths and weakness’. So after you read all the books, whichever one turns you on the most, consider on buying as many books as you can (or go to the library). I love the market and I hope you will to.

coffee-and-phone

The DOW Takes Another Beating

After last week’s 512 point loss on Thursday, it was able to gain back 70 points on Friday. Standard and Poors released a report Friday night as to downgrading the United States credit rating from it’s traditional “AAA” rating down to “AA” rating with a negative outlook. S&P stated that they feel that the politicians in Washington DC have shown their incompetence towards working together and saving the deficit from getting worse. Over the weekend, S&P’s remarks about if the federal government doesn’t get a grip on it’s fiscal irresponsibility, they (S&P) may feel to lower the credit rating again within the next two years.

After all the weekend news and the lack of President Obama coming out to speak about the report, Wall Street and investors alike realize that the economy recovery that Obama has been talking about for the last two years is nothing but a charade. The DOW took an even bigger plunge today falling 632 points after it was all said and done. The DOW closed at 10,809, down 5.55% just for today’s trading period. Since July 21, just two weeks ago, the DOW has lost nearly 16%. A drop like this hasn’t been seen since the recession started almost three years ago. NASDAQ has lost over 6% just today alone and the S&P 500 shaved off 6.66%.

I’ve been talking about this day coming for almost a year. Yes there have been some great moves in the stock markets over that time, but unless you took all your money out of the markets two weeks ago, you lost all that was made during that time. There are many that think that they’re not involved in the stock market, but as they will find out soon enough, what happened on Wall Street these past two weeks has caused many people a major portion of their retirement fund and/or their pension. trillions of dollars of wealth have been lost in just a short period of time and with the actions of our politicians, who really knows how long this crap is going to go on. Japan went through the same thing almost twenty years ago and they’re just coming out of it now. The sad part about that is the fact that Japan is small when compared to the value and size of the United States of America.

We will have people, many of them part of the baby-boomer generation wanting to retire and not being able to cause to the damage to their retirement accounts. they will (in many cases) have to continue working a few more years to make up for the losses they’ve been dealt in these past few years. In turn it will make it harder for the younger generation to find employment, especially since the economy is so bad, that it will keep the unemployment rate somewhat in the same range it’s been in since Obama has been in office.

For those of you that are wondering what to do, if you’re young, keep doing what you’ve been doing as to putting money into your 401K and retirement funds. If you are within retirement age (15 yrs or less), I wish I had all the answers. Each person’s life is different and their needs during the later years differs from one to another. For the next two years (at least) I recommend buying into commodities. The U.S. dollar is going to continue to lose value as the Federal Reserve tries to save the economy with another round of quantitative easing (QE3). Gold and silver are the best hedge when face with these types of economic woes.

Gold Climbs Above $1600

Only three weeks ago I spoke about the price of gold falling below $1500 per ounce. What I said was if the economic woes continue even with all the hype of how our economy is improving, I expect gold prices to keep climbing. I also said that I don’t trust any government at this time.

Today gold prices climbed above $1600 after eleven straight days of climbing because of fears of the federal government will not be able to raise the debt ceiling. The precious metal hit an all time record high against the Euro and sterling. Gold has been strong ever since Europe has been trying to bail out Greece for the second time and to avoid the European debt crisis. Add to the fact that the Obama Administration and Congress have been unsuccessful in coming to an agreement to raising the debt ceiling.

If you didn’t think it could climb any higher, I would seriously take a look at the technical charts which seem to point to gold moving above $1700 as soon as this fall and many think a move to over $2000 per ounce isn’t too far fetched as it once was.

When you think about adjusting for inflation, gold is still not as high as it could be in relation to the price in 1980 near the end of the Carter Administration. As I said three weeks ago, I don’t have faith in the federal government to do the right thing and lower the spending and not to raise the debt ceiling. With that in mind, I still think that gold is a great investment at this point. I feel it will remain high until after next year’s election. If for some reason the government can put some sort of plan in motion to reduce the deficit, gold will take a plunge and a big one at that.

