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When the stock failed to advance past 42.5, the resistance level was confirmed. The stock subsequently traded up to 42.5 two more times after that and failed to surpass resistance both times.
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Callable CDs: Check The Fine Print
If youre looking for bigger yields with limited risk, callable certificates of deposit (CD ) might be right for you. They promise higher returns than regular CDs and are FDIC insured. However, there are a few things in the fine print that you should be aware of before you turn your money over to the bank or brokerage firm, otherwise, you could end up very disappointed.
Just like a regular CD, a callable CD is a certificate of deposit that pays a fixed interest rate over its lifetime. The feature that differentiates a callable CD from a traditional CD is that the issuer owns a call option on the CD and can redeem, or call, your CD from you for the full amount before it matures. In this article, we will provide you with some important terms to watch for in the fine print of your callable CDs , should you decide to invest.
Important Terms
Callable CDs are similar in many ways to callable bonds.
Callable Date
This is the date that the issuer can call your certificate of deposit . Lets say, for example, that the call date is six months. This means that six months after you buy the CD, the bank can decide whether it wants to take back your CD and return your money with interest. Every six months after the call date, the bank will have that same option again. Well get to why the bank would want to call back the certificate shortly.
Maturity Date
The maturity date is how long the issuer can keep your money. The farther in the future the maturity date, the higher the interest rate you should expect to receive. Make sure you dont confuse maturity date with the call date. For instance, a two-year callable CD does not necessarily mature in two years. The two years refers to the period of time you have before the bank can call the CD away from you. The actual amount of time you must commit your money could be much longer. Its common to find callable CDs with maturities in the range of 15 to 20 years.
To Call, or Not to Call
A change in prevailing interest rates is the main reason the bank or brokerage firm will recall your CD on the callable date. Basically, the bank will ask itself if its getting the best deal possible based on the current interest rate environment. (To learn how interest rate changes affect other investments , see How Interest Rates Affect The Stock Market and Its In Your Interest.)
Interest Rates Decline
If interest rates fall, the issuer might be able to borrow money for less than its paying you. This means the bank will likely call back the CD and force you to find a new vehicle to invest your money in.
Example - Callable CD When Rates Decline
Suppose you have a $10,000 one-year callable CD that pays 5% with a five-year maturity. As the one-year call date approaches, prevailing interest rates drop to 4%. The bank has therefore dropped its rates too, and is only paying 4% on its newly issued one-year callable CDs.
Why should I pay you 5%, when I can borrow the same $10,000 for 4%?, your banker is going ask. Heres your principal back plus any interest we owe you. Thank you very much for your business.
The good news is that you got a higher CD rate for one year. But what do you do with the $10,000 now? Youve run into the problem of reinvestment risk.
Perhaps you were counting on the $500 per year interest ($10,000 x 5% = $500) to help pay for your annual vacation. Now youre stuck with just $400 ($10,000 x 4% = $400) if you buy another one-year callable CD. Your other choice is to try to find a place to put your money that pays 5% such as by purchasing a corporate bond - but that might involve more risk than you wanted for this $10,000 . (For more on the risks of these bonds, see Corporate Bonds: An Introduction To Credit Risk.)
Interest Rates Rise
If prevailing interest rates increase, your bank probably wont call your CD. Why would it? It would cost more to borrow elsewhere.
Example - Callable CD When Rates Rise
Lets look at your $10,000 one-year callable CD again. Its paying you 5%. This time, assume that prevailing rates have jumped to 6% by the time the callable date hits. Youll continue to get your $500 per year, even though newly issued callable CDs earn more. But what if youd like to get your money out and reinvest at the new, higher rates?
Sorry, your banker says, only we can decide if youll get your money early.
Unlike the bank, you cant call the CD and get your principal back - at least not without penalties called early surrender charges. As a result, youre stuck with the lower rate. If rates continue to climb while you own the callable CD, the bank will probably keep your money until the CD matures.
What to Watch For
Whos Selling
Anyone can be a deposit broker to sell CDs. There are no licensing or certification requirements. This means you should always check with your states securities regulator to see whether your broker or your brokers company has any history of complaints or fraud.
Early Withdrawal
If you want to get your money before the maturity date, there is a possibility youll run into surrender charges. These fees cover the maintenance costs of the CD and are put in place to discourage you from trying to withdraw your money early. You wont always have to pay these fees; if you have held the certificate for a long enough period of time these fees will often be waived.
Check the Issuer
Each bank or thrift institution depositor is limited to $100,000 in FDIC insurance. There is a potential problem if your broker invests your CD money with an institution where you have other FDIC insured accounts. If the total is more than $100,000, you run the risk of exceeding your FDIC coverage. (To learn more, read Are Your Bank Deposits Insured?)
Wrap Up: Callable or Non-Callable?
With all of the extra hassle they involve, why would you bother to purchase a callable CD rather than a non-callable one? Ultimately, callable CDs shift the interest-rate risk to you, the investor. Because youre taking on this risk, youll tend to receive a higher return than youd find with a traditional CD with a similar maturity date.
Before you invest, you should compare the rates of the two products. Then, think about which direction you think interest rates are headed in the future. If you have concerns about reinvestment risk and prefer simplicity, callable CDs probably arent for you.
Use this checklist when you are shopping for callable CDs to help you keep track of the important information.
Callable CD Checklist
Traditional CD Callable CD #1 Callable CD #2
Callable Date N/A
Maturity Date
Seller Background
Surrender Fee
Issuer
Interest Rate
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Sometimes it does not seem logical to consider a resistance level broken if the price closes 1/8 above the established resistance level. For this reason, some traders and investors establish resistance zones.
