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What Owning A Stock Actually Means
Most people realize that owning a stock means buying a percentage of ownership in the company, but many new investors have misconceptions about the benefits and responsibilities of being a shareholder. Many of these misconceptions stem from a lack of understanding of the amount of ownership that each stock represents. For large companies such as IBM (NYSE:IBM) and General Electric (NYSE:GE), one share is merely a drop in the pond. Even if you owned $1 million worth of shares, youll still be a small potato with very little equity in the actual company. So what does this mean? Lets take a look.
Misconception No.1: I am the boss.
First of all, youre better off not thinking that you can bring your share certificates into the corporate headquarters to boss people around and demand a corner office. As the owner of the stock, youve placed your faith in the companys management and how it handles different situations. If you are not happy with the management, you can always sell your stock, but if you are happy, you should hold onto the stock and hope for a good return.
Furthermore, next time you are pondering whether youre the only person worried about a companys stock price, you should remember that many of the senior company executives, or insiders, probably own as many, if not more, shares than you do.
This isnt a guarantee that the companys stock will do well, but it is a way for companies to give their executives an incentive to maintain or increase the stocks price. Be careful though: insider ownership is a double-edged sword because executives may get involved in some funny business to artificially increase the stocks price and then quickly sell out the personal holdings for a profit.
Even though you cant directly manage the company with your stocks , if your stock has voting rights, vote for the directors who can. These are the people who typically hire upper management, which hires lower management, which hires subordinate employees. Thus, as an owner of common stock, you do get a bit of a say in controlling the shape and direction of the company, even though this say doesnt represent direct control.
Misconception No.2: I get a discount.
Another misconception is that ownership in a company translates into discounts. Now, there are definitely some exceptions to the rule. Berkshire Hathaway (NYSE:BRK.A), for example, has an annual gathering for its shareholders where they can buy goods at a discount from Berkshire Hathaways held companies. Typically, however, the only thing you get with the ownership rights of a stock is the ability to participate in the companys profitability.
Why would it hurt for you to get a discount? Well, this answer can get a little complicated. After some thought, you probably would not want that discount. Lets look at an example of Bens Chicken restaurant (owned by Ben and a couple of his friends) and Corys Brewing Company (owned by millions of different shareholders). Because only a few people own Bens Chicken Restaurant, the discount would only be a small portion of the restaurants income and revenue, which the owners would bear.
For Corys Brewing Company, the loss in income and revenue would also be borne by the owners (the millions of shareholders), but, because revenue is the main driver of stock price and the loss from a discount would mean a drop in stock price, the loss from a discount would be more substantial for Corys Brewing. So, even though an owner of stock may have saved on a purchase of the companys goods, he or she would lose on the investment in the companys stock. Thus, the discount isnt nearly as good as it initially sounds.
Misconception No.3: I own the chair, the desk, the pens, the property, etc.
As an investor in a company, you own a portion of the company (no matter how small that portion is); however, this doesnt mean that you own property of the company. Lets go back to Bens Chicken Restaurant and Corys Brewing Company. Quite often, companies will have loans to pay for property, equipment, inventories and other things needed for operations.
Bens Chicken Restaurant received a loan from a local bank under certain conditions whereby the equipment and property are used as collateral. For a large company like Corys Brewing Company, the loans come in many different forms, such as through a bank or from investors by means of different bond issues. In either case, the owners must pay back the debtors before getting any money back.
For both companies, the debtors - in the case of Corys Brewing Company, this is the bank and the bondholders - have the initial rights to the property, but they typically wont ask for their money back while the companies are profitable and show the capacity to repay the money. However, if either of the companies becomes insolvent, the debtors are first in line for companys assets . Only the money left over from the sale of the company assets is distributed out to the stock holders.
Conclusion
Hopefully weve been able to dispel any misconceptions that some stock holders have about the powers of ownership. Next time you think about taking your stock certificate into the nearest McDonalds (NYSE:MCD) to get a discount on a Happy Meal, fire the employee after he refuses to give it to you, and finally walk out in disgust with a McFlurry machine, you should remind yourself of this article.
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Only price movements that exceed specified levels are recorded. This focus on price movement makes it easier to identify support and resistance levels, bullish breakouts and bearish breakdowns. This P
OTC market structure is very similar to other equity security markets. A key difference, however, is in the actual trading process, which will be explained in Part 2 – Trading.
What Is A Pyramid Scheme?
A pyramid scheme is a fraudulent investing plan that has unfortunately cost many people worldwide their hard-earned savings. The concept behind the pyramid scheme is simple and should be easy to identify; however, it is often presented to potential investors in a disguised or slightly altered form. For this reason, it is important to not only understand how pyramid schemes work, but also to be familiar with the many different shapes and sizes they can take. (Many investors do not understand how to determine the level of risk their individual portfolios should bear. Find out for yourself in Determining Risk And The Risk Pyramid.)
The Scheme
As its name indicates, the pyramid scheme is structured like a pyramid. It starts with one person - the initial recruiter - who is on top, at the apex of the pyramid. This person recruits a second person, who is required to invest $100 which is paid to the initial recruiter. In order to make his or her money back, the new recruit must recruit more people under him or her, each of whom will also have to invest $100. If the recruit gets 10 more people to invest, this person will make $900 with just a $100 investment.