In the meantime, silver has also done well over the last three weeks when it closed at $33.59. It closed today at $40.27, topping the $40 mark for the first time since May. Silver has climbed more than 15% in just the last two weeks.

Posted by Judy Romero in Investing, Investment, Stock, Stock Market
Stock Market Games Free

Stock Market Games Free

Stock market games are a relatively new and exciting concept, and in my view provide a great way for you to learn how to trade, removing all the normal risks and allowing you to learn in a completely safe ( and risk free environment ) – all for free. To make it even better, you can even win daily weekly and monthly prizes, so there is really no excuse not to sign up. Please don’t  worry , it is completely FREE (like you, I don’t like paying for things either!) as I always advocate new traders keep their money for when they start their trading for real! The game offers you the chance to practice your trading strategies, using actual stocks and live prices, and with daily weekly and monthly prizes it really is great fun ( they even give away $100 every day at random, so you never know!)

As a new or novice trader, taking your first steps into the world of stock market trading can be a daunting experience, particularly in the current economic climate with stock prices falling one day, and rising the next. Many new traders and investors often enter the stock market with no experience and with very little understanding of what is involved, as there are few places that you can learn for free – well not any more! I am delighted to say that you can now trade in the real markets, with real news and real stocks, completely free, and have the opportunity to win cash prizes as the same time.  Having played myself for some months, I am constantly amazed at how real it all is, and if anyone were looking over my shoulder, it would be impossible for them to tell whether I were trading in the real markets or the virtual stock market game.

DIVA-ETF

I shouldn’t really tell you this, but the site is so good that I actually use it for all my trading news and data, as it has a streaming news feed, live prices on markets including currency, stocks making major market moves, and a host of world news and information which is better than most paid for services I have ever used. I am not suggesting you do the same but….  With real ticker symbols, live prices, live data charts, streaming news feeds, and real stocks to trade, it really is all you need, so why pay when you have it all here for free in your stock market games trading window? You also get the chance to compete against other traders and in addition there is an active members forum so you can chat with other traders about the latest market news, whilst testing your market strategies for trading stocks.

In order to start all you will need is an email address, decide what your trading name is going to be, and then sign up here to your stock market game – it literally takes 1 minute. Traders are welcome from around the world, so it doesn’t matter where you live. At the moment there are two competitions running, one with a $50,000 dollar portfolio and the other with $100,000. There are new games starting all the time, so you can join in at any time, and in addition there are the daily competitions for the best return in a day. All good fun! All the stocks available for trading are those listed on the New York Stock Exchange, American Stock Exchange and NASDAQ and include stock, preferred stock, and even Exchange Traded Funds, so there is plenty of choice. In order to help you identify those stocks for you portfolio, the game offers a wide range of stock screening and analysis tools, both for technical and fundamental traders. Unusually, the game also allows traders to open both long and short positions, allowing you to make money when the market is going up or down.

It is a fantastic game, and the best part of all is that it is free and cost nothing to join. So good luck and good trading in your stock market game portfolio, and even if you don’t ever play, you get all the other benefits of live charts, steaming news and technical data FREE, so what have you got to lose – the answer is absolutely nothing!

Posted by Judy Romero in Dividend Stocks, Investing, Investment, Stock, Stock Market
Stock Market Investing Or Gambling – Which One is it?

Stock Market Investing Or Gambling – Which One is it?

When talking to lay people who have absolutely no clue about stock market investing, one theme keeps coming up repeatedly – “stock market is a gamble”. Well, it is beside the point that a lot of people who are “in the market” are totally clueless as well. For now let us stick to “stocks are mysterious” kind of lay people.

“I stay away from stock market, I don’t gamble” they say. And then they almost inevitably talk about bank FDs – which is the only known investing mechanism for them. Their well meaning, but totally useless advice is “stay away from stock market”.

