A means of exchange and a measure of value. Aside from water and oxygen, it is, in the practical sense, the pre-requisite of life. People kill for it.
This board is designed to keep from 'getting killed', for what of it (money) you may have. Understanding the very basics is crucial to survival. This board will only take 3 minutes to read, but can save you many thousands of dollars, sleepless nights, beatings bestowed upon yourself....maybe even your LIFE (people do jump out of windows after heavy losses)! (not LOL!!!)
Please read carefully and closely.
Key word: if
First things, first!
#1). You have money. Other people want it. All of it!
#2). You want easy money. So does everybody else. They'll get it, too....yours! (and all of it!)
#3). You tell yourself you're smart. You won't lose your money. Fact: Other people are smarter, and they'll still get your money (and all of it!).
#4). People KILL for money. Lying to you, for yours, is cakework. Don't let your money be the icing on someone else's cake.
#5). Re-read the first four caveats again! Read them so many times, you can recite them while passed out drunk! They are THAT important!
So, you have a few dollars and want to 'make your money work for you'. Good. Realize you are not alone, and obviously, not everyone makes money in the stock market (atleast not all the time). Will you be who I make money from? Hopefully not. Will I be who YOU make money from? Not likely, unless you learn the basics first.
In the stock market, there are five basic 'thieves' who'll steal your money right from in front of you, 6 that'll leave you broke for sure:
Dilution (the selling of new shares by the company)
Manipulation (primarily performed by the Market Makers, but not entirely)
Paid Promotions (biased professional attempts to encourage buying of an issue)
False Presentation/Representation (fluff PR, outlandish projections and claims, etc.)
Pump & Dump (usually associated with excited promises of major gains. Cousin to Paid Promotions and False Presentation/Representation)
Short Selling, Naked Shorting Selling (NSS) (the act of selling borrowed shares first, then buying back later, hopefully and usually at a lower pps. NSS is the act of selling shares that have never even been borrowed, ie; air-shares)
The selling of newly issued shares. The basis in which the entire stock market revolves around is the issuance of shares to acquire the capital to sustain and allow a company to grow. This is arguably the worst of the first 5 'thieves', as it is 100% legal, even when done with 'less than good' intentions and done thru mis-representation. The less 'blue chip' a company is, the more likely the dilution will not bear fruit. Pinksheet stocks are the least 'bluechip' and the most likely to never truly 'bear fruit', even though many people very profitably 'play the scam'.
Enter the 'lifestyle' stock.
Lifestyle stocks (and they are VERY plenty, especially in Pinksheet issues) are stocks with good/great sounding stories, usually in the form of press releases. First and foremost, they provide CEO's with high salaries, regardless of CEO performance. They also provide the company with capital to support their own lives, using such guises as travel, meals, and entertainment as expenses. Automotive (BMW, Mercedes...you get the idea) expenses are common. Real-estate also falls into the classification as a company neccessity, 'stated' as a necessity for temporary housing for out-of-town clients, even if the 'client' may be a high school sweetheart from a different city. Shortly put, watch CAREFULLY and CLOSELY for lifestyle stocks. You can only profit from them once you are FULLY knowledgeable in their 'scam'.
Dilution is inevitable in all companies, given it's nature and value to a company. A 'good' company dilutes minimally/responsibly, and gives shareholders 'value for their money', ie; increasing/improving bottom line fundamentals. Virtually nothing is wrong with 'accretive dilution'.
It is HIGHLY advised to locate the Transfer Agent (TA) of any company you wish to be invested in for more than 1 week. By frequently calling the TA, you can gain a neccessary understanding to what extent the company is diluting. TAs can give you the outstanding shares (o/s) for any date you ask. By knowing the o/s on the first of the last 3 months, gives a good idea of dilution rate.
Stay far away from an issue that the TA has been gagged, atleast until you have become VERY experienced in investing/trading. There is virtually NO good reason for a TA to be gagged. None.
This is a device used more by Market Makers (MMs) than others, but by no means, limited to them alone.