Introduction To Investment Diversification
Diversification is a familiar term to most investors. In the most general sense, it can be summed up with this phrase: Dont put all of your eggs in one basket. While that sentiment certainly captures the essence of the issue, it provides little guidance on the practical implications of the role diversification plays in an investors portfolio and offers no insight into how a diversified portfolio is actually created. In this article, well provide an overview of diversification and give you some insight into how you can make it work to your advantage.
What Is Diversification?
Taking a closer look at the concept of diversification, the idea is to create a portfolio that includes multiple investments in order to reduce risk. Consider, for example, an investment that consists of only stock issued by a single company. If that companys stock suffers a serious downturn, your portfolio will sustain the full brunt of the decline. By splitting your investment between the stocks from two different companies, you can reduce the potential risk to your portfolio.
Another way to reduce the risk in your portfolio is to include bonds and cash. Because cash is generally used as a short-term reserve, most investors develop an asset allocation strategy for their portfolios based primarily on the use of stocks and bonds. It is never a bad idea to keep a portion of your invested assets in cash or short-term money-market securities. Cash can be used incase of an emergency, and short-term money-market securities can be liquidated instantly incase an investment opportunity arises, or in the event your usual cash requirements spike and you need to sell investments to make payments. Also, keep in mind that asset allocation and diversification are closely linked concepts; a diversified portfolio is created through the process of asset allocation. When creating a portfolio that contains both stocks and bonds, aggressive investors may lean towards a mix of 80% stocks and 20% bonds, while conservative investors may prefer a 20% stocks to 80% bonds mix.
Regardless of whether you are aggressive or conservative, the use of asset allocation to reduce risk through the selection of a balance of stocks and bonds for your portfolio is a more detailed description of how a diversified portfolio is created rather than the simplistic eggs in one basket concept. With this in mind, you will notice that mutual fund portfolios composed of a mix, which includes both stocks and bonds, are referred to as balanced portfolios. The specific balance of stocks and bonds in a given portfolio is designed to create a specific risk-reward ratio that offers the opportunity to achieve a certain rate of return on your investment in exchange for your willingness to accept a certain amount of risk. In general, the more risk you are willing to take, the greater the potential return on your investment.
What Are My Options?
If you are a person of limited means or if you simply prefer uncomplicated investment scenarios, you could choose a single balanced mutual fund and invest all of your assets in the fund. For most investors, this strategy is far too simplistic. While a given mix of investments may be appropriate for a childs college education fund, that mix may not be a good match for long-term goals, such as retirement or estate planning. Likewise, investors with large sums of money often require strategies designed to address more complex needs, such as minimizing capital gains taxes or generating reliable income streams. Furthermore, while investing in a single mutual fund provides diversification among the basic asset classes of stocks, bonds and cash (funds often hold a small amount of cash from which the fees are taken), the opportunities for diversification go far beyond these basic categories.
With stocks, investors can choose a specific style, such as focusing on large, mid or small caps. In each of these areas are stocks categorized as growth or value. Additional choices include domestic and foreign stocks. Foreign stocks also offer sub-categorizations that include both developed and emerging markets. Both foreign and domestic stocks are also available in specific sectors, such as biotechnology and healthcare.
In addition to the variety of equity investment choices, bonds also offer opportunities for diversification. Investors can choose long-term or short-term issues. They can also select high-yield or municipal bonds. Once again, risk tolerance and personal investment requirements will largely dictate investment selection.
While stocks and bonds represent the traditional tools for portfolio construction, a host of alternative investments provide the opportunity for further diversification. Real estate investment trusts, hedge funds, art and other investments provide the opportunity to invest in vehicles that do not necessarily move in tandem with the traditional financial markets. Yet these investments offer another method of portfolio diversification.
Concerns
With so many investments to choose from, it may seem like diversification is an easy objective to achieve, but that sentiment is only partially true. The need to make wise choices still applies to a diversified portfolio. Furthermore, it is possible to over-diversify your portfolio, which will negatively impact your returns. Many financial experts agree that 20 stocks is the optimal number for a diversified equity portfolio. With that in mind, buying 50 individual stocks or four large-cap mutual funds may do more harm than good. Having too many investments in your portfolio doesnt allow any of the investments to have much of an impact, and an over-diversified portfolio (sometimes called diworsification) often begins to behave like an index fund. In the case of holding a few large-cap mutual funds, multiple funds bring the additional risks of overlapping holdings as well as a variety of expenses, such as low balance fees and varying expense ratios, which could have been avoided through a more careful fund selection.
Tools
Investors have many tools to choose from when creating a portfolio. For those lacking time, money or interest in investing, mutual funds provide a convenient option; there is a fund for nearly every taste, style and asset allocation strategy. For those with an interest in individual securities, there are stocks and bonds to meet every need. Sometimes investors may even add rare coins, art, real estate and other off-the-beaten-track investments to their portfolios.
The Bottom Line
Regardless of your means or method, keep in mind that there is no generic diversification model that will meet the needs of every investor. Your personal time horizon, risk tolerance, investment goals, financial means and level of investment experience will play a large role in dictating your investment mix. Start by figuring out the mix of stocks, bonds and cash that will be required to meet your needs. From there, determine exactly which investments to use in completing the mix, substituting traditional assets for alternatives as needed. If you are too overwhelmed by the choices or simply prefer to delegate, there are plenty of financial services professionals available to assist you.
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Liquidity follows transparency. Companies that provide current disclosure either through a regulator or directly to OTC Markets Group experience significantly greater levels of liquidity, improved price discovery, and more efficient trading.
