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Interest Rates And Your Bond Investments
Most investors care about future interest rates , but none more than bondholders. If you are considering a bond or bond fund investment, you must ask yourself whether you think interest rates will rise in the future. If the answer is yes then you probably want to avoid long-term maturity bonds or at least shorten the average duration of your bond holdings; or plan to weather the ensuing price decline by holding your bonds and collecting the par value at maturity. (For a review of the relationships between prevailing interest rates and yield, duration, and other bond aspects, please see the tutorial Advanced Bonds Concepts.)
The Treasury Yield Curve
In the United States, the Treasury yield curve (or term structure) is the first mover of all domestic interest rates and an influential factor in setting global rates. Interest rates on all other domestic bond categories rise and fall with Treasuries, which are the debt securities issued by the U.S. government. To attract investors, any bond or debt security that contains greater risk than that of a similar Treasury bond must offer a higher yield. For example, the 30-year mortgage rate historically runs 1% to 2% above the yield on 30-year Treasury bonds.
Below is a graph of the actual Treasury yield curve as of December 5, 2003. It is considered normal because it slopes upward with a concave shape:
Consider three elements of this curve. First, it shows nominal interest rates. Inflation will erode the value of future coupon dollars and principal repayments; the real interest rate is the return after deducting inflation. The curve therefore combines anticipated inflation and real interest rates. Second, the Federal Reserve directly manipulates only the short-term interest rate at the very start of the curve. The Fed has three policy tools, but its biggest hammer is the federal funds rate, which is only a one-day, overnight rate. Third, the rest of the curve is determined bysupply and demand in an auction process.
Sophisticated institutional buyers have their yield requirements which, along with their appetite for government bonds, determine how these institutional buyers bid for government bonds. Because these buyers have informed opinions on inflation and interest rates, many consider the yield curve to be a crystal ball that already offers the best available prediction of future interest rates. If you believe that, you also assume that only unanticipated events (for example, an unanticipated increase in inflation) will shift the yield curve up or down.
Long Rates Tend to Follow Short Rates
Technically, the Treasury yield curve can change in various ways: it can move up or down (a parallel shift), become flatter or steeper (a shift in slope), or become more or less humped in the middle (a change in curvature).
The following chart compares the 10-year Treasury yield (red line) to the one-year Treasury yield (green line) from June 1976 to December 2003. The spread between the two rates (blue line) is a simple measure of steepness:
Consider two observations. First, the two rates move up and down somewhat together (the correlation for the period above is about 88%). Therefore, parallel shifts are common. Second, although long rates directionally follow short rates, they tend to lag in magnitude. Specifically, when short rates rise, the spread between 10-year and one-year yields tends to narrow (curve of the spread flattens) and when short rates fall, the spread widens (curve becomes steeper). In particular, the increase in rates from 1977 to 1981 was accompanied by a flattening and inversion of the curve (negative spread); the drop in rates from 1990 to 1993 created a steeper curve in the spread, and the marked drop in rates from March 2000 to the end of 2003 produced a very steep curve by historical standards.
Supply-Demand Phenomenon
So what moves the yield curve up or down? Well, lets admit we cant do justice to the complex dynamics of capital flows that interact to produce market interest rates. But we can keep in mind that the Treasury yield curve reflects the cost of U.S. government debt and is therefore ultimately a supply-demand phenomenon. (For a refresher on how increases and decreases in the supply and demand of credit affect interest rates, see the article Forces Behind Interest Rates.)
Supply-Related Factors
Monetary Policy
If the Fed wants to increase the fed funds rate, it supplies more short-term securities in open market operations. The increase in the supply of short-term securities restricts the money in circulation since borrowers give money to the Fed. In turn, this decrease in the money supply increases the short-term interest rate because there is less money in circulation (credit) available for borrowers. By increasing the supply of short-term securities, the Fed is yanking up the very left end of the curve, and the nearby short-term yields will snap quickly in lockstep.
Can we predict future short-term rates? Well, the expectations theory says that long-term rates embed a prediction of future short-term rates. But consider the actual December yield curve illustrated above, which is normal but very steep. The one-year yield is 1.38% and the two-year yield is 2.06%. If you were going to invest with a two-year time horizon and if interest rates were going to hold steady, you would, of course, do much better to go straight into buying the two-year bond (which has a much higher yield) instead of buying the one-year bond and rolling it over into another one-year bond. Expectations theory, however, says the market is predicting an increase in the short rate. Therefore, at the end of the year you will be able to roll over into a more favorable one-year rate and be kept whole relative to the two-year bond, more or less. In other words, expectations theory says that a steep yield curve predicts higher future short-term rates.
Unfortunately, the pure form of the theory has not performed well: interest rates often remain flat during a normal (upward sloping) yield curve. Probably the best explanation for this is that, because a longer bond requires you to endure greater interest rate uncertainty, there is extra yield contained in the two-year bond. If we look at the yield curve from this point of view, the two-year yield contains two elements: a prediction of the future short-term rate plus extra yield (i.e., a risk premium) for the uncertainty. So we could say that, while a steeply sloping yield curve portends an increase in the short-term rate, a gently upward sloping curve, on the other hand, portends no change in the short-term rate - the upward slope is due only to the extra yield awarded for the uncertainty associated with longer term bonds.
Because Fed watching is a professional sport, it is not enough to wait for an actual change in the fed funds rate, as only surprises count. It is important for you, as a bond investor , to try to stay one step ahead of the rate, anticipating rather than observing its changes. Market participants around the globe carefully scrutinize the wording of each Fed announcement (and the Fed governors speeches) in a vigorous attempt to discern future intentions.
Fiscal Policy
When the U.S. government runs a deficit, it borrows money by issuing longer term Treasury bonds to institutional lenders. The more the government borrows, the more supply of debt it issues. At some point, as the borrowing increases, the U.S. government must increase the interest rate to induce further lending. However, foreign lenders will always be happy to hold bonds in the U.S. government: Treasuries are highly liquid and the U.S. has never defaulted (it actually came close to a default in late 1995, but Robert Rubin, the Treasury secretary at the time, staved off the threat and has called a Treasury default unthinkable - something akin to nuclear war). Still, foreign lenders can easily look to alternatives like eurobonds and, therefore, they are able to demand a higher interest rate if the U.S. tries to supply too much of its debt.