The 10 new people become recruiters and each one is in turn required to enlist an additional 10 people, resulting in a total of 100 more people. Each of those 100 new recruits is also obligated to pay $100 to the person who recruited him or her; recruiters get a profit of all of the money received minus the initial $100 paid to the person who recruited them. The process continues until the base of the pyramid is no longer strong enough to support the upper structure (meaning there are no more recruits). (From pyramid schemes to envelope stuffing, there are a lot of scams masquerading as legitimate part-time work.
The Fraud
The problem is that the scheme cannot go on forever because there is a finite number of people who can join the scheme (even if all the people in the world join). People are deceived into believing that by giving money they will make more money (with an investment of just $100, you will receive $900 in return). But no wealth has been created; no product has been sold; no investment has been made; and no service has been provided.
The fraud lies in the fact that it is impossible for the cycle to sustain itself, so people will lose their money somewhere down the line. Those who are most vulnerable are those towards the bottom of the pyramid, where it becomes impossible to recruit the number of people required to pay off the previous layer of recruiters. This kind of fraud is illegal in the Unites States and most countries throughout the world. It is estimated that 90% of people who get involved in a pyramid scheme will lose their money. (Lower levels of liquidity in exchange-traded funds make it harder to trade them profitably.
Fraud Disguised
Because people are attracted to the idea of making a quick buck with very little effort, many different forms of disguised pyramid schemes have succeeded in fooling people. Despite the illusion of legality presented by these revamped schemes, they are still illegal. It is thus important to recognize the characteristics of such so-called investment plans .
Many schemes will adopt the guise of gift-giving or loans that take place in investment clubs because none of these activities are technically illegal. However, the practice of donating a gift (tax free up to $10,000 in the U.S.) to someone (the recruiter), then having to recruit people into the club in order to receive a return on your investment (or your gift, rather) is essentially a pyramid scheme in disguise. (Joining an investment club isnt a get-rich-quick scheme, but it can help you learn the ropes or sharpen your investing skills. Learn more in Benefit From A Winning Investment Club.)
Multi-Level Marketing (MLM)
Legal multi-level marketing (MLM) involves being recruited in order to sell a product or service that actually has some inherent value. As a recruit, you can make a profit from the sales of the product or service, so you dont necessarily have to recruit more salespeople below you. And while you may be encouraged to recruit other salespeople whose sales would give you more profit, you can stick to just selling the product directly to the consumer if you choose.
A pyramid scheme MLM, however, will most likely sell a product with no independent value. The product could take the form of reports of some kind, for example, or mailing lists. In this kind of pyramid scheme, you would be required to recruit new members into the MLM in order to make a profit and keep the MLM alive. Joining the MLM is the only reason anyone would buy the products sold by this pyramid scheme.
Ponzi Schemes
Named after Charles Ponzi, who ran such a plot from 1919-1920, the Ponzi scheme is a fraudulent investment plan. It is not necessarily a pyramid, which is hierarchical. In a Ponzi scheme, there is one person who takes peoples money as an investment and does not necessarily tell them how their returns will be generated. As such, the peoples return on investment could be generated by anything; it could come from money taken from new investors - which means new investors essentially pay off the old investors - or even from money made by gambling in Las Vegas.
Chain Letters
Chain letters can be received electronically or through snail mail and are not illegal on their own. However, they take on the form of a pyramid scheme when the letter asks you to donate a certain amount of money (even just 5 cents) to the people on a list, then delete the name of the first person on the list, add your name, and forward the letter to a certain number of other people. The next people receiving the letter are then asked to do the same thing, so that you can receive your money as well. By forwarding the letter, you are asking people to give money with the promise of making money.
Conclusion
It is easy to see how a pyramid scheme can work, but participating in it (regardless of the form in which it is presented) involves deception and fraud because not everyone will receive the money that is promised in return.
As with any other investment plan you consider entering, it is important to ask the right questions. How will this money be invested? What is the rate of return? Who will be investing it? Talk to professionals and do your research before placing your money anywhere. And always remember that if a plan promises youll get rich quick with no risk or doesnt tell you how your money will be invested, you should raise a red flag and exercise caution before getting on board.
These brokers are also involved in underwriting and investment banking for the companies. Even though there are restrictions in place to prevent a conflict of interest, brokers have an ongoing relationship with the company under analysis.
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During this 90-day period, an investor may still purchase securities with the cash account, but the investor must fully pay for any purchase on the date of the trade. For more information on the 90-day freeze, please read our investor bulletin “Trading in Cash Accounts – Beware of the 90-Day Freeze under Regulation T,” and the cash account provisions of the Federal Reserve Board’s Regulation T.
Whats The Minimum I Need To Retire?
Can I retire with $1 million dollars? Of course you can. Truth be told, you might be able to retire with much less. Then again, you might not be able to retire with $1 million or $2 million or perhaps even $10 million. It all depends on your personal situation. On thing is sure: you want to make sure your golden years are golden, not merely a struggle for existence. (To learn more read, 10 Steps To Retire A Millionaire.)
Most advisors and financial professionals have been able to boil it down to one number, also known as the holy grail of retirement analysis: the amazing 4% sustainable withdrawal rate. Essentially, this is the amount you can withdraw through thick and thin and still expect your portfolio to last at least 30 years, if not longer. This will determine how long your retirement savings will last, and will help you determine how much money you need for the retirement you want.
So, I Can Retire With $1 Million?
If you are 65 with $1 million, you can expect your portfolio of properly diversified investments to provide $40,000 per year (in todays dollars ) until you are 95. Add that to your Social Security income and you should be bringing in roughly $70,000 a year.