Then they on to relate horror stories of how their friend or relative or more likely friend’s friend or cousin’s friend’s father or friend of brother’s colleague’s father managed to run an otherwise prosperous family to utter ruin thanks to gambling in the stock market. That gentleman gambled and the family paid for it. The individual anecdotes vary but the overall theme is constant – stock market, like horse racing, is evil and one needs to avoid it like plague.

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To talk about stock market investing in a manner that they would understand would be a herculean task. There was a time when I used to try explaining how “investing is not gambling”. I would talk about “value”, how buying a stock is buying a business, how it could be thought of as being similar to real estate, how one gets dividend etc.

But these days, I generally don’t even try. Everyone is entitled to their opinion (even if incorrect). Whenever I encountered such kind of people, I politely try to steer the conversation away from stock market to other relatively benign ones where complete agreement is possible and likely (eg. Weather or Sachin Tendulkar. For instance, every summer, the  best bet is to proclaim “this is the hottest summer EVER” ).

I know and you know as well, that stock market investing is NOT quite gambling.

Well, actually that is an idea I killed recently. I now think of my investing pursuits as an activity of gambling.

To me an idea or concept is not something etched in stone – its relevance is in its utility. Does the idea or concept help me become a better investor (err. sorry. I meant to say gambler)? I don’t care what academics say or think, I don’t care what the popular folklore is; I don’t care if an idea sounds bizarre – all that really matters to me is the practical utility that it brings to the table. I am slow at giving up ideas (especially the ones that have worked really well) but given data, reasoning and insight, I can make dramatic shifts quickly.

One such shift is to think of investing as gambling. Why think of investing as gambling?

It breaks the concept of any structure in the market. Like Gunther says in The Zurich Axioms (Kindle Edition): Chaos is not dangerous until it begins to look orderly.

Gambling forces you to think differently. Preexisting concepts, ideas, notions and rules melt away. The only thing that matters is “are you making money” or “are you losing money”. It is the ultimate form of zen like investing. While one might have a repertoire of ideas on how the stock market works, gambling forces you focus only on the chips (your portfolio) – everything else is extraneous, irrelevant or tangential at best. There is no loyalty to any particular idea. A good idea is one that makes money. A bad idea is one that loses money. Period. End of story. There is no psychological baggage that one has to deal with. There is no steadfast, “this is my way”.

When I say I am a “value investor”, I am taking a stand that indirectly says “value is the anchor for performance”. And with that one idea, I inherit a bunch of other ideas as well:

1. Other things being equal, lower price is better value.

2. Fall in price is a good thing.

3. If fundamentals don’t change, one should buy more if price falls.

4. The more the discrepancy between value and price, the “better” a stock is.

5. Diversification is a good thing.

I am not saying that any of the above ideas are wrong or incorrect. I am just trying to highlight the subtle cascading effect of loyalty to a particular philosophy of investing. Thinking of one as a value investor is akin saying “This is how the stock market works. It works based on value.” Nothing wrong with it per se. Actually, it is a pretty darn good way of looking at things. It has worked for me amazingly well.

But I feel that having a “value based philosophy” can have limiting side effects as well:

Value investors will sometimes avoid buying an otherwise good company because it is not “value”.
When stocks move beyond the comfort zone of “value”, value investors either sell the stock.
As the stock price keeps falling, value investors are comfortable with buying more and more. This can, in some cases, prove detrimental.

There are different types of investing, most of them are valid and can be used profitably if one understands the core idea behind it well and follows it diligently. But inevitably being loyal to a philosophy becomes like being in a cult. And the more successful one becomes, the harder it becomes to accept contrary thoughts – even valid ones.

For instance, I had a very very tough time accepting the validity of technical analysis. It took me a loooooong time to get convinced about the utility of adding technical analysis to my value based stock selection. The main reason for the delay was my core philosophy of value investing scoffs at all things technical. My value investing philosophy was very clear in its judgment – it is the stuff for charlatans. Beware the snake oil salesmen peddling technical wares!