Demand-Related Factors
Inflation
If we assume that borrowers of U.S. debt expect a given real return, then an increase in expected inflation will increase the nominal interest rate (the nominal yield = real yield inflation). Inflation also explains why short-term rates move more rapidly than long-term rates: when the Fed raises short-term rates, long-term rates increase to reflect the expectation of higher future short-term rates; however, this increase is mitigated by lower inflation expectations as higher short-term rates also suggest lower inflation (as the Fed sells/supplies more short-term Treasuries, it collects money and tightens the money supply):
An increase in feds funds (short-term) tends to flatten the curve because the yield curve reflects nominal interest rates: higher nominal = higher real interest rate lower inflation.
Fundamental Economics
The factors that create demand for Treasuries include economic growth, competitive currencies and hedging opportunities. Just remember: anything that increases the demand for long-term Treasury bonds puts downward pressure on interest rates (higher demand = higher price = lower yield or interest rates) and less demand for bonds tends to put upward pressure on interest rates. A stronger U.S. economy tends to make corporate (private) debt more attractive than government debt, decreasing demand for U.S. debt and raising rates. A weaker economy, on the other hand, promotes a flight to quality, increasing the demand for Treasuries, which creates lower yields. It is sometimes assumed that a strong economy will automatically prompt the Fed to raise short-term rates, but not necessarily. Only when growth translates or overheats into higher prices is the Fed likely to raise rates.
In the global economy, Treasury bonds compete with other nationss debt. On the global stage, Treasuries represent an investment in both the U.S. real interest rates and the dollar. The euro is a particularly important alternative: for most of 2003, the European Central Bank pegged its short-term rate at 2%, a more attractive rate than the fed funds rate of 1%.
Finally, Treasuries play a huge role in the hedging activities of market participants. In environments of falling interest rates, many holders of mortgage-backed securities, for instance, have been hedging their prepayment risk by purchasing long-term Treasuries. These hedging purchases can play a big role in demand, helping to keep rates low, but the concern is that they may contribute to instability.
Conclusion
We have covered some of the key traditional factors associated with interest rate movements. On the supply side, monetary policy determines how much government debt and money are supplied into the economy. On the demand side, inflation expectations are the key factor. However, we have also discussed other important influences on interest rates, including: fiscal policy (that is, how much does the government need to borrow?) and other demand-related factors such as economic growth and competitive currencies.
Here is a summary chart of the different factors influencing interest rates:
OTC derivatives can lead to significant risks. Especially counterparty risk has gained particular emphasis due to the credit crisis in 2007. Counterparty risk is the risk that a counterparty in a derivatives transaction will default prior to expiration of the trade and will not make the current and future payments required by the contract.[2] There are many ways to limit counterparty risk. One of them focuses on controlling credit exposure with diversification, netting, collateralisation and hedging.
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Because long-term charts (typically 1-4 years) cover a longer time frame with compressed data, price movements do not appear as extreme and there is often less noise.
Introduction To International REITs
Investing in real estate investment trusts (REITS) has long been an excellent way for investors to diversify stock portfolios. In 2007, the global real estate market represented more than $900 billion of equity capitalization and was growing, according to the National Association of Real Estate Investment Trusts (NAREIT). For the longest time, publicly-traded real estate investment trusts were only available in the areas like the U.S. or Australia; now, more foreign countries are adopting similar structures.
Tutorial: Exploring Real Estate Investments
If youre an investor who owns U.S. REITs, you are only seeing part of the total picture. In fact, a shift toward an international REIT portfolio may be more suitable. Expanding an investment portfolio to include international real estate could open the door to potential return opportunities while further dampening portfolio risk. As is said in real estate, its all about location, location, location.
Breakdown of Global REIT Market
Before we begin to dissect the characteristics and benefits of investing in foreign REITs, let us first recap the REIT universe as a whole. A REIT is a corporation that purchases, owns and manages real estate properties and/or mortgage loans. The REIT structure is unique in that REITs are given special tax status that allows them to avoid corporate tax, as long as 90% of the income is distributed to investors. Although the REIT structure avoids double taxation to shareholders, tax losses cannot be passed through. (To read more REIT basics, see What Are REITs? and ourExploring Real Estate Investments tutorial.)
The global real estate securities market has grown significantly as both developed and developing countries move to create REIT or REIT-like corporate structures. Prior to 1990, however, only the U.S., the Netherlands, Australia and Luxembourg had adopted REIT-like structures. In 2007, according to Dimensional Fund Advisors, the global REIT market was dominated by the U.S. (55%), Australia, Great Britain and Japan. Therefore, non-U.S. REITS make up almost half of the global REIT market. The global REIT universe continues to expand; therefore, investors who limit their REIT positions to U.S.-only funds will also likely limit their opportunities. (Keep reading on this subject in The Emergence Of Global Real Estate.)
Benefits of REITs
One of the benefits of REITs when compared to direct equity real estate investments is that investors have the ability to more effectively and efficiently diversify their real estate portfolios because REITs tend to be more liquid. Of course, the biggest advantage offered by REITs is the diversification benefit. Investors strive to locate asset classes that offer low correlations to other positions in their portfolios. The lower the correlation, the lower the idiosyncratic risk. (To learn more about the benefits of diversification, see Introduction To Diversification and Risk And Diversification.)
The chart below illustrates the low correlation that REITs have to other U.S. core indexes over an extended period of time.
Monthly Return Correlation Coefficient: January 1979 to December 2006
-- Equity REIT Index S
Companies may issue and sell shares in the OTC market pursuant to the safe-harbor guidelines under SEC Rule 144 and 144A.
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The Changing Role Of Equity Research
Actually, the title of this article is a bit misleading, because the role of research hasnt changed since the first trade occurred under the buttonwood tree on Manhattan Island. What has changed is the environments (bull and bear markets) that influence research.
Research and the Stock Market
The role of research is to provide information to the market. A lack of information creates inefficiencies that result in stocks being misrepresented (over- or under-valued). Analysts use their expertise and spend a lot of time analyzing a stock, its industry and its peer group to provide earnings and valuation estimates. Research is valuable because it fills information gaps so that each individual investor does not need to analyze every stock. This division of labor makes the market more efficient.
Research in Bull and Bear Markets
If the role of research has always been so noble, why is it in such a state of ill-repute? There are two reasons: firstly, the current bear market gives us a new perspective to evaluate the excesses of the last bull market; secondly, investors need to blame somebody.
In every bull market, there are excesses that become apparent only in the bear market that follows. Whether it is tulips or transistors, each age has its mania that distorts the normal functioning of the market. In the rush to make money, rationality is the first casualty. Investors rush to jump on the bandwagon and the market over-allocates capital to the hot sector(s). This herd mentality is the reason why bull markets have funded so many me-too ideas throughout history.