Now, if this isnt enough for you to maintain the lifestyle you want, you have come to your unfortunate answer rather quickly: no, you cannot retire with $1 million.
Now wait a minute, you say, what about my spouse, who is also getting Social Security? What if Im 75, not 65? What if I want to die broke? What if Im getting a government pension and benefits? What if Im planning to retire in Costa Rica? There are many what ifs, but the math is still the math: If you plan on needing a lot more than $40,000 from you retirement nest egg, then the probability of a successful retirement on $1 million is not good.
Projecting Future Expenses
There are a lot of books and articles that discuss longevity risks, sequence of returns, healthcare costs and debt. But knowing how much you need to retire still boils down to projecting your future expenses until the day you die. Ideally, that yearly figure will add up to less than 4% of your nest egg.
So a $1 million dollar portfolio should give you, at most, $40,000 to budget. If you are forced to take out more than $40,000 adjusted for time during your retirement, you are tempting fate and relying on luck to get you by. So, if you want at least $40,000 per year, $1 million is really the least amount of money - the bare minimum - you should have before you launch into retirement.
Retirement planning means maximizing your lifestyle while maintaining a high probability of being able to maintain that lifestyle until the day you die. So scraping together a bare minimum nest egg is like an explorer heading into the jungle for a week with just enough supplies. What if something happens? Why not take extra? As a result, for the vast majority of people, $1 million is not enough if you want a high probability of a great retirement .
Three Types Of Retirees
Typically, we see three categories of people trying to decide if they are ready to retire:
1. Of course you can retire! Live it up and enjoy! If you are at least in your 70s with reasonable expenses, then there is a good chance you and your $1 million fall in this category.
2. The probability for your retirement looks good. Just dont go crazy and buy a Porsche. If you are at least 62 and have always lived a frugal lifestyle, then you and your $1 million are likely going to fall in this category.
3. Lets redefine retirement for you. This is just about everyone else - including early retirees with $1 million living frugally and 70-year-olds with $1 million spending lavishly.
Early retirement , meaning before Social Security and Medicare kick in, with only $1 million is extremely risky. You leave yourself with so few options if things go terribly wrong. Sure, you can go to Costa Rica and eat fish tacos every day. But what if you want to move back to the U.S. someday? What if you want to change? Having more money set aside will provide you with more flexibility and increase the likelihood of continued financial independence to do what you want within reason until the day you die. If you are forced to stay in Costa Rica or get a job, then you didnt make a good decision and plan.
So, once you have your $1 million, concentrate on what you can control - or at least affect. You cant control when you die but you can affect your health costs by doing your best to stay healthy until you qualify for Medicare. You cant control investment returns but you can affect the range of returns. You cant control inflation but you can affect your fixed costs and your variable costs.
Spending and Expenses
A few quick bits on expenses and spending. To a certain extent, retirement planning is the art of accurately matching future income with expenses. People seem to ignore certain expenses. For example, family vacations and a grandchilds wedding gift count the same as dental surgery and car repairs in retirement planning, but people neither include these enjoyable expenses when they are projecting their costs nor do they recognize how hard it is to cut them - try telling one child that you cant help with his wedding after paying for your other childrens weddings!
Conclusion
As a general rule, people who try to determine the minimum amount of retirement savings are usually the least likely to retire. Just getting by isnt a good way to start 30 years of unemployment and diminishing employability. If something unexpected happens, what are your options? Re-enter the work force, change your lifestyle or get more aggressive with your investments? Most people try the latter and pray. Some get lucky, but most dont. This is the equivalent of doubling down in black jack.
If you want to retire with $1 million dollars, it is going to come down to a combination of 1) how you define retirement, 2) your personal inventory of everything in your life: assets, debts, medical, family, etc. and 3) what the future holds. Remember, stuff happens in life. Do you really want to start this 30 year adventure with the bare minimum? Retirement is like most good things, it is much better to be overprepared than to wing it. You can you retire with $1 million dollars, but its better to be safe than sorry – shoot for $2 million!
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Because all possible information is already reflected in the price, investors and traders will not be able to find or exploit inefficiencies based on fundamental information.
In a new account agreement, you must specify your overall investment objective in terms of risk. Categories of risk may have labels such as "income," "growth," or "aggressive growth."
Earnings Power Drives Stocks
Equity investors are primarily interested in the earnings power of the companies in which they invest . Other things being equal, the greater the earning potential of the issuer, the greater the upside potential of the stock.
A good way to analyze earnings power is to assess return on assets (ROA) and return on equity (ROE) - two financial ratios that compare a companys earnings to certain balance sheet components. An even better way is to break out these simple ratios into their component parts to see whats really driving earnings power over time. In this article, well show you how to calculate this number and make it work for you.
Return On Assets
ROA is simply earnings available for the common shareholder divided by average total assets over a time period (usually one fiscal year). ROA measures the earnings power of a companys assets - how well the company generates earnings from its asset base. As demonstrated by a simple example, ROA is a very easy ratio to calculate.
Looking at the 2006 financial statements for General Electric, we note that earnings were $20.8 billion, the beginning total asset line was $673.3 billion and the ending total asset line was $697.2 billion.
So, ROA is $20.8/(($673.3 $697.2)/2) or 3.03%.
You can use this tool to compare the current ROA to GEs historic numbers as well as to comparable companies. This is to assess whether GEs earnings power is increasing or decreasing over time. Remember that numbers dont just move on their own - if this number is increasing or decreasing, there must be a reason.