And all this in spite of me being quite deliberately and carefully open to new ideas.

If I had come across “technical analysis” before I encountered “value investing” and if I had become successful in some form of its application, I would probably have had even greater scoff for fundamental investors. “Price is the only thing that matters” would have been my core philosophy. And anything and everything that contradicted that core belief would have been “nonsense”.

And likewise, when one thinks of oneself as a growth investor, contrarian investor or momentum investor, one is basing one’s investing activity on a core premise. One automatically inherits a bunch of related ideas. This, in turn, leads one to become closed to any idea or concept that is not supported by the core premise.

Labeling oneself a particular kind of investor is like being in an intellectual prison. One becomes comfortable only the prison inmates.

Now, one might argue that there is nothing wrong with being in an investing prison – as long as it works. Even better if it actually works well. If it ain’t broken, don’t fix it. And I would heartily agree with such a conclusion. If what works, works for you, sticking to it is the best thing.

The reason I have personally chosen to drop the complete loyalty to any particular investing theme is:

1. Markets change.

While one can practice any form of investing quite well in the long run, there are times when one works much better than others. And sometimes (but definitely always) it is easy to spot alternative investing mechanisms that work.

2. More flexibility

If you read “Market Wizards”, you will find that it is comprised of a motley of people, some of them having diametrically opposite strategies. One buys only stocks hitting 52 weeks high while another has never held a stock that made a 52 week high. But both of them have done incredibly well. Wouldn’t it expand one’s universe of investible stocks if one allowed for such paradoxically opposite strategies simultaneously?

3. Participating in Manias

I am definitely going to participate and take advantage of the next mania. It might seem crazy to talk about mania when the bear is growling right now. But trust me, a bull market will come soon (how soon, I have no idea!). A mania will come again just as well. Again, when – I have no idea. But it will come with a mathematical certainty. Every generation goes through at least two manias before realizing what they are. When such a situation presents itself and if I am intelligent enough to spot it, “I want in”.

For someone totally used to averaging down, averaging up as an valid idea is tough to fathom. Even after giving it validity, it became tough for me to accept it. Even after accepting the idea intellectually, I found it very tough to internalize it. I had a torrid time internalizing “averaging up” as a strategy. It went totally against my core, long held and well cherished belief – “lower prices are good”. The lower the price, the more the value. Buy more as price keeps falling.

I always visualize and run through my strategies mentally before applying them. I try to “break” the ideas mentally before accepting and applying them. Even just imagining about myself averaging up on a hypothetical stock was a difficult task for me. There was no way I could actually go ahead and be successful unless I was psychologically comfortable with the new way of doing it. I did not want to drop my core approach of value investing – it had worked amazing well. I just wanted to augment it with strategies that went beyond value and sometimes contrary to it.

My breakthrough came when I started thinking of my stock market activities as gambling. In one swell swoop I was able to get rid of any and all kinds of psychological limitations. I was easily and effortless able to hold diametrically opposite thoughts about the stock market simultaneously – quite naturally even.

Advantages of thinking of investing as gambling:

With gambling as the core idea one gets tremendous flexibility towards things. One is no longer bound by any one idea. One becomes more responsive to what is working and what is not working. If there is a better approach, one that might currently work better, it is accepted with ease.

While thinking of investing as gambling, one is actually being very humble. One doesn’t have the rigidity of “I know it – this is THE way stock market works”. It is like admitting “I really don’t know how things work”. I “think” what I am doing is right, but if does not prove to be so, I am equally prepared to seek what does work.

So the next time someone mentions “stock market is gambling”, I am likely to agree with them. But equally, I hope to become a very good gambler.

Posted by Judy Romero in Investing, Investment, Stock, Stock Market
How Does the Stock Market Work

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.

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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, Long-Term Investing, Stock, Stock Market