Research is a function of the market and is influenced by these swings. In a bull market, investment bankers, the media and investors pressure analysts to focus on the hot sectors. Some analysts morph into promoters as they ride the market. Those analysts that remain rational practitioners are ignored and their research reports go unread. During the late 1990s, the business media catered to the audiences demands and gave the spotlight to the famous talking heads that are now under investigation.
Seeking to blame someone for investment losses is a normal event in bear markets. It happened in the 1930s and the 1970s, and its occurring today. Some of the criticisms are deserved, but the need to provide information has not changed.
Research in Todays Market
To discuss the role of research in todays market, we need to differentiate between Wall Street research and other research. Wall Street research is provided by the major brokerage firms, both on and off Wall Street. Other research is produced by independent research firms and small boutique brokerage firms.
This differentiation is important. First, Wall Street research has become focused on big cap, very liquid stocks and ignores the majority (over 60% based on research) of publicly-traded stocks. This myopic focus on a small number of stocks is the result of deregulation and industry consolidation. In order to remain profitable, Wall Street firms have focused on big-cap stocks to generate highly lucrative investment banking deals and trade profits.
Those companies that are likely to provide the research firms with sizable investment banking deals are the stocks that are determined worthy of being followed by the market. The stocks long-term investment potential is secondary. The second reason to distinguish Wall Street from other research is that most of the blame for the excesses of the last bull market is rightfully placed on Wall Street.
Other research is filling the information gap created by Wall Street. Independent research firms and boutique brokerage firms are providing research on the stocks that have been orphaned by Wall Street. Investors, now educated in the benefits of electronic trading, may not be willing to support boutique brokerage firms for their research by opening an account and paying higher commissions.
This means that independent research firms are becoming the main source of information on the majority of stocks, but investors are reluctant to pay for research, because they dont really know what they are paying for until well after the purchase. Unfortunately, not all research is worth buying. I have purchased reports from reputable sources only to find them inaccurate and misleading. (For more reasons to do your research read: What Is The Impact Of Research On Stock Prices?)
Who Pays for Research? Big Investors Do!
The ironic thing is that while research has proven to be valuable, individual investors do not seem to want to pay for it. This may be because, under the traditional system, brokerage houses provided research in order to gain and keep clients. Investors just had to ask their brokers for a report and retained it at no charge. What seems to have gone unrealized is that the commissions pay for that research.
A good indicator of the value of research is the amount institutional investors are willing to pay for it. Institutional investors hire their own analysts to gain a competitive edge over other investors. They also pay (often handsomely) independent research firms for additional research. Institutions also pay for the sell-side research they receive (either with dollars or by giving the supplying brokerage firm trades to execute). All this amounts to big money, but the institutions realize that research is integral to making successful investment decisions. (For more read The Impact of Sell-Side Research.)
If investors are unwilling to buy research how will the market correct the imbalance caused by the lack of coverage? The solution may be found by looking at the issue a slightly different way.
The Growing Role of Fee-Based Research
Fee-based research increases market efficiency and bridges the gap between investors who want research (without paying) and companies who realize that Wall Street is not likely to provide research on their stock. This research provides information to the widest possible audience at no charge to the reader because the subject company has funded the research.
It is important to differentiate between objective fee-based research and research that is promotional. Objective fee-based research is analogous to the role of your physician. You pay a physician not to tell you that you feel good, but to give you his or her professional and truthful opinion of your condition.
Legitimate fee-based research is a professional and objective analysis and opinion of a companys investment potential. Promotional research is short on analysis and full of hype. One example of this is the fax and email reports about the penny stocks that will supposedly triple in a short time.
Legitimate fee-based research firms have the following characteristics:
1. They provide analytical, not promotional services.
2. They are paid a set annual fee in cash; they do not accept any form of equity, which may cause conflicts of interest.
3. They provide full and clear disclosure of the relationship between the company and the research firm so investors can evaluate objectivity.
Companies who engage a legitimate fee-based research firm to analyze their stock are trying to get information to investors and improve market efficiency. Such a company is making the following important statements:
1. That it believes its shares are undervalued because investors are not aware of the company.
2. That it is aware that Wall Street is no longer an option.
3. That it believes that its investment potential can withstand objective analysis.
The National Investor Relations Institute (NIRI) was probably the first group to recognize the need for fee-based research. In January 2002, NIRI issued a letter emphasizing the need for small-cap companies to find alternatives to Wall Street research in order to get their information to investors. More recently, the NIRI is conducting a survey on research alternatives and will possibly have a session on this topic at their national conference this year. (For more information on fee-based research read Fee-Based Research: The Good, The Bad And The Ugly.)
The Bottom Line
The reputation and credibility of a company and the research firm depends on the efforts they make to inform investors. A company does not want to be tarnished by being associated with disreputable research. Similarly, a research firm will only want to analyze companies that have strong fundamentals and long-term investment potential.
They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse. //
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Mutual Funds Vs. ETFs: Small Cap Stocks
John C. Bogle, the founder of investment management firm Vanguard, has estimated that the investment industry collectively shaves around 3% from stock returns each year. This stems primarily from the fees it charges for managing assets for individuals and institutions. Bogle has also openly questioned the value of actively managed funds over index funds. Exchange traded funds (ETFs) are another low-cost way to invest primarily in passive, indexed strategies. Not surprisingly, Vanguard was founded on low-cost index funds and has moved into ETFs, as have most other well-known firms in the industry.
Mutual Funds
The industry also likes to divide up stocks by market capitalization. Generally, active managers of large capitalization stocks have the worst track records when compared to their underlying index. An industry report from late 2011 estimated that two-thirds of large-cap mutual funds underperformed their index over the past three years. The best category was in the small-cap space, but 63% of active managers still underperformed. The only space where managers steadily beat their bogey was in the small cap international space of the market. The small-cap value category was also a relatively strong category.
Based on the above data, for the most part, investors would be well served to invest in index funds that simply look to match market returns. Standard small-cap indexes include the Russell 2000 and S
Semi-Strong Form: Random Walkers
The semi-strong form of market efficiency theorizes that the current price reflects all readily available information. This is sometimes called insider trading.
The NYMEX has created a clearing mechanism for a slate of commonly traded OTC energy derivatives which allows counterparties of many bilateral OTC transactions to mutually agree to transfer the trade to ClearPort, the exchange's clearing house, thus eliminating credit and performance risk of the initial OTC transaction counterparts.
