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Investing In Oil And Gas UITs
The substantial rise in energy prices in the mid-2000s attracted many investors seeking aggressive growth and profits in the oil and gas industry. Although many of these investors cashed in on the gains posted by various energy and natural resources equities, exchange-traded funds (ETFs) and mutual funds , there are other alternatives available that provide more direct exposure to the energy markets.
Limited partnerships, working interests and unit investment trusts (UITs) all provide pass-through treatment of both income and deductions derived from oil and gas investments at the wellhead. This article will examine the nature and purpose of oil and gas UITs, their advantages and disadvantages, and help you decide if they should be fueling your portfolio.
Nature and Composition
By definition, oil and gas UITs are very similar to other UITs that invest in stocks or real estate. Each trust is broken down into individual units that are priced and sold to investors. Each unit represents an undivided proportional interest in all of the oil and gas properties held by the trust, and each trust has a set maturity date upon which all gains and losses from the sale of the assets are dispersed to the unit-holders.
Unlike stock unit trusts or real estate investment trusts (REITs), oil and gas UITs invest directly in either production or exploratory drilling oil and gas assets, then pass through the income and expenses realized from the actual production of oil and natural gas.
Who Should Invest in Oil and Gas UITs?
Investors who are seeking more direct, tax-advantaged exposure to oil and gas investments should consider oil and gas UITs, as the UITs can pass through deductible operational expenses and investment income that is eligible for the depletion allowance.
Energy-focused mutual funds may only buy equity interests in various oil, gas and other energy companies, but seldom offer direct participation of any kind. Energy mutual funds cannot offer pass-through treatment, and usually can only post fully taxable dividends and capital gains.
Furthermore, oil and gas UITs will not post taxable capital gains of any kind until the trust matures, unlike mutual funds that pass through capital gains annually. Aggressive investors seeking larger profits in the energy sector may also benefit from the more direct arrangement of oil and gas UITs as opposed to energy mutual funds.
Pros and Cons
One of the main advantages that holders of energy trusts enjoy is the pass-through tax status, similar to that of limited partnerships or direct working interests. As stated previously, income derived from oil and gas UITs can be eligible for the depletion deduction, and a proportional share of deductible operational expenses is passed through as well.
It should be noted that oil and gas UITs are usually riskier by nature than energy mutual funds, as any properties that cease to produce, for whatever reason, during the tenure of the trust cannot be replaced until maturity. Another factor to consider is that oil and gas units are wasting assets, as their value will automatically decline as producing properties within the trust become depleted over time. Furthermore, investor income is reduced by maintenance and operating costs associated with oil and gas production at the wellhead, such as electric fees, pumping fees and parts replacement.
Income realized from oil and gas UITs is also subject to fluctuation with the rise and fall of energy prices. This risk can be at least partially offset with an investment in both oil and gas properties within the same trust, as the prices of oil and gas do not necessarily move in lock-step.
Finally, oil and gas UITs that participate in drilling of any kind include the risk of unsuccessful development, where one or more wells that are drilled produce little or no oil or gas. This occurrence can obviously lower the value of the trust, as well as deprive the investor of income from the anticipated current production that is never realized.
How Do I Pick the Right Oil and Gas UIT?
When choosing a UIT that invests in oil and gas properties, the most important criteria for investors generally will be the level of risk inherent in the trust. Aggressive trusts that focus on exploratory drilling projects are much more speculative in nature than UITs that invest solely in producing properties. However, successful exploratory drilling also offers greater tax deductions and the potential for higher income. Moderate or conservative investors seeking a regular stream of income should probably restrict their investing to UITs that contain mature producing oil and gas fields.
The Bottom Line
Although oil and gas UITs are similar securities to REITs or trusts that invest in stocks or bonds in many respects, they offer a relatively unique set of advantages and risks to investors. Those seeking more direct exposure to the energy sector (as well as those needing tax-advantaged income) can benefit from investing in these trusts. Investors considering UITs should consult with a tax advisor to determine the efficacy of UITs given their individual tax situations.
