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In the OTC market, companies that qualify and are current in their financial disclosure may choose to apply their currently tradeable security(ies) for OTCQX. Companies may also choose to provide adequate disclosure either to regulators or OTC Markets Group in order to be classified in a ‘Current’ OTC Market Tier.
Technicians believe it is best to concentrate on what and never mind why. Why did the price go up? It is simple, more buyers (demand) than sellers (supply). After all, the value of any asset is only what someone is willing to pay for it. Who needs to know why?
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Investing Basics: Flight To Quality
Investing in stocks comes with the prospect of earning big returns, but it can also carry some considerable risks. At times of financial market stress, investors will often flee from risky assets and into investments that are perceived as very safe. Investors will act as a herd and try to rid themselves of any risk in what is termed a flight to quality. Whether or not an investor takes part in the flight, it is important to understand the concept, its indicators and its implications for the market.
What is a flight to quality?
A flight to quality occurs when investors rush to less risky, more liquid investments. Cash and cash equivalents, such as Treasury bills and notes, are key examples of the high-quality assets investors will seek. Investors try to allocate capital away from assets with any perceived risk into the safest possible instruments they can find. Investors usually tend to do this en masse and the effects on the market can be quite drastic. (Knowing what the market is thinking is the best way to determine what it will do next. Read Gauging Major Turns With Psychology.)
The Causes
The causes for a flight to quality are usually quite similar, and normally follow or are concurrent with some level of distress in the financial markets. Fear in the market generally leads investors to question their risk exposure and whether asset prices are justified by their risk/reward profiles.
While every market has its own intricacies, most upswings and downturns are somewhat similar: a sharp downturn follows what, in retrospect, were unjustifiable asset prices. A lot of the time the asset prices were unjustified because many risk factors such as credit problems were being ignored. Investors question the health of companies they are invested in and may decide to take profits from their riskier investments , or even sell at losses in order to move into lower-risk alternatives. Unfortunately, most investors dont get out at the early stage. Many join the flight to quality after things start to turn sour and leave themselves open to even bigger losses. (The option to bolster after-tax stock returns through tax-loss harvesting can reverse investor gloom. Check out Tax-Loss Harvesting For An Unsteady Market.)
Once major issues in the market come to light, the bubble begins to burst and panic occurs in the market as participants reprice risk. Sharp declines in asset prices add to the panic, and force people to flee toward very low-risk assets where they feel their principal is safe, without regard for potential return. A flight to quality is often a pretty abrupt shift for financial markets; as a result, indicators such as fear and shrinking yields on quality assets arent noticed until the flight has already begun.
Negative T-Bill Yield
An extreme example of a flight to quality occurred during the 2008 credit crisis. U.S. T-bills are perceived as some of the highest quality, lowest risk assets. The U.S. government is considered to have no default risk, meaning that Treasuries of any maturity have no risk of principal loss. T-bills are also issued with maturities of 90 days, so the short-term nature makes interest rate risk minimal, and, if held to maturity, non-existent.
T-bill interest rates are largely dependent on the federal funds target rate. When the Federal Reserve consistently lowered rates during 2008, eventually setting the federal funds target rate at a range of 0-0.25% on December 16, 2008, T-bills were certain to follow the trend and return next to nothing to their owners. (For more on T-bills, see the Money Market Tutorial.)
But, could they actually return less than nothing? As the flight to quality drove institutions to shed any sort of risk, the demand for T-bills quickly outpaced supply, even as the Fed was quick to create new supply. After taking a bloodbath in nearly every asset class available, institutions tried to close their books with only the highest, most conservative assets (aka T-bills) on their balance sheets. (Learn about the components of the statement of financial position and how they relate to each other in Reading The Balance Sheet.)
The flood of demand for T-bills, which were already trading at near-zero yields , caused the yield to actually turn negative. On December 9, 2008, investors bought T-bills yielding -0.01%, guaranteeing that they would receive less money three months later. Why would any institution accept that? The main reason is safety. If an institution bought $1 million worth of T-bills at the -0.01% rate, three months later their loss would about to about $25. (For more on what happened, see Why Money Market Funds Break The Buck.)
In a time of market panic and flight to quality, investors will take that very small nominal loss in exchange for the safety of not being exposed to the larger potential losses of other assets. Negative T-bill yields are not characteristic of every time the market experiences a flight to quality, but an extreme case of where demand forces down the yields of high-quality assets. (Learn more in The Fall Of The Market In The Fall Of 2008.)
Dont Panic
A flight to quality is logical to a certain point as investors reprice market risk, but can also have many adverse consequences. First, it can help exacerbate a market downturn. As investors grow fearful of stocks that have experienced sharp declines, they are more inclined to dump them, which helps worsen the decline. Investors suffer again as their fear will prevent the buying of risky assets, which after the declines may be very attractive. The best thing for an investor to keep in mind is to not panic and be the last person selling their stocks and moving into cash when stocks are likely hitting lows.
The consequences read through to businesses also, and can affect the health of the economy, possibly prolonging a downturn or recession. During and following a market crash and flight to quality, businesses may grasp cash similar to investors. This low-risk, fear-driven strategy may prevent businesses from investing in new technologies, machines, and other projects that would help the economy.
Conclusion
Just like with bubbles and crashes, a flight to quality of some degree during a market cycle is pretty much inevitable, and impossible to prevent. As investors become jaded with the risky assets, they will seek out one thing and one thing only: safety.
Is there a way to profit from a flight to quality? Not unless you can predict what everyone else will do and do the opposite. Even then, you need to time it perfectly to avoid being trampled by the herd. It may be hard, but dont panic.
Broker-dealers often receive buy and sell orders that ‘match’ – meaning, someone is willing to sell a security for the same price someone else is willing to buy the same security. In this situation, broker-dealers will execute the trade “internally”.
Strengths of Technical Analysis
Focus on Price
If the objective is to predict the future price, then it makes sense to focus on price movements. Price movements usually precede fundamental developments.
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The Risks Of Investing In Emerging Markets
Investing is always risky business; corporate scandals regularly surface in the news, corporate bonds are frequently downgraded, accounting fraud is often revealed and market imperfections such as the flash crash continuously bring a level of uncertainty. Even the most stable domestic blue chip companies will face times of tremendous volatility.
Emerging markets offer numerous benefits to investors such as elevated economic growth rates, higher expected returns and diversification benefits. However, there are a number of important risks to consider before investing in regions outside of the developed world. (Emerging markets provide new investment opportunities, but there are risks - both to residents and foreign investors. See What Is An Emerging Market Economy?)