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Weekly data is made up of daily data that has been compressed to show each week as a single data point.
Trust In Utilities
Utilities become desirable, to both novice and seasoned investors, whenever the market or the economy is going through a downturn. Picking individual utility companies to invest in can be time consuming, and if you choose poorly, you will not take part in the benefits that investing in public utilities can provide.
Mutual funds that specialize in utility companies are most often where investors place their money. They offer instant diversification, but that comes at a price – in the form of management fees, which are normally passed along to investors. Utility trusts that operate or invest in public utilities can be a good alternative for many investors. (For more on mutual fund fees, take a look at Stop Paying High Mutual Fund Fees.)
What Are Utility Trusts?
Utility trusts are a type of income trust that are less growth focused than traditional income trusts. An income trust is simply an investment trust that holds income-generating assets; in this case, it would be utilities. The income produced is passed on to the investors (usually called unitholders). These payments are generally higher than a typical stock dividend because, relative to income trusts, non-income trusts use more of their income to fuel more growth instead of paying it out to shareholders.
Income trusts typically aim to pay out a consistent cash flow to their unitholders. It is important to remember that, like dividend-paying stocks, income trusts do not guarantee a dividend, though they strive to pay one. If the underlying business loses money, the trust can reduce or eliminate payouts altogether.
Understanding Utilities
A public utility is a company or organization that operates and maintains the infrastructure for a public service. Public utility companies are subject to state and government regulation, and can either be privately or publicly owned. The biggest difference between the two is that a privately-owned utility may be listed on a stock exchange. Prices charged by public utility companies are regulated by the state or local government. In order for a public utility to charge higher prices, it needs to get approval from a committee. However, these can often take time and have little to no guarantee that the rate increases will be approved. (To learn more about these companies, be sure to check out the Utilities Industry Handbook.)
Advantages of Utility Trusts
Public utility companies are relatively safe and constant when it comes to dividend return. This predictable dividend makes cash flows similar to a bonds cash flow, and therefore they react similarly to changes in interest rates - but not always. Also, like a bond, a higher yield generally means taking on higher risk. The income produced by the underlying utility companies held in a utility trust is easily passed along to the unit holders. The portfolio for a utility trust usually does not change often, which ensures a steady dividend stream if the underlying companies are stable.
The Government Cloud
When it comes to public utility companies, one cannot escape the role the government plays. Each utility company - whether private or public - has to deal with government regulations and red tape. The biggest trend among government in regards to public utilities is deregulation. As of September 2010, 27 states have either passed legislation or are in the process of restructuring the electric power industry (8 of those have suspended their restructuring for now).
Electric utilities have gone through the most dramatic change due to deregulation. Most public utility companies that deal with electricity no longer generate the power. Instead, they service and maintain the grid the power is delivered on. Private companies are now generating the power and selling it to the public utility companies. Investors thinking about public utilities need to be watchful of government regulations and climate when they choose this field. (To learn more about deregulation, read Free Markets: Whats The Cost?)
One concern when it comes to this sector is that, thus far, governments have been hesitant to allow public utilities to raise rates, which makes it challenging to recoup their investment in capital spending and construction of new plants. Government regulations and the restriction on rate increases is what sent the public service of New Hampshire into Chapter 11 for the construction of the Seabrook Nuclear Power Plant. Keeping an eye on the climate in Washington can help an investor looking to put their money into this sector.
When to Invest
When it comes to utilities, there are better times to buy than others, and its important to remember that public utility companies are considered a defensive play. Tough economic times usually benefit utilities, as people still need water, electricity and natural gas to flow uninterrupted, regardless of the economy.
Also, lower interest rates make the steady and high dividend yields offered by utility companies an attractive place to invest. Those interested in capturing income from their investments look to utility companies as a good place to put their money. Keep an eye on a turning market and rising rates, which typically have an inverse effect on the public utilities stock price. (For more defensive investing, read Guard Your Portfolio With Defensive Stocks.)
Green Movement
One of the biggest risks facing public utility companies is the green energy movement, and electric utility companies are feeling the pressure. Whether they create or buy the electricity, governments want the power to be created from renewable sources. This can be costly to upgrade and, with the existing government reluctance to allow public utility companies to recoup their capital expenditure through raising rates, it can hurt the dividend. Any time funds that could otherwise be paid out to shareholders in the form of dividends are instead used for improvement, lower cash flow to the investor in the short term is inevitable. So be careful if your primary interest is on a steady dividend cash flow from utilities, and the utilities are making a lot of capital expenditures instead of paying it out as dividends.
When it comes to investing in utility trusts, one must look at the portfolio and the underlying companies carefully. The risks common to public utility companies should be screened by investors looking to invest their money with a utility trust. So, if there are risks that can affect the future dividend payout of one of these utilities, steer clear of that utility trust.
Summing It All Up
Utility trusts are a great way to invest in the public utility sector. Public utilities are a great place to invest in during tough economic times and tough market conditions. Their inverse relationship with interest rates means you can still make money when the economy is not doing as well. Trusts offer an investor an easy way to quickly diversify within the public utilities sector without having the costs that are associated with mutual funds. Dividends are paid out quickly to trustees, so earning a steady income is possible.
Designed for companies with financial reporting problems, economic distress, or in bankruptcy to make the limited information they have publicly available. The Limited Information category also includes companies that may not be troubled, but are unwilling to provide disclosure pursuant to to OTC Pink Basic Disclosure Guidelines. Companies in this category have limited financial information not older than six months available on the OTC Disclosure
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This left a supply overhang (commonly known as resistance) around 18. When the stock rebounded to 18, many of the green-oval-bulls probably took the opportunity to sell and "escape" with little to no loss. When this supply was exhausted, the demand was able to overpower supply and advance above resistance at 18.
5 Reasons To Avoid Index Funds
Modern portfolio theory suggests that markets are efficient , and that a securitys price includes all available information. The suggestion is that active management of a portfolio is useless, and investors would be better off buying an index and letting it ride. However, stock prices do not always seem rational, and there is also ample evidence going against efficient markets. So, although many people say that index investing is the way to go, well look at some reasons why it isnt always the best choice. (For background reading, see our Index Investing Tutorial and Modern Portfolio Theory: An Overview.)
1. Lack of Downside Protection
The stock market has proved to be a great investment in the long run, but over the years it has had its fair share of bumps and bruises. Investing in an index fund , such as one that tracks the S
The opposite is true for illiquid securities. Liquidity depends on a number of forces including supply and demand, price transparency, trading history, market venue, market participants and freely tradable shares (public float).