MMs rank right behind bankers, lawyers, politicians, and many CEOs.
They (MMs) have the ability to create what appears to be volume and increase in pps (price per share), giving the false impression that a stock is going up in value. What is to be closely watched for is whether it is a sustained increase in pps, or only temporary.
They (MMs) have the ability to 'over accentuate' a 'run', giving the impression the issue is going up quickly. Often, they will naked short shares at the HOD (high of day) only to buy them back (from you) on the retrace, when you sell out of panic, fear, and/or doubt. They understand terms like 'weak hands', 'panic', 'fear', doubt, etc., and have no qualms of using their 'skills' to make themselves more money at your expense.
No one makes more money in the stock market, than MMs. Usually, it's YOUR money, that they make!
MMs have an arsenal of tricks they use, of which would be impossible to outline them all. Other common ones are signals. Often, they will use 100 share trades to take a pps up or down, depending on what their desire is. If they have shares they want to sell, they will try to 'take it up', giving the appearance of a pps going up in value. Conversely, when they need shares, they 'take the pps down', on 100 share trades, hoping to 'shake weak hands' loose of their shares with the fear of a plumetting pps.
Another form of manipulation is performed by unscrupulous investors or investment bankers, usually by 'bidwhacking' a pps down, so as to buy more shares at lower prices, whether on the open market or thru private placements. (A private placement is when a company sells shares directly to an investor, as opposed to the open market, and usually at a deep discount. PPs are not advised, as they usually tie up funds for a period of time, and meanwhile, the company's stock price can be diluted down below what the PP sold at/for. In other words, stay away from PPs when offered to you, unless you are VERY aware of ALL of the company's dynamics/fundamentals).
Newsletters, Spam, Advertising- all forms intended to put the company in a positive light, regardless whether the company is worth the paper they are printing new shares on, or not. Paid promo NEVER tells bad things, natch. Also, since they are often paid with free trading (as opposed to restricted) company shares, these new company shares are often dumped quickly, thereby driving the pps down unless enough market demand can soak them up. Excercise extreme caution when interested in an issue you learned about, by way of these forms of media.
Volumes could be written on this, as this is the greatest method of selling shares, and often, new shares. Mis-representation occurs by both- company and shareholders ('pump and dump' (P&D) 'artists'.
Companies are famous for outlandish projections, giving investors hopes of great rewards. Usually, it is better to put these companies on the watchlist, as opposed to buying because of projections. 'Show me the money' applies in full.
Shareholders are also famous for misrepresentation, sometimes even, so they can close out on a losing position at a half way decent pps....and at your expense.
Pump & Dump:
Many stockboards are loaded with fellow investors who are anxious to see their investments go up in value. Everybody wants you to buy into the same company as they, themselves. Even I do. Choosing good stocks however, should never be done on the grounds of what people 'say', or what you 'heard' (atleast not until they've proved themselves). Nothing will ever replace DD (due dilligence). It's YOUR money. If you don't invest it wisely, it might end up being MY money. (j/k)
The typical 'pump & dumper' is a person who frontloads (buys in advance), then alerts with great excitedness about "MAJOR GAINS!!!", or "Ready to blast off", or "To da Moon", or "900lb Gorilla on steroids". Anyone who uses these ploys should be highly suspect and also frowned upon.
Intelligent investors invest intelligently, and make money. Those who fall for P&D hype deserve to lose their investments, when the 'pumper', quickly turns to 'dumper', selling you the shares he just made 50%, 100%, or 1000% on!
Short Selling, Naked Short Selling (NSS):
Short selling is done with actual shares that legally exist in certificate. This practise is usually done when a stock is considered overvalued, and a 'short' expects the pps (price per share) to decline. The short is borrowing someone's shares (possibly even yours) at whatever price, from a broker who has such shares, sells them to the market, and after the price has declined, the Short(er) buys them back (covers), pays the broker back, and keeps the excess, as profit.
Naked Short Selling (NSS) is done with shares that do NOT exist, in no form whatsoever, and is done only by Market Makers (MMs), brokers/dealers (B/D), some brokerage firms (E-trade, Scottrade, Ameritrade for example), and sometimes, overseas investors who have brokers that do not abide by SEC laws and regulations. NSS is very comparable to counterfeiting, except without the need to even have printers. Because naked shorted shares do not exist in any form whatsoever, they cannot even be traced by the SEC. It is also a form of dilution, and in the broadest sense, compounded dilution at it's worst, and furthermore, not even on anyone's books.
Naked short selling was created (by the SEC, no less) to allow MMs to 'maintain an orderly market', though it's intention has been ridiculously abused (by MMs) to the point of criminality. Worse yet, due to 'loopholes' in the laws that MMs are able to circumvent, rarely does prosecution/penalties ever occur.
*Note: This is only a brief outline of NSS, as is much of the rest of the information on this board. Nonetheless, all that is discussed here is to bring general awareness to the 'machinery' of the marketplace.
More on Market Makers: http://www.investorshub.com/boards/read_msg.asp?message_id=15625415
Naked Short Reform petition form:
It's your money. Once you've lost some of it to the MMs, you might be more receptive and/or disposed to completing this form and sending it in.
Summary (to the above):
It would be well advised to refer to the 'first things first', after 2-3 weeks, if you haven't already memorized them. They are THAT important! (Don't wanna memorize them? Ok...it's your money. People will be more than happy to relieve you of it!)
It may do well to refer to the 4-5 'thieves' section every few weeks, for 1). to see how much you've recognized them as they happen, and 2). to remind yourself how many various ways 'thieves' can 'pick your pockets'.
After all that you have thus read so far, have you been scared hell out of investing yet? You should be! Consider the consequences of hasty moves. Walk on eggshells if you must. Better to learn by slow trial, than to jump headfirst into the fire.
Always do your own DD.
Now, for more in-depth basics.
Diversification (application of interest in several/many sectors/industries)
Tantamount to intelligent and successful investing/trading, diversification is more than just advised by all of the most seasoned professional investors/traders. It is common sense.
Often, newcomers will buy solely of one issue due to a strong recommendation, or a 'love for the story'. RARELY is this wise to do. RARELY! Double RARELY!!
Compare it to your high school sweetheart. In truth, how many people are still married AND happily, to the first 'love of their life'? Few! Very, Very few!
It is VERY common that inexperienced investors feel so confident in their one single fully invested position (much like their first 'high school sweetheart'), that they tend to overlook all the thousands of other 'fish in the sea', many of which, chances are, are even better choices, since it can easily be proven that seldom does a new investor just happen to, by some grace of God, stumble across the perfect investment (if there is such a thing), the first time around.
Your first stock(s) should certainly be treated no differently (much less, better) than your first sweetheart. Love them, learn from them, but move on, especially if they are not truly 'treating you kindly' (making you money)! Set yourself free and test the waters. If after time, you are still fond of it/him/her, then go back. Even then, in the stock market, no stock will feel 'cheated on', if you take up more than one 'favorite'.
Put simply, never marry a stock. If you find you have only one open position, you are married, and money is the leading cause of divorce, often leaving you 'cutting your losses' to save your life.
Diversification CANNOT be overemphasized! Not one single, active, experienced investor does not have atleast 3 open positions at any one time. Many have much more than just three, and usually all in various sectors. This, because one sector may experience a bad day, for whatever reason, while another may experience a good day, for whatever reason. Diversification is 'hedging yout bets' in the broadest sense.
(All too often, I see newer investors who are in only one stock, and have their entire investable funds placed there. No one do I wish to reach out more to, and ring their necks, slap them silly, and beat some sense into their heads!!!) LOL
(It should be said however, that occassionally, I myself find an issue (stock) with such strong fundamentals and potentials, that I will temporarily 'go all in', again only temporarily (days, a week, or two, at most).
A curious misconception exists, in the stock market: for every person who makes money, there is someone who loses it. Though this is true in every play where 'thieves' exist, it is simply NOT true, where strong fundamentals exist.