1) Foreign Exchange Rate Risk
Foreign investments in stocks and bonds will typically produce returns in the local currency of the investment. As a result, investors will have to convert this local currency back into their domestic currency. An American who purchases a Brazilian stock in Brazil will have to buy and sell the security using the Brazilian real. Therefore, currency fluctuations can impact the total return of investment. If, for example, the local value of a held stock increased by 5%, but the real depreciated by 10%, the investor will experience a net loss in terms of total returns when selling and converting back to U.S. dollars.
2) Non-Normal Distribution
North American market returns arguably follow a pattern of normal distributions. As a result, financial models can be used to price derivatives and make somewhat accurate economic forecasts about the future of equity prices. Emerging market securities, on the other hand, cannot be valuated using the same type of mean-variance analysis. Also, because emerging markets are undergoing constant changes, it is almost impossible to utilize historical information in order to draw proper correlations between events and returns.
3) Lax Insider Trading Restrictions
Although most countries claim to enforce strict laws against insider trading, none have proved to be as rigorous as America in terms of prosecuting unfair trading practices. Insider trading and various forms of market manipulation introduce market inefficiencies, whereby equity prices will significantly deviate from their intrinsic value. Such a system can be subject to extreme speculation, and can also be heavily controlled by those holding privileged information.
4) Less Liquidity
Emerging markets are generally less liquid than those found in the developed world. This market imperfection results in higher broker fees and an increased level of price uncertainty. Investors who try to sell stocks in an illiquid market face substantial risks that their orders will not be filled at the current price, and the transactions will only go through at an unfavorable level. Additionally, brokers will charge higher commissions, as they have to make more diligent efforts to find counterparties for trades. Illiquid markets prevent investors realizing the benefits of fast transactions.
5) Difficulty Raising Capital
A poorly developed banking system will prevent firms from having the proper access to financing that is required to grow their businesses. Attained capital will usually be issued at a high required rate of return, increasing the companys weighted average cost of capital (WACC). The major concern with having a high WACC is that fewer projects will produce a high enough return to yield a positive net present value. Therefore, financial systems found in developed nations do not allow companies to undertake a higher variety of profit-generating projects. (This asset class has left much of its unstable past behind. Find out how to invest in it, in Investing In Emerging Market Debt.)
6) Poor Corporate Governance System
A solid corporate governance structure within any organization is correlated with positive stock returns. Emerging markets sometimes have weaker corporate governance systems, whereby management, or even the government, has a greater voice in the firm than shareholders. Furthermore, when countries have restrictions on corporate takeovers, management does not have the same level of incentive to perform in order to maintain job security. While corporate governance in the emerging markets has a long road to go before being considered fully effective by North American standards, many countries are showing improvements in this area in order to gain access to cheaper international financing.
7) Increased Chance of Bankruptcy
A poor system of checks and balances and weaker accounting audit procedures increase the chance of corporate bankruptcy. Despite that bankruptcy is common in every economy, such risks are most common outside of the developed world. Within emerging markets, firms can more freely cook the book to give an extended picture of profitability. Once the corporation is exposed, it experiences a sudden drop in value. This is not to say that such occurrences do not happen in North America and Europe.
Because emerging markets are viewed as being more risky, they will have to issue bonds that pay higher interest rates. The increased debt burden further increases borrowing costs and strengthens the potential for bankruptcy.
8) Political Risk
Political risk refers to uncertainty regarding adverse political decisions. Developed nations tend to follow a free market discipline of low government intervention, whereas emerging market businesses are often privatized upon demand. Some additional factors that contribute to political risk are: possibility of war, tax increase, loss of subsidy, change of market policy, inability to control inflation and laws regarding resource extraction. Major political instability can also result in civil war and a shutdown of industry, as workers either refuse or are no longer able to do their jobs. (Find out how these worldly offerings can spice up your portfolio. Check out Go International With Foreign Index Funds.)
Conclusion
Investing in emerging markets can produce substantial returns to ones portfolio. However, investors must be aware that all high returns must be judged within the risk and reward framework. The aforementioned risks are some of the most prevalent that must be assessed prior to investing. Unfortunately, however, the premiums associated with these risks can often only be estimated, rather than determined on a concrete basis.
Be certain that you fully understand the distinctions among these terms, and be certain that the risk level you choose accurately reflects your investment goals. Be sure that the investment products recommended to you reflect the category of risk you have selected.
This could be information held by insiders, competitors, contractors, suppliers or regulators, among others.
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A Beginners Guide To Managing Your Money
Online brokers and easy access to financial data make investing your money as easy as starting a savings account, but in a world where the Internet has made do-it-yourselfers out of many, is investing a do-it-yourself activity and if it is, why not just fire your financial advisor or pay less fees to your mutual funds and set up a portfolio of your own? See: Risk and Diversification
The Internet has changed the way we live our lives. Not long ago purchasing stock was not as easy as it is now. The order went through a complex network of brokers and specialists before the execution was completed. In 1983, that all changed with a dentist in Michigan who made the first online stock transaction using a system developed by what is now E*TRADE Financial. (For related reading, see Brokers and Online Trading.)
The Effect
That one trade changed how investment products are transacted, researched and discussed. Computerized trading has resulted in highly liquid markets making it easy to buy and sell most securities quickly. The do-it-yourselfer now has access to the same free financial data that the professionals use, and websites like Stocktwits set up entire communities of investors and traders who exchange information in real time.
But just because its possible, does that mean that managing your own money is a good idea? Professional investors have a saying, The stock market is an expensive place to learn how to invest . They understand that its easier to lose money than it is to make money, and because of that, some argue that the wealth of information available to people with little financial background may offer a false sense of security.
Tools are only as good as the knowledge and experience of the person using them. Does a high priced software package used by the worlds best composers result in beautiful music? Does the newest innovation in surgical technology make a person with no prior training in medicine a top performing surgeon?
Theres no doubt that the Internet has given the retail investor the tools that they need to effectively manage their own money, but what about the knowledge and experience to use the tools effectively? For an investor who wants to manage their own money, what types of fundamental knowledge should they have before firing their financial adviser? (To learn more, read 4 Steps To Building A Profitable Portfolio.)
Modern Portfolio Theory
First, understand modern portfolio theory (MPT) and gain an understanding of how asset allocation is determined for an individual based on their individual factors. In order to gain a true understanding of these principals, youll have to dig deeper than the top level Internet blog articles that tell you that MPT is simply understanding allocation. MPT is not just about the allocation but also its efficiency. The best money managers understand how to position your money for maximum return with the least amount of risk. They also understand that efficiency is highly dynamic as the person ages and their financial picture changes.