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Understanding Financial Liquidity
Do you know how much easily accessible money you have in the form of cash and equivalents? This is a measure of your liquidity. As youll see, this concept plays a role in your financial and investing lives and those of the companies you buy and sell. Starting from a definition of liquidity with examples of different types, well move on to a discussion of how banks play a role in keeping liquidity available. Well then look at liquidity from an investors viewpoint in terms of the stock market. Finally, well end off with a brief look at a couple of financial ratios that can be used to evaluate a companys liquidity.
Tutorial: Basic Financial Concepts
What Is Liquidity?
Liquidity is the term used to describe how easy it is to convert assets to cash. The most liquid asset, and what everything else is compared to, is cash. This is because it can always be used easily and immediately.
Certificates of deposit are slightly less liquid, because there is usually a penalty for converting them to cash before their maturity date. Savings bonds are also quite liquid, since they can be sold at a bank fairly easily. Finally, shares of stock, bonds, options and commodities are considered fairly liquid, because they can usually be sold readily and you can receive the cash within a few days. Each of the above can be considered as cash or cash equivalents because they can be converted to cash with little effort, although sometimes with a slight penalty. (For related reading, see The Money Market.)
Moving down the scale, we run into assets that take a bit more effort or time before they can be realized as cash. One example would be preferred or restricted shares, which usually have covenants dictating how and when they might be sold. Other examples are items like coins, stamps, art and other collectibles. If you were to sell to another collector, you might get full value but it could take a while, even with the internet easing the way. If you go to a dealer instead, you could get cash more quickly, but you may receive less of it. (For further reading, see Contemplating Collectible Investments and A Primer On Preferred Stocks.)
The least liquid asset is usually considered to be real estate because that can take weeks or months to sell.
When we invest in any assets, we need to keep their liquidity levels in mind because it can be difficult or time consuming to convert certain assets back into cash.
Other than selling an asset, cash can be obtained by borrowing against it. While this may be done privately between two people, it is more often done through a bank. A bank has the cash from many depositors pooled together and can more easily meet the needs of any borrower.
Furthermore, if a depositor needs cash right away, that person can just withdraw it from the bank rather than going to the borrower and demanding payment of the entire note. Thus, banks act as financial intermediaries between lenders and borrowers, allowing for a smooth flow of money and meeting the needs of each side of a loan.
Liquidity and the Stock Market
In the market, liquidity has a slightly different meaning, although still tied to how easily assets, in this case shares of stock, can be converted to cash. The market for a stock is said to be liquid if the shares can be rapidly sold and the act of selling has little impact on the stocks price. Generally, this translates to where the shares are traded and the level of interest that investors have in the company. Company stock traded on the major exchanges can usually be considered liquid. Often, approximately 1% of the float trades hands daily, indicating a high degree of interest in the stock. On the other hand, company stock traded on the pink sheets or over the counter are often non-liquid, with very few, even zero, shares traded daily.
Another way to judge liquidity in a companys stock is to look at the bid/ask spread. For liquid stocks, such as Microsoft or General Electric, the spread is often just a few pennies - much less than 1% of the price. For illiquid stocks, the spread can be much larger, amounting to a few percent of the trading price. (For more insight, see Why The Bid-Ask Spread Is So Important.)
One thing to note as an investor when placing an order, is the liquidity of the stock. During normal market hours on the major exchanges, placing a limit order will get you the price you are looking for. This is particularly true for companies that are non-liquid, or during after-hours trading when fewer traders are active; at these times, it is better to place a limit order because the lower liquidity may lead to a price you would not be willing to pay. (To learn more, see The Basics Of Order Entry.)
Liquidity and Companies
One last understanding of liquidity is especially important for investors: the liquidity of companies that we may wish to invest in.
Cash is a companys lifeblood. In other words, a company can sell lots of widgets and have good net earnings, but if it cant collect the actual cash from its customers on a timely basis, it will soon fold up, unable to pay its own obligations. (To read more, check out The Essentials Of Cash Flow and Spotting Cash Cows.)
Several ratios look at how easily a company can meet its current obligations. One of these is the current ratio, which compares the level of current assets to current liabilities. Remember that in this context, current means collectible or payable within one year. Depending on the industry, companies with good liquidity will usually have a current ratio of more than two. This shows that a company has the resources on hand to meet its obligations and is less likely to borrow money or enter bankruptcy.
A more stringent measure is the quick ratio, sometimes called the acid test ratio. This uses current assets (excluding inventory) and compares them to current liabilities. Inventory is removed because, of the various current assets such as cash, short-term investments or accounts receivable, this is the most difficult to convert into cash. A value of greater than one is usually considered good from a liquidity viewpoint, but this is industry dependent. (To read more, see The Dynamic Current Ratio and Analyze Investments Quickly With Ratios.)
One last ratio of note is the debt/equity ratio, usually defined as total liabilities divided by stockholders equity. While this does not measure a companys liquidity directly, it is related. Generally, companies with a higher debt/equity ratio will be less liquid, as more of their available cash must be used to service and reduce the debt. This leaves less cash for other purposes.
Bottom Line
Liquidity is important for both individuals and companies. While a person may be rich in terms of total value of assets owned, that person may also end up in trouble if he or she is unable to convert those assets into cash. The same holds true for companies. Without cash coming in the door, they can quickly get into trouble with their creditors. Banks are important for both groups, providing financial intermediation between those who need cash and those who can offer it, thus keeping the cash flowing. An understanding of the liquidity of a companys stock within the market helps investors judge when to buy or sell shares. Finally, an understanding of a companys own liquidity helps investors avoid those that might run into trouble in the near future.
At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy.
Indicates companies that are not able or willing to provide disclosure to the public markets - either to a regulator, an exchange or OTC Markets Group. Companies in this category do not make Current Information available via OTC Markets Group's News Service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as 'dark' companies with questionable management and market disclosure practices. Publicly traded companies that are not willing to provide information to investors should be treated with suspicion and their securities should be considered highly risky.
$QBII BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/QBII
10 Tips For Choosing An Online Broker
One of the most important investment decisions youll make has nothing to do with stocks, bonds or mutual funds. This crucial decision is picking a broker. There are dozens of companies offering brokerage services on the internet , and many of them are just as good or better than traditional, brick-and-mortar businesses, but how to decide which one is best for you?