Occassionally, a company will have a 'fundamentally improving' development, in which the whole company itself, increases in value, and sustains this increase. These are the ONLY plays where the majority of shareholders benefit from. These 'fundamentally improving' developments often cause a 'hysteria' however (much of it due to 'pump'), causing the pps to rise beyond proportion to the development. Buyers at levels above what the development is worth, lose out when fair market value (Fibonacci retracement/consolidation) begins to set it.
For this reason, bottom plays are the preferred, as the potential for losses are considerably lower.
(Also, 'value stocks' are those which have strong fundamentals. Such qualities that make for strong fundamentals are: A CEO with a good/great track record; low dilution rates; low o/s; low debt; no private placements, convertible debentures, financing, etc.; valuable assets; insider ownership, to name a few.)
Always be wary, when entering a play that has already moved too much, too soon. Profit takers sell without a moment's notice, often leaving you a bagholder. This is most evident when you see someone 'pumping' a stock one minute, and the next minute, it appears they never heard of the stock. This is the ever so famous 'pump and dump' (P&D).
(My apologies if I repeat this (about P&D), as you will find it occurring repeatedly in the marketplace anyhow, and you should atleast be well informed of it's frequency).
Stock Exchanges (in descending order of general market appeal/acceptance)
NYSE (New York Stock Exchange):
Creme De La Creme. Choice of the rich and famous. Blue chip. Generally considered the safest stocks, though giving the lowest rate of return, on average. Aside from their 'lowest risk factor', NYSE/blue chip stocks are favored for the dividends they pay, quarterly/yearly.
NASDAQ (National Association of Securities Dealers Automated Quotations):
NASDAQ stocks are, sometimes, companies that have moved up from the OTCBB or AMEX. Some NASDAQ stocks IPO'd directly onto this exchange. Others have came down from the stringent requirements of the NYSE, while others strive FOR the stringent respect of the NYSE (bluechip has it's rewards). NASDAQ stocks usually begin at a minimum of $5.00, and some pay dividends, also. If they fall below $5.00 for a sustained period of time, they risk being dropped to the AMEX or OTCBB.
AMEX (American Stock Exchange):
Upgrade from OTCBB, downgrade from NASDAQ. Typically, AMEX stocks trade between $2-$5 (atleast to begin with). Most institutional buying will not begin to occur until a company has atleast reached this level of 'clout'. Dividends are seldom, but more likely than OTCBB.
OTCBB (Over-The-Counter Bulletin Board):
The lowest status of all U.S. national exchanges. Only requirement for OTC listing is fully reporting w/financial statements, ie; transparancy in accounting. OTCBB companies are the preferred penny stocks since atleast they reveal what they are spending investor money on. Thru financials and filings, you can usually gain an idea of the company's history.
Grey/Pinksheets (ohhh, brother! where do I start with this one?) LOL
Most commonly called 'pinkies', Pinksheet stocks are without a doubt, the highest risk stocks tradable. So risky are they, the newcomer might as well just hand his money over to a mugger (atleast he got to keep his life in exchange!) NEWCOMERS are HIGHLY advised to play them ONLY after obtaining 'Level 2 for Pinksheets', which costs approx. $42 p/mo thru http://www.Alphatrade.com
Pinksheets are, first and foremost, the domain of MMs, where Master Manipulation is rule of the day. If/when starting out in pinkies, plan to lose your money, first. NEVER NEVER NEVER invest more than you can afford to entirely lose. At any given moment, a CEO can be thrown in jail, and all trading ceases. At any given moment, the CEO can move to Mexico/Canada/South Pacific, and all trading ceases. With VERY little notice, a reverse split can be announced, and your dollars will have just shrank. These are a few caveats to pinkies.
On the other side of the coin, the greatest profits of all tradable issues can be made in Pinksheets. In the stock market, the greater the risk, the potentially greater the gain. No place is that more true than in Pinksheet stocks. Those that have made bundles on them, love them (it's a love/hate affair), those who have lost much money on them, hate them (strictly hate affair).
Trading Styles and Techiques:
Understanding share structures and market cap:
All publicly traded companies apply for and are given an 'Authorized' amount of shares in which they can use to raise capital. This is usually called the 'a/s'.
The shares that a company has issued to date is known as the 'outstanding shares'. All issued shares, whether free-trading, retricted, escrowed, etc., are part of the 'o/s'.
The 'float' is the amount of free trading shares that are 'floating around'.
Restricted shares are not part of the float, but can be, as soon as restrictions come off. Most commonly, restricted shares are issued for 1 yr.
Depending on restrictions, all or part may be tradable after one year. All become free trading after 2 years.
It may do well to know restriction dates and details, as sometimes, when the restriction is lifted, the selling begins, the float grows, and the pps drops (atleast for a short period of time) while the selling is being done.
Preferred shares are usually held by management, and have a conversion rate of xxx amount of common shares for each preferred share.
When investing long term in any company, it will CERTAINLY do well to know all about their restricted and preferred shares, as these can be very comparable to 'monsters hiding in dark places'.
Market Cap is the total o/s multiplied by the current pps.
Example: XYZ company has 10M shares issued and outstanding. Current pps is .112. Market cap is $1.12M.
Market cap is used to determine what value the market (you and I) place on the company and all assets, including patents, rights, logos, branding, etc.
Reverse splits (r/s):
Very rarely are r/s profitable. They are most commonly done by companies that have maxed out their a/s, yet still need more funds for ongoing operations/lifestyles.
It is advised to VERY selectively invest (Long) in a r/s, as many companies tend to repeat history.
The link below can be instrumental in learning what companies have r/s, and how many times they have.
Reverse mergers, on the other hand, can be profitable plays to jump into, if entered early on. Reverse mergers are often done to consolidate two companies, giving the private company of the two, the opportunity to become publicly traded, and making the bottom line better for the original company.
Entry/Exit Strategies and Disciplines:
Kool-Aid is the 'drink' by which investors lose their money, much like the drink that Jim Jones 'followers' lost their lives. It is prevalent with stocks having great 'stories' but lacking in strong fundamentals. Investors that get 'drunk' on the 'words of the CEO' are the most common of all Kool-aid drinkers. Often though, naive investors will become 'drunk' by other followers of same issue. As the old saying goes, misery loves company, and where 'faith' has caused a group of investors to hold their stock longer than sensibility would dictate (and usually holding a loss), they become known as kool-aid drinkers.
More could be said on this subject, but the gist of it has hereby been explained.
You have just read the basics. I wish you great success. With prudence, you can find trading/investing a most rewarding sideline or even profession.
Points to remember:
1). Greed kills, and pigs get slaughtered.
Greed is unrecognizable until 'after the fact', which is usually too late. It generally comes in the form of buying too much, too soon, and especially, of only one stock. This is why diversification is so valuable. It prevents you from taking too much loss in any one issue, in the event your choice becomes ugly. Diversification also benefits you by 'adding to the excitement' of stock investing/trading.
Also in addition, diversification helps to prevent drinking kool-aid. It allows the investor to 'open their minds' to other possibities.
One advised way to avoid the trappings of greed is to practice discipline and moderation. When you see a stock you like, only buy a 'starter' position. This will automatically cause you to research deeper. If you continue to like what you learn, add to your position accordingly. Moderation is key.
2). Seldom is anything as it appears.
If everything were as it appears, EVERYONE would make money in the stock market! Unfortunately......NOT!
The old saying is, "The truth always hurts", which is why finding it in the stock market, is so hard to do. Few companies could survive if 100% of the truth were known.
3). If it sounds too good to be true, it usually/probably is.
The better it 'sounds', the more likely you will lose money. The only times it will come even close to being 'too good to be true' is when you have stumbled across a hidden gem that virtually almost no one else has, and this would be because the market's attention has drifted away from that sector/industry, causing the stock to get 'beaten down' from loss/lack of interest. Never buy on what 'sounds' good, buy only what can be proven to be good, and yes, there are many excellent hidden gems, just waiting to be rediscovered and have life breathed back into them.