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What Is An ETF?: An Infographic
Sometimes reading up on everything that the market has to offer isnt the best way to learn. Its understandable, and perfectly OK, if as a beginner investor, a lot of the unfamiliar words and concepts go straight over your head. The fact is, some people are visual learners, and they do better with pictures than words.
So lets take a look at ETFs. Chances are that if youre new to investing youve heard all about ETFs and that theyre a great investment for people who want to get into the market. However, did you really understand the explanations of why? Heres an easy way to break it down, provided by Mint.com.
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5 Economic Effects Of Country Liberalization
August 24 2011| Filed Under » Economics, Economy, International Markets, Investing Basics, Investment
When a nation becomes liberalized, the economic effects can be profound for the country and for investors. Economic liberalization refers to a country opening up to the rest of the world with regards to trade, regulations, taxation and other areas that generally affect business in the country. As a general rule, you can determine to what degree a country is liberalized economically by how easy it is to invest and do business in the country. All developed countries (First World) have already gone through this liberalization process, so the focus in this article is more on the developing and emerging countries. TUTORIAL:Economic Indicators To Know
Removing Barriers to International Investing
Investing in emerging market countries can sometimes be an impossible task if the country youre investing in has several barriers to entry. These barriers can include tax laws, foreign investment restrictions, legal issues and accounting regulations that can make it difficult or impossible to gain access to the country. The economic liberalization process begins by relaxing these barriers and relinquishing some control over the direction of the economy to the private sector. This often involves some form of deregulation and a privatization of companies. (For related reading, seeThe Risks Of Investing In Emerging Markets.)
Unrestricted Flow of Capital
The primary goals of economic liberalization are the free flow of capital between nations and the efficient allocation of resources and competitive advantages. This is usually done by reducing protectionist policies such as tariffs, trade laws and other trade barriers. One of the main effects of this increased flow of capital into the country is that it makes it cheaper for companies to access capital from investors. A lower cost of capital allows companies to undertake profitable projects that they may not have been able to with a higher cost of capital pre-liberalization, leading to higher growth rates.
We saw this type of growth scenario unfold in China in the late 1970s as the Chinese government set on a path of significant economic reform. With a massive amount of resources (both human and natural), they believed the country was not growing and prospering to its full potential. Thus, to try to spark faster economic growth, China began major economic reforms that included encouraging private ownership of businesses and property, relaxing international trade and foreign investment restrictions, and relaxing state control over many aspects of the economy. Subsequently, over the next several decades, China averaged a phenomenal real GDP growth rate of over 10%.
Stock Market Performance
In general, when a country becomes liberalized, the stock market values also rise. Fund managers and investors are always on the lookout for new opportunities for profit, and so a whole country that becomes available to be invested in will tend to cause a surge of capital to flow in. The situation is similar in nature to the anticipation and flow of money into an initial public offering (IPO). A private company that was previously unavailable to an investor that suddenly becomes available typically causes a similar valuation and cash flow pattern. However, like an IPO, the initial enthusiasm also eventually dies down and returns become more normal and more in line with fundamentals.
Political Risks Reduced
In addition, liberalization reduces the political risks to investors. For the government to continue to attract more foreign investment, other areas beyond the ones mentioned earlier have to be strengthened as well. These are areas that support and foster a willingness to do business in the country such as a strong legal foundation to settle disputes, fair and enforceable contract laws, property laws, and others that allow businesses and investors to operate with confidence. Also, government bureaucracy is a common target area to be streamlined and improved in the liberalization process. All these changes together lower the political risks for investors, and this lower level of risk is also part of the reason the stock market in the liberalized country rises once the barriers are gone.
Diversification for Investors
Investors can also benefit by being able to invest a portion of their portfolio into a diversifying asset class. In general, the correlation between developed countries such as the United States and undeveloped or emerging countries is relatively low. Although the overall risk of the emerging country by itself may be higher than average, adding a low correlation asset to your portfolio can reduce your portfolios overall risk profile. (For more, see Does Investing Internationally Really Offer Diversification?)