Here are 10 critical factors youll want to consider:
1. Discount is not always a good deal. Consider starting out with a full-service broker. They are often best for novice investors who may still need to build confidence and knowledge of the markets. As you become a more sophisticated investor, you can graduate into investing more of your money yourself.
2. Availability is key. Try hitting the companys website at different times throughout the day, especially during peak trading hours. Watch how fast their site loads and check some of the links to ensure there are no technical difficulties.
3. Alternative trading provides flexibility. Although we all love the net, we cant always be at our computers. Check to see what other options the firm offers for placing trades. Other alternatives may include touch-tone telephone trades, fax ordering, or doing it the low-tech way - talking to a broker over the phone. Word to the wise: make sure you take note of the prices for these alternatives; they will often differ from an online trade .
4. The brokers background matters. What are others saying about the brokerage? Just as you should do your research before buying a stock, you should find out as much as possible about your broker . (To learn more, check out Picking Your First Broker.)
5. Price isnt everything. Remember the saying you get what you pay for? As with anything you buy, the price may be indicative of the quality. Dont open an account with a broker simply because it offers the lowest commission cost. Advertised rates for companies vary between zero and $40 per trade, with the average around $20. There may be fine print in the ad specifying which services the advertised rate will actually entitle you to. In most cases, there will be higher fees for limit orders, options and those trades over the phone with your broker. You might find that the advertised commission rate may not apply to the type of trade you want to execute.
6. Minimum deposits may not be minimal. See how much of an initial deposit the firm requires for opening an account. Beware of high minimum balances: some companies require as much as $10,000 to start. This might be fine for some investors, but not others.
7. Product selection is important. When choosing a brokerage, most people are probably thinking primarily about buying stocks . Remember there are also many investment alternatives that arent necessarily offered by every company. This includes CDs, municipal bonds, futures,options and even gold/silver certificates. Many brokerages also offer other financial services , such as checking accounts and credit cards.
8. Customer service counts. There is nothing more exasperating than sitting on hold for 20 minutes waiting to get help. Before you open an account, call the companys help desk with a fake question to test how long it takes to get a response.
9. Return on cash is money in the bank. You are likely to always have some cash in your brokerage account. Some brokerages will offer 3-5% interest on this money, while others wont offer you a dime. Phone or email the brokerage to find out what it offers. In fact, this is a good question to ask while youre testing its customer service!
10. Extras can make a difference. Be on the lookout for extra goodies offered by brokerages to people thinking of opening an account. Dont base your decision entirely on the $100 in free trades, but do keep this in mind.
The Bottom Line
With a click of the mouse, from just about anywhere in the world, you can buy and sell stocks using an online broker. The right tools for the trade are key to every successful venture; finding success in the market begins with choosing the right broker.
Many traders and investors believe that candlestick charts are easy to read, especially the relationship between the open and the close.
Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are - or pretend to be - members of the group.
NITE-LYNX $MGLT BarChart Technical Analysis
http://www.barchart.com/technicals/stocks/MGLT
The 3 Biggest Risks Faced By International Investors
Investing internationally has often been the advice given to investors looking to increase the diversification and total return of their portfolio. The diversification benefits are achieved through the addition of low correlation assets of international markets that serve to reduce the overall risk of the portfolio. However, although the benefits of investing internationally are widely accepted theories, many investors are still hesitant to invest abroad. In this article, well discuss the reasons why this may be the case and help highlight key concerns for investors so they can make a more informed decision.
Transaction Costs
Likely the biggest barriers to investing in international markets are the transaction costs. Although we live in a relatively globalized and connected world, transactions costs can still vary greatly depending on which foreign market you are investing in. Brokerage commissions are almost always higher in international markets compared to domestic rates. In addition, on top of the higher brokerage commissions, there are frequently additional charges that are piled on top that are specific to the local market, which can include stamp duties, levies, taxes, clearing fees and exchange fees.
As an example, here is a general breakdown of what a single purchase of stock in Hong Kong by a U.S. investor could look like on a per trade basis:
Fee Type Fee
Brokerage Commission HK$299
Stamp Duty
0.1%
Trading Fees 0.005%
Transaction Levy 0.003%
TOTAL HK$299 0.108%
In addition, if you are investing through a fund manager or professional manager, you will also see a higher fee structure. To become knowledgeable about a foreign market to the point where the manager can generate good returns, the process involves spending significant amounts of time money on research and analysis. These costs will often include the hiring of analysts and researchers who are familiar with the market, accounting expertise for foreign financial statements, data collection, and other administrative services. For investors, these fees altogether usually end up showing up in the management expense ratio.
One way to minimize transaction costs on buying foreign stock is through the use of American Depository Receipts (ADRs). ADRs trade on local U.S. exchanges and can typically be bought with the same transaction costs as other stocks listed on U.S. exchanges. It should be noted however, that although ADRs are denominated in U.S. dollars, they are still exposed to fluctuations in exchange rates that can significantly affect its value. A depreciating foreign currency relative to the USD will cause the value of the ADR to go down, so some caution is warranted in ADRs. (For more, see An Introduction To Depository Receipts.)
Currency Risks
The next area of concern for retail investors is in the area of currency volatility. When investing directly in a foreign market (and not through ADRs), you have to exchange your domestic currency (USD for U.S. investors) into a foreign currency at the current exchange rate in order to purchase the foreign stock. If you then hold the foreign stock for a year and sell it, you will have to convert the foreign currency back into USD at the prevailing exchange rate one year later. It is the uncertainty of what the future exchange rate will be that scares many investors. Also, since a significant part of your foreign stock return will be affected by the currency return, investors investing internationally should eliminate this risk.
The solution to mitigating this currency risk, as any financial professional will likely tell you, is to simply hedge your currency exposure. However, not many retail investors know how to hedge currency risk and which products to use. There are tools such as currency futures, options, and forwards that can be used to hedge this risk, but these instruments are usually too complex for a normal investor. Alternatively, one tool to hedge currency exposure that may be more user-friendly for the average investor is the currency ETF. This is due to their good liquidity, accessibility and relative simplicity. (If you want to learn the mechanics of hedging with a currency ETF, see Hedge Against Exchange Rate Risk With Currency ETFs.)
Liquidity Risks
Another risk inherent in foreign markets, especially in emerging markets, is liquidity risk. Liquidity risk is the risk of not being able to sell your stock quickly enough once a sell order is entered. In the previous discussion on currency risk we described how currency risks can be eliminated, however there is typically no way for the average investor to protect themselves from liquidity risk. Therefore, investors should pay particular attention to foreign investments that are, or can become, illiquid by the time they want to close their position.
Further, there are some common ways to evaluate the liquidity of an asset before purchase. One method is to simply observe the bid-ask spread of the asset over time. Illiquid assets will have wider bid-ask spread relative to other assets. Narrower spreads and high volume typically point to higher liquidity. Altogether, these basic measures can help you create a picture of an assets liquidity.
Bottom Line
Investing in international stocks is often a great way to diversify your portfolio and get potentially higher returns. However, for the average investor, navigating the international markets can be a difficult task that can be fraught with challenges. By understanding some of the main risks and barriers faced in international markets, an investor can position themselves to minimize these risks. Lastly, investors face more than just these three risks when investing abroad, but knowing these key ones will start you off on a strong footing.
Investors should always carefully review the financial information of issuers before making investments. Many OTC equities are issued by small companies with limited histories or in economic distress.
Anomalies do exist and there are investors and traders that outperform the market.
$EFIR BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/EFIR
Finding The Right Trading Coach
If you have ever thought about getting a trading coach or trading program, or bought a book about trading, this topic may have crossed your mind. If the coach knows so much about trading, why is he or she teaching others? This is an interesting question and relates to the old adage: Those that cant ... teach. Meaning those who were unsuccessful at an endeavor move to the teaching realm to coach others. Many people dont like the idea that a trader who cant make big money should be teaching others. But does your coachs personal success really matter? In other words, is a full-time trader in a better position to help you than someone who no longer trades or has never traded? When we break down the pros and cons you may realize you werent giving some people the credibility they deserve, and were possibly giving too much credit to others. (For general investment information refer to Top 10 Commandments Of Investing.) Arguments for Both Sides
A coach who is a trader will claim to have definite advantage over someone who doesnt trade. This may be true if the coach has the track record to back this claim up, but just because a person is successful at trading does not mean he or she can effectively relay that skill to someone else.
On the other hand, a coach who no longer trades can still provide great benefit if he or she is an effective teacher . A non-trader coach may have been successful as a trader in the past, but has chosen to give up trading. The reasons for this are numerous: some traders prefer coaching to trading, have found trading too stressful, want to help others or have already succeeded and want a new challenge, to list but a few potential reasons. However, it may also be that the trader has failed miserably. At first it may seem that this person would not be a good coach, but this is not necessarily true; we can learn a lot from other peoples failures. In addition, even though someone was unable not implement a certain system themselves due to lack of discipline, psychological or physiological reasons, this does not mean that a different person cant be successful using the same method.
Both sides can likely agree on the fact that in order to coach someone else, a teacher needs to have experience in what students will go through. Essentially, coaches must have market experience in some form or another. The coach needs to know what hurdles students will have to go over, and be able to help them navigate through those obstacles. This does not mean they need to have traded personally, but they will at least have to have been in an environment where they witnessed others trading. Observation can be a great teacher that can lead to the teaching of others.
A Deeper Look
On both sides of the argument there are examples of traders being great and horrible coaches, as well as coaches who no longer trade (or never did) that are fantastic. Think for a moment about a sport. The athletes who play professional sports are the best athletes in the world, and yet they are often coached by someone who has inferior skill. This is OK, because the coach is there to help hone another persons skills. Just because coaches dont have the qualities of a peak performance athlete does not mean they cant pick out and elevate those qualities in others. On the flip side, we have had some amazing talents who could not and cannot effectively pass on whatever it was that made them great athletes.
When we look at trading, or investing , much worth is placed in those who dont actually trade the markets professionally. Market analysts gauge the market using varying tools and methods and relay that information to others. While many analysts may not be traders, some are often very accurate in their market analysis. Having a birds eye view of the unfolding situation allows them to make predictions without an investment in the outcome. These insights are helpful to many traders, even though the information comes from someone who may have never placed a trade.
Never having placed a trade does pose a problem for the trader. The market is constantly moving, and while an analyst may be able to anticipate the direction and magnitude of a move, the gyrations along the way can have the power to wipe a trader out if he or she executes a move at the wrong time. In this case, a student trader would benefit from having the information constructed into something tradeable by a trading coach.
How to Find a Good Coach
With arguments on both sides, there is no hard-and-fast rule when it comes to which is better. The bottom line is whether someone gets you the knowledge and skills that you want. If the coach is teaching you in a way you understand and you feel you are getting your moneys worth, that is what counts.
Trading and coaching is a business. Coaches need to recruit students - this is how they make money . Therefore, sales pitches abound across media sources. When seeking to improve your trading, this can be overwhelming. That said, you can often narrow your search down quite quickly by following a few simple guidelines.
1. Dont Focus on a Coachs Personal Results
Dont worry about whether a potential coach was a trader, is a trader or what his or her personal track record is. Personal trading results dont matter; what matters is how a given coachs students are doing. Look for reviews by students about a coach or training program , and if possible contact a few students directly to ask them about their experience.
2. Avoid Getting Emotional
Sales pages are meant for the hard sell. Therefore, sift through sales pages with an analytical mind, not an emotional one. Is there any substantiation to an advertisers claims? People who know the markets know that no one is right all the time, so skip past coaches and programs that promise outlandish results.
3. Consider Your Personality and Style
If you have some experience already, look for someone who meshes with your personality and style. Do you understand the language the coach uses? Does his or her method seem simple and easy to understand? Complex methods can be hard to implement and may not be easily passed from one person to another. Also, if you cant understand what someone else is saying when you are first introduced to their work, it is likely only going to get harder to understand down the road.
Conclusion
Good information, coaching and training programs can be found, but in order to hit on the best possible program, traders need to do some research. This includes finding reviews of any product or service being considered, and touching base with those companies or individuals to see what they have to offer. We can also discard any offers that promise outlandish results or are hard to understand. Trading can be difficult, but learning about it should be much easier - especially if you take the time to seek out the best possible sources.
When a security is suspended or halted, OTC Markets removes all market participants and their quotes from the system and displays a "Halted/Suspended" message.
The Knowledge-Experience Continuum: Where Do You Fall?
It is only through studying the practicalities of investments that people learn and understand how it really works. Even so, their knowledge and understanding always has its limits, and learning and doing are two very different things.
These issues apply to a greater or lesser extent to almost everyone in the industry - theory and practice are often worlds apart, but many people dangerously treat them as one and the same.
In this article, we will look at what constitutes learning, understanding, experience and real expertise, as well as what sets the limits. The basic issue is that when it comes to investing, there is a huge gap between theory and practice. For this reason, it is important to take a look at the different levels of knowledge and how we achieve them.
The Dangers of Theoretical Knowledge
People who study business or economics in college generally learn passively just to pass exams. Many do not really understand the material until they start teaching the same theories. And even then, this is still just theory. Practice happens when students apply this theory in their personal investing.
Even business professors who write articles in related areas, such as economics, tend to do so theoretically and do not necessarily know much about the real world of investment. In fact, their own investments may be run by other people.
Unfortunately, some types of theory just arent helpful in practice. For example, although a good theoretical knowledge of economics, should help you learn quickly about real-world investments; unfortunately, the theory alone is of little practical use. Knowing about supply and demand, neoclassical interest rate theory and Keynesian cross diagrams is light years away from the real world of conflicts of interest, commission-hungry brokers and failed attempts at market timing. In other words, these theoretical models often assume the world has very specific and predictable conditions; does this sound like the world you live (and invest) in? (For related reading, see Economics Basics.)
In the world of investment, theory alone can even be dangerous, and this applies particularly to a limited degree of practical knowledge. The old saying that a little knowledge is a dangerous thing applies in this context, because it can inspire confidence in the investor, even when he or she has little experience and should be cautious.
The main problem is that the investment industry does not work the way an inexperienced person is likely to think. For example, who would ever dream that many fund managers try to beat an index and fail? How could the man in the street know that brokers may sell risky investments because these bring in the most money? Similarly, naive investors might put too much confidence in their brokers abilities and assume that they know what theyre doing without further investigation. Unfortunately, mismanagement is not uncommon, but for an investor with limited experience, this may not be apparent.
Experience Versus Real Expertise
As you now know, passive knowledge alone does not count for much; you need to actually do things to develop real expertise and skills. Nonetheless, it is also possible to have a lot of experience with something, without having a profound understanding of how it works. (To learn from experienced money managers, read Words From The Wise On Active Management.)
For example, someone who simply works in a bank may administer funds and other assets for years and or decades and not really know much about them. This is particularly the case with routine activities at lower levels. Another danger is that someone who worked with pensions for 20 years may get transferred to hedge funds two weeks before you turn up with your money. This person is then very experienced, but perhaps not in the right area.
The combination of directly relevant experience and various aspects of sophistication is really essential to good money management, both on the part of the investor and his or her broker /advisor. Motivation is also vital. This means being genuinely interested in and caring about your portfolio. If you do your own investing, this may not be a problem, but if you hire a broker, you will need to find one who is motivated to help you. No amount of education and experience counts if it is not applied appropriately. These are complex issues, but they are of fundamental importance.
Knowledge in One Area Is Still Ignorance in Another
Given the extraordinarily wide range of investments, someone who knows a lot about stocks may know (almost) nothing about bonds. And even a government bond expert could be relatively ignorant about the ins and outs of corporate bonds. The term experienced investor can therefore be extremely misleading.
Only experience in a specific sector is really likely to help. The extent to which knowledge with one asset class applies to another, for example, is extremely variable and cannot be taken for granted. Therefore, never assume that someone has the right package of skills, experience and expertise to advise or work in a particular field - do your research and determine exactly what experience a professional has and how directly it applies to his or her current line of work.
The Knowledge-Experience Continuum
Given the above, we can divide up private investors into three main knowledge-experience categories:
1. The Know Nothings. The first category would be those who, for all intents and purposes, know nothing. Almost everyone earns some money and perhaps even invests part of it, but if this is purely passive, uninterested and unmotivated, people can go through their entire adult lives without gaining any real knowledge or understanding of the investment process and what it entails.
2. The Know A Littles. The next group would be those with a limited degree of knowledge and experience. This knowledge could be very theoretical, such as from university economics or even some college finance courses, or it could be more practical, from reading newspapers, magazines and books.
Many people fall into this category. They know a bit or even a fair amount about stocks, bonds and real estate, but this knowledge may remain superficial and narrow. They would not necessarily know what constitutes a high versus low-risk portfolio or the difference between amutual fund and a hedge fund . They still have to rely heavily on the experts.
3. The Know A Lots. Moving on from the above level, there are obviously those with above-average or advanced levels of knowledge and experience. These people have been reading extensively for years, maybe even teaching or writing on investments or have been managing their own money or that of others quite actively. Despite this, they too will inevitably have gaps in their knowledge and experience.
Applying the Continuum to People in the Industry
When it comes to investment professionals , the three groups above still apply, but with some important differences. Professionals are extremely varied in terms of their area(s) of expertise and commitment to customers, so it is important to find out not only how experienced a professional is, but also in what areas.
Conclusions
What people really know, understand and can do in the investment industry is absolutely fundamental to managing your money or hiring someone else to manage your money properly. A complex interplay of education, motivation, relevance and sophistication all determine whether an investor or a professional can successfully manage a portfolio. It is therefore extremely important to know who you are really dealing with. This in itself constitutes one of the great challenges of the investment scene.
BarChart Technical Analysis NITE-LYNX $NILA
http://www.barchart.com/technicals/stocks/NILA
It would be folly to disagree with the price set by such an impressive array of people with impeccable credentials.
Many OTC securities are relatively illiquid, or "thinly traded," which tends to increase price volatility. Illiquid securities are often difficult for investors to buy or sell without dramatically affecting the quoted price. In some cases, the liquidation of a position in an OTC security may not be possible within a reasonable period of time.
Bar Chart
Perhaps the most popular charting method is the bar chart. The high, low and close are required to form the price plot for each period of a bar chart.
BarChart Technical Analysis NITE-LYNX $UNDT
http://www.barchart.com/technicals/stocks/UNDT
Securities that are not listed on any stock exchange nor formally quoted on OTC Markets or OTCBB are considered to be in the Grey Market. Unsolicited transactions are processed independently and not centrally listed or quoted. Trades are reported to a self-regulatory organization (SRO), which then passes the data on to market data companies.
General Steps to Technical Evaluation
Many technicians employ a top-down approach that begins with broad-based macro analysis.
Behold the $EMWW BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/EMWW
Alternatively, even strong management can make for extraordinary success in a mature industry (Alcoa in aluminum). Some of the questions to ask might include: How talented is the management team? Do they have a track record? How long have they worked together? Can management deliver on its promises? If management is a problem, it is sometimes best to move on.
For thou convenience $AGFL BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/AGFL
The website doesn’t exist?
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