Ask questions if you are not sure.
Though no one can 'hold your hand' thru all your investments, many are willing to help 'walk you thru them', atleast to some extent. Ever since a boy, after getting a boot up my butt, I learned it is better to ask a stupid question, than to make a stupid mistake! The one might cost a little pride, while the other can cost thousands of $$. Let pride go before destruction.
and 5). A profit NOT gained, hurts less than losses SUSTAINED!
Take your time, in the beginning, for haste makes waste, and a fool and his money are soon parted!
Good luck and may God (in whatever form you believe) be with you!
Occassionally, IHubbers will write some very insightful things. This column will present some of them, for the reader's educatonal and financial benefit:
Chart Lesson Videos by MrBigz - Lesson One (The Basics)
MACD by MrBigz:
How to post Charts, L2 Snapshots, Youtube videos, and photos on IHub
(instructed by Chasing Stars)
Links to the Best of the Best
Investor Help Board:
The Question and Answer Board:
Technical Analysis (TA) Board:
Sharing Knowledge in Smallcaps Board:
Stocks 4 Kids Board:
EZ Trader's Forum:
A.I.M. User's board:
Seasonality Stock Report Board:
Value MicroCap Stocks Board:
Early Bird Specials Board:
Dream's Platinum Penny Picks Board:
Fringe's Paradigm Shift:
Subs to a Buck Board:
The Golden Lists Board:
White Lightning Board:
Breaking News- Stock Related
Naked Shorting...MUST READ!
No Quarter for Corruption board:
Financial Advisor's College Class (FACC)
Types of Trading (a must-read for new investors):
On Chatboard dynamics - a must read!
Scam Stocks Checklist:
The Bandwagon Theory:
On Market Makers: A Market Maker (MM) speaks out:
On Discipline, by chartinator:
Is your company's insiders buying or selling their own shares?
How to post charts & images, bold, underline, or italicize text:
Free delayed L2 quotes here - Including Pinkies
Steve1's other tax site:
The invaluable full collection of fyi posts by Stock Lobster:
Explanation of 8K filings:
Intro to Candlestick Charting:
How to Read a Detailed Stock Quote Table:
Introduction to Level II:
Explore Level II:
Worst Things said by New Investors:
10 Trading Rules to Follow - The Zen of Trading:
On Bankruptcy Stocks:
Common Day Trading Mistakes:
Types of Trading:
On what a REGDEX is:
On Bull Flag Patterns:
Explanation of the Golden Cross:
SEC charges hedge fund over shorting:
Many Pinksheets are meant to be destroyed:
Death Spiral Convertible/Financing:
Basic Intro to 'PIPE' funding:
Insider Trading Linked to PIPE Offerings:
Private Investment in Public Equity - PIPE:
Structured PIPE Transactions Take Hold as Convertibles Deemed Risky:
Suggested Books and/or other reading/researching materials and techniques:
General Day Trading Books:
The Complete Trading For A Living by Dr. Alexander Elder:
Entries & Exits Visits to Sixteen Trading Rooms by Dr. Alexander Elder:
The Market Maker's Edge by Josh Lukeman:
Common Stocks and Uncommon Profits by Philip A. Fisher:
Recommend ALL 3 Peter Lynch Books:
***Learn to Earn: A Beginner's Guide to the Basics of Investing and Business.
***Beating the Street.
***One Up On Wall Street- How To Use What You Already Know To Make Money In The Market.
ProOnline Traders DVD - Learn To Trade Like A Pro:
Common acronyms used on IHub:
MMs -Market Makers
iBox -information box (where you are reading this text, right now)
NSS -naked short selling
O&G -oil and gas
NG -natural gas
b/a - bid/ask
pps - price per share
sp - share price
SH - stock/shareholder
The Acronym Place:
ATTENTION: This board is not intended for the discussion of ANY individual stocks. The mere mention of any particular stock may be immediately deleted, if used other than as an example!
Thank you for your understanding and co-operation.
God bless all who have taken the time to read this, and may good fortune be with you!