Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Feast thine eyes upon $WELL BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/WELL
How To Dispute A Credit Card Charge
What happens when the brand-new digital camera you brought home turns out to be a bust? Or the DVD player you got for your spouses birthday gets stuck permanently on rewind? Or, when youve been double-charged for something youre sure you only came home with one of?
SEE: Check out our credit card comparison tool and find out which credit card is right for you.
If youve made these purchases on a credit card - and these days, thats a near certainty - youre in luck. Thanks to the Fair Credit Billing Act, consumers have a good deal of protection for their credit card purchases. This law allows consumers to withhold payment on poor-quality, damaged merchandise or incorrectly billed items they bought with a credit card until the matter is resolved. Read on as we show you how to dispute a credit card charge and actually come out on the winning side.
Retrace Your Steps
Your first move is always to go back and attempt to resolve the problem with the merchant. If you give them a chance to address your complaint, they very often will; especially if you approach them with politeness and courtesy. Most large retailers have customer service policies in place that err strongly on the side of being generous, at least within a certain period of time, and under ordinary circumstances.
Bottom line is, if you act promptly and reasonably, youre likely to get the full benefit of the doubt. If you dont have luck with the first representative you speak with, ask to talk with the manager or supervisor on duty. Be sure to keep records of each interaction, the person you spoke with as well as the date and time, so you can refer back to them if needed.
Put It In Writing
If the merchant wont budge, its time to put your complaint in writing. Draft a short, detailed letter outlining your particular dispute, and address it to the merchant via certified mail. Before you send it, make a few copies, so you can save one for your records and send another copy to your credit card company, as proof of your efforts to resolve this dispute.
Next youll draft a letter to your credit card company, to officially alert it of the disputed purchase amount. The Fair Credit Billing Act mandates that you do this in writing, within 60 days after the bill with the disputed charge was sent to you. In your letter, youll need to include your account number, the closing date of the bill on which the disputed charge appears, a description of the disputed item and the reason youre withholding payment. You should also enclose a copy of your complaint letter to the merchant, along with any other documentation that supports your position. This letter should also be sent via certified mail, return receipt requested; be sure you send it to the billing inquiries address at your credit card company, and not the regular address for payments (since these are often two separate departments).
Keep on Paying
Even though youre disputing an item on your current bill, its important to maintain your other payments. If youve charged anything else on your card during this cycle, youll need to send that payment and all financing charges to the regular address, otherwise youll incur interest and late-payment charges.
At this point, youre just waiting to hear the result of your challenge. Some card companies - especially the bigger firms, such as Capital One - will often give the benefit of the doubt to their consumers, and issue a temporary credit until the dispute is resolved. This isnt required by law, however, so dont assume you will get this consideration. Meanwhile, the card issuer will get in touch with the merchant to find out their side of the story. Basically, if they end up siding with you, you will enjoy a full refund. If not, youll have to pay for the disputed item, as well as any additional finance charges that may have accrued.
There are a few catches to the Fair Credit Billing Act. Technically, the sale must be for more than $50 and must have taken place in your home state or within 100 miles of your billing address, which means phone or internet orders may be immune. However, few issuers enforce these rules on purchases, because most credit card companies are eager to hold onto your business, given the highly competitive nature of the industry these days. But, theres still always a chance that your claim could be denied on these grounds.
You Have a Better Chance Than You Might Think
If you find yourself in the position of having to dispute a credit card charge, you may have more rights and advantages than you realize. The key is to act quickly and responsibly. Address the matter in a prompt and courteous fashion with the merchant in question, and if necessary, follow up with your credit card issuer. In most cases the whole matter can be resolved within a matter of weeks to your satisfaction.
Once broker-dealers have created or updated their quote, they may continue to monitor the market; if prices change (to satisfy the limit price) they may send a trade message to another broker-dealer. They may also receive an OTC Link trade message against their standing quote or for a different price/size.
However, there is other information not readily available to the public that is not fully reflected in the price.
NITE-LYNX $DATA BarChart Technical Analysis
http://www.barchart.com/technicals/stocks/DATA
Understanding Stock Splits
Say you had a $100 bill and someone offered you two $50 bills for it. Would you take the offer? This might sound like a pointless question, but the action of a stock split puts you in a similar position. In this article we will explore what a stock split is, why its done and what it means to the investor.
What Is a Stock Split?
A stock split is a corporate action that increases the number of the corporations outstanding shares by dividing each share, which in turn diminishes its price. The stocks market capitalization, however, remains the same, just like the value of the $100 bill does not change if it is exchanged for two $50s. For example, with a 2-for-1 stock split, each stockholder receives an additional share for each share held, but the value of each share is reduced by half: two shares now equal the original value of one share before the split.
Lets say stock A is trading at $40 and has 10 million shares issued, which gives it a market capitalization of $400 million ($40 x 10 million shares). The company then decides to implement a 2-for-1 stock split. For each share shareholders currently own, they receive one share, deposited directly into their brokerage account . They now have two shares for each one previously held, but the price of the stock is split by 50%, from $40 to $20. Notice that the market capitalization stays the same - it has doubled the amount of stocks outstanding to 20 million while simultaneously reducing the stock price by 50% to $20 for a capitalization of $400 million. The true value of the company hasnt changed one bit.
The most common stock splits are, 2-for-1, 3-for-2 and 3-for-1. An easy way to determine the new stock price is to divide the previous stock price by the split ratio. In the case of our example, divide $40 by 2 and we get the new trading price of $20. If a stock were to split 3-for-2, wed do the same thing: 40/(3/2) = 40/1.5 = $26.6.
It is also possible to have a reverse stock split: a 1-for-10 means that for every ten shares you own, you get one share. Below we illustrate exactly what happens with the most popular splits in regards to number of shares, share price and market cap of the company splitting its shares.
Whats the Point of a Stock Split?
So, if the value of the stock doesnt change, what motivates a company to split its stock? Good question. There are several reasons companies consider carrying out this corporate action.
The first reason is psychology. As the price of a stock gets higher and higher, some investors may feel the price is too high for them to buy, or small investors may feel it is unaffordable. Splitting the stock brings the share price down to a more attractive level. The effect here is purely psychological. The actual value of the stock doesnt change one bit, but the lower stock price may affect the way the stock is perceived and therefore entice new investors. Splitting the stock also gives existing shareholders the feeling that they suddenly have more shares than they did before, and of course, if the prices rises, they have more stock to trade.
Another reason, and arguably a more logical one, for splitting a stock is to increase a stocks liquidity, which increases with the stocks number of outstanding shares. You see, when stocks get into the hundreds of dollars per share, very large bid/ask spreads can result (see Why the Bid/Ask Spread Is So Important.). A perfect example is Warren Buffetts Berkshire Hathaway, which has never had a stock split. At times, Berkshire stock has traded at nearly $100,000 and its bid/ask spread can often be over $1,000. By splitting shares a lower bid/ask spread is often achieved, thereby increasing liquidity.
None of these reasons or potential effects that weve mentioned agree with financial theory, however. If you ask a finance professor, he or she will likely tell you that splits are totally irrelevant - yet companies still do it. Splits are a good demonstration of how the actions of companies and the behaviors of investors do not always fall into line with financial theory. This very fact has opened up a wide and relatively new area of financial study called behavioral finance (see Taking A Chance On Behavorial Finance.).
Advantages for Investors
There are plenty of arguments over whether a stock split is an advantage or disadvantage to investors. One side says a stock split is a good buying indicator, signaling that the companys share price is increasing and therefore doing very well. This may be true, but on the other hand, you cant get around the fact that a stock split has no affect on the fundamental value of the stock and therefore poses no real advantage to investors. Despite this fact the investment newsletter business has taken note of the often positive sentiment surrounding a stock split. There are entire publications devoted to tracking stocks that split and attempting to profit from the bullish nature of the splits. Critics would say that this strategy is by no means a time-tested one and questionably successful at best.