Along with efficiency comes the dynamic nature of risk tolerance. At certain points in our lives, our risk tolerance may change. Along with retirement, we might have intermediate financial goals like saving for college or starting a new business, the portfolio has to be adjusted to meet those goals. Financial advisors often use proprietary software that produces detailed reports not available to the retail investor. (Read how to determine What Is Your Risk Tolerance?)
Academic Understanding of Risk
In the plethora of free resources, risk is treated too benignly. The term risk tolerance has been so overused that retail investors may believe that they understand risk if they understand that investing may involve losing money from time to time. Its much more than that.
Risk is a behavior that is hard to understand rationally because investors often act opposite of their best interests. A study conducted by Dalbar, Inc. showed that inexperienced investors tend to buy high and sell low, which often leads to losses in short-term trades.
Since risk is a behavior, its extremely difficult for an individual to have an accurate, unbiased picture of their true attitude towards risk. Day traders, often seen as having a high risk tolerance, may actually have an extremely low tolerance because theyre unwilling to hold an investment for longer periods. Great investors understand that success comes with fending off emotion and making decisions based on facts. Thats hard to do when youre working with your own money.
Efficient Market Hypothesis
Do you know how likely you are to out invest the overall market? What is the likelihood of any one football player being better than most of the other NFL players, and if they are better for a season what is the likelihood that they will be the best of the best for decades?
Efficient Market Hypothesis (EMH) might contain the answer. EMH states that everything known about an investment product is immediately factored into the price. If Intel releases information that sales will be light this quarter, the market will instantly react and adjust the value of the stock. According to EMH, there is no way to beat the market for sustained periods because all prices reflect true or fair value.
For the retail investor trying to pick individual stock names hoping to achieve gains that are larger than the market as a whole, this may work in the short term, just as gambling can sometimes produce short-term profits, but over a sustained period of decades, this strategy breaks down, say the proponents of EMH.
Even the brightest investment minds employing teams of researchers all over the world havent been able to beat the market over a sustained period. According to famed investor Charles Ellis in his book, Winning The Losers Game: Timeless Strategies For Successful Investing.
Opponents of this theory cite investors like Warren Buffett who have beat the market for most of his life, but what does EMH mean for the individual investor? Before deciding on your investing strategy , you need the knowledge and statistics to back it up.
If youre going to pick individual stocks in the hopes that theyll appreciate in value faster than the overall market, what evidence leads you to the idea that this strategy will work? If youre planning to invest in stocks for dividends, is there evidence that proves that an income strategy works? Would investing in an index fund be the best way? Where can you find the data needed to make these decisions? (For additional reading, see 7 Controversial Investing Theories.)
Experience
What do you do for a living? If you have a college degree, you might be one of the people who say that you didnt become highly skilled as a result of your degree but instead, because of the experience you amassed. When you first started your job were you highly effective from the very beginning?
Before managing your own money, you need experience. Gaining experience for investors often means losing money, and losing money in your retirement savings isnt an option.
Experience comes from watching the market and learning first-hand how it reacts to daily events. Professional investors know that the market has a personality that is constantly changing. Sometimes its hypersensitive to news events and other times it brushes them off. Some stocks are highly volatile while others have muted reactions.
The best way for the retail investor to gain experience is by setting up a virtual or paper trading account. These accounts are perfect for learning to invest while also gaining experience before committing real money to the markets. (Learn to trade with the Investopedia Stock Simulator, risk free!)
The Bottom Line
Many people have found success in managing their own money, but before putting your money at risk, become a student in the art of investing. If somebody wanted to do your job based on what they read on the Internet, would you advise it? If you were looking for a financial advisor, would you hire yourself based on your current level of knowledge? Your answer might be yes, but until you have the knowledge and experience as a money manager, managing a brokerage account with money that you could stand to lose might be OK, but leave your retirement money to the professionals.
All corporate actions, including: symbol changes, venue changes (new to the OTC), OTC Tier changes, Caveat Emptor status changes, Splits, Dividends, and Deletes are available within the Corporate Actions section.
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The objective of analysis is to forecast the direction of the future price.
Market Capitalization Defined
You often hear companies or different mutual funds being categorized as small cap, mid cap or large cap. But what do these terms really mean? The cap part of these terms is short for capitalization, which is a measure by which we can classify a companys size. Although the criteria for the different classifications are not strictly bound, it is important for investors to understand these terms, which are not only ubiquitous but also useful for gauging a companys size and riskiness.
Calculating Market Cap
Market capitalization is just a fancy name for a straightforward concept: it is the market value of a companys outstanding shares. This figure is found by taking the stock price and multiplying it by the total number of shares outstanding. For example, if Corys Tequila Corporation (CTC) was trading at $20 per share and had a million shares outstanding, then the market capitalization would be $20 million ($20 x 1 million shares). Its that simple.
Why Its Important
A common misconception is that the higher the stock price , the larger the company. Stock price, however, may misrepresent a companys actual worth. If we look at two fairly large companies, IBM (NYSE:IBM) and Microsoft (Nasdaq:MSFT), we see that at as of March 18, 2009stock prices were $91.75 and $16.75 respectively. Although IBMs stock price is higher, it has about 1.34 billion shares outstanding, while MSFT has 8.89 billion. As a result of this difference, we can see that MSFTs market cap of $148.91 billion is actually larger than IBMs $122.95 billion. If we compared the two companies by solely looking at their stock prices, we would not be comparing their true values, which are affected by the number of outstanding shares each company has.
The classification of companies into different caps also allows investors to gauge the growth versus risk potential. Historically, large caps have experienced slower growth with lower risk. Meanwhile, small caps have experienced higher growth potential, but with higher risk.
Different Types of Capitalization
While there isnt one set framework for defining the different market caps , here are the widely published standards for each capitalization:
• Mega cap - This group includes companies that have a market cap of $200 billion and greater. They are the largest publicly traded companies such as Exxon (NYSE:XOM). Not many companies will fit in this category, and those that do are typically the leaders of their industries.
• Big/large cap - These companies have a market cap between $10 billion to $200 billion. Many well-known companies fall into this category, including companies like Microsoft, Wal-Mart (NYSE:WMT) and General Electric (NYSE:GE), and IBM. Typically, large-cap stocks are considered to be relatively stable and secure. Both mega and large cap stocks are often referred to as blue chips.
• Mid cap - Ranging from $2 billion to $10 billion, this group of companies is considered to be more volatile than the large- and mega-cap companies. Growth stocks represent a significant portion of the mid caps. Some of the companies might not be industry leaders, but they are well on their way to becoming one.
• Small cap - Typically new or relatively young companies, small caps have a market cap between $300 million to $2 billion. Although their track records wont be as lengthy as those of the mid to mega caps, small caps do present the possibility of greater capital appreciation - but at the cost of greater risk.