Return On Equity
ROE is the companys earnings the are available for common shareholders divided by average equity. ROE is similar to ROA except that it measures the earnings power of a companys net assets (assets minus debt or other items that arent common equity). It is a more direct measure of how well the company generates earnings from a shareholders investments (or the book value of the shareholders investment). It is therefore the more applicable and more widely used measure for equity analysis compared to ROA. Continuing with GEs financials, we note that in the beginning period, equity was $109.4 billion and the ending period equity was $112.3 billion. ROE is GEs $20.8 billion in earnings divided by average equity, or 18.8%. Just like for ROA, you would then take the ROE and check for any changes in trends and what reasons there could be for those changes. (For more on this, see Keep Your Eyes On The ROE.)
Analyzing Du Ponts ROE Theory
Years ago, the smart people at E.I. Du Pont de Nemours and Company realized they could better analyze the returns of their business by breaking out ROE into a few component parts. Called Du Pont identity or Du Pont ROE decomposition, it is a widely used technique for analyzing ROE. There are a few ways to do this, but well look at a simple version of it here.
Where:
EAT = earnings after tax or net earnings for the common shareholders
EBIT = operating income (which doesnt consider interest expenses and taxes)
Notice how the numerator and denominators of the four terms cancel each other out:
The first term (EAT/EBIT) could be described as interest and tax burden. It measures the proportion of operating income that is left over for the common shareholders after paying interest on debt and taxes. Other things being equal, profit-loving common shareholders want this number to be as high as possible. In the GE example, EAT for 2006 was $20.8 billion and EBIT was $43.9 billion, so the interest and tax burden was 0.474. In other words, about 47.4% of operating income flowed through to the shareholders after the company paid interest and taxes.
The second term (EBIT/Sales) is described as operating margin. Operating margin is an important accounting measure of revenues less operating expenses (like the cost of goods sold and corporate overhead). Again, business owners love big operating margins, so they prefer this number to be as high as possible. Continuing with GEs financials, operating margin for 2006 was $43.9 billion divided by revenue of $163.4 billion, or 26.9%.
Sales/Average Assets is called asset turnover. Asset turnover is a measure of how efficiently the company uses its assets to produce revenues. Investors want this number to be as high as possible, all other things being equal. Continuing with GE, asset turnover is $163.4 billion/$685.25 billion, or 0.239.
Lastly, Average Assets/Average Equity is called financial leverage. The number is higher if the company has a lot of debt and smaller if the company is more conservatively financed. Other things being equal, the higher this number, the higher the ROE. However, using a lot of debt is risky and common shareholders do not always want their companies to use a lot of debt to finance operations.
Debt can cause a lot of burden on cash flows, not just from interest expense (which hits the income statement directly) but also from principal repayments (which hits the cash flow statement). Also note the relationship between financial leverage and the tax and interest burden. A high debt load increases financial leverage but decreases the income flow after taxes and interest, causing a combination effect on ROE. In our example, financial leverage is $685.25 billion/$110.9 billion or 6.2-times.
This method employs a top-down approach that starts with the overall economy and then works down from industry groups to specific companies.
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FINRA requires member firms to ascertain the best market to execute their customer orders. OTC Link and the OTCBB are the two recognized inter-dealer quotation systems in the OTC market that can be relied upon for electronic best execution if there are two priced quotes. If fewer than two quotations are displayed on an inter-dealer quotation system that permits quotation updates on a real-time basis, FINRA members must contact at least three dealers by phone to obtain other quotations.
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Testing 3 Types Of Analysts
There are several types of analysts on Wall Street, and they produce different kinds of reports because they have different kinds of clients. Lets take a look at the different responsibilities required for each analyst, so that you can do your own litmus test to see which ones you need to pay attention to.
Sell-Side Analysts
These are the analysts that are dominating todays headlines. They are employed by brokerage houses to analyze companies and write in-depth research reports, conducting what is sometimes called primary research. These reports are used to sell an idea to individuals and institutional clients. Individual investors gain access to these reports mainly by having accounts with the brokerage firm. For example, to get free research from Merrill Lynch, you need to have an account with a Merrill Lynch broker. Sometimes the reports can be purchased through a third party such as Multex.com. Institutional clients (i.e. mutual fund managers) get research from the brokerages institutional brokers. (Keep reading about fund managers in Should You Follow Your Fund Manager? and Choose A Fund With A Winning Manager.
A good sell-side research report contains a detailed analysis of a companys competitive advantages and provides information on managements expertise and how the companys operating and stock valuation compares to a peer group and its industry. The typical report also contains an earnings model and clearly states the assumptions that are used to create the forecast.
Writing this type of report is a time consuming process. Information is obtained by reading the companys filings for the Securities
Conclusions
Fundamental analysis can be valuable, but it should be approached with caution. If you are reading research written by a sell-side analyst, it is important to be familiar with the analyst behind the report.
Many companies in the lower market tiers of the OTC categorization system do not meet the U.S. listing requirements for trading on a stock exchange such as the New York Stock Exchange or NASDAQ. Many of these issuers do not file periodic reports or make available audited financial statements, making it very difficult for investors to find reliable, unbiased information about those companies. For these reasons the SEC views many of the lower tier companies traded on OTC Markets as "among the most risky investments.
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Portfolio Management Pays Off In A Tough Market
When you think about investing, you have a very long decision tree - the question of passive or active, long or short, stocks or funds, China or Brazil and on and on. These topics seem to occupy the majority of the media as well as individuals minds. However, these decisions are far down the investing process relative to portfolio management. Portfolio management is basically looking at the big picture. This is the classic forest and trees analogy; many investors spend too much time looking at each tree (stock, fund, bond, etc) and not enough - if any - time looking at the forest (portfolio management).
Prudent portfolio management begins after the client and his or her advisor have reviewed the total picture and completed an investment policy statement (IPS). Embedded in the IPS is the asset allocation strategy of which there are four: integrated, strategic, tactical and insured. Most people recognize how critical asset allocation is, but most investors are unfamiliar with asset allocation rebalancing strategies, of which there are also four: buy-hold, constant-mix, constant proportion and option based. A lack of familiarity with rebalancing strategies helps explain why many confuse the constant-mix rebalancing strategy with buy-hold. Here is a side-by-side comparison of these two most common asset allocation rebalancing strategies.
Buy-Hold Rebalancing
The objective of buy-hold is to buy the initial allocation mix and then hold it indefinitely, without rebalancing regardless of performance. The asset allocation is allowed to vary significantly from the starting allocation as risky assets, such as stocks, increase or decrease. Buy-hold essentially is a do not rebalance strategy and a truly passive strategy. The portfolio becomes more aggressive as stocks rise and you let the profits ride, no matter how high the stock value gets. The portfolio becomes more defensive as stocks fall and you let the bond position become a greater percentage of the account. At some point, the value of the stocks could reach zero, leaving only bonds in the account.
Constant-Mix Investing
The objective of constant-mix is to maintain a ratio of, for example, 60% stocks and 40% bonds , within a specified range by rebalancing. You are forced to buy securities when their prices are falling and sell securities when they are rising relative to each other. Constant-mix strategy takes a contrarian view to maintaining a desired mix of assets, regardless of the amount of wealth you have. You essentially are buying low and selling high as you sell the best performers to buy the worst performers. Constant-mix becomes more aggressive as stocks fall and more defensive as stocks rise.
Returns in Trending Markets
The buy-hold rebalancing strategy outperforms the constant-mix strategy during periods when the stock market is in a long, trending market such as the 1990s. Buy-hold maintains more upside because the equity ratio increases as thestock markets increase. Alternately, constant-mix has less upside because it continues to sell risky assets in an increasing market and less downside protection because it buys stocks as they fall.
Figure 1 shows the return profiles between the two strategies during a long bull and a long bear market. Each portfolio began at a market value of 1,000 and an initial allocation of 60% equities and 40% bonds. From this figure, you can see that buy-hold provided superior upside opportunity as well as downside protection.
Figure 1: Buy-hold vs. constant-mix rebalancing
Copyright ? 2009 Investopedia.com
Returns in Oscillating Markets
However, there are very few periods that can be described as long-trending. More often than not, the markets are described as oscillating. The constant-mix rebalancing strategy outperforms buy-hold during these up and down moves. Constant-mix rebalances during market volatility, buying on the dips as well as selling on the rallies.
Figure 2 shows the return characteristics of a constant-mix and buy-hold rebalancing strategy, each starting with 60% equity and 40% bonds at Point 1. When the stock market drops, we see both portfolios move to Point 2, at which point our constant-mix portfolio sells bonds and buys stocks to maintain the correct ratio. Our buy-hold portfolio does nothing. Now, if the stock market rallies back to initial value, we see that our buy-hold portfolio goes to Point 3, its initial value, but our constant-mix portfolio now moves higher to Point 4, outperforming buy-hold and surpassing its initial value. Alternatively, if the stock market falls again, we see that buy-hold moves to Point 5 and outperforms constant-mix at Point 6.
Figure 2
Copyright ? 2009 Investopedia.com
Conclusion
Most professionals working with retirement clients follow the constant-mix rebalancing strategy. Most of the general investing public has no rebalancing strategy or follows buy-hold out of default rather than a conscious portfolio management strategy. Regardless of the strategy you use, in difficult economic times, you will often hear the mantra stick to the plan, which is preceded by be sure you have good plan. A clearly defined rebalancing strategy is a critical component of portfolio management.
The security is a Grey Market security. Grey Market securities do not have any quotes in either OTC Link or the OTCBB. Grey Market securities are indicated in OTCMarkets.com by a grey triangle next to the symbol or on the top right of the quote page.
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Any security with price data over a period of time can be used to form a chart for analysis.
Benchmark Your Returns With Indexes
Investors look to broad indexes as benchmarks to help them gauge not only how well the markets are performing, but also how well they, as investors, are performing. For those who own stocks, they look to indexes like the S
This trading process example is very basic but it helps to explain how the OTC market efficiently trades in excess of $600 million on a daily basis.
On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt.
Open to Interpretation
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The Lowdown On Index Funds
Index funds have provided investors with a return that is directly linked to individual markets while charging minimal amounts for expenses. Despite their benefits, not everyone seems to know exactly what index funds are and how they compare to the many other funds offered by different companies.
Active and Passive Management
Before we get into the details of index funds, its important to understand the two different styles of mutual-fund management: passive and active.
Most mutual funds fit under the active management category. Active management involves the art of stock picking and market timing. This means the fund manager will put his/her skills to the test trying to pick securities that will perform better than the market. Because actively managed funds require more hands-on research and because they experience a higher volume of trading, their expenses are higher.
Passively managed funds, on the other hand, do not attempt to beat the market. A passive strategy instead seeks to match the risk and return of the stock market or a segment of it. You can think of passive management as the buy-and-hold approach to money management.
What Is an Index Fund?
An index fund is passive management in action: it is a mutual fund that attempts to mimic the performance of a particular index. For instance, a fund that tracks the S
OTCQX International – OTCQX offers international companies a visible presence in the U.S. on the premier tier of the OTC market, without the duplicative regulatory burdens of a traditional U.S. exchange listing.
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Once the price breaks below a support level, the broken support level can turn into resistance.
Why Expense Ratios Are Important To Investors
The most valuable pieces of advice ever shared regarding investing of any kind, in ascending order of importance:
1. Fundamental analysis is crucial. Technical analysis is akin to fortune telling by interpreting patterns in tea leaves.
2. Its not a game or a hobby. Spend hours researching an investment when others are spending minutes. Spend days when others are spending hours. Done right, youll still enjoy a stupendous return on your time.
3. You make your money going in.
Its straightforward math, and easy to overlook or dismiss in its simplicity. An overpriced asset is that much harder to gain a return on than an underpriced or properly priced one. Wait for a real estate bubble (or, say, the hoopla surrounding a social networking sites much-anticipated initial public offering) to subside and then buy; yourmargin for error and potential for return should increase correspondingly.
The Price of Management
Were not talking about normal price fluctuations, here, or the inherent unpredictability that comes with almost any investment. Rather, were looking at whats essentially a surcharge on the price of the investment, levied before you buy. For example, take two new cars with the same model, same color and same options. One dealer sells the first vehicle for $22,000, out the door. The other sells the identical vehicle for $22,000, but with a $495 non-negotiable advertising and marketing assessment. Do you need to be told to buy the former? Its like purchasing a residential air filter in Vancouver, Washington (and paying 8% state sales tax) instead of going across the river and buying the same thing in Portland (Oregon levies no sales tax).
This is how it goes with mutual funds, the financial product of choice for most casual and many sophisticated investors. While no two funds are indistinguishable, two similarly constituted funds can come with price tags that differ considerably. Why? Varying expense ratios.
Its understandable that a mutual funds price costs more than the prices of its components. It costs money to create a fund. The fund has to be set up, registered and maintained. The firm that created it and that hired its managers has to be compensated. However, to what tune? The U.S. Securities
Minimum Quotation Size Requirements for OTC Equity Securities (FINRA Rule 6433) – FINRA members acting as market makers by submitting quotations into an inter-dealer quotation system must adhere to the minimum size requirements set by FINRA. For example, all quotations with a price less than or equal to $.50 must have a minimum size of 5,000 shares.
The choice of data compression and time frame depends on the data available and your trading or investing style.
This link will help thou $LIQT BarChart Technical Analysis NITE-LYNX
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Pick Stocks Like Peter Lynch
In the early 1980s, a young portfolio manager named Peter Lynch was becoming one of the most famous investors in the world, and for a very understandable reason – when he took over the Fidelity Magellan mutual fund in May of 1977 (his first job as a portfolio manager), the assets of the fund were $20 million. He proceeded to turn it into the largest mutual fund in the world, outperforming the market by a mind-boggling 13.4% per year annualized!
Lynch accomplished this by using very basic principles, which he was happy to share with just about anyone. Peter Lynch firmly believed that individual investors had inherent advantages over large institutions because the large firms either wouldnt or couldnt invest in smaller-capcompanies that have yet to receive big attention from analysts or mutual funds. Whether youre a registered representative looking to find solid long-term picks for your clients or an individual investor striving to improve your returns, well introduce you how you can implement Lynchs time-tested strategy.
The Lynch Philosophy
Once his stellar track record running the Magellan Fund gained the widespread attention that usually follows great performance, Peter wrote several books outlining his philosophy on investing. They are great reads, but his core thesis can be summed up with three main tenets: only buy what you understand, always do your homework and invest for the long run.
1. Only Buy What You Understand
According to Lynch, our greatest stock research tools are our eyes, ears and common sense. Lynch was proud of the fact that many of his great stock ideas were discovered while walking through the grocery store or chatting casually with friends and family. We all have the ability to do first-hand analysis when we are watching TV, reading the newspaper, or listening to the radio. When were driving down the street or traveling on vacation we can also be sniffing out new investment ideas. After all, consumers represent two-thirds of the gross domestic product of the United States. In other words, most of the stock market is in the business of serving you, the individual consumer - if something attracts you as a consumer, it should also pique your interest as an investment.
2. Always Do Your Homework
First-hand observations and anecdotal evidence are a great start, but all great ideas need to be followed up with smart research. Dont be confused by Peter Lynchs homespun simplicity when it comes to doing diligent research – rigorous research was a cornerstone of his success. When following up on the initial spark of a great idea, Lynch highlights several fundamental values that he expected to be met for any stock worth buying:
• Percentage of Sales: If there is a product or service that initially attracts you to the company, make sure that it comprises a high enough percentage of sales to be meaningful; a great product that only makes up 5% of sales isnt going to have more than a marginal impact on a companys bottom line.
• PEG Ratio: This ratio of valuation to earnings growth rate should be looked at to see how much expectation is built into the stock. You want to seek out companies with strong earnings growth and reasonable valuations - a strong grower with a PEG ratio of two or more has that earnings growth already built into the stock price, leaving little room for error.
• Favor companies with a strong cash position and below-average debt-to-equity ratios. Strong cash flows and prudent management of assets give the company options in all types of market environments.
• 3. Invest for the Long Run
Lynch has said that absent a lot of surprises, stocks are relatively predictable over 10-20 years. As to whether theyre going to be higher or lower in two or three years, you might as well flip a coin to decide. It may seem surprising to hear such words from a Wall Street legend, but it serves to highlight how fully he believed in his philosophies. He kept up his knowledge of the companies he owned, and as long as the story hadnt changed, he didnt sell. Lynch did not try to market time or predict the direction of the overall economy.
In fact, Lynch once conducted a study to determine whether market timing was an effective strategy. According to the results of the study, if an investor had invested $1,000 a year on the absolute high day of the year for 30 years from 1965-1995, that investor would have earned acompounded return of 10.6% for the 30-year period. If another investor also invests $1,000 a year every year for the same period on the lowest day of the year, this investor would earn an 11.7% compounded return over the 30-year period.
Therefore, after 30 years of the worst possible market timing, the first investor only trailed in his returns by 1.1% per year! As a result, Lynch believes that trying to predict the short-term fluctuations of the market just isnt worth the effort. If the company is strong, it will earn more and the stock will appreciate in value. By keeping it simple, Lynch allowed his focus to go to the most important task – finding great companies. (To learn more about value investing , see Warren Buffett: How He Does It and What Is Warren Buffetts Investing Style?)
Lynch coined the term tenbagger to describe a stock that goes up in value ten-fold, or 1000%. These are the stocks that he was looking for when running the Magellan fund. Rule No.1 to finding a tenbagger is not selling the stock when it has gone up 40% or even 100%. Many fund managers these days look to trim or sell their winning stocks while adding to their losing positions. Peter Lynch felt that this amounted to pulling the flowers and watering the weeds. (For more information, read Achieving Better Returns In Your Portfolio.)
Conclusion
Even though he ran the risk of over-diversifying his fund (he owned thousands of stocks at certain times), Peter Lynchs performance and stock-picking ability stands for itself. He became a master at studying his environment and understanding the world both as it is and how it might be in the future. By applying his lessons and our own observations we can learn more about investing while interacting with our world, making the process of investing both more enjoyable and profitable.
Companies may issue and sell shares in the OTC market pursuant to the safe-harbor guidelines under SEC Rule 144 and 144A.
Feast thine eyes upon $NEXJF BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/NEXJF
5 ETFs Flaws You Shouldnt Overlook
Exchange-traded funds (ETFs) can be a great investment vehicle for small and large investors alike. These popular funds, which are similar to mutual funds but trade like stocks, have become a popular choice. However, there are some disadvantages that investors need to be aware of before jumping into the world of ETFs. In this article, we will look at some of the disadvantages of ETFs. Good information is an investors most important tool. Read on to find out what you need to know to make an informed decision.
Trading Fees
One of the biggest advantages to ETFs is that they trade like stocks. As a result, investors can buy and sell during market hours as well as put advanced orders on the purchase such as limits and stops. Conversely, a typical mutual fund purchase is made after the market closes, once thenet asset value of the fund is calculated. (To read more about ETFs, see Introduction To Exchange-Traded Funds.)
Every time you buy or sell a stock you pay a commission; this is also the case when it comes to buying and selling ETFs. Depending on how often you trade an ETF, trading fees can quickly add up and reduce your investments performance. No-load mutual funds, on the other hand, are sold without a commission or sales charge, which makes them advantageous, in this regard, compared to ETFs. It is important to be aware of trading fees when comparing an investment in ETFs to a similar investment in a mutual fund. (For more about how commissions can affect your portfolio, read Dont Let Brokerage Fees Undermine Your Returns.)
If you are deciding between similar ETFs and mutual funds, be aware of the different fee structures of each, including the trading fees. And remember, actively trading ETFs like stocks can severely reduce your investment performance as commissions can quickly pile up.
Underlying Fluctuations
ETFs, like mutual funds, are often lauded for the diversification that they offer to investors. However, it is important to note that just because an ETF contains more than one underlying position doesnt mean that it cant be affected by volatility.
The potential for large swings will mainly depend on the scope of the fund. An ETF that tracks a broad market index such as the S
If the order is not marketable, the broker-dealer may create or edit its existing quote on an Inter-dealer Quotation System (e.g. OTC Link) to reflect a new price or size. The quote lets all other broker-dealers know the price which they are willing to buy or sell. Broker-dealers are only required to update their quote if the price of the order is equal or superior to their existing quote.
This signals that the forces of supply and demand are evenly balanced. When the price breaks out of the trading range, above or below, it signals that a winner has emerged.
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Do Your Investments Have Short-Term Health?
For companies, being able to meet short-term financial obligations is an integral part of maintaining operations and growing in the future. After all, if its not able to meet todays debts, a company might not live to see another day! Thats why its essential for investors to know how to evaluate a companys short-term financial health. Here we take you through a few of the ratios that are the foremost tools for doing so.
The Basics of Liquidity
A large factor determining a companys short-term financial health is liquidity, the definition of which depends on context. In stock trading , liquidity is the degree to which the market is willing to buy a particular stock. As a characteristic of an asset, liquidity refers to the ease with which an asset can be converted into cash. This is the definition of liquidity we are interested in.
Lets compare two different kinds of assets: a building and a money market account. Even if these two assets are valued at $100,000 on a companys financial statement, their liquidities have different implications for the companys short-term health. The money market account, an asset referred to as a cash equivalent, can be converted into cash within a day or two, if not immediately. The building, however, is very illiquid. For the company to get its cash, it must sell the building, which could take months, if not years.
Essentially, a companys short-term liquidity determines how well it can make its necessary payments (cash outflows) - which include employee wages, interest and supplier costs - given the revenue it generates (cash inflows). If a company has no cash equivalents, its inflows need to match or exceed cash outflows. So, if a company has a bad month and it has no supply of liquid assets like a money market account , it will be unable to make its necessary payments.
The Current Ratio
The first ratio we will look at is the current ratio, which compares all of a companys current assets to all of its current liabilities. In general, the term current means less than one year. So, current assets include cash, accounts receivable, inventory, prepaid expenses and other assets that can be converted to cash within one year. Current liabilities include short-term debt, interest, accounts payable and any other outstanding liabilities that are due within a years time.
When calculating this ratio, you are essentially trying to determine whether a company can meet its short-term obligations. It will likely be able to do so if the ratio is above 1; if the ratio is less than 1, the company is likely to fall short. We say likely because although a ratio of 1 or greater indicates that the company has more current assets than current liabilities, it may be inappropriate to judge certain industries by a rigid standard.
For industries that generally have a large portion of current assets tied up in inventory, a ratio of 1.5 or even 2 might be a better standard. When analyzing the current ratio, as when looking at any ratio, an investor should make comparisons between companies that operate in the same industry. Different industries have different business needs, so investors must modify their analyses accordingly.
Finally, bigger is not necessarily better in the case of the current ratio. A really high ratio, 10 for example, should probably sound some alarm bells, because it indicates that the company has a large amount of current assets that could - and probably should - be invested back into the company. Although a company with a very high current ratio may be stable in the short term, it probably has no means of sustaining its long-term growth and performance.
The Acid Test or Quick Ratio
The acid test is a more rigorous version of the current ratio. It indicates whether a firm, without selling inventory, has enough short-term assets to cover its immediate liabilities. Companies with ratios of less than 1 cannot pay their current liabilities without selling inventories and should be viewed with extreme care. An acid test that is much lower than the current ratio signals that current assets are highly dependent on inventory - retail is a type of business in which this would occur. In general, a ratio of 1 is considered satisfactory, although, as with the current ratio, the acid test should be compared only within a similar industry.
Interest Coverage
Interest coverage indicates what portion of debt interest is covered by a companys cash flow. A ratio of less than 1 means the company is having problems generating enough cash flow to pay its interest expenses. Ideally, you want the ratio to be over 1.5. A company with no long-term debt doesnt have any interest expense; this situation causes the current ratio to give enviable results. Companies with a poor interest coverage ratio can improve it by improving cash flow and/or lowering interest expenses by paying off debt.
This ratio is popular not only among investors, but also with creditors, who want to see that a companys short-term health is strong and that the company has sufficient cash flow to make principal and interest payments.
Another notable fact about the ratio is that sometimes different numerators will be used. For example, some analysts or creditors will use EBITDA in place of EBIT.
Activity Ratios
There are a few different activity ratios, but essentially, their main function is to help determine the companys cash flow cycle, giving a picture of how efficiently assets are being used. Almost any current account can be analyzed in terms of this cycle, but the three most common activity ratios each measure one of the following:
1. How long a company takes to collect receivables
2. How long a company takes to sell inventory
3. How long it takes to pay suppliers
The calculation of activity ratios is a little complex, but to give you an idea of how these ratios work, well look at the activity ratio dedicated to accounts receivable. Suppose that a company has total credit sales of $22 million. At the beginning of the year, accounts receivable is at $4.5 million, and at the end its $1.5 million. By using the accounts receivable turnover ratio we can determine that the companys receivables turn over at a rate of approximately 7.3 times per year. This means receivables remain outstanding for an average of 50 days. Here the calculations are represented mathematically:
Although we only demonstrate one activity ratio calculation here, the others are calculated in a similar fashion. All it takes is some research into the company and some number crunching.
Lets look at an example to put this all into context. Suppose that the above company has to pay suppliers within 90 days of purchase and suppose that, by calculating another activity ratio, we find the company holds inventory for 80 days. As the companys accounts receivable remain outstanding for 50 days, we find it has a cash cycle of 130 days (80 50). In other words, from the time it purchases its product from the supplier, the company takes approximately 130 days to collect payment from the customer.
The supplier, however, requires a payment within 90 days of the purchase. This 40-day discrepancy may create short-term liquidity problems for the company. This means investors should conduct more research to determine whether there is justification for this difference, and whether it is likely to cause hardship for the company. Examining activity ratios and determining a companys cash flow cycle are important elements of determining a companys short-term health and should be analyzed in conjunction with the other short-term liquidity ratios.
Conclusion
By honing in on crucial aspects of a companys financial health, ratios shed light on how well a company will do in the short term. More importantly, they help investors determine whether a company has the stability to get through unexpected problems today. If a company cannot maintain operations in the short term, it will not have the ability to provide investors with any benefits in the long term.
Investor-focused companies may use either the OTCQX requirements, SEC Reporting or OTC Markets Alternative Reporting Standard to provide transparency to individual investors and the professional investment community. These services increase the flow of information, raise the profile of OTC companies, improve price discovery, and increase trading and liquidity in the OTC market.
In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry.
$VUNCF BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/VUNCF
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