Factoring in Commissions
Historically, buying before the split was a good strategy because of commissions that were weighted by the number of shares you bought. It was advantageous only because it saved you money on commissions. This isnt such an advantage today because most brokers offer a flat fee for commissions, so you pay the same amount whether you buy 10 shares or 1,000 shares. Some online brokers have a limit of 2,000 or 5,000 shares for that flat rate, but most investors dont buy that many shares at once. The flat rate therefore covers most trades, so it does not matter if you buy pre-split or post-split.
Conclusion
The most important thing to know about stock splits is that there is no effect on the worth (as measured by market capitalization) of the company. A stock split should not be the deciding factor that entices you into buying a stock. While there are some psychological reasons why companies will split their stock, the split doesnt change any of the business fundamentals. In the end, whether you have two $50 bills or one $100 bill, you have the same amount in the bank.
Volatility makes it possible for market makers to lose money providing liquidity to both sides of the market. Security purchases at the bid price can become unprofitable if the price quickly or significantly moves lower. Therefore, spreads tend to be wider (larger) in very volatile or illiquid (not easily tradable) securities.
Psychological or logical may be open for debate, but there is no questioning the current price of a security. After all, it is available for all to see and nobody doubts its legitimacy.
NITE-LYNX $SAPX BarChart Technical Analysis
http://www.barchart.com/technicals/stocks/SAPX
Introduction To Institutional Investing
Institutional investors are entities that pool together funds on behalf of others, and invest those funds in a variety of different financial instruments and asset classes. Institutional investors control a significant amount of all financial assets in the United States, and exert considerable influence in all markets.
TUTORIAL: Advanced Financial Statement Analysis
Influence
This influence has grown over time and can be confirmed by examining the concentration of ownership by institutional investors in the equity of the top 50 publicly traded corporations. The average institutional ownership in these companies was about 64% at the end of 2009, compared to 49% at the end of 1987. As the size and importance of institutions continues to grow, so does their relative holdings and influence on the financial markets.
Advantages
Institutional investors are generally considered to be more proficient at investing due to the assumed professional nature of operations and greater access to companies and managements because of size. These advantages may have eroded over the years as information has become more transparent and accessible, and regulation has limited the amount and method of disclosure by public companies. (These vehicles have gotten a bad rap in the press. Find out whether they deserve it. See Are Derivatives Safe For Retail Investors?)
Types of Institutional Investors
Institutional investors include public and private pension funds, insurance companies, savings institutions, closed- and open-end investment companies, and foundations.
By the Numbers
Institutional investors controlled $25.3 trillion, or 17.4% of all U.S. financial assets as of 12/31/2009, according to the Conference Board. This percentage has been declining over the last decade and peaked in 1999 at 21.5% of total assets. The gradual percentage decline arises due to the massive value increases in total outstanding assets which are available for investment purposes.
Asset Allocation
Institutional investors invested these assets in a variety of classes, the standard allocation is approximately 40% of assets to equity and 40% to fixed income. Another 20% of total assets were allocated to real estate, cash and other areas. However, these figures drastically vary from institution to institution. Equities have experienced the fastest growth over the last generation, and in 1980 only 18% of all institutional assets were invested in equities. (Your portfolios asset mix is a key factor in whether its profitable. Find out how to get this delicate balance right. Refer to 6 Asset Allocation Strategies That Work.)
Pension Funds
Pension funds are the largest part of the institutional investment community and control over $10 trillion, or approximately 40% of all professionally managed assets. Pension funds receive payments from individuals and sponsors, either public or private, and promise to pay a retirement benefit in the future to the beneficiaries of the fund.
The large pension fund in the United States, California Public Employees Retirement System (CalPERS), reported total assets of $239 billion at as of 2011. Although pension funds have significant risk and liquidity constraints, they are often able to allocate a small portion of their portfolios to investments which are not easily accessible to retail investors such as private equity and hedge funds.
Most pension fund operational requirements are discussed in the Employee Retirement Income Security Act (ERISA) passed in 1974. This law established the accountability of the fiduciaries of pension funds and set minimum standards on disclosure, funding, vesting and other important components of these funds.
Investment Companies
Investment companies are the second largest institutional investment class and provide professional services to banks and individuals looking to invest their funds.
Most investment companies are either closed- or open-end mutual funds, with open end funds continually issuing new shares as it receives funds from investors. Closed end funds issue a fixed number of shares and typically trade on an exchange.
Open end funds have the majority of assets within this group, and have experienced rapid growth over the last few decades as investing in the equity market became more popular. In 1980, investment companies comprised only 2.9% of all institutional assets, but this share more than tripled to 9.4% by 1990, and reached 28.4% by the end of 2009. However, with the rapid growth of ETFs many investors are now turning away from mutual funds.
The Massachusetts Investors Trust came into existence in the 1920s and is generally recognized as the first open-end mutual fund to operate in the United States. Others quickly followed and by 1929 there were 19 more open-end mutual funds and nearly 700 closed-end funds in the United States.
Investment companies are regulated primarily under the Investment Company Act of 1940, and also come under other securities laws in force in the United States. (Flying high one day but not the next - see the stories behind some spectacular meltdowns. Check out Massive Hedge Fund Failures.)
Insurance Companies
Insurance companies are also part of the institutional investment community and controlled almost the same amount of funds as investment firms. These organizations, which include property and casualty insurers and life insurance companies, take in premiums to protect policy holders from various types of risk. The premiums are then invested by the insurance companies to provide a source of future claims and a profit.
Savings Institutions
Savings institutions control over $1 trillion in assets. These organizations have seen a huge drop in assets over the last generation, with the percentage of assets held by savings institutions declining from 32.6% in 1980 to only 4.9% in 2009.
Foundations
Foundations are the smallest institutional investor as they are typically funded for pure altruistic purposes. These organizations are typically created by wealthy families or companies and are dedicated to a specific public purpose.
The largest foundation in the United States is the Bill and Melinda Gates Foundation, which held $36.7 billion in assets at the end of 2010. Foundations are usually created for the purpose of improving the quality of public services such as accessibility to education funding, healthcare and research grants.
Conclusion
Institutional investors remain an important part of the investment world despite a flat share of all financial assets over the last decade, and still have considerable impact on all markets and asset classes.
Investors must define the order they wish the broker-dealer to execute. There are two main order types: the Limit Order and the Market Order.
Feast thine eyes upon $KKPT BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/KKPT
Should You Buy Stock Or An ETF?
After completing a thorough research of an attractive sector, you may like a couple of stocks and an exchange-traded fund (ETF) that fit your criteria. Now you need to decide, do I buy the stocks or the ETF? Investors encounter this question every day. Many are under the impression that if you buy an ETF, you are stuck with receiving the average return in the sector. This is not necessarily true, depending on the characteristics of the sector.
SEE: Building An All-ETF Portfolio
Making this choice is no different from any other investment decision. As always, you want to look for ways to reduce your risk. Of course, you want to generate a return that beats the market (create alpha.) Reducing the volatility of an investment is the general method of mitigating risk. Most rational investors give up some upside potential to prevent a potentially catastrophic loss. An investment that offers diversification across an industry group should reduce the portfolio volatility an investor is exposed to. This is one way that diversification through ETFs works in your favor.
Alpha is the ability of an investment to outperform its benchmark. Any time you can fashion a more stable alpha, you will be able to experience a higher return on your investment. There is a general belief that you must own stocks, rather than an ETF, to beat the market. This notion is not always correct. Being in the right sector can lead to achieving alpha, as well.
When Stock Picking Might Work
Industries or situations where there is a wide dispersion of returns, or instances in which ratios and other forms of fundamental analysis could be used to spot mispricing, offer stock-pickers an opportunity to exceed.