• Micro cap - Mainly consisting of penny stocks, this category denotes market capitalizations between $50 million to $300 million fall into this category. The upward potential of these companies is similar to the downside potential, so they do not offer the safest investment, and a great deal of research should be done before entering into such a position.
• Nano cap - Companies having market caps below $50 million are nano caps. These companies are the most risky, and the potential for gain is often relatively small. These stocks typically trade on the pink sheets or OTCBB
Remember, these ranges are not set in stone, and they are known to fluctuate depending on how the market as a whole is performing.
Conclusion
Understanding the market cap is not just important if youre investing directly in stocks. It is also useful for mutual fund investors, as many funds will list the average or median market capitalization of its holdings. As the name suggests, this gives the middle ground of the funds equity investments, letting investors know if the fund primarily invests in large-, mid- or small-cap stocks.
OTCQB companies must be registered with and reporting to the SEC or a U.S. regulatory agency. There are no financial or qualitative standards to be in this tier.
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The shorter the time frame and the less compressed the data is, the more detail that is available.
Is Your Portfolio Overweight?
Over time, the makeup of your portfolio changes as various sectors and stocks perform better or worse than the market. Your original well-planned portfolio allocation evolves to one where the best performing stocks or ETFs become a more heavily-weighted part of your portfolio. Then the stocks that have underperformed make up less of the total allocation of your portfolio. This is a very unappealing - and unhealthy - shape for a portfolio to be in and it signals that its time to make some adjustments.
Get On the Scale
As time passes, it will become necessary for investors to re-examine their portfolios allocation. Being overweight in some sectors may not be the best strategy going forward. Stocks do not increase in value at the same rate. One asset category might appreciate more, causing an imbalance in your original allocation. In a 2000 study by Ibbotson and Kaplan, asset allocation was found to explain 93.6% of the variability of an assets performance. Placing your assets in the right sector leads to overweighting that sector in your portfolio.
Over time, one sector will become the leader and another will lag. For example, during the height of the dotcom boom, technology returned 66.69%, while consumer staples lost 14.49%. In this case, your portfolio would have been overweight in the technology sector. In 2000, as the dotcom boom ended, consumer staples delivered a 26.04% return and technology lost 42.04%. If you adjusted the weight of technology and increased the weight of consumer staples, your portfolio would have thanked you. Adjusting your portfolio to reduce its overweight condition usually leads to success. (Learn more about the dotcom boom and bust in our Market Crashes Tutorial.)
So how can you tell if your portfolio is out of balance? The best place to begin is with your original assessment of the market that led you to form your current portfolio allocation . Some questions to ask are:
• What has changed since your evaluation of the economy, the business cycle and the market? If your assessment has changed, then the weighting of your portfolio needs to change.
• What is the current level of risk in your portfolio and how has it changed since your last assessment? If the risk has increased beyond your comfort level, it is time to adjust your allocation to bring your risk back to levels that are more normal. Often when a sector has risen dramatically, it increases the risk that you might lose much or all of what you have gained. Reducing this overweight condition by selling part of these securities can help to lower the risk in the portfolio.
• Has the splendid performance of one or more stocks caused your portfolio to be less diversified, increasing its dependence on the performance of a few stocks? Diversification is a way to spread the risk across asset classes. As your portfolio over weighs toward one or a few stocks, your first-rate diversification has fallen off. (Find out how to find the right balance of diversification in Introduction To Diversification.)
If answering any of these questions leads you to conclude your portfolio is overweight, it is time to reallocate by selling some of the shares of the securities that have performed well and putting that money to work in stocks or ETFs that have the best potential to outperform in the future.
When to Make an Adjustment
An overweight portfolio requires you to address underperforming stocks or ETFs as well as those that are your best performers. Stocks and ETFs do not grow at the same rate. One asset category might appreciate more causing an imbalance from your original allocation.
When you make an adjustment, recognize that you will be dealing with underperforming stocks or ETFs as well as your best performing stocks or ETFs.
For your underperforming stocks or ETFs, the following are some of the questions you should ask:
• Are there problems with the company missing its earnings or revenue expectations?
• Are there changes in management that raise concern?
• Is the sector likely to continue to perform poorly over the next year?
For your better performing stocks or ETFs, here are some of the questions you should ask:
• Has the stock or ETF performed as expected?
• Has the growth in revenues and earnings slowed or are the prospects for growth still in place?
• How does the stock compare to its peers in terms of growth in revenues, margin, free cash flow and profit?
• Will the sector continue to outperform over the next year or is another sector about to take over? Buying in a bad year can lead to better performance in the next year. Selling after a good year captures profit should the sector have a bad year. It is a good strategy to capture some of your profits by selling your best performing shares.
Most successful long-term investors review their portfolios on a regular basis. While you do not have to make changes every quarter, it is a good idea to reassess your original assumptions and analysis. Moreover, evaluate the risk of a reversal in the course of the market. You goal is to avoid incurring unexpected losses and confirm your current allocation reflects your view of the market.
When to Stay the Course
So far, we have discussed when to make adjustments in your portfolio as the weighting of the stocks or ETFs changes. However, sometimes it is best to stay the course.
During your assessment of your best performing stocks or ETFs, you continue to believe they represent the best opportunities going forward. Often the underlying trend lasts for several years. In this case, should the trend continue, you and your portfolio will continue to benefit from the current overweighting.
Maybe your portfolio is weighted to sectors , funds or stocks that have underperformed. In this case, you might be properly positioned for a rebound. After all, you could have been early. In this case, it makes sense to stay the course or even add to your underperforming segments.
The tax man always has a say on when you can make changes in your portfolio. Capital gains on stocks or funds held for one year or less receive regular income tax treatment, whereas, securities held for more than one year receive more favorable tax treatment. While you should not make a decision to hold or sell a security only for tax reasons, it is one of the factors to consider.
The Bottom Line
A portfolio that is overweight in a sector, fund or stock should cause you to assess whether you should rebalance your portfolio. Simple allocation steps can help you to decide if you should rebalance or stay the course. Being proactive in your assessment will help to keep your portfolio properly aligned with the market, and is a lot better than sitting back and hoping everything will work out.
The National Quotation Bureau changed its name to Pink Sheets LLC in 2000 and subsequently to Pink OTC Markets in 2008. The company eventually changed to its current name, OTC Markets Group, in 2010.[5] Today, a network of over 160 broker-dealers price and trade a wide spectrum of securities on the OTC Markets platform.
Even after a new trend has been identified, there is always another "important" level close at hand. Technicians have been accused of sitting on the fence and never taking an unqualified stance. Even if they are bullish, there is always some indicator or some level that will qualify their opinion.
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Managing A Portfolio Of Mutual Funds
After youve built your portfolio of mutual funds, you need to know how to maintain it. This week, we talk about how to manage a mutual-fund portfolio by walking through four common strategies:
The Wing-It Strategy
This is the most common mutual-fund strategy. Basically, if your portfolio does not have a plan or a structure, then it is likely that you are employing a wing-it strategy. If you are adding money to your portfolio today, how do you decide what to invest in? Are you one that searches for a new investment because you do not like the ones you already have? A little of this and a little of that? If you already have a plan or structure, then adding money to the portfolio should be really easy. Most experts would agree that this strategy will have the least success because there is little to no consistency.
Market-Timing Strategy
The market timing strategy implies the ability to get into and out of sectors or assets or markets at the right time. The ability to market time means that you will forever buy low and sell high. Unfortunately few investors buy low and sell high because investor behavior is usually driven by emotions instead of logic. The reality is most investors tend to do exactly the opposite – buy high and sell low. This leads many to believe that market timing does not work in practice. No one can accurately predict the future with any consistency.
Buy-and-Hold Strategy
This is by far the most commonly preached investment strategy . The reason for this is that statistical probabilities are on your side. Markets generally go up 75% of the time and down 25% of the time. If you employ a buy-and-hold strategy and weather through the ups and downs of the market, you will make money 75% of the time. If you are to be more successful with other strategies to manage your portfolio, you must be right more than 75% of the time to be ahead. The other issue that makes this strategy most popular is it is easy to employ. This does not make it better or worse. It is just easy to buy and hold.
Performance-Weigthing Strategy
This is somewhat of a middle ground between market timing and buy and hold. With this strategy, you will revisit your portfolio mix from time to time and make some adjustments. Lets walk through an oversimplified example using real performance figures.
Lets say that at the end of 1996, you started with an equity portfolio of four mutual funds and split the portfolio into equal weightings of 25% each.
After the first year of investing, the portfolio is no longer an equal 25% weighting because some funds performed better than others.
The reality is that after the first year, most investors are inclined to dump the loser (Fund D) for more of the winner (Fund A). However, the right strategy is to do the opposite to practice sell high, buy low. Performance weighting simply means that you sell some of the funds that did the best to buy some of the funds that did the worst. Your heart will go against this logic but it is the right thing to do because the one constant in investing is that everything goes in cycles.
In year four, Fund A has become the loser and Fund D has become the winner.
Performance weighting this portfolio year after year means that you would have taken the profit when Fund A was doing well to buy Fund D when it was down. In fact, if you had re-balanced this portfolio at the end of every year for five years, you would be further ahead as a result of performance weighting.
Its all about discipline.
The key to portfolio management is to have a discipline that you adhere to. The most successful money managers in the world are successful because they have a discipline to manage money and they have a plan. Warren Buffet said it best: To invest successfully over a lifetime does not require a stratospheric I.Q., unusual business insight or inside information. What is needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.
Over-the-counter (OTC) or off-exchange trading is done directly between two parties, without any supervision of an exchange. It is contrasted with exchange trading, which occurs via these facilities. An exchange has the benefit of facilitating liquidity, mitigates all credit risk concerning the default of one party in the transaction, provides transparency, and maintains the current market price. In an OTC trade, the price is not necessarily made public information.
Is a security's current price an accurate reflection of its fair value?
Behold the $BGEM BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/BGEM
The Two Sides Of Dual-Class Shares
It sounds too good to be true: own a small portion of a companys total stock, but get most of the voting power. Thats the truth behind dual-class shares. They allow shareholders of non-traded stock to control terms of the company in excess of the financial stake. While many investors would like to eliminate dual-class shares, there are several hundred companies in the United States with dual A and B listed shares, or even multiple class listed shares. So, the question is, whats the impact of dual-class ownership on a companys fundamentals and performance? (To learn more, see The ABCs Of Mutual Fund Classes.)
What Are Dual-Class Shares?
When the Internet company Google went public, a lot of investors were upset that it issued a second class of shares to ensure that the firms founders and top executives maintained control. Each of the Class B shares reserved for Google insiders would carry 10 votes, while ordinary Class A shares sold to the public would get just one vote. (To learn more, see When Insiders Buy, Should Investors Join Them?)
Designed to give specific shareholders voting control, unequal voting shares are primarily created to satisfy owners who dont want to give up control, but do want the public equity market to provide financing. In most cases, these super-voting shares are not publicly traded and company founders and their families are most commonly the controlling groups in dual-class companies.
Who Lists Them?
The New York Stock Exchange allows U.S. companies to list dual-class voting shares. Once shares are listed, however, companies cannot reduce the voting rights of the existing shares or issue a new class of superior voting shares. (For more information, see The NYSE And Nasdaq: How They Work.)
Many companies list dual-class shares. Fords dual-class stock structure, for instance, allows the Ford family to control 40% of shareholder voting power with only about 4% of the total equity in the company. Berkshire Hathaway Inc., which has Warren Buffett as a majority shareholder, offers a B share with 1/30th the interest of its A-class shares, but 1/200th of the voting power. Echostar Communications demonstrates the extreme power that can be had through dual-class shares: founder and CEO Charlie Ergen has about 5% of the companys stock, but his super-voting class-A shares give him a whopping 90% of the vote.
Good or Bad?
Its easy to dislike companies with dual-class share structures, but the idea behind it has its defenders. They say that the practice insulates managers from Wall Streets short-term mindset. Founders often have a longer term vision than investors focused on the most recent quarterly figures. Since stock that provides extra voting rights often cannot be traded, it ensures the company will have a set of loyal investors during rough patches. In these cases, company performance may benefit from the existence of dual-class shares.
With that said, there are plenty of reasons to dislike these shares. They can be seen as downright unfair. They create an inferior class of shareholders and hand over power to a select few, who are then allowed to pass the financial risk onto others. With few constraints placed upon them, managers holding super-class stock can spin out of control. Families and senior managers can entrench themselves into the operations of the company, regardless of their abilities and performance. Finally, dual-class structures may allow management to make bad decisions with few consequences.
Hollinger International presents a good example of the negative effects of dual-class shares. Former CEO Conrad Black controlled all of the companys class-B shares, which gave him 30% of the equity and 73% of the voting power. He ran the company as if he were the sole owner, exacting huge management fees, consulting payments and personal dividends. Hollingers board of directors was filled with Blacks friends who were unlikely to forcefully oppose his authority. Holders of publicly traded shares of Hollinger had almost no power to make any decisions in terms of executive compensation, mergers and acquisitions, board construction poison pills or anything else for that matter. Hollingers financial and share performance suffered under Blacks control. (To learn more, see Mergers And Acquisitions: Understanding Takeovers.)
Academic research offers strong evidence that dual-class share structures hinder corporate performance. A Wharton School and Harvard Business School study shows that while large ownership stakes in managers hands tend to improve corporate performance, heavy voting control by insiders weakens it. Shareholders with super-voting rights are reluctant to raise cash by selling additional shares--that could dilute these shareholders influence. The study also shows that dual-class companies tend to be burdened with more debt than single-class companies. Even worse, dual-class stocks tend to under-perform the stock market.
The Bottom Line
Not every dual-class company is destined to perform poorly--Berkshire Hathaway, for one, has consistently delivered great fundamentals and shareholder value. Controlling shareholders normally have an interest in maintaining a good reputation with investors. Insofar as family members wield voting power, they have an emotional incentive to vote in a manner that enhances performance. All the same, investors should keep in mind the effects of dual-class ownership on company fundamentals.
The OTC market is made up of many different types of companies, ranging from OTCQX companies worthy of investor consideration to economically distressed companies to speculative shell companies.
When reading these reports, it is important to take into consideration any biases a sell-side analyst may have. The buy-side analyst, on the other hand, is analyzing the company purely from an investment standpoint for a portfolio manager. If there is a relationship with the company, it is usually on different terms. In some cases this may be as a large shareholder.
BarChart Technical Analysis NITE-LYNX $SNTL
http://www.barchart.com/technicals/stocks/SNTL
How To Invest In Corporate Bonds
When investors buy a bond, they are lending money to the entity that issues the bond. The bond is a promise to repay the face value of the bond (the amount loaned) with an additional specified interest rate within a specified period of time. The bond, therefore, may be called an I.O.U.
Bond Types
The various types of bonds include U.S. government securities, municipals, mortgage and asset-backed, foreign bonds and corporate bonds.
Corporate bonds are issued by companies and are either publicly traded or private. Bond rating services such as Standard
SEC filings are available on this website under a company's "Financials" tab and on the SEC's website. Some OTC-traded companies do not have filing or reporting requirements with the SEC. For a detailed explanation of registration and reporting requirements and the exemptions available from those requirements, please see the SEC's Small Business Question and Answer Page.
$ZMRK BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/ZMRK
There is an old Wall Street adage: the value of any asset (stock) is only what someone is willing to pay for it (current price). Just as stock prices fluctuate, so too do growth and multiplier assumptions. Are we to believe Wall Street and the stock price or the analyst and market assumptions?
The Power Of Dividend Growth
Many investors think of dividend-paying companies as boring, low-return investment opportunities. Compared to high-flying small cap companies, whose volatility can be pretty exciting, dividend-paying stocks are usually more mature and predictable. Though this may be dull for some, the combination of a consistent dividend with an increasing stock price can offer an earnings potential powerful enough to get excited about.
High Dividend Yield?
Understanding how to gauge dividend-paying companies can give us some insight into how dividends can pump up your return. A common perception is that a high dividend yield, indicating the dividend pays a fairly high percentage return on the stock price, is the most important measure; however, a yield that is considerably higher than that of other stocks in an industry may indicate not a good dividend but rather a depressed price (dividend yield = annual dividends per share/price per share). The suffering price, in turn, may signal a dividend cut or, worse, the elimination of the dividend.
The important indication of dividend power is not so much a high dividend yield but high company quality, which you can discover through its history of dividends, which should increase over time. If you are a long-term investor, looking for such companies can be very rewarding. (To learn about how dividend payouts can help you through a market downturn, see Dividend Yield For The Downturn.)
Watch: Dividend
Dividend Payout Ratio
The dividend payout ratio, the proportion of company earnings allocated to paying dividends, further demonstrates that the source of dividend profitability works in combination with company growth. Therefore, if a company keeps a dividend payout ratio constant, say at 4%, but the company grows, that 4% begins to represent a larger and larger amount. (For instance, 4% of $40, which is $1.60, is higher than 4% of $20, which is 80 cents).
Lets demonstrate with an example:
Lets say you invest $1,000 into Joes Ice Cream company by buying 10 shares, each at $100 per share. Its a well-managed firm that has a P/E ratio of 10, and a payout ratio of 10%, which amounts to a dividend of $1 per share. Thats decent, but nothing to write home about since you receive only a measly 1% of your investment as dividend.
However, because Joe is such a great manager, the company expands steadily, and after several years, the stock price is around $200. The payout ratio, however, has remained constant at 10%, and so has the P/E ratio (at 10); therefore, you are now receiving 10% of $20 in earnings, or $2 per share. As earnings increase, so does the dividend payment, even though the payout ratio remains constant. Since you paid $100 per share, your effective dividend yield is now 2%, up from the original 1%.
Watch: Dividend Yields
Now, fast forward a decade: Joes Ice Cream Company enjoys great success as more and more North Americans gravitate to hot, sunny climates. The stock price keeps appreciating and now sits at $150 after splitting 2 for 1 three times. (If you are uncertain about share splits, check out Understanding Stock Splits.)
This means your initial $1,000 investment in 10 shares has grown to 80 shares (20, then 40, and now 80 shares) worth a total of $12,000. If the payout ratio remains the same and we continue to assume a constant P/E of 10, you now receive 10% of earnings ($1,200) or $120, which is 12% of your initial investment! So, even though Joes dividend payout ratio did not change, because he has grown his company the dividends alone rendered an excellent return - they drastically expanded the total return you got, along with the capital appreciation. (For more on what dividends can do for investors, see The Importance Of Dividends.)
For decades, many investors have been using this dividend-focused strategy by buying shares in household names such as Coca-Cola (Nasdaq:COKE), Johnson
With the exception of some foreign issuers, the companies quoted on OTC Link tend to be closely held, very small and/or thinly traded. Most issuers do not meet the minimum listing requirements for trading on a national securities exchange. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it difficult for the public to find current, reliable information about those companies.
Asset Allocation: The First Step Towards Profit
Financial advisors and brokers, either full or limited service, rarely provide investors with an adequate and concise overview of the investment market. At least, not such that decisions on asset allocation can be made. Investors are faced with a plethora of options on where to put new money; a situation which is often overwhelming.
A primary investment decision is to choose asset classes, particularly equities or fixed income. This decision needs to be considered because each investor has unique objectives. Choosing between equities or fixed income , as well as making investment choices, affects the ability to achieve investment objectives. Individuals need to consider market conditions that are expected to persist over the coming months or years and the influence of economic policy, as well as individual circumstances.
Investment Decision Making
Asset allocation is a term tossed around by investment professionals to describe how to distribute investment dollars in order to achieve an expected rate of return based on certain factors. Individual investors should consider these factors, including current income and expected future income, investment time horizon and tax implications, to name a few. Over any 20-year period, investment returns from various asset classes have been mixed, thus resulting in high returns for one or a couple of consecutive years followed by low returns.
This means that if an investor puts all of his eggs in the same basket year after year, he will receive lower and more volatile returns than if he spread his investment dollars among various asset classes. There are decisions to be made regarding which asset classes to spread or to allocate investment dollars because certain combinations of investments are based upon the degree of aggressiveness (or risk tolerance) needed to meet objectives. Degree of aggressiveness is determined based on a persons age and time horizon as well as tax status. (See Matching Investing Risk Tolerance To Personality to find out more about this crucial step.)
In addition to the long-term perspective inherent in asset allocation decisions based on specific investment objectives, short-term effects on investments need also be taken into account. Short-term and long-term considerations can include, but are not limited to, interest rates and the policies of the Fed, economic outlook and currency.
For example, there are certain investments that do better in a low interest rate environment (equities over fixed income) and some that do well in a rising inflation environment, like treasury inflation protected securities (TIPS) and commodities, that protect the value of the asset (hard assets over soft assets). Currency fluctuations also affect investments. For example, if the dollar is weak vs. foreign currency from country X, then a company domiciled in the U.S. and has its expenses in U.S. dollars, but makes a majority of its revenue from country X, will likely benefit from the weak U.S. dollar. Therefore, the choice of asset class is an important decision for both a short- and long-term investment horizon.
Overview of the Asset Classes
Asset classes include equities and fixed income. Investing in equities means that the shareholder is a part owner in the company - he/she has an equity interest in the company but in the case of bankruptcy, has very little to no claim, resulting in a risky investment. Fixed income means that the investor receives a predetermined stream of income from the investment, usually in the form of a coupon, and in the event of bankruptcy, has senior claim to liquidated assets compared to shareholders. The fixed income traded in the public market is typically in the form of bonds.
Asset classes can be broken up into sub-classes. Sub-classes for equities include domestic, international (developed and developing or emerging countries) and global (both domestic and international). Within these divisions, equities can further be grouped by sectors such as energy, financials, commodities, health care, industrials etc. And within the sectors, equities can be grouped again by size or market capitalization, from small cap (under $2 billion) to mid cap ($2 billion-10 billion) to large caps (over $10 billion) stocks .
Sub-classes for fixed income include investment-grade corporate bonds, government bonds (treasuries) and high yield or junk bonds. The importance of breaking investments down into sub-classes is to manage the degree of risk generally associated with the investment. Investing in companies with small capitalizations and in developing countries has historically been more risky, but has had greater potential for higher returns than investments in large capitalizations, domestic companies. Similarly, due to its junior status to bonds, equity is generally considered more risky than fixed income.
Strategy
Proper asset allocation is the key to providing the best returns over the long term, but there are some general rules of thumb when investing that can help guide through the short term, normal fluctuations of the market. In the short term (one- to three-year time frame), the economy and economic policies of the government have significant influence on investment returns.
• Rule 1 - The stock market is a leading indicator, so its movement often precedes change in the economy that impacts labor, consumer sentiment and company earnings.
• Rule 2 - Policy and the impact of decision making by the government due to various economic data are mid to lagging indicators as to what the market is doing.
• Rule 3 - If you watch money flows (movement of money into and out of a particular stock, sector or asset class), when the chart shows a peak or bottom in money flow, you should do the opposite. Basically, a contrarian view may be best in this circumstance.
• Rule 4 - Options are most profitable in volatile markets. A good indicator of market volatility is the VIX (Chicago Board Options Exchange Volatility Index). At times when the VIX is expected to move higher, investing in options rather than owning the equity may sometimes be more profitable and less risky.
• Rule 5 - If there is a worry about rising inflation, buying protection via TIPS or hard assets like commodities usually insulates a portfolio.
• Rule 6 - In a market that is continually moving up, stock selection is often less important than buying the market, thus buying a market ETF or index fund may lead to high returns with lower risk. But in a market that is moving sideways, stock selection is key and investors need to understand the growth drivers of a companys stock.
Conclusion
Designing a portfolio that performs well in both the long and short term is obviously not easy to accomplish. However, weeding out a lot of the noise and concentrating on some simple rules in the short term, while focusing on proper and re-balanced asset allocation in the long term, can steer investors to a model portfolio that should produce less risky, more stable returns.
For thou convenience $MPPCQ BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/MPPCQ
In hindsight, the support line could have been drawn as an upward sloping neckline (blue line), and the support break would have come at 61.
The term ‘OTC Securities’ is a catchall phrase for any security that is not listed on a U.S. stock exchange.
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.
Conclusions
Even though many different charting techniques are available, one method is not necessarily better than the other.
OTC Markets Group and the FINRA OTCBB distribute their market data to broker-dealers, investment professionals, market data re-distributors, and financial websites, including OTCMarkets.com.
Open Your Eyes To Closed-End Funds
Fixed-income investors are often attracted to closed-end funds because many of the funds are designed to provide a steady stream of income, usually on a monthly or quarterly basis as opposed to the biannual payments provided by individual bonds.
Perhaps the easiest way to understand the mechanics of closed-end mutual funds is via comparison to open-end mutual and exchange-traded funds with which most investors are familiar. All these types of funds pool the investments of numerous investors into a single basket of securities or fund portfolio. While at first glance it may seem like these funds are quite similar - as they share similar names and a few characteristics - from an operational perspective, they are actually quite different. Here well take a look at how closed-end funds work, and whether they could work for you.
Open-End Vs. Closed-End
Open-end fund shares are bought and sold directly from the mutual fund company. There is no limit to the number of available shares because the fund company can continue to create new shares, as needed, to meet investor demand. On the reverse side, a portfolio may be affected if a significant number of shares are redeemed quickly and the manager needs to make trades (sell) to meet the demands for cash created by the redemptions. All investors in the fund share costs associated with this trading activity, so the investors who remain in the fund share the financial burden created by the trading activity of investors who are redeeming their shares.
On the other hand, closed-end funds operate more like exchange-traded funds. They are launched through an initial public offering (IPO) that raises a fixed amount of money by issuing a fixed number of shares. The fund manager takes charge of the IPO proceeds and invests the shares according to the funds mandate. The closed-end fund is then configured into a stock that is listed on an exchange and traded in the secondary market. Like all shares, those of a closed-end fund are bought and sold on the open market, so investor activity has no impact on underlying assets in the funds portfolio. This trading distinction can be an advantage for money managers specializing in small-cap stocks, emerging markets, high-yield bonds and other less liquid securities. On the cost side of the equation, each investor pays a commission to cover the cost of personal trading activity (that is, the buying and selling of a closed-end funds shares in the open market).
Like open-end and exchange-traded funds, closed-end funds are available in a wide variety of offerings. Stock funds, bond funds and balanced funds provide a full range of asset allocation options, and both foreign and domestic markets are represented. Regardless of the specific fund chosen, closed-end funds (unlike some open-end and ETF counterparts) are all actively managed. Investors choose to place their assets in closed-end funds in the hope that the fund managers will use their management skills to add alpha and deliver returns in excess of those that would be available via investing in an index product that tracked the portfolios benchmark index.
Pricing and Trading: Take Note of the NAV
Pricing is one of the most notable differentiators between open-end and closed-end funds. Open-ended funds are priced once per day at the close of business. Every investor making a transaction in an open-end fund on that particular day pays the same price, called the net asset value (NAV). Closed-end funds, like ETFs, have an NAV as well, but the trading price, which is quoted throughout the day on a stock exchange , may be higher or lower than that value. The actual trading price is set by supply and demand in the marketplace. ETFs generally trade at or close to their NAVs.
If the trading price is higher than the NAV, closed-end funds and ETFs are said to be trading at a premium. When this occurs, investors are placed in the rather precarious position of paying to purchase an investment that is worth less than the price that must be paid to acquire it.
If the trading price is lower than the NAV, the fund is said to be trading at a discount. This presents an opportunity for investors to purchase the closed-end fund or ETF at a price that is lower than the value of the underlying assets. When closed-end funds trade at a significant discount, the fund manager may make an effort to close the gap between the NAV and the trading price by offering to repurchase shares or by taking other action, such as issuing reports about the funds strategy to bolster investor confidence and generate interest in the fund.
Closed-End Funds Use of Leverage
Closed-end funds have another quirk unique to their fund structure. They often make use of borrowings, which, while adding an element of risk when compared to open-end funds and ETFs, can potentially lead to greater rewards. This leverage is the main reason why closed-end funds typically generate more income than open-end and exchange-traded funds.
Why Closed-End Funds Arent More Popular
According to the Closed-End Fund Association, closed-end funds have been available since 1893, more than 30 years prior to the formation of the first open-end fund in the U.S. Despite their long history, however, closed-end funds are far outnumbered by open-ended funds in the market.
The relative lack of popularity of closed-end funds can be explained by the fact that they are a somewhat complex investment vehicle that tends to be less liquid and more volatile than open-ended funds. Also, few closed-end funds are followed by Wall Street firms or owned by institutions. After a flurry of investment banking activity surrounding an initial public offering for a closed-end fund, research coverage normally wanes and the shares languish.
For these reasons, closed-end funds have historically been, and will likely remain, a tool used primarily by relatively sophisticated investors.
The Bottom Line
Investors put their money into closed-end funds for many of the same reasons that they put their money into open-end funds. Most are seeking solid returns on their investments through the traditional means of capital gains, price appreciation and income potential. The wide variety of closed-end funds on offer and the fact that they are all actively managed (unlike open-ended funds) make closed-end funds an investment worth considering. From a cost perspective, the expense ratio for closed-end funds may be lower than the expense ratio for comparable open-ended funds.
NITE-LYNX $CIRC BarChart Technical Analysis
http://www.barchart.com/technicals/stocks/CIRC
When the economy expands, most industry groups and companies benefit and grow. When the economy declines, most sectors and companies usually suffer.
OTC issuers are not required to maintain current address or contact information with OTC Markets Group. With the exception of OTCQX companies, OTC Markets does not maintain listing agreements with OTC traded companies and has no other means of compelling companies to provide this information. Many investor-focused issuers do voluntarily provide their contact information and keep it current.
5 Essential Things You Need To Know About Every Stock You Buy
Investing is easy but investing successfully is tough. Statistics show that the majority of retail investors, those who arent investment professionals, lose money every year. There could be a variety of reasons why, but there is one that every investor with a career outside of the investment market understands: they dont have time to research a large amount of stocks and they dont have a research team to help with that monumental task. (For related reading, check out The 4 Basic Elements Of Stock Value.)
For that reason, investments made after little research often result in losses. Thats the bad news. The good news is that, although the ideal way to purchase a stock is after a large amount of research, an investor can cut down on the amount of research by looking at these select items:
What They Do
Jim Cramer, in his book Real Money, advises investors to never purchase a stock unless they have an exhaustive knowledge of how they make money. What do they manufacture? What kind of service do they offer? In what countries do they operate? What is their flagship product and how is it selling? Are they known as the leader in their field? Think of this as a first date. You probably wouldnt go on date with somebody if you had no idea who they were. If you do, youre asking for trouble.
This information is very easy to find. Using the search engine of your choice, go to their company website and read about them. Then, as Cramer advises, go to a family member and educate them on your potential investment. If you can answer all of their questions, you know enough.
Price/Earnings Ratio
Imagine for a moment you were in the market for somebody who could help you with your investments. You interview two people. One person has a long history of making people a lot of money. Your friends have seen a big return from this person and you cant find any reason why you shouldnt hand this guy your investment dollars. He tells you that for every dollar he makes for you, hes going to keep 40 cents leaving you with 60 cents.
The other guy is just getting started in the business. He has very little experience and, although he seems promising, he doesnt have much of a track record of success. The advantage to this guy is that hes cheaper. He only wants to keep 20 cents for every dollar he makes you - but what if he doesnt make you as many dollars as the first guy?
If you understand this example, you understand the P/E or price/earnings ratio. If you notice that a company has a P/E of 20, this means that investors are willing to pay $20 for every $1 per earnings. That might seem expensive but not if the company is growing fast.
The P/E can be found by comparing the current market price to the cumulative earnings of the last 4 quarters. Compare this number to other companies similar to the one youre researching. If your company has a higher P/E than other similar companies, there had better be a reason. If it has a lower P/E but is growing fast, thats an investment worth watching. (If these numbers have you in the dark, these easy calculations should help light the way, seeHow To Find P/E And PEG Ratios.)
Beta
Beta seems like something difficult to understand, but its not. In fact, and can be found on the same page as the P/E Ratio on a major stock data provider such as Yahoo or Google. Beta measures volatility or how moody your companys stock has acted over the last 5 years. Think of the S
Recall that semi-strong efficient implies that all public knowledge is reflected in the price and it is virtually impossible to exploit deviations from the true value based on public information.
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821321
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Created
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03/04/10
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Free
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Moderator PhotoChick | |||
Assistants Nilbud ManicTrader |
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821321
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