However, a distinction should be made that although the correlation may be low, when a country becomes liberalized, the correlation may actually rise over time. This happens because the country becomes more integrated with the rest of the world and has become more sensitive to events that happen outside the country. A high degree of integration can also lead to increased contagion risk – which is the risk that crises that occur in different countries cause crises in the domestic country.
A prime example of this is the European Union (EU) and its unprecedented economic and political union. The countries in the EU are so integrated with regard to monetary policy and laws that a crisis in one country has a high probability of spreading to other countries in the EU. This is exactly what happened in the financial crisis that started in 2008-2009. Weaker countries within the EU (such as Greece) began to develop severe financial problems that quickly spread to other EU members. In this instance, investing in several different EU member countries would not have provided much of a diversification benefit as the high level of economic integration in the EU had increased correlations and increased contagion risks to the investor.
The Bottom Line
Economic liberalization is generally thought of as a beneficial and desirable process for emerging and developing countries. The underlying goal is to have unrestricted capital flowing into and out of the country in order to boost growth and efficiencies within the home country. The effects following liberalization are what should interest investors as it can provide new opportunities for diversification and profit.
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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.
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A good starting point for research is the OTC market tier structure – which quickly indicates the level and timeliness of information available for OTC companies.
The Merger - What To Do When Companies Converge
You may hear about it in the financial news - the merger. Its often a situation cloaked in mystery and confusion. Do you know what to do when a company youve invested in plans to merge with another company? In this article, well show you how to invest around mergers and the ups and downs involved in the process.
SEE: Cashing In On Corporate Restructuring
How It Works
A merger occurs when a company finds a benefit in combining business operations with another company, in a way that will contribute to increased shareholder value. It is similar in many ways to an acquisition, which is why the two actions are so often grouped together as mergers and acquisitions (M
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3 Dangers Of Checking Your Stock Portfolio Everyday
The digital age has had a profound impact on global financial markets. Most of the impacts have been advantageous for investors and include the fact that investment information has become readily available and literally right at investor fingertips. This has leveled the investment playing field, with individual investors benefiting as the industry is no longer controlled by a small handful of large banking, brokerage and advisory institutions. Digital information has even revolutionized trading itself as exchange floors are run increasingly by computers, as opposed to physical traders through an open outcry system. (Buying stocks is a careful balance of risk and reward. Learn to identify your risk tolerance and financial goals with these fundamental points. See 4 Key Factors To Building A Profitable Portfolio.)
There are many benefits to vast volumes of data that are readily available to investors, including the ability to check your portfolio in real time via the internet and through the latest smartphone technology. However, the digital age of investing has led to excessive trading, which can be very dangerous to your portfolio. Below is an overview of three of the most serious disadvantages it can place on investors.
Higher Taxes
Checking your stock portfolio everyday and trading too often can increase your tax bill. Taxes on stocks occur only through realized gains, and short-term realized gains are taxed at the same rate as an investors regular income, or namely his or her highest marginal tax rate. Long-term taxable gains are more reasonable at 15%, but this is still much higher than 0, which is what investors pay by holding a stock and locking up appreciation in the form of unrealized gains.
Using options is another shorter term trading strategy that is relatively tax inefficient. Options werent invented as part of the digital age, but the ability to obsess over short-term price fluctuations has made options a more integral part of the trading habits of many investors. As the vast majority of options, including the most common put and call options, are held less than a year, they qualify as short term and are taxed at ordinary income rates. (The option to bolster after-tax stock returns through tax-loss harvesting can reverse investor gloom. check out Tax-Loss Harvesting: Reduce Investment Losses.)
Excessive Trading Costs
Trading stocks often is nearly certain to increase trading costs. Many discount brokers offer equity trades for less than $10 these days, but these trading commissions can still add up for investors that trade excessively. The costs can really add up for day traders as they can rack up hefty trading commissions and must also pay short-term tax rates for realized gains.