Price Scaling
There are two methods for displaying the price scale along the y-axis: arithmetic and logarithmic. An arithmetic scale displays 10 points (or dollars) as the same vertical distance no matter what the price level.
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The Key To High Returns Is A Disciplined Strategy
Having a disciplined investment strategy differentiates the professional from the do-it-yourself investor. An investment strategy does not have to be complicated. If you were to sum up Warren Buffetts investing strategy it might be to buy good businesses at a fair price with the intention of holding them forever. An investment strategy helps provide focus and ensures emotions are held in check when making decisions. Having an investment strategy for both asset mix and security will provide discipline to be a successful investor over the long term. In this article, we will look at different investment strategies and how you can pick the right one for you.
See also: 4 Steps To Creating A Better Investment Strategy
Strategic Asset Mix
Central to any investment plan is the strategic or long-term asset mix. In general, its purpose is to capture the benefits of diversification and the advantages of investing in assets that have a low correlation to each other. The strategic asset mix is essentially the link between your long-term investment goals and the capital markets.
Many investors want to keep the current asset mix of their portfolios close to their strategic asset mix. A simple rebalancing strategy is all that is required. Typically, as each asset class will perform differently over time, the asset mix will deviate from the strategic asset mix. (For related reading, see Diversification: Its All About (Asset) Class.)
For example, a balanced portfolio of 60% equity and 40% fixed income could become 70% equity and 30% fixed income after a strong stock market. Rebalancing would require selling equities and using the proceeds to buy fixed-income assets, so the asset mix then will get back to the long-term asset mix. The rebalancing could be done on a regular basis, semiannually, annually or when an asset class deviates by a set percentage.
A rebalancing strategy is effectively a sell high, buy low strategy, because it will always sell the assets that have been the best relative performers and buy the assets with relatively weak performance. (For more insight, read 6 Asset Allocation Strategies That Work .)
Tactical Asset Allocation
A tactical asset mix strategy attempts to add value by overweighting the asset classes that are expected to outperform, and underweighting those asset classes that are expected to underperform.
As an example, if an investor believes that over the next year the U.S. equities market will be weak, the investor might decide to underweight his exposure to equities and overweight cash or bonds. Unlike a rebalancing strategy, which is mechanical, tactical asset allocation requires some forecasting ability to make the correct decisions. (To learn more about asset allocation, read Achieving Optimal Asset Allocation.)
Security Selection Strategies
There is no shortage of strategies to choose from when buying and selling stocks. Countless books have been written describing many strategies in detail. Strategies range from growth, to value and momentum. There are fundamentally based strategies, as well as technical or quantitative strategies. There are also top-down and bottom-up strategies. (For related reading, see A Top-Down Approach To Investing.)
Each type of strategy will have its proponents, but any logical, rational strategy that is followed consistently is always better than no strategy at all. The value is in the disciplined approach a strategy provides.
Developing Your Strategy
The value of an investing strategy is not in the strategy itself, but in how it is followed and implemented.
In investing, there are two different approaches: a top-down or a bottom-up approach. In a top-down approach, the investor analyzes the major factors that will influence the capital market and the companies in it. The main factors will be the overall economy, monetary and fiscal policy, demographic changes, inflation, industrial sector trends and interest rates. Other investors will take a bottom-up approach, analyzing individual companies, their financial statements, growth prospects and industry trends.
One approach is not necessarily better than the other. However, depending on your own interests, knowledge and experience, one approach might be more appropriate for you. As an example, an economist will likely take a top-down approach to investing and an accountant might feel more comfortable with a bottom-up approach. Your orientation to analyzing investments will determine the types of investment strategies to follow.(For more insight, see Where Top Down Meets Bottoms Up.)
In addition, the amount of time you are able to commit to your investment program determines the type of strategies to use and how much of the investment decision-making you will delegate. For example, with limited time, an investor might build a portfolio using a few exchanged-traded funds (ETFs) and then rebalance once a year. Similarly, the investor might have all of their investments in a couple of balanced funds or have their funds managed by a discretionary money manager.
Information and knowledge are important to the success of any investment strategy. One should identify the sources of data, investment commentary or investment research. The biggest challenge as an investor is to be able to filter out truly useful information from the needless noise. A disciplined investment strategy forces you to focus on the information that is important for your decision-making process.
Delegating Decision Making
Recognize the fact that it is difficult to do it all when it comes to investing. If you have a well-diversified portfolio and you invest in the major assets classes - and maybe some of the sub-asset classes as well - you are not likely to be able to actively manage all your investments effectively, unless you have a lot of time to allocate. The question then becomes, what to do yourself and what to delegate to others. It is important to stick to your strengths and interests and delegate out the asset classes in which you have a limited expertise.
As an example, an investor might feel confident trading large cap value stocks. As such, this person should concentrate their efforts on that asset class and delegate the investment management of other asset classes to someone else. Investors have several choices here, including active or passive management of the funds or assets they are looking to delegate. From the passive management side, you can find an advisor to handle the areas that you have little time to manage or research; you could also purchase a mutual fund or an ETF that provides exposure to these areas.
The Bottom Line
Having an investment strategy for both asset mix and security selection is important to ensure consistent success as an investor. Having the discipline to follow an investment strategy is more important than the actual strategy chosen. Equally important to any strategy, is determining what to manage yourself and what to delegate to others.
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Signs That It Might Be Time To Sell
As a novice investor youre likely to focus most of your time on what to buy and when. Being a successful investor is as much about knowing when to sell as when to buy. But how do you know when its time to sell? What are the best reasons to liquidate a holding? Here are a few important basic principles about why and when you should let go of part of your portfolio. (Check out Signs A Stock Is Ready To Slide for more.)
Significant Corporate Structural Problems or Concerns
Every company is going to have peaks and valleys. However, if one of your investments has underlying structural problems, it may indicate that it doesnt have the business legs to go the distance. Pay close attention to news about a high turnover rate of its executive staff or Board of Directors, excessive executive compensation (particularly in light of mediocre or poor corporate earnings), questionable corporate ethics, etc. In addition, any company with long-standing, aging leadership should have a clear succession plan in place.
Unexplained Executive Stock Sell-Off
Corporate executives often receive large blocks of stock and/or stock options as part of their compensation package. Periodically they may choose to sell a portion for various personal reasons (i.e. a desire to diversify). However, when several executives at a company sell large blocks of stock it could indicate a lack of confidence in their own company. You can learn what a companys leaders are doing with their stock (if theyre buying or selling) because they are required to file Form 4 with the SEC, which you can research by using the SECs online Edgar database. If theyre selling it might be a sign for you to do the same.
Cutting or Canceling Dividends
While a companys decision to cut its dividends doesnt necessarily spell stock price doom, it can raise a red flag. Cutting or canceling stock dividend payouts is a move to conserve cash. The important question is why? For example, a company could anticipate needing cash if credit becomes tight during a difficulty economy (i.e. a recession) and choose to cut dividends accordingly. Or it could be a means of preserving cash needed to finance the acquisition of a competitor. However, it could mean that the company has mounting debt that it needs to repay or that its simply too low on cash to pay out dividends. Do a little digging to learn if the announcement indicates that its the time to sell.
Inexplicable High P/E Ratio Compared To Competitors
The P/E ratio is a companys stock price compared to its earnings. If a company has an inexplicably higher P/E ratio than its competitors, it means that its stock costs more but is generating the same earnings as lower-priced shares at firms operating in the same market. Companies may have overpriced stock due to investor enthusiasm, and without accompanying earnings results over time, it will unfortunately have no place to go but down. An inexplicably high P/E ratio might indicate that its time to sell and reinvest with a competitor that has a lower P/E ratio.
Sustained Decline in Corporate Earnings
Corporate earnings are an important piece of the puzzle known as stock valuation . If earnings are down - and particularly if they stay down - the stock price tends to follow. Youll want to know that little tidbit before you hold on to your investment too long.
Falling Operating Cash Flow Compared to Net Income
Operating cash flow is the amount of cash a company has coming in and how much it pays out within a specific amount of time. Net income is a companys bottom line profit or loss. While a business may be able to show a positive net income on paper, that profit may be in accounts receivable (AR) and the company could be cash-poor. Without adequate cash it may have to assume debt for financing operations. Debt means the company is paying interest just to operate, and without cash to fund day-to-day obligations, the riskier the companys long-term viability becomes. Watch these two variables to know when it might be time to pull out. (To learn more, see Operating Cash Flow: Better Than Net Income?)
Falling Gross and Operating Margins
Margin is the amount of profit a company makes on a sale. Gross margin is a companys profit on sales before factoring in all costs, such as interest and taxes. If a companys gross margin is falling, that could mean that the company is slashing prices (due to increased competition) or that cost of production is rising and the company cant increase prices to offset it.
A companys operating margin is the companys estimated profit after subtracting costs. Falling operating margin means the company is spending more money than it is making. A combination of sustained falling gross and operating margins may mean the company is having a difficult time of managing costs and/or its product price point. Either way it could mean that its time to sell.
High Debt-to-Equity Ratio
A high debt-to-equity ratio means that a company is carrying significantly more debt than it has in shareholder investment. If the ratio is greater than one, the company is operating more on the basis of debt than equity. Its important to know the generally acceptable debt-to-equity ratio for companies within an industry before you respond to a high number by dumping a stock. However, if the ratio continues to climb over time without explanation - and especially if the ratio is excessively high beyond either competitor or industry standards - it might be a signal to sell.
Sustained Increase in Corporate Receivables Compared to Sales
A companys accounts receivables is how much it has billed out and is waiting to be paid. There are a few reasons that receivables begin to climb:
• Clients/customers are in a cash crunch and are taking longer to pay their bills than in the past
• A company is falling behind in getting bills out
• A company has chosen to extend its payment due dates to accommodate customers financial strain or as a financial benefit to entice customer sales and/or loyalty
You can gauge a companys receivables compared to sales by reviewing its quarterly income statement and comparing the receivables (balance sheet) ratio to sales (income). Always compare numbers during the same period (i.e. a certain month or quarter) from one year to the next. If the company has sustained prolonged payment delays it could begin to erode its stock price.
Significant Market Shrinkage Or Product Commoditization
If a company holds a small percentage of its market and that overall market shrinks, it will need to quickly adapt to the new market fundamentals and innovate to establish a stronger position. If a companys competitors have quickly replicated its product and driven down the cost, the game has changed. If its not the lowest-cost producer or it doesnt have significant brand strength to charge higher prices for a product (i.e. Starbucks for coffee), it will need to respond quickly. Pay attention to the market trends for the companies in your portfolio and make sure that they have strong, effective responses to market shrinkage or product commoditization or your investment is ultimately what will shrink in value.
Hostile M
Even though there is a long black candlestick indicating an open at 59, the stock fell so fast that it was impossible to exit above 44.
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OTC Link allows broker-dealers to quote any OTC equity security eligible for quoting under SEC Rule 15c2-11. Currently, there are over 10,000 securities quoted on the OTC Link system. Broker-dealers access the OTC Link system either through OTC Markets Group’ OTC Dealer or OTC FIX applications. These applications allow broker-dealers to view all quotes for OTC securities and, if desired, trade those securities through OTC Link.
Going All-In: Comparing Investing And Gambling
How many times during a discussion with friends about investing have you heard someone utter: Investing in the stock market is just like gambling at a casino? Is this adage really true? Lets examine these two activities more closely and see if we can point out some of the key differences and also some surprising similarities.
Investing and gambling both involve risk and choice. Interestingly, both the gambler and the investor must decide how much they want to risk. Some traders typically risk 2-5% of their capital base on any particular trade. Longer-term investors constantly hear the virtues of diversification across different asset classes. This, in essence, is a risk management strategy, and spreading your dollars across different investments will likely help minimize potential losses.
Gamblers must also carefully weigh the amount of capital they want to put in play. Pot odds are a way of assessing your risk capital versus your risk reward: the amount of money to call a bet compared to what is already in the pot. If the odds are favorable, the player is more likely to call the bet. Most professional gamblers are quite proficient at risk management. In both gambling and investing, a key principle is to minimize risk while maximizing profits.
Throwing It in the Pot
Sports betting is probably one of the most common gambling activities in which the average person engages. From the weekly football office pool to the Final Four, sport betting is an American tradition. Only by thinking about your betting habits will you realize that you have no way to limit your losses. If you pony up $10 a week for the NFL office pool and you dont win, you lose all of your capital. When betting on sports (or really any other pure gambling activity), there are no loss-mitigation strategies.
This is a key difference between investing and gambling. Stock investors and traders have a variety of options to prevent total loss of risked capital. Setting stop losses on your stock investment is a simple way to avoid undue risk. If your stock drops 10% below its purchase price, you have the opportunity to sell that stock to someone else and still retain 90% of your risk capital. However, if you bet $100 that the Jacksonville Jaguars will win the Super Bowl this year, you cannot get part of your money back if they just make it to the Super Bowl. Betting on sports is truly a speculative activity which prevents individuals from minimizing losses.
Another key difference between the two activities has to do with the concept of time. Gambling is a time-bound event while an investment in a company can last several years. With gambling, once the game or hand is over, your opportunity to profit from your wager has come and gone. You either have won or lost your capital. Stock investing , on the other hand, can be time-rewarding. Investors who purchase shares in companies that pay dividends are actually rewarded for their risked dollars. Companies pay you money regardless of what happens to your risk capital, as long as you hold on to their stock. Savvy investors realize that returns from dividends are a key component to making money in stocks over the long term.
Playing the Odds
Both stock investors and gamblers look for an edge in order to help enhance their performance. Good gamblers and great stock investors study behavior in some form or another. Gamblers playing poker typically look for cues from the other players at the table, and great poker players can remember what their opponents wagered 20 hands back. They also study the mannerisms and betting patterns of their opponents with the hope of gaining useful information. This information may be just enough to help predict future behavior. Similarly, some stock traders study trading patterns by interpreting stock charts. Stock market technicians try to leverage the charts to glean where the stock is going in the future. This area of study dedicated to analyzing charts is commonly referred to as technical analysis. (To learn more, see our Technical Analysis Tutorial.)
Another difference between investing and gambling is the availability of information. Information is a valuable commodity in the world of poker as well as stock investing. Stock and company information is readily available for public use. Company earnings, financial ratios and management teams can be studied before committing capital. Stock traders who make hundreds of transactions a day can use the days activities to help with future decisions. Nonetheless, stock information is far from perfect, otherwise, there would not be insider trading or the Securities and Exchange Commission (SEC).
If you sit down at a Blackjack table in Las Vegas, you have no information about what happened an hour, a day or a week ago at that particular table. You may hear that the table is either hot or cold, but that information is not quantifiable.
Conclusion
The next time you hear someone say that stock investing is the same as playing in a casino, remind them that in fact there are some similarities and some major differences. Both activities involve risk of capital with hopes of future profit. Gambling is typically a short-lived activity, while stock investing can last a lifetime. Some companies actually pay you money in the form of dividends to go along with an ownership stake. In general, most average investors will do better investing in stocks over a lifetime than trying to win the World Series of Poker.
Subjectivity
Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation, an average-case valuation and a worst-case valuation. However, even on a worst-case valuation, most models are almost always bullish, the only question is how much so. The chart below shows how stubbornly bullish many fundamental analysts can be.
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Although exchange-listed stocks can be traded OTC on the third market, it is rarely the case. Usually OTC stocks are not listed nor traded on exchanges, and vice versa. Although stocks quoted on the OTCBB must comply with U.S. Securities and Exchange Commission (SEC) reporting requirements, other OTC stocks have alternative disclosure guidelines (for example, OTCQX stocks through OTC Market Group Inc), and others have no reporting requirements, for example Pink Sheets securities.
Banking On Blue Chip Stocks
Blue chip stocks, named after the highest-valued chips in poker, are prized investment holdings representing ownership in some the most successful firms in the economy. If you want to invest in companies that have proven their ability to ride out economic downturns and maintain profitability even when times get tough, you should take a look at these stocks.
Basic Characteristics of Blue Chip Stocks
A blue chip stock is a share of ownership in a large, well-established and stable company that has a long history of consistent earnings growth and dividend payments. Blue chip companies have a large market capitalization, strong balance sheets and good cash flow. Blue chip stocks have low volatility overall, but strong changes in the overall market can also have strong effects on these stocks. The performance of an individual blue chip company will tend to correlate closely with the performance of the S
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On most stock charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following:
Reactions prior to and after important events.
Past and present volatility.
Historical volume or trading levels.
Relative strength of a stock versus the overall market.
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.
How To Efficiently Read An Annual Report
A companys annual report is the single most important way for it to convey itself to potential investors. As such, it should come as no surprise that an annual report serves to present the company in best light possible without violating any Securities and Exchange Commission (SEC) regulations. Unfortunately, many investors read annual reports but fail to read them effectively. In other words, while annual reports are clearly prepared without any intent to deceive or reflect dishonesty about the business, investors should always read them with a sense of skepticism. In other words, learn how to read between the lines and decipher the actual condition of the company. Annual Report Vs. 10-K Filing
Typically, a company will file both an annual report and 10-K report to the SEC. An annual report is the shorter version that often comes with pictures, nice glossy color pages, a letter from the Chairman/CEO and an overview of the financials.
The 10-K is the black and white, no color pictures document that is submitted to the SEC. Very often, a business will simply file the 10-K as its annual report since that document is mandatory for every public company. So guess which one carries more significance to the investor - the longer and more boring 10-K filing. Think of the glossy annual report as informative marketing material. If a company does file both reports, use the annual report as a great first look at a business before tackling the 10-K filing. Very often, the annual report and 10-K are merged into one document, with the annual report at the beginning to provide an overview of the years results.
The Components of an Annual Filing
If you are interested in investing in a public company you can not avoid examining and reading the 10-K filing, which I will now refer to as the annual report.
The 10-Ks begin with a detailed description of the business, followed by risk factors, a rundown of any legal issues, and, finally, the numbers and financial notes in the back. Oftentimes, the most essential components of the annual filing are the following items:
• Item 1: Business - a description of the companys operation
• Item 1A: Risk Factors
• Item 3: Legal Proceedings
• Item 6: Selected Financial Data
• Item 7: Managements Discussion and Analysis of Financial Condition
How to Tackle
People read annual reports in different ways. Some investors even prefer to start at the back and work their way to the beginning. It makes no difference how you read them, as long you absorb the essential points of the business and its financial condition. However, there is a good way to tackle these reports that is both most efficient and most effective.
Without question, you should first read Item 1, which is the business description. You cant possibly go any further in your research without knowing what the company does! Also, by getting to know the business first, you can then determine if you need to go any further. That determination is simple. Just ask yourself if you understand what the company does, who its customers are, and the industry it operates in. If you answer no, youre done. Move on to the next business.
Next, you should jump to Items 6 and 7 and examine and analyze the financial data . How has the company performed over a period of years? Has the balance sheet gotten stronger or weaker over time? Look over the cash flow statement and see if the business has been a generator of cash or a user of cash. Its possible for businesses to report net income while at the same time remaining cash flow negative. Compare the income statement with the cash flow statement for any red flags. If you like what you see, move on and if not, move on to the next company.
Afterwards its time to determine if any hidden surprises may lurk beneath the surface. So you must now go back and read the risk factors section and the legal proceedings section, if any legal matters exist. Because this is a filing to the SEC, the risk factors will be very detailed and include risks like our industry is highly fragmented with lots of competitors or our stock price may experience periods of volatility. While these are important risks to consider, they should not significantly reduce the desirability of the business.
Instead, focus on any unusual risk factors, such as if the company generates a substantial portion of its revenues for one or two customers. In addition, the Legal Proceedings section will alert you if any significant lawsuits are in the works. Again, dont ignore any legal liabilities, but if youre looking at a billion dollar company and it has a pending lawsuit against it for damages of $10 million, thats not uncommon. Pfizer, one of the largest drug companies in the world, will also have patent lawsuits and drug liability claims that may exceed hundreds of millions of dollars. But thats part of the normal course of business for any major pharmaceutical company, and a drop in the bucket for Pfizer when you see that the company has over $50 billion in cash and short-term investments on the balance sheet.
Focus on What You Know
We all have different ways of deciphering and storing information. Feel free to read the annual report in a way that works for you. But learn to concentrate on the most important aspects of a companys 10-K filing. By doing so, you will avoid wasting unnecessary time on companies that do not meet your investment suitability. But always remember that just because you arent investing in that particular business that you have wasted your time. Investing is a discipline that rewards those who are continuously learning.
Feast thine eyes upon $ASIBY BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/ASIBY
Setting qualification standards for securities industry professionals; examining members for their financial and operational condition, as well as their compliance with appropriate rules and regulations; investigating alleged violations of securities laws; disciplining violators of applicable rules and regulations; and responding to inquiries and complaints from investors and members.
Choosing A Compatible Broker
Did you hear about Chanko Wireless?
Yeah, I got in at $25.10.
Well I got in at $25.05!
How did you get a better price than I did?
For those of you who dont remember this dialog, it is a snippet from an old Ameritrade (a brokerage) commercial. In the ad, two men bicker because one got into a wireless company for a nickel less than the other. Do you care about a nickel? If you are like the majority of investors, you probably dont. Still, this commercial raises a good point: one of the most important investment decisions you have to make has nothing to do with choosing stocks , bonds or mutual funds. Its about choosing the right broker for your individual needs. Here we look at what to consider.
How Does Choosing a Broker Relate to the Nickel?
First off, we should make it clear that we are not making any comment about Ameritrade. The nickel is important to many investors (primarily traders), but it amounts to only a few dollars if you are buying less than 100 shares. If you arent an active trader, a nickel wont even show up on the chart over the long term. So, worrying about the nickel when choosing a broker matters only for particular types of investors.
Its easy to see, then, that although there may be many good brokerages out there, not all of them are geared to the way you invest. Different investor personalities affect broker selection. The task of making your selection may seem overwhelming at first, but with a little study and some basic guidelines, youll be able to make an informed decision suited to your investing personality and end up with a broker that is right for you.
The Importance of Your Investing Personality
Your investing style is one of the biggest factors to consider when selecting an online broker. To determine your style, you must define your needs. Here are some questions to help you do this:
• Do you need personal advice, or can you do your own homework with research reports?
• How long do you typically hold an investment?
• What is the size of trades you typically make?
• How important is it to have direct access to a real person?
• Is fast and efficient order execution absolutely necessary?
There are four main types of investor personalities. Try to determine what personality you resemble most and ask yourself if your broker is providing the services that match your personality.
Individual Investors
Those classified under this category are also known as retail investors. They dont require any special assistance or advisory services. Individual investors empower themselves by doing their own research, selecting their own stocks and knowing how to place online orders efficiently. The main priorities for the independent investor are fast, consistent trade executions and low commission levels.
The fruit of such priorities and labor is the opportunity to take advantage of the lowest commission rates around. Several brokers like E*Trade and Ameritrade - known as discount brokers - have chosen to target independent investors because this clientele makes up such a large and diverse market.
Reliant Investors
These investors need some hand holding and assistance when selecting a prospective investment. Typically, they require a broker capable of offering individualized advice and assistance. This is especially true for new investors, who may need all the help they can get when starting out.
As you can imagine, extra services equal higher commissions, and as more and more investors become self-sufficient, brokers serving this market segment become fewer and fewer. The ones that do stay around are generally larger companies, such as Charles Schwab and Fidelity. Known as full-service brokers, they provide many of the services necessary for successful investing: that is, not only picking stock, but also tax planning, asset allocation and long-term planning . Additionally, if you are a new investor with a fairly large amount of money, but you arent comfortable investing on your own, you may consider a wrap account. This type of account charges one flat fee, usually quarterly, which covers all administrative, commission and management expenses. The drawback is that wrap accounts usually require minimum investments of between $50,000 and $100,000. (For more on the wrap, see Wrap It Up: The Vocabulary and Benefits of Managed Money.)
Short-Term Investors (Traders)
Short-term traders are not the same as day traders. Depending on the type of security, a short-term position can range from an hour to a few months. For the most part, short-term trading is a practice used primarily by the top financial players. These are the professionals who have devoted time to understanding all aspects of trading and investment and are often trading what are called momentum stocks or momo plays. Traders require access to superior research information, excellent execution skills and most likely the ability to trade in other types of securities, such as derivatives.
With such experience and knowledge, short-term traders require next to no assistance from a broker. Because these investors are attempting to profit from the relatively short-term movements in a securitys price, they are more concerned about getting the best possible fill price than a longer-term investor, but not as concerned as a day trader, as we explain below. Discount online brokers supply the fast order execution, the low commissions and the trading tools that are the biggest concerns of the short-term investor.
Day Traders
These are experienced stock traders who hold positions for a very short time (from minutes to hours) and make numerous trades each day - most trades are entered and closed out intraday.
As a result, day traders value order fulfillment speed and trade execution. So, for them, selecting the right broker is crucial. Day traders are probably the only investors who should worry about whether their broker will help them secure the nickel. Because day traders are self-sufficient and place many trades daily, they can demand exceptionally low commissions - usually no more than a couple of bucks a trade - and top-notch order fulfillment. Because the day trader needs to monitor stock prices constantly, live price quotations are essential to his or her success. The fancy tools for this come at a price, however, as commissions at brokerages with loads of tools will be higher than those at brokerages offering fewer tools. Like short-term investors/traders, day traders basically use online discount brokers to facilitate their trading. Again, speed of order execution, low cost and good tools are important to these types of investors not requiring advice from their broker.
Every successful investor needs to have the right tools for the trade. This begins with choosing the right broker. No broker is perfect for everybody, and a firm that doesnt meet your style isnt necessarily a low-quality company; it may just offer services that dont fit your investment personality. Whether youre concerned about that nickel or your retirement plan, there is a broker out there that is right for you.
BarChart Technical Analysis NITE-LYNX $GLHV
http://www.barchart.com/technicals/stocks/GLHV
The data may be the same, but each method will provide its own unique interpretation, with its own benefits and drawbacks.
All states require financial institutions, including brokerage firms, to report when personal property has been abandoned or unclaimed after a period of time specified by state law — often five years. Before a brokerage account can be considered abandoned or unclaimed, the firm must make a diligent effort to try to locate the account owner.
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
$HLNT BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/HLNT
From experience, most of us would agree that the market is not perfectly efficient.
All OTC securities are assigned a market tier based on their reporting method (SEC Reporting, Alternative Reporting Standard) and disclosure category – Current, Limited or No Information. Securities on OTCQX, the highest tier of the OTC market, are required to have Current disclosure and meet minimum financial qualifications. Securities in OTCQB tier must be SEC, Bank or Insurance reporting and must be Current in their disclosure.
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
$DECN BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/DECN
Narrow Within the Group
Once the industry group is chosen, an investor would need to narrow the list of companies before proceeding to a more detailed analysis. Investors are usually interested in finding the leaders and the innovators within a group.
The OTC Bulletin Board (which is a facility of FINRA), and OTC Link LLC (which is owned by OTC Markets Group, Inc., formerly known as Pink OTC Markets Inc.), for example, operate within the OTC market, particularly with respect to OTC equity securities.
This link will help thou $BLSP BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/BLSP
Surviving Bear Country
A bear market refers to a decline in stock prices of at least 15-20%, coupled with pessimistic sentiment underlying the market. Clearly no stock investor looks forward to these periods. Dont despair, there is hope! In this article we will walk you through some of the most important investment strategies and mindsets that one can use to limit losses - or even make gains - while the stock market is performing in such a manner.
Be Realistic!
First off, having a realistic mindset is one the most important things to do during an economic slowdown. Remember that its normal for the stock market to have negative years - its all part of the business cycle.
After a raging bull market, its easy to forget the bad times. Take, for example, the late 1990s; it was a time of spectacular growth in the equity markets, punctuated by gains in the S
Where does this overhead supply come from? Demand was obviously increasing around 18 from Oct-98 to Mar-99 (green oval).
A good starting point for research is the OTC market tier structure – which quickly indicates the level and timeliness of information available for OTC companies.
The Frosty, Festive World Of Investing
The store windows are frosted with artificial snow, the eggnog is flowing, and frantic shoppers are crowding the malls - thats right, its Christmas time. In keeping with the yuletide spirit, lets take a look at the investing vocabulary that goes along with this credit card-shattering time of year.
Santa Claus Rally
Hes bearded, hes jolly and hes permanently associated with Coca-Cola - yep, thats Santa Claus. Santas origins are a matter of speculation, but according to popular belief, he is derived from a Dutch mythical character based on the historical figure Saint Nicholas, who supposedly gave presents to the poor. The modern-day Santa spends his time spreading cheer and promoting world peace by delivering gifts all over the globe.
In the investing world, Santa brings investors a gift in the form of a jump in the price of stocks, known as the Santa Claus rally. This rally usually occurs between Christmas and New Years day. There are many theories as to why this happens. Some people believe it is a result of year-end tax considerations, while others say its because all the market pessimists are away on holidays or because people are buying stock in anticipation of the January effect. Those of us who believe in the magic of Christmas think the rally may be due to seasonal cheer infecting the usually dour inhabitants of Wall Street - a true Christmas miracle.
Boston Snow Indicator
In 1942, Irving Berlin wrote a song called White Christmas, which Bing Crosby brought to life in an immensely popular recording. Since then, a snowy landscape is the ideal place to spend Christmas day.
The Boston snow indicator is a market theory that posits that a white Christmas in Boston will cause stock prices to climb. This is one of several dubious indicators that, while it may appear to be accurate, teaches us more about the fallibility of statistics than the behavior of the market. Other popular indicators of this sort include the skirt-length indicator and the attention paid to the ties worn by Alan Greenspan (the Federal Reserve Boards former chairman). The accuracy of the Boston snow indicator is perhaps best summed up by its nickname: BS indicator.
Elves
In contemporary tales of Santa Claus, the man in red uses an army of small, spry laborers to produce the incalculable amount of toys needed to supply all of the worlds children. Elves most recognizable features are the pointed tips of their ears and their sunny dispositions.
In the investing world, elves are the technical analysts who try to predict the direction of the market. More specifically, the term refers to the guests appearing on the PBS television show Wall Street Week. The elves of Wall Street are not exactly spry, nor do they have pointed ears, but they do seem to have an unfaltering sense of optimism. (To read more, see Elves And Gnomes: A Fairytale World Of Investing.)
Evergreen Funding/Loan
The origin tales of the Christmas tree are as varied and conflicting as those of any of the other Christmas traditions. It is said that the Romans often cut down a fir tree to keep in their houses during the sparse winter months as a form of appeasement to the goddess Ceres (originally Demeter, Greek goddess of the hearth). In the 1500s, Germany became the first nation to associate evergreens, trees that stay green year-round, with the Christian celebration. Martin Luther, founder of the Lutheran branch of Christianity, is fabled to have set up the first Christmas tree lit by candles. Since the late-eighteenth century, Christmas trees have become part of the secular Christmas celebration, and millions of trees - both artificial and real - are purchased every year.
There are two types of evergreens in the business world. For those in the United Kingdom, the term refers to the gradual infusion of capital into a new or recapitalized enterprise. Evergreen funding, like its namesake, is a source of capital that is forever green, in that it is continually replenished. This can take many forms: for example, government assistance or even help from an angel investor. Evergreen funding is very rare in the world of business. For Americans, an evergreen loan is a short-term loan that is continually renewed rather than repaid. This allows people or businesses to defer repayment until they have the funds to do so. But beware: an evergreen loan is not always the gift that it appears to be. (For further reading, see When Companies Borrow Money and Debt Reckoning.)
January Effect
For most people, January is a time of optimism regarding hastily formed resolutions. The fitness industry has an entirely separate type of January effect that sees a spike in sales of home exercise equipment, diet programs and gym memberships. This is followed by the spring slump, when membership cancellations and returned products cause a significant drop in profits.
The January effect is also a stock market phenomenon that occurs at the end of the year as investors begin to fret over taxes. Investors whose portfolios have been very successful may sell any stocks that are down. This locks in the loss and allows the investor to write it off against his or her capital gains. When enough investors do this simultaneously, it causes stocks to go down near the end of the year. However, the stocks are driven back up in January when investors buy back the stocks they sold. The January effect is said to affect small caps more than mid/large caps, but it has not happened in years because the markets have adjusted for the effects. Also, more people are using tax-sheltered retirement plans. The tax shelters remove any reason for selling in order to create a tax loss. Thus, in recent years, the January effect has become somewhat of a non-event - much like the tradition of making New Years resolutions. (For more insight, read Understanding Investor Behavior.)
Thats it for our look at all things frosty and festive on Wall Street. Now, grab yourself a cup of eggnog, relax in front of the fire and fall asleep with dreams of robust ROIs dancing in your head.
$BAYN BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/BAYN
A technician will refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.
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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