Maybe you have a good legal insight on how well a company is performing, based on your research and experience. This insight gives you an advantage that you can use to lower your risk and achieve a better return. Good research can create value added investment opportunities, rewarding the stock investor .
The retail industry is one group in which stock picking might offer better opportunities than buying an ETF that covers the sector. Companies in the sector tend to have a wide dispersion of returns based on the particular products that they carry, creating an opportunity for the astute stock picker to do well.
SEE: Analyzing Retail Stocks
For example, recently you have noticed that your daughter and her friends prefer a particular retailer. Upon further investigation, you find that the company has upgraded its stores and hired new product management people. This led to the very recent roll out of new products that have caught the eye of your daughters age group. So far, the market has not noticed. This type of perspective (and your research) might give you an edge in picking the stock over buying a retail ETF.
Company insight through a legal or sociological perspective may provide investment opportunities that are not immediately captured in market prices. When such an environment is determined for a particular sector, where there is much return dispersion, single stock investments can provide a higher return than a diversified approach.
When an ETF Might Be the Best Choice
Sectors that do have a narrow dispersion of returns from the mean do not offer stock pickers an advantage when trying to generate market-beating returns. The performance of all companies in these sectors tends to be similar. For these sectors, the overall performance is fairly similar to the performance of any one stock. The utilities and consumer staples industries fall into this category. In this case, investors need to decide how much of their portfolio to allocate to the sector overall, rather than pick specific stocks. Since the dispersion of returns from utilities and consumer staples tends to be narrow; picking a stock does not offer sufficiently higher return for the risk that is inherent in owning individual securities. Since ETFs pass through the dividends that are paid by the stocks in the sector, investors receive that benefit as well.
Often, the stocks in a particular sector are subject to disperse returns, yet investors are unable to select those securities which are likely to continue over-performing. Therefore, they cannot find a way to lower risk and enhance their potential returns by picking one or more stocks in the sector.
SEE: How To Pick The Best ETF
If the drivers of the performance of the company are more difficult to understand, you might consider the ETF. These companies may possess more difficult to evaluate technology or processes that cause them to underperform or do well. Perhaps their performance depends on the successful development and sale of a new unproven technology. The dispersion of returns is wide, and the odds of finding a winner can be quite low. The biotechnology industry is a good example, as many of these companies depend on the successful development and sale of a new drug. If the development of the new drug does not meet expectations in the series of trials, or the FDA does not approve the drug application, the company faces a bleak future. On the other hand, if the FDA approves the drug, investors in the company can be highly rewarded.
The semiconductors, certain commodities and specialty technology groups fit the category where ETFs may be the preferred alternative. For example, if you believe that now is a good time to invest in the mining sector, you may want to gain specific industry exposure. However, you are concerned that some stocks might encounter political problems harming their production. In this case, it is prudent to buy into the sector rather than a specific stock, since it reduces your risk. You can still benefit from growth in the overall sector, especially if it outperforms the overall market.
When deciding whether to pick stocks or select an ETF, look at the risk and the potential return that can be achieved. Stock-picking offers an advantage over ETFs, when there is a wide dispersion of returns from the mean. And you can gain an advantage using your knowledge of the industry or the stock.
ETFs offer advantages over stocks in two situations. First, when the return from stocks in the sector has a narrow dispersion around the mean, an ETF might be the best choice. Second, if you are unable to gain an advantage through knowledge of the company, and regardless of return dispersions, an ETF is your best choice
SEE: 5 ETFs Flaws You Shouldnt Overlook
The Bottom Line
Whether picking stocks or an ETF, you need to stay up to date on the sector or the stock in order to understand the underlying investment fundamentals. You do not want to see all of your good work go down the drain as time passes.
Economic Forecast
First and foremost in a top-down approach would be an overall evaluation of the general economy. The economy is like the tide and the various industry groups and individual companies are like boats.
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.
Behold the $PUNK BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/PUNK
Portfolio Mismanagement: 7 Common Stock Errors
Ignorance may be bliss, but not knowing why your stocks are failing and money is disappearing from your pockets is a long way from paradise. In this article, well uncover some of the more common investing faux pas, as well as provide you with suggestions on how to avoid them.
1. Ignoring Catalysts
The financial pundits, trade journals and business schools teach that proper valuation is the key to stock selection. This is only half of the picture because calculating P/E ratios and running cash flow spreadsheets can only show where a company is at a given point in time - it cannot tell us where it is heading.
Therefore, in addition to a quantitative evaluation of a company, you must also do a qualitative study so that you can determine which catalysts will drive earnings going forward.
Some good questions to ask yourself include:
• Is the company about to acquire a very profitable enterprise?
• Is a potential blockbuster product about to be launched?
• Are economies of scale being realized at the companys new plant and are margins about to rise dramatically?
• What will drive earnings and the stock price going forward?
2. Catching the Falling Knife
Investors love to buy companies on the cheap, but far too often, investors buy in before all of the bad news is out in the public domain, and/or before the stock stops its free fall. Remember, new lows in a companys share price often beget further new lows as investors see the shares dropping, become disheartened and then sell their shares. Waiting until the selling pressure has subsided is almost always your best bet to avoid getting cut on a falling knife stock. (To learn more, read How Investors Often Cause The Markets Problems.)
3. Failing to Consider Macroeconomic Variables
You have found a company you want to invest in. Its valuation is superior to that of its peers. It has several new products that are about to be launched, and sales could skyrocket. Even the insiders are buying the stock, which bolsters your confidence all the more.
But if you havent considered the current macroeconomic conditions, such as unemployment and inflation, and how they might impact the sector you are invested in, youve made a fatal mistake!
Keep in mind that a retailer or electronics manufacturer is subject to a number of factors beyond its control that could adversely impact the share price. Things to consider are oil prices, labor costs, scarcity of raw materials, strikes, interest rate fluctuations and consumer spending. (For more on these factors, see Macroeconomic Analysis and Where Top Down Meets Bottom Up.)
4. Forgetting About Dilution
Be on the lookout for companies that are continuously issuing millions of shares and causing dilution, or those that have issued convertible debt. Convertible debt may be converted by the holder into common shares at a set price. Conversion will result in a lower value of holdings for existing shareholders.
A better idea is to seek companies that are repurchasing stock and therefore reducing the number of shares outstanding. This process increases earnings per share (EPS) and it tells investors that the company feels that there is no better investment than their own company at the moment. (You can read more about buybacks in A Breakdown Of Stock Buybacks.)
5. Not Recognizing Seasonal Fluctuations
You cant fight the Fed. By that same token, you cant expect that your shares will appreciate even if the companys shares are widely traded in high volumes. The fact is that many companies (such as retailers) go through boom and bust cycles year in and year out. Luckily, these cycles are fairly predictable, so do yourself a favor and look at a five-year chart before buying shares in a company. Does the stock typically wane during a particular part of the year and then pick up during others? If so, consider timing your purchase or sale accordingly. (To learn more, see Capitalizing On Seasonal Effects.)
6. Missing Sector Trends
Some stocks do buck the larger trend; however, this behavior usually occurs because there is some huge catalyst that propels the stock either higher or lower. For the most part, companies trade in relative parity to their peers. This keeps their stock price movements within a trading band or range. Keep this in mind as you consider your entry/exit points in a stock.
Also, if you own stock in a semiconductor company (for example), understand that if other semiconductor companies are experiencing certain problems, your company will too. The same is true if the situation was reversed, and positive news hit the industry.
7. Avoiding Technical Trends
Many people shy away from technical analysis, but you dont have to be a chartist to be able to identify certain technical trends. A simple graph depicting 50-day and 200-day moving averages as well as daily closing prices can give investors a good picture of where a stock is headed. (To learn about this method, read the Basics Of Technical Analysis.)
Be wary of companies that trade and/or close below those averages. It usually means the shares will go lower. The same can be said to the upside. Also remember that as volume trails off, the stock price typically follows suit.
Lastly, look for general trends. Has the stock been under accumulation or distribution over the past year? In other words, is the price gradually moving up, or down? This is simple information that can be gleaned from a chart. It is truly surprising that most investors dont take advantage of these simple and accessible tools.
The Bottom line
There are a myriad of mistakes that investors can and do make. These are simply some of the more common ones. In any case, it pays to think about factors beyond what will propel the stock you own higher. A stocks past and expected performance in comparison to its peers, as well as its performance when subjected to economic conditions that may impact the company, are some other factors to consider.
With these kinds of stats, individual investors would surely be better off simply investing in an index fund rather than attempting to beat the market wouldn't they?
To trade OTC securities you must open an account with a brokerage firm that deals in OTC securities. Investors cannot buy or sell securities directly through OTC Markets Group.
BarChart Technical Analysis NITE-LYNX $MPIX
http://www.barchart.com/technicals/stocks/MPIX
There are a wide variety of companies – spanning all major sectors and industries, with market capitalizations ranging from large cap to micro cap – quoted and traded in the OTC market.
Business Plan
The business plan, model or concept forms the bedrock upon which all else is built. If the plan, model or concepts stink, there is little hope for the business. For a new business, the questions may be these: Does its business make sense? Is it feasible? Is there a market?
The 3 Biggest Risks Faced By International Investors
Investing internationally has often been the advice given to investors looking to increase the diversification and total return of their portfolio. The diversification benefits are achieved through the addition of low correlation assets of international markets that serve to reduce the overall risk of the portfolio. However, although the benefits of investing internationally are widely accepted theories, many investors are still hesitant to invest abroad. In this article, well discuss the reasons why this may be the case and help highlight key concerns for investors so they can make a more informed decision.
Transaction Costs
Likely the biggest barriers to investing in international markets are the transaction costs. Although we live in a relatively globalized and connected world, transactions costs can still vary greatly depending on which foreign market you are investing in. Brokerage commissions are almost always higher in international markets compared to domestic rates. In addition, on top of the higher brokerage commissions, there are frequently additional charges that are piled on top that are specific to the local market, which can include stamp duties, levies, taxes, clearing fees and exchange fees.
As an example, here is a general breakdown of what a single purchase of stock in Hong Kong by a U.S. investor could look like on a per trade basis:
Fee Type Fee
Brokerage Commission HK$299
Stamp Duty
0.1%
Trading Fees 0.005%
Transaction Levy 0.003%
TOTAL HK$299 0.108%
In addition, if you are investing through a fund manager or professional manager, you will also see a higher fee structure. To become knowledgeable about a foreign market to the point where the manager can generate good returns, the process involves spending significant amounts of time money on research and analysis. These costs will often include the hiring of analysts and researchers who are familiar with the market, accounting expertise for foreign financial statements, data collection, and other administrative services. For investors, these fees altogether usually end up showing up in the management expense ratio.
One way to minimize transaction costs on buying foreign stock is through the use of American Depository Receipts (ADRs). ADRs trade on local U.S. exchanges and can typically be bought with the same transaction costs as other stocks listed on U.S. exchanges. It should be noted however, that although ADRs are denominated in U.S. dollars, they are still exposed to fluctuations in exchange rates that can significantly affect its value. A depreciating foreign currency relative to the USD will cause the value of the ADR to go down, so some caution is warranted in ADRs. (For more, see An Introduction To Depository Receipts.)
Currency Risks
The next area of concern for retail investors is in the area of currency volatility. When investing directly in a foreign market (and not through ADRs), you have to exchange your domestic currency (USD for U.S. investors) into a foreign currency at the current exchange rate in order to purchase the foreign stock. If you then hold the foreign stock for a year and sell it, you will have to convert the foreign currency back into USD at the prevailing exchange rate one year later. It is the uncertainty of what the future exchange rate will be that scares many investors. Also, since a significant part of your foreign stock return will be affected by the currency return, investors investing internationally should eliminate this risk.
The solution to mitigating this currency risk, as any financial professional will likely tell you, is to simply hedge your currency exposure. However, not many retail investors know how to hedge currency risk and which products to use. There are tools such as currency futures, options, and forwards that can be used to hedge this risk, but these instruments are usually too complex for a normal investor. Alternatively, one tool to hedge currency exposure that may be more user-friendly for the average investor is the currency ETF. This is due to their good liquidity, accessibility and relative simplicity. (If you want to learn the mechanics of hedging with a currency ETF, see Hedge Against Exchange Rate Risk With Currency ETFs.)
Liquidity Risks
Another risk inherent in foreign markets, especially in emerging markets, is liquidity risk. Liquidity risk is the risk of not being able to sell your stock quickly enough once a sell order is entered. In the previous discussion on currency risk we described how currency risks can be eliminated, however there is typically no way for the average investor to protect themselves from liquidity risk. Therefore, investors should pay particular attention to foreign investments that are, or can become, illiquid by the time they want to close their position.
Further, there are some common ways to evaluate the liquidity of an asset before purchase. One method is to simply observe the bid-ask spread of the asset over time. Illiquid assets will have wider bid-ask spread relative to other assets. Narrower spreads and high volume typically point to higher liquidity. Altogether, these basic measures can help you create a picture of an assets liquidity.
Bottom Line
Investing in international stocks is often a great way to diversify your portfolio and get potentially higher returns. However, for the average investor, navigating the international markets can be a difficult task that can be fraught with challenges. By understanding some of the main risks and barriers faced in international markets, an investor can position themselves to minimize these risks. Lastly, investors face more than just these three risks when investing abroad, but knowing these key ones will start you off on a strong footing.
This link will help thou $PTEEF BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/PTEEF
What Is Support?
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further.
Investors everyday transfer their accounts from one brokerage firm to another. Account transfers are generally completed without a problem, often within two to three weeks. If you are planning on transferring your account, read our publication, Transferring Your Brokerage Account: Tips on Avoiding Delays.
Bailout Acronyms 101
The government has been launching stimulus programs, financial entities and other programs designed to lead us out of recession nearly as fast as lawmakers and bureaucrats can come up with acronyms. As soon as the media begins to tout a new one, theres another on its heels. (For a comprehensive review of the current crisis, refer to The 2007-2008 Financial Crisis In Review.)
From TAF to PPPIP
It all began in December of 2007, when the United States Federal Reserve, the Bank of Canada, the Bank of England, the European Central Bank (ECB) and the Swiss National Bank took coordinated action to address the developing credit crisis. More than two years later, the bailout efforts continue. The primary flavors of the alphabet soup in the United States include:
• TAF
The Term Auction Facility was launched on December 12, 2007. It permitted banks to use securities as collateral to take short-term loans from the federal government for periods of either 28 or 84 days. In the Feds words, TAF is a credit facility that allows a depository institution to place a bid for an advance from its local Federal Reserve Bank at an interest rate that is determined as the result of an auction. The first auction took place on December 17.
• TSLF
The Term Securities Lending Facility was launched on March 11, 2008. Like TAF, which made credit available to depository institutions, TSFL made $200 billion in credit available to other financial institutions (brokerage firms and other entities such as Fannie Mae, Freddie Mac, Citigroup, Countrywide Financial) for 28-day periods as opposed to the traditional overnight loans. These entities use securities as collateral to borrow money. Weekly auctions began on March 27, 2008.
• PDCF
On March 17, 2008, the Federal Reserve announced the creation of the Primary Dealer Credit Facility. Unlike TAF and TSLF, which were designed to address long-term funding needs, PDCF provides daily access to cash to the same entities that borrow from TAF and TSLF. The institutions pay an interest rate equal to the Feds primary credit rate for short-term (overnight) loans. (Learn more in Top 6 U.S. Government Financial Bailouts.)
• AMLF
In September, 2008, the Federal Reserve Board announced the creation of the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility, which loans money to banks and bank holding companies to help them meet redemptions in money market funds. They do this by lending funds to borrowers to purchase eligible ABCPs from the money market fund. Because the market for commercial paper dried up, the government feared that investors would be unable to redeem their assets from money-market funds. This could have been a major financial meltdown, as money-market funds have been touted as cash-like, safe investments.
• TARP
While previous programs were designed to thaw the frozen credit markets, the serious attempts at economic salvation really started with the Troubled Assets Relief Program. TARP, also known as the bailout, entered the world on October 3, 2008. It was $700 billion program conceived in response to financial institutions struggling under the weight of sub-prime loan defaults. The greed-driven lenders gave money to foolish borrowers that were obviously unable to repay it, so the government agreed to use tax-payer money to take the bad loans off of the lenders books in order to thaw the credit markets.
• TALF
TALF came next. In March of 2009, the Term Asset-Backed Securities Lending Facility, or bailout number two, tossed $200 billion more into the bailout pool by printing new money. The government launched TALF after the asset-backed securities (ABS) market froze over in October, causing consumers and small business owners to be unable to access credit.
TALF was supposed to help market participants meet the credit needs of households and small businesses by supporting the issuance of ABS collateralized by student loans, auto loans, credit card loans , and loans guaranteed by the Small Business Administration (SBA). This effort also wasnt enough.
• FSP
Bailout number three, the Financial Stabilization Plan, grew TALF to a trillion dollars. It also permits commercial-mortgage backed securities (CMBS) to be used as collateral.
• CPFF
The Commercial Paper Funding Facility came along in October of 2008, as commercial paper fell victim to illiquid credit markets. It was designed to provide a market for commercial paper by purchasing commercial paper from eligible issuers. The facility would use a special purpose vehicle (SPV) to buy and hold these commercial paper to maturity and use the proceeds at maturity to repay the funds they borrowed from the Fed.
• PPIP
The Public-Private Investment Program , rolled out in March 2009, was created to buy bad assets in order to get them off of banks books. It was funded with a combination of TARP money and money from private investors. The programs main purpose was to provide price discovery in the market for toxic assets and to remove these assets from the balance sheets of financial institutions.
When Will the Madness End?
The long, complicated saga can be summarized as the result of a consumption-crazed society willing to borrow more than it can afford to repay from lenders that were all too willing to dole out the cash in the name of ever-increasing profits. After the loans were made, they were packed into structured products and sold to investors who didnt understand what they were buying and didnt want to as long as the investments generated hefty returns. When the borrowers failed to repay the loans, the fancy investments fell apart, leaving the taxpayers to fund the cleanup.
The increasingly complex array of structured products form an alphabet soup of their own:
• mortgage-backed securities (MBS)
• collateralized mortgage-backed obligations (CMBO)
• collateralized debt obligation (CDO)
• collateralized bond obligation (CBO)
• collateralized loan obligation (CLO)
Lessons Learned
While the alphabet soup of investments and programs designed to clean up after them is a deep and messy brew, the lessons from the debacle are far clearer and apply to lenders, borrowers, businesses and individuals alike, include those that created the mess and those that got caught up in it. First, dont lend or borrow more that you can afford to repay, and second, dont buy or sell anything that you dont understand.
BarChart Technical Analysis NITE-LYNX $CFTN
http://www.barchart.com/technicals/stocks/CFTN
Support was established with the October low around 33. In December, the stock returned to support in the mid-thirties and formed a low around 34. Finally, in February the stock again returned to the support scene and formed a low around 33 1/2.
Warren Buffetts Bear Market Maneuvers
In times of economic decline, many investors ask themselves, What strategies does the Oracle of Omaha employ to keep Berkshire Hathaway on target? The answer is that the esteemed Warren Buffett, the most successful known investor of all time, rarely changes his long-term value investment strategy and regards down markets as an opportunity to buy good companies at reasonable prices. In this article, we will cover the Buffett investment philosophy and stock-selection criteria with specific emphasis on their application in a down market and a slowing economy. (For more on Warren Buffett and his current holdings, sign up for our Coattail Investor newsletter.)
The Buffett Investment Philosophy
Buffett has a set of definitive assumptions about what constitutes a good investment. These focus on the quality of the business rather than the short-term or near-future share price or market moves. He takes a long-term, large scale, business value-based investment approach that concentrates on good fundamentals and intrinsic business value, rather than the share price. (For further reading, see Warren Buffett: The Road To Riches and What Is Warren Buffetts Investing Style?)
Buffett looks for businesses with a durable competitive advantage. What he means by this is that the company has a market position, market share, branding or other long-lasting edge over its competitors that either prevents easy access by competitors or controls a scarce raw-material source. (For more insight, see Competitive Advantage Counts, 3 Secrets Of Successful Companies and Economic Moats Keep Competitors At Bay.)
Buffett employs a selective contrarian investment strategy: using his investment criteria to identify and select good companies, he can then make large investments (millions of shares) when the market and the share price are depressed and when other investors may be selling.
In addition, he assumes the following points to be true:
• The global economy is complex and unpredictable.
• The economy and the stock market do not move in sync.
• The market discount mechanism moves instantly to incorporate news into the share price.
• The returns of long-term equities cannot be matched anywhere else.
Buffett Investment Activity
Berkshire Hathaway investment industries over the years have included:
• Insurance
• Soft drinks
• Private jet aircraft
• Chocolates
• Shoes
• Jewelry
• Publishing
• Furniture
• Steel
• Energy
• Home building
The industries listed above vary widely, so what are the common criteria used to separate the good investments from the bad?
Buffett Investment Criteria
Berkshire Hathaway relies on an extensive research-and-analysis team that goes through reams of data to guide their investment decisions . While all the details of the specific techniques used are not made public, the following 10 requirements are all common among Berkshire Hathaway investments:
1. The candidate company has to be in a good and growing economy or industry.
2. It must enjoy a consumer monopoly or have a loyalty-commanding brand.
3. It cannot be vulnerable to competition from anyone with abundant resources.
4. Its earnings have to be on an upward trend with good and consistent profit margins.
5. The company must enjoy a low debt/equity ratio or a high earnings/debt ratio.
6. It must have high and consistent returns on invested capital.
7. The company must have a history of retaining earnings for growth.
8. It cannot have high maintenance costs of operations, high capital expenditure or investment cash flow.
9. The company must demonstrate a history of reinvesting earnings in good business opportunities, and its management needs a good track record of profiting from these investments.
10. The company must be free to adjust prices for inflation.
The Buffett Investment Strategy
Buffett makes concentrated purchases. In a downturn, he buys millions of shares of solid businesses at reasonable prices. Buffett does not buy tech shares because he doesnt understand their business or industry; during the dotcom boom, he avoided investing in tech companies because he felt they hadnt been around long enough to provide sufficient performance history for his purposes.
And even in a bear market , although Buffett had billions of dollars in cash to make investments, in his 2009 letter to Berkshire Hathaway shareholders, he declared that cash held beyond the bottom would be eroded by inflation in the recovery.
Buffett deals only with large companies because he needs to make massive investments to garner the returns required to post excellent results for the huge size to which his company, Berkshire Hathaway, has grown. (To learn about the disadvantage of being confined to blue chip stocks , read Why Warren Buffett Envies You.)
Buffetts selective contrarian style in a bear market includes making some large investments in blue chip stocks when their stock price is very low. And Buffett might get an even better deal than the average investor: His ability to supply billions of dollars in cash infusion investments earns him special conditions and opportunities not available to others. His investments often are in a class of secured stock with its dividends assured and future stock warrants available at below-market prices.
Conclusion
Buffetts strategy for coping with a down market is to approach it as an opportunity to buy good companies at reasonable prices. Buffett has developed an investment model that has worked for him and the Berkshire Hathaway shareholders over a long period of time. His investment strategy is long term and selective, incorporating a stringent set of requirements prior to an investment decision being made. Buffett also benefits from a huge cash war chest that can be used to buy millions of shares at a time, providing an ever-ready opportunity to earn huge returns.
This is preferable for broker-dealers because they receive commissions on both the buy and sell-side of the trade. In executing client orders, broker-dealers may also buy or sell for their own (principal) account, at their own risk. If, however, there is no match for a trade or a broker-dealer does not wish to trade for their own account then a broker-dealer must find another broker-dealer willing to trade that particular security.
BarChart Technical Analysis NITE-LYNX $BRWC
http://www.barchart.com/technicals/stocks/BRWC
Anomalies do exist and there are investors and traders that outperform the market.
BarChart Technical Analysis NITE-LYNX $AXST
http://www.barchart.com/technicals/stocks/AXST
Translating Ticker Talk
Ticker symbols offer quite a bit of information to savvy investors who know what to look for when they see a ticker. In addition to identifying a company, a ticker may indicate the exchange on which a company is traded, whether that company is delinquent in terms of its Securities and Exchange Commission (SEC) filings, or if a company is currently undergoing bankruptcy proceedings. With so much information available in just a few characters, its imperative that investors learn the basics of stock ticker symbols. Here we translate ticker talk into plain English.
What Is a Ticker?
First and foremost, the word ticker refers to a series of letters or numbers identifying a particular security on a particular exchange. Stock tickers are the most familiar types of ticker symbols, though options, futures contracts and other types of securities also have ticker symbols.
A few examples of stock tickers include:
Figure 1
Copyright © 2011 Investopedia.com
You may notice that the number of characters differs for these tickers. For example, why does AT
FINRA members must report their short interest positions in all OTC Equity Securities mid-month and end-of-month. Short interest reporting brings more transparency to the short selling activities by member firms, and reduces the possibility of manipulative behavior associated with naked short selling.
For thou convenience $RYPE BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/RYPE
In addition, buyers could not be coerced into buying until prices declined below support or below the previous low.
Rational Ignorance And Your Money
Ignorance is regarded as rational when the cost of information and finding out exceeds the benefits. This is especially true in situations where it would be a waste of time to learn about the particular issue. A classic example of this would be in general elections, where one vote really does not count much. Clearly, however, if everyone thinks this way, there is a problem, but the fact remains that rather than poring over election promises and campaigns for hours, you would do better to invest the time learning more about and managing your portfolio of assets.
The Two Faces of Investor Ignorance
In the world of money, with its countless traps, endless alternatives, conflicts of interest and shady dealers, ignorance is probably less rational than in any other context. However, investors have to contend with two associated problems, which I would term inevitable ignorance and induced ignorance.
Inevitable Ignorance
Inevitable ignorance arises because it is just not possible to know everything about your investments. Clearly, the amount known varies very substantially between investors, due to huge disparities in experience, education, the amount of time people are able and willing to devote to their money, and so on.
However, everyone is ignorant about some aspects of their own investments and of the industry. For instance, nobody knows all there is to know about every company on the New York Stock Exchange, let alone those in France, China, Brazil and the rest of the world, developed, developing and in between. Not to mention, who could possibly know about the management and future prospects of all those thousands of funds out there, ranging from equities, to bonds, to futures and options, to alternative investments and CDs? (Consider yourself a beginner? Need to brush up on the basics? Start with Why You Should Understand The Stock Market.)
Induced Ignorance
Sadly, the wheeler and dealers of the industry are fully aware of this and therefore create ignorance quite deliberately in order to sell things that people would not buy if they were fully informed. It is well documented in the marketing literature that people take advantage of rational ignorance by increasing the complexity of a decision.
The rogues in the investment industry exploit both rational and irrational ignorance by ensuring that products are either so numerous and/or available in so many combinations and permutations that buyers are overwhelmed and find it too much trouble to make an informed decision; they just take their chances and, at worst, way too much risk.
To be fair, some of this complexity is inherent to the products and markets themselves; there are a lot of people selling a lot of things that are not particularly easy to understand. People often dont like having to think and worry about money, so they leave it to others who do not always behave ethically, and who themselves may be ignorant. In the case below, we have a combination of the above factors leading to continued ignorance. (For an additional on dishonesty in the market, check out The Rise Of The Rogue Trader.)
An Information Brochure for Certificates
Precisely because of widespread financial ignorance, advisors and brokers in Germany are obliged to provide a certain type of brochure with certificates and other investments. These are along the lines of what you get with medicine, and the documents are termed just that, Beipakzettel (package brochure). Similar to what you get with pills, information is to be provided on the risks and opportunities, as well as cost and taxation implications.
A study performed in Sept. 2011, however, revealed that this measure does not help much. For starters, there are no guidelines as to who is to provide the brochures, so it usually ends up being the seller.
For the study, a tabloid newspaper article, which is generally considered very understandable, was compared to the financial product brochures for bonus or caped-bonus certificates; they were found to be barely comprehensible. The long, unfamiliar words, complex sentences and clumsy grammar left readers totally perplexed. The literature for the major banks tested varied, but overall the results were extremely poor.
Part of the problem, explained one consultant, was that the providers found themselves in a quandary. On the one hand, they had to provide sufficient information in three pages to convey the relevant issues. On the other hand, they wanted to ensure they were covered legally. This resulted in legalese formulations designed to be legally watertight, but which severely reduced the readability and comprehensibility.
The moral of the story is that even well-intentioned efforts to reduce rational investment ignorance,¬ by making it easy and rational to be informed, can easily fail. So what does this say about bad-faith attempts to sell lousy investments through a smoke screen?
The Bottom Line
In this context, the regulators really do have an important role to play, but it needs to be done better than in the above case. Banks have to resolve the legally watertight vs. readability trade-off. Somehow, they need to get the message across clearly, but without opening themselves up to legal problems.
As always, investors must find out as much as they can, including who to trust, but they also need to understand and accept the limits of what they and others can and do know, and act accordingly. It is certainly advisable to buy only what you understand or trust, but as implied above, eliminating everything you dont understand fully, may mean burying your cash in the garden, which is not a great investment either.
There is a wide range in the quality of issuers whose securities are traded Over the Counter (OTC) - from major international conglomerates to very small, highly speculative companies. Therefore, investors should conduct thorough research prior to making an investment decision.
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.
The fee may be in the form of a commission, regulatory fee or tax, or some other incidental expense. These secondary "advance fee" schemes work very similarly to boiler room operations, the difference being that an advance fee scheme generally targets investors who already purchased underperforming securities, perhaps through an affiliated boiler room, offering to arrange a lucrative sale of those securities, but first requiring the payment of an “advance fee.”
Dividend Facts You May Not Know
Money For Nothing is not only the title of a song by Dire Straits in the 80s, but also the feeling many investors get when they receive a dividend. All you have to do is buy shares in the right company and youll receive some of its earnings. How exciting is that? However, despite the advantage, there are several implications involved in the paying and receiving of dividends that the casual investor may not be aware of. This article will explain several of these. But first, lets begin with a short primer.
What Are Dividends?
Dividends are one way in which companies share the wealth generated by running the business. They are usually a cash payment, often drawn from earnings, paid to the investors in a company - the shareholders. These are paid on an annual or, more commonly, a quarterly basis. The companies that pay them are usually more stable and established, not fast growers. Those still in the rapid growth phase of their life cycle tend to retain all the earnings and reinvest them into the business.
Price Implications
When a dividend is paid, several things can happen. The first of these is what happens to the price of the security and various items tied to it. On the ex-dividend date, the stock price is adjusted downward by the amount of the dividend by the exchange on which the stock trades . For most dividends this is usually not observed amidst the up and down movement of a normal days trading. However, this becomes easily apparent on the ex-dividend dates for larger dividends, such as the $3 payment made by Microsoft in the fall of 2004, which caused shares to fall from $29.97 to $27.34.
The reason for the adjustment is that the amount paid out in dividends no longer belongs to the company and this is reflected by a reduction in the companys market cap. Instead, it belongs to the individual shareholders. For those purchasing shares after the ex-dividend date, they no longer have a claim to the dividend, so the exchange adjusts the price downward to reflect this fact.
Historical prices stored on some public websites, such as Yahoo! Finance, also adjust the past prices of the stock downward by the dividend amount. Another price that is usually adjusted downward is the purchase price for limit orders. Because the downward adjustment of the stock price might trigger the limit order, the exchange also adjusts outstanding limit orders . The investor can prevent this if his or her broker permits a do not reduce (DNR) limit order. Note, however, that not all exchanges make this adjustment. The U.S. exchanges do, but the Toronto Stock Exchange, for example, does not
On the other hand, stock option prices are usually not adjusted for ordinary cash dividends unless the dividend amount is 10% or more of the underlying value of the stock.
Implications for Companies
Dividend payments, whether they are cash or stock, reduce retained earnings by the total amount of the dividend. In the case of a cash dividend, the money is transferred to a liability account called dividends payable. This liability is removed when the company actually makes the payment on the dividend payment date, usually a few weeks after the ex-dividend date. For instance, if the dividend was $0.025 per share and there are 100 million shares outstanding, retained earnings will be reduced by $2.5 million and that money eventually makes its way to the shareholders.
In the case of a stock dividend , though, the amount removed from retained earnings is added to the equity account, common stock at par value, and brand new shares are issued to the shareholders. The value of each shares par value does not change. For instance, for a 10% stock dividend where the par value is 25 cents per share and there are 100 million shares outstanding, retained earnings is reduced by $2.5 million, common stock at par value is increased by that amount and the total number of shares outstanding increases to 110 million.
This is different from a stock split, although it looks the same from a shareholders point of view. In a stock split , all the old shares are called in, new shares are issued, and the par value is reduced by the inverse of the ratio of the split. For instance, if instead of a 10% stock dividend, the above company declares an 11-to-10 stock split, the 100 million shares are called in and 110 million new shares are issued, each with a par value of $0.22727. This leaves the common stock at par value accounts total unchanged. The retained earnings account is not reduced either.
Implications for Investors
Cash dividends, the most common sort, are taxed at either the normal tax rate or at a reduced rate of 5% or 15% for U.S. investors. This only applies to dividends paid outside of a tax-advantaged account such as an IRA.
The dividing line between the normal tax rate and the reduced or qualified rate is how long the underlying security has been owned. According to the IRS, to qualify for the reduced rate, an investor has to have owned the stock for 60 consecutive days within the 121-day window centered on the ex-dividend date. Note, however, that the purchase date does not count toward the 60-day total.
Cash dividends do not reduce the basis of the stock.
Capital Gains
Sometimes, especially in the case of a special, large dividend, part of the dividend is actually declared by the company to be a return of capital. In this case, instead of being taxed at the time of distribution, the return of capital is used to reduce the basis of the stock, making for a larger capital gain down the road, assuming the selling price is higher than the basis. For instance, if you buy shares with a basis of $10 each and you get a $1 special dividend, $0.55 of which is return of capital, the taxable dividend is $0.45, the new basis is $9.45 and you will pay capital gains tax on that $0.55 when you sell your shares sometime in the future. (To read more about this, see A Long-Term Mindset Meets Dreaded Capital-Gains Tax.)
There is a situation, though, where return of capital is taxed right away. This happens if the return of capital would reduce the basis below $0.00. For instance, if the basis is $2.50 and you receive $4 as a return of capital, your new basis would be $0 and you would owe capital gain tax on $1.50.
Basis is also adjusted in the case of stock splits and stock dividends. For the investor, these are treated the same way. Taking our 10% stock dividend example, assume that you hold 100 shares of the company with a basis of $11. After the payment of the dividend, you would own 110 shares with a basis of $10. The same would hold true if the company had a 11-to-10 split instead of that stock dividend.
Finally, as with everything else regarding investment record keeping, it is up to the individual investor to track and report things correctly. If you have purchases at different times with different basis amounts, return of capital, stock dividend and stock split basis adjustments must be calculated for each. Qualified holding times must also be accurately tracked and reported by the investor, even if the 1099-DIV form received during tax season states that all paid dividends qualify for the lower tax rate. The IRS allows the company to report dividends as qualified, even if they are not, if the determination of which are qualified and which are not is impractical for the reporting company.
Conclusion
Many investors see dividends as money for nothing, but the implications surrounding paying and receiving dividends can mean a lot of work for both the company and the investor. If you reinvest your dividends through a dividend reinvestment plan (DRIP) or equivalent, the paperwork and tracking of basis can become quite tedious. There is no such thing as a free lunch. As with every other aspect of investing, accurate records are important and it would probably behoove you to use a spreadsheet or similar tool to track such details.
More information can be found in various publications available from the IRS, especially Publication 550.
For thou convenience $SRCH BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/SRCH
Real Estate Vs. Stocks: Which Ones Right For You?
Over the years, we have heard the comparisons as to which is the better investment : real estate or stocks. Both have their advantages and disadvantages, and there are several aspects of each that make them unique investments in their own way. To make money with either investment requires that you understand the positives and negatives of both.
Real Estate
Real estate is something that you can physically touch and feel – its a tangible good and, therefore, for many investors, feels more real. Maybe this partially accounts for the high return on the investment, as from 1978-2004, real estate has had an average return of 8.6%. For many decades this investment has generated consistent wealth and long term appreciation for millions of people.
How it Works
Generally, there are two main types of real estate: commercial and residential. While other types exist (mobile home parks, strip malls, apartment buildings, office buildings, store fronts and single family homes), they generally fall into those two categories. Making money in real estate isnt as cut-and-dry. Some people take the home flipping route – searching for distressed properties, refurbishing them and selling them for a profit at a higher market value . Others look for properties that can be rented in order to generate a consistent income.
Generally, a down payment of up to 20% of the purchase price can be made, and the rest can be financed. This gives you leverage, meaning that you can invest in different types of properties with less money down, helping to build your net worth or income that you could make off the properties. While this can be a positive, if this leverage is used incorrectly, you may owe more on the properties than they are actually worth.
Positives
There are many positive benefits to investing in real estate, including depreciation (writing off wear and tear of a commercial property), tax deductions and finally, you can sell the property through what is know as a 1031 exchange, and will not have to pay capital gains taxes, as long as you invest the money into a similar kind of property type.
Negatives
Like all investments , real estate also has its drawbacks. Most importantly, the investment is illiquid. When you invest in a property, you usually cannot sell it right away. In many cases, you may have to hold the property for several years to realize its true profit potential. Also, the closing cost can add up to thousands of dollars, and include taxes, commissions, and fees. Also, real estate prices have a tendency to fluctuate. While long-term prices generally increase, there are times when prices could go down or stay flat. If you have borrowed too much against the property, you may have trouble making the payment with a property that is worth less money than the amount borrowed on it.
Finally, its often hard to get diversified if investing in real estate. However, diversification is possible in real estate, provided that you do not concentrate on the same community and have a variety of different types of property. That being said, there is an additional way that you can be able to diversify in real estate through real estate investment trusts (REITs), under which you can purchase a trust that is invested in a large portfolio of real estate, and will offer you a dividend as a shareholder. However, in general, stocks offer more diversification because you can own many different industries and areas across the entire economy. (Learn more about REITs in our article Investing In Real Estate.)
Stocks
From 1978-2006, stocks have delivered an average return of 13.4%. They can be more volatile than real estate but over the long run they have provided a much better return than real estates 8.6% average.
How They Work
With a stock , you receive ownership in a company. When times are good, you will profit. During times of economic challenges, you may see diminishing funds as the earnings of the company drop. Taking a long-term approach and being balanced in many areas can help build your net worth at a much greater rate, compared with real estate.
As with real estate, financing in stocks allows you to use margin as leverage to increase the overall amount of shares that you own. The downside is that, if the stock position falls, you could have what is known as margin call. This is where the equity, in relation to amount borrowed, has fallen below a certain level and money must be added to your account to bring that amount back up. If you fail to do this, the brokerage firm can sell the stock to recover the amount loaned to you.
Positives
Stocks are very liquid, quick and easy to sell. They are also flexible, and can even be reallocated into a retirement account – tax-free - until you start to withdraw the money. As well, many stocks can do considerably better than real estate in one year. Due to the volatility of some stocks, it is not unusual to see companies that are averaging 20% or even 50% growth in one year.
Negatives
Stocks can be very volatile, especially when the economy or the company is facing challenges. Also, stocks are often emotional investments, and your decisions within the market can often be irrational. Finally, bankruptcy is always in the back of the active stock investors mind – as it should be, as your investment will be dissolved in this instance.
Conclusion
In general, stocks may have the advantage in more categories than real estate. However, real estate seems to be better when it comes to stability and tax advantages. A good compromise may be to own a REIT , which combines some of the benefits of stocks with some of the benefits of real estate. While each area has its own benefits and drawbacks, to decide which one would work well for you depends on your overall financial situation and level of comfort.
A technician will refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.
Feast thine eyes upon $DTWB BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/DTWB
Short Position Disclosure (Rule FINRA 4560) – FINRA members must report their short interest positions in OTC equity securities at mid-month and end of the month.
5 Popular Portfolio Types
Stock investors constantly hear the wisdom of diversification. The concept is to simply not put all of your eggs in one basket, which in turn helps mitigate risk, and generally leads to better performance or return on investment. Diversifying your hard-earned dollars does make sense, but there are different ways of diversifying, and different portflio types. We look at the following portfolio types and suggest how to get started building them: aggressive, defensive, income, speculative and hybrid. It is important to understand that building a portfolio will require research and some effort. Having said that, lets have a peek across our five portfolios to gain a better understanding of each and get you started.
The Aggressive Portfolio
An aggressive portfolio or basket of stocks includes those stocks with high risk/high reward proposition. Stocks in the category typically have a high beta, or sensitivity to the overall market. Higher beta stocks experience larger fluctuations relative to the overall market on a consistent basis. If your individual stock has a beta of 2.0, it will typically move twice as much in either direction to the overall market - hence, the high-risk, high-reward description.
Most aggressive stocks (and therefore companies) are in the early stages of growth, and have a unique value proposition. Building an aggressive portfolio requires an investor who is willing to seek out such companies, because most of these names, with a few exceptions, are not going to be common household companies. Look online for companies with earnings growth that is rapidly accelerating, and have not been discovered by Wall Street. The most common sectors to scrutinize would be technology, but many other firms in various sectors that are pursuing an aggressive growth strategy can be considered. As you might have gathered, risk management becomes very important when building and maintaining an aggressive portfolio. Keeping losses to a minimum and taking profit are keys to success in this type of portfolio.
The Defensive Portfolio
Defensive stocks do not usually carry a high beta, and usually are fairly isolated from broad market movements. Cyclical stocks, on the other hand, are those that are most sensitive to the underlying economic business cycle. For example, during recessionary times, companies that make the basics tend to do better than those that are focused on fads or luxuries. Despite how bad the economy is, companies that make products essential to everyday life will survive. Think of the essentials in your everyday life, and then find the companies that make these consumer staple products.
The opportunity of buying cyclical stocks is that they offer an extra level of protection against detrimental events. Just listen to the business stations and you will hear portfolios managers talking about drugs, defense and tobacco. These really are just baskets of stocks that these managers are recommending based upon where the business cycle is and where they think it is going. However, the products and services of these companies are in constant demand. A defensive portfolio is prudent for most investors. A lot of these companies offer a dividend as well which helps minimize downside capital losses. (Find out how these securities can protect you from a market bust.
The Income Portfolio
An income portfolio focuses on making money through dividends or other types of distributions to stakeholders. These companies are somewhat like the safe defensive stocks but should offer higher yields. An income portfolio should generate positive cash flow. Real estate investment trusts (REITs) and master limited partnerships (MLP) are excellent sources of income producing investments. These companies return a great majority of their profits back to shareholders in exchange for favorable tax status. REITs are an easy way to invest in real estate without the hassles of owning real property: vacancy issues, repairs and the other types of issues a landlord faces when trying to rent property. Keep in mind, however, that these stocks are also subject to the economic climate. REITs are groups of stocks that take a beating during an economic downturn, as building and buying activity dries up.
An Income portfolio is a nice complement to most peoples paycheck or other retirement income. Investors should be on the lookout for stocks that have fallen out of favor and have still maintained a high dividend policy. These are the companies that can not only supplement income but also provide capital gains. Utilities and other slow growth industries are an ideal place to start your search. (Find out how this first love still holds its bloom as it ages. To learn more, read Dividends Still Look Good After All These Years.)
The Speculative Portfolio
A speculative portfolio is the closest to a pure gamble. A speculative portfolio presents more risk than any others discussed here. Finance gurus suggest that a maximum of 10% of ones investable assets be used to fund a speculative portfolio. Speculative plays could be initial public offerings (IPOs) or stocks that are rumored to be takeover targets. Technology or healthcare firms that are in the process of researching a breakthrough product, or a junior oil company which is about to release its initial production results, would fall into this category.
Another classic speculative play is to make an investment decision based upon a rumor that the company is subject to a takeover. One could argue that the widespread popularity of leveraged ETFs in todays markets represent speculation. Again, these types of investments are alluring: picking the right one could lead to huge profits in a short amount of time. Speculation may be the one portfolio that, if done correctly, requires the most homework. Speculative stocks are typically trades, and not your classic buy and hold investment.
The Hybrid Portfolio
Building a hybrid type of portfolio means venturing into other investments, such as bonds, commodities, real estate and even art. Basically, there is a lot of flexibility in the hybrid portfolio approach. Traditionally, this type of portfolio would contain blue chip stocks and some high grade government or corporate bonds. REITs and MLPs may also be an investable theme for the balanced portfolio. A common fixed income investment strategy approach advocates buying bonds with various maturity dates, and is essentially a diversification approach within the bond asset class itself. Basically, a hybrid portfolio would include a mix of stocks and bonds in a relatively fixed allocation proportions. This type of approach offers diversification benefits across multiple asset classes as equities and fixed income securities tend to have a negative correlation with one another.
Conclusion
At the end of the day, investors should consider ALL of these portfolios and decide on the right allocation across all five. Here, we have laid the foundation by defining five of the more common types of portfolios. Building an investment portfolio does require more effort than a passive, index investing approach. By going it alone, you will be required to monitor your portfolio(s) and rebalance more frequently, thus racking up commission fees. Too much or too little exposure to any portfolio type introduces additional risks. Despite the extra required effort, defining and building a portfolio will increase your investing confidence, and give you control over your finances.
When the economy expands, most industry groups and companies benefit and grow. When the economy declines, most sectors and companies usually suffer.
Followers
|
1494
|
Posters
|
|
Posts (Today)
|
0
|
Posts (Total)
|
821321
|
Created
|
03/04/10
|
Type
|
Free
|
Moderator PhotoChick | |||
Assistants Nilbud ManicTrader |
Posts Today
|
0
|
Posts (Total)
|
821321
|
Posters
|
|
Moderator
|
|
Assistants
|
Volume | |
Day Range: | |
Bid Price | |
Ask Price | |
Last Trade Time: |