Bid and ask spreads are not explicit trading costs, but can greatly affect overall gains in stock portfolios. For liquid securities including blue-chip stocks, the spread is usually not significant. However, for smaller and other illiquid stocks, spreads can be substantial. As the investor must buy at the asking price, or price a seller is willing to offer the security, and sell at the bid price, or price a buyer is willing to pay for the security, a wider spread eats into eventual gains and increases losses should the stock fall in price after purchase. (Discover how investment strategies and expense ratios impact your mutual funds returns. See Stop Paying High Mutual Fund Fees.)
Portfolio Underperformance
Many investment professionals have pointed out that it is extremely difficult to beat the market. The market is usually defined as the Standard
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Biggest Industry Ups And Downs Of 2011
February 06, 2012 | Filed Under » Bear Market, Bull Market, Economy, Investing Basics
2011 was an eventful year for the American economy, and it seems to be slowly getting back on track. The last few weeks of 2011 started seeing some positive activity in consumer spending. Banking is slowly recovering, as is the demand for cars. Employment opportunities have improved with unemployment down to 8.5%. However, it was a recession-hit year for the economy, with greater focus on creating higher consumption through greater government spending.
SEE: Consumer Spending As A Market Indicator
According to the Chief Financial Officer of Washington DC, Natwar Gandhi, There is no consumer demand as we speak. The businesses are not investing, as they do not see any demand out there. So the only player who can really generate demand is government. The government needs to spend money. There is a need to spend money on our infrastructure, which is abysmal. Unless government spends money to generate demand, I see very likely a lost decade, the kind that the Japanese have experienced over the last 10 years.
Lets take a look at the industries that performed the best and the worst in the year 2011. We will keep the Standard and Poors (S
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FINRA requires every member to trade a security at its publicly quoted (OTC Link or FINRA's OTC Bulletin Board) price and size.
An Introduction To Stock Market Indexes
June 04 2011| Filed Under » Index Fund, Investing Basics, Stocks
Its not unusual for people to talk about the market as if there were a common meaning for the word. But in reality, the many indexes of the differing segments of the market dont always move in tandem. If they did, there would be no reason to have multiple indexes. By gaining a clear understanding of how indexes are created and how they differ, you will be on your way to making sense of the daily movements in the marketplace. Here well compare and contrast the main market indexes so that the next time you hear someone refer to the market, youll have a better idea of just what they mean.
Tutorial: Stock Basics
The Dow
If you ask an investor how the market is doing, you might get an answer that is based on the Dow. The Dow Jones Industrial Average (DJIA) is one of the oldest, most well-known and most frequently used indexes in the world. It includes the stocks of 30 of the worlds largest and most influential companies. The DJIA is whats known as a price weighted index. It was originally computed by adding up the per-share price of the stocks of each company in the index and dividing this sum by the number of companies - thats why its called an average. Unfortunately, it is no longer this simple to calculate. Over the years, stock splits, spin-offs and other events have resulted in changes in the divisor, making it a very small number (less than 0.2).
The DJIA represents about a quarter of the value of the entire U.S. stock market, but a percent change in the Dow should not be interpreted as a definite indication that the entire market has dropped by the same percent. This is because of the Dows price-weighted function. The basic problem is that a $1 change in the price of a $120 stock in the index will have the same effect on the DJIA as a $1 change in the price of a $20 stock, even though one stock may have changed by 0.8% and the other by 5%.
A change in the Dow represents changes in investors expectations of the earnings and risks of the large companies included in the average. Because the general attitude toward large-cap stocks often differs from the attitude toward small-cap stocks, international stocks or technology stocks, the Dow should not be used to represent sentiment in other areas of the marketplace. On the other hand, because the Dow is made up of some of the most well-known companies in the U.S., large swings in this index generally correspond to the movement of the entire market, although not necessarily on the same scale. (For more information on this index, see Calculating The Dow Jones Industrial Average.)
The S
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This tier indicates companies that are unwilling or unable to provide disclosure to the public markets. Companies in this category do not make current information available via OTC Markets disclosure and news service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as 'dark' companies with questionable management and market disclosure practices. Securities of publicly traded companies that are not willing to provide information to investors are considered highly risky.
Getting Into International Investing
Diversification is an essential investing principle. It protects a portfolio from being seriously affected by negative events isolated to only a few stocks. In this article, we take a look at diversification that ventures into an international level, looking at its benefits and the different types of international investments available to the average investor. (To learn more, see The Importance Of Diversification.)
Why International?
Most investors tend to invest in what they know. This isnt necessarily a bad thing as its important to have a good understanding of your investments; however, it becomes detrimental when the blinders are put on and people refrain from learning about other investments. International investing, in particular, is a strategy sometimes overlooked by investors as a means of diversification.
With all the volatility found in stock markets, its difficult enough to pick winning stocks let alone winning economies. This is where diversification through international investing can help. Every year, the economic performance of a country will fluctuate and this undoubtedly affects the stock market. By buying securities in different markets as opposed to purchasing only U.S. stocks and bonds, you can reduce the impact of country or region-specific economic problems. (For more information, see Can You Learn The Stock Market?)
Take a look at the following chart:
Year Japan Nikkei
U.S. S
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Unlike other loans, like for a car or a home, that allow you to pay back a fixed amount every month, when you buy stocks on margin you can be faced with paying back the entire margin loan all at once if the price of the stock drops suddenly and dramatically.
4 Tips For Joining An Investment Club
Investing in the stock market can be intimidating - how to differentiate between the different types of securities, investing styles and trading strategies, analyzing market data, financials, and know when to act? And for beginners, this can be especially off-putting. Financial planners andbrokers are good sources of advice, but if you are interested in learning about the stock market and how to take control of your money, an investment club may be worth considering.
What Are Investment Clubs?
They can be found in most municipalities and regions, and have been around for decades as a way for people with limited funds to contribute and partake in larger investments as well as to get first-hand experience and education. Investment clubs are simply a group of people who pool their money in order to make joint investments, usually in stocks or bonds. While their primary motivation is to make the most money possible, clubs are also a great way for investors to share ideas and learn about the market.
How are Investment Clubs Set Up?
If you start a new investment club, it is a good idea to provide a solid structure to ensure the clubs agenda is carried out efficiently and without friction. An investment club is usually a legal partnership or a limited liability company consisting of 10-20 members. Once it is legally established, it is imperative that standardized accounting records are established for it. After all, unlike independent individuals investing directly into the stock market, an investment club pools money from each member.
After a member initially contributes an initial lump-sum for investment purposes, the typical investment club requires a monthly contribution of about $80 from members. Nevertheless, members may not contribute the same amount, nor be participants for the same durations. Therefore, an investment club must have a clear way of determining each members share at a given point in time since members are likely to be contributing funds on a periodic basis, and probably intend to withdraw funds from their share of the clubs assets at some time in the future.
Also, when first starting an investment club, be sure to establish a brokerage account in the investment clubs name. Shopping around for a suitable brokerage firm is a good idea, as different brokers usually have unique offers for investment clubs. (For more, see Choosing A Compatible Broker.)
To facilitate club decisions and member education, an investment club should schedule regular meetings at least once a month. Regular monthly meetings can be fun and insightful, as members present a stock they have researched and would like the club to consider buying. Club members carry the responsibility of researching potential investment purchases for the club and staying up-to-date on the performance and outlook of their holdings going forward. It is important that club members actively participate in the clubs portfolio construction and maintenance in order to maximize their own investment education - one of the key goals of an investment club. With that in mind, there are many steps an investment club can take to boost members opportunities to gain as much knowledge as possible.
Tips for Joining an Investment Club
Here are some pointers worth considering:
1.Think long-term
We cannot stress this enough. Dont buy stocks through an investment club if your time horizon is a year or less. Trying to make money over a shorter period of time is a wrong approach, not only for beginner investors, but also investment clubs. A short time horizon makes it difficult to manage the clubs money because, for short-term outlooks, decisions to buy or sell stocks need to be made very quickly. Also, most investment clubs meet only once a month, making it entirely impossible to make trade decisions for the short term. Club members should probably spend their time analyzing the fundamentals of stocks held in the club portfolio as opposed to concerning themselves with short-term movements in the clubs holdings.
Having a three- to five-year horizon is a common outlook among investment club strategies. As such, potential members should also consider joining an investment club as something of a long-term commitment of about three to five years. It is generally not very healthy for a club if members decide to leave and pull their money out after a short period of membership. Most investment clubs specify the rules or penalties for early withdrawal from the club at its inception. Most specify a liquidation price, or early-withdrawal penalty, which members must pay when withdrawing their funds, which is usually slightly lower than the value of their contributions. Generally speaking, anyone interested in starting or joining an investment club should consider it a minimum commitment of several years, and ensure all members in the club find that level of time commitment acceptable.
2. Define your style
Just as individual investors vary greatly from one another in terms of their investment style - such as value investing, income stock strategies or GARP - and so do investment clubs. It is very important for every investment club to have a clearly defined investment style, ideally with some amount of quantifiable rules or limitations on the clubs investment portfolio. For example, an investment club might specify that members can propose only stocks for purchase that have a minimum share price or market capitalization, or the club might place sector restrictions on the portfolio to ensure a minimum level of diversification always exists.
Also, for the benefit of members, it may also be useful for a new investment club to implement standardized criteria for reviewing a stock for potential purchase. This will ensure the club members increase their experience in specific areas of equity analysis, while allowing all members of the group to brief themselves better for standard material covered at meetings, and hopefully better understand the material presented to them.
Once an investment club has determined its style, it is important that every member is aware of the clubs investing style and willing to follow those guidelines. It can be very damaging to an investment clubs atmosphere when some members want to invest club funds in high-risk penny stocks while others gravitate towards blue chips. If you are starting the club, make sure every member understands and supports the clubs approach. If you are joining a club, make sure its style meets your needs. After all, there are many different types of investment clubs to be found, so before you follow through and become a full member, be sure to assess its investment style and try to judge how closely it matches your own aspirations. Chances are, you will learn much more, and enjoy a more rewarding experience if you spend a bit of time finding the investment club that best fits your personal investment style or objectives.
3. Join a club association
The National Association of Investors Corporation (NAIC) offers some excellent support and information for people wishing to join or start their own investment club in the United States. The NAIC not only provides excellent tools, but also publishes a monthly investor-learning magazine. Membership to the NAIC costs $40 for a new club, $30 for individual club members and $79 for individuals. According to NAIC data, the number of investment clubs registered with the association has seen strong growth in the early 21st century, and, to the chagrin of industry professionals, about half of all registered clubs have been able to outperform the S
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Broker-Dealers – FINRA registered broker-dealers may participate in the OTC market by executing client orders and principal orders. Broker-dealers earn revenues from commissions charged on orders, the bid (buy) and ask (sell) spread (the difference between what an investor is willing to buy and sell a security), and principal trading (investing the firm’s capital in an investment/trading strategy).
What Makes Investors Tick?
Comparing individual investors to institutional investors is like comparing apples to oranges. While any individual polled on the street may claim to act independently and make current investment decisions based solely on a long-term plan, it is rare to see this in practice. Individual investors differ from institutions in their investment horizons, how they define risk and how they behave in response to changes in the economy and investment markets. This does not mean that individual investors are any less successful than institutional ones at investing - just that their style of investing presents unique challenges.
Types of Investors
Many attempts have been made to categorize the characteristics of individual investors; the Bailard, Biehl and Kaiser (BB
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To be quoted on the platform, companies are not required to file with the SEC, although many choose to do so.[6] A wide range of companies are quoted on OTC Markets, including firmly established foreign firms,[7] mostly through American Depositary Receipts (ADRs). In addition, many closely held, extremely small and thinly traded US companies have their primary trading on the OTC Markets platform.
The Importance Of Diversification
Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk. Here, we look at why this is true, and how to accomplish diversification in your portfolio. (To learn more, see Diversification: Protecting Portfolios From Mass Destruction.)
Different Types of Risk
Investors confront two main types of risk when investing:
• Undiversifiable - Also known as systematic or market risk, undiversifiable risk is associated with every company. Causes are things like inflation rates, exchange rates, political instability, war and interest rates. This type of risk is not specific to a particular company or industry, and it cannot be eliminated, or reduced, through diversification; it is just a risk that investors must accept.
• Diversifiable - This risk is also known as unsystematic risk, and it is specific to a company, industry, market, economy or country; it can be reduced through diversification. The most common sources of unsystematic risk are business risk and financial risk. Thus, the aim is to invest in various assets so that they will not all be affected the same way by market events.
Why You Should Diversify
Lets say you have a portfolio of only airline stocks. If it is publicly announced that airline pilots are going on an indefinite strike, and that all flights are canceled, share prices of airline stocks will drop. Your portfolio will experience a noticeable drop in value. If, however, you counterbalanced the airline industry stocks with a couple of railway stocks, only part of your portfolio would be affected. In fact, there is a good chance that the railway stock prices would climb, as passengers turn to trains as an alternative form of transportation.
But, you could diversify even further because there are many risks that affect both rail and air, because each is involved in transportation. An event that reduces any form of travel hurts both types of companies - statisticians would say that rail and air stocks have a strong correlation. Therefore, to achieve superior diversification, you would want to diversify across the board, not only different types of companies but also different types of industries. The more uncorrelated your stocks are, the better.
Its also important that you diversify among different asset classes. Different assets - such as bonds and stocks - will not react in the same way to adverse events. A combination of asset classes will reduce your portfolios sensitivity to market swings. Generally, the bond and equity markets move in opposite directions, so, if your portfolio is diversified across both areas, unpleasant movements in one will be offset by positive results in another. (To learn more about asset class, see Five Things To Know About Asset Allocation.)
There are additional types of diversification, and many synthetic investment products have been created to accommodate investors risk tolerance levels; however, these products can be very complicated and are not meant to be created by beginner or small investors. For those who have less investment experience, and do not have the financial backing to enter into hedging activities, bonds are the most popular way to diversify against the stock market.
Unfortunately, even the best analysis of a company and its financial statements cannot guarantee that it wont be a losing investment. Diversification wont prevent a loss, but it can reduce the impact of fraud and bad information on your portfolio.
How Many Stocks You Should Have
Obviously owning five stocks is better than owning one, but there comes a point when adding more stocks to your portfolio ceases to make a difference. There is a debate over how many stocks are needed to reduce risk while maintaining a high return. The most conventional view argues that an investor can achieve optimal diversification with only 15 to 20 stocks spread across various industries. (To learn more about what constitutes a properly diversified stock portfolio, see Over-Diversification Yields Diminishing Returns. To learn about how to determine what kind of asset mix is appropriate for your risk tolerance, see Achieving Optimal Asset Allocation.)
Conclusion
Diversification can help an investor manage risk and reduce the volatility of an assets price movements. Remember though, that no matter how diversified your portfolio is, risk can never be eliminated completely. You can reduce risk associated with individual stocks, but general market risks affect nearly every stock, so it is important to diversify also among different asset classes. The key is to find a medium between risk and return; this ensures that you achieve your financial goals while still getting a good nights rest.
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Firms may also negotiate trades over the phone. While the same process and rules apply, the speed with which trades are executed is inherently slower than OTC Link.
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.
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The advantages of OTC derivatives over exchange-traded ones are mainly the lower fees and taxes, and greater freedom of negotiation and customization of a transaction, as it involves only a seller and a buyer and no standardization authority.
How To Avoid Investing Too Conservatively
If you dont do anything, you cant lose money. That might be true with slot machines, horse racing and the lottery, but its not true with investing . Skilled investors know that the price of doing nothing or not enough can result in losses; not the lost value of stocks or mutual funds, but other losses not plainly visible to the eye of a new investor. Heres what you need to know about how these losses can affect you.
Beware of Inflation
If you have a few decades behind you, you probably remember the days of being a kid, where you could hop on your bike with a quarter, take it to a local store and buy a piece of candy. As you got older, you remember buying gasoline for less than a dollar per gallon.
Your money had more buying power back in those days, but today a quarter has to be combined with other quarters to have much buying power and a gallon of gas is close to $4. For an investor, inflation is fundamentally important; just as inflation has contributed to changes in the price of gas over the years, it can have a surprising affect on your investments, if youre not prepared for it.
Dont Hold Cash
Holding onto cash for long periods of time, waiting for the market to bottom, reduces the value of your money. You might be able to earn 1% from a savings account right now but if the current rate of inflation is 2.3%, inflation is causing an annual loss of 1.3%.
Holding cash for short periods of time is a wise investment choice, but over the long term youre silently losing purchasing power, and purchasing power is the only reason we hold currency. How do you combat inflation? Put that money to work but only in investments that earn a rate of return higher than the rate of inflation.
Junk Bonds
Because interest rates are so low, getting gains that beat inflation from government or investment grade bonds is sometimes difficult. Junk bonds, also known as high-yield bonds in the form of a low-fee mutual fund or exchange-traded funds (ETFs), can pay yields of more than 7%, in some cases. The downside is the increased level of risk, but for many investors the level of risk is appropriate. Bonds have been in a bull market for the past few years and theres no guarantee that the bull market will continue. Always have an exit strategy in place.
International Funds
Many investors have heard that investing in big companies in developed countries may not provide the growth necessary to outpace inflation; however, investing in the eurozone, China or many other countries has proven to be too risky. Investing too conservatively can harm your portfolio, but taking on too much risk can cause even worse results. To account for world events, make conservative asset allocations changes to your portfolio, instead of an all or nothing approach.
Own Real Estate
Many current and former homeowners may still be recovering from the housing crisis, and theres no guarantee that the market is now in recovery or will recover in the near future. For those with a long-term investment objective, owning a home will keep pace with inflation and even beat it. Some investors are putting the cash to work by purchasing distressed properties and renting in this red hot rental market.
Consider Gold
For years, gold held the distinction of being a shiny way to battle inflation but theres no guarantee that, going forward, gold will provide that protection. Still, CNBCs Jim Cramer advises owning gold for just that purpose. Gold in its physical form is better than gold ETFs or other stock market products, but owning large amounts of gold and protecting it from theft or loss is difficult.
The Bottom Line
Investing too conservatively usually means not taking on enough risk to beat the effects of inflation. The key for each investor is to take on enough risk to beat inflation without moving outside of his or her risk tolerance. The best way to strike the perfect balance is to find a trusted financial adviser to evaluate each individual situation.
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The large number of American Depositary Receipts (ADRs) and Foreign Ordinaries that trade in the OTC market (e.g., Roche – RHHBY, adidas – ADDYY) make price imbalance a concern for OTC traders and investors. ADRs represent a set ratio of home market shares; thus, movement in the home market price and foreign exchange considerations will directly affect the price of the ADR. Foreign Ordinaries should theoretically mirror home market trading once currency rates are considered.
The Changing Role Of Equity Research
Actually, the title of this article is a bit misleading, because the role of research hasnt changed since the first trade occurred under the buttonwood tree on Manhattan Island. What has changed is the environments (bull and bear markets) that influence research.
Research and the Stock Market
The role of research is to provide information to the market. A lack of information creates inefficiencies that result in stocks being misrepresented (over- or under-valued). Analysts use their expertise and spend a lot of time analyzing a stock, its industry and its peer group to provide earnings and valuation estimates. Research is valuable because it fills information gaps so that each individual investor does not need to analyze every stock. This division of labor makes the market more efficient.
Research in Bull and Bear Markets
If the role of research has always been so noble, why is it in such a state of ill-repute? There are two reasons: firstly, the current bear market gives us a new perspective to evaluate the excesses of the last bull market; secondly, investors need to blame somebody.
In every bull market, there are excesses that become apparent only in the bear market that follows. Whether it is tulips or transistors, each age has its mania that distorts the normal functioning of the market. In the rush to make money, rationality is the first casualty. Investors rush to jump on the bandwagon and the market over-allocates capital to the hot sector(s). This herd mentality is the reason why bull markets have funded so many me-too ideas throughout history.
Research is a function of the market and is influenced by these swings. In a bull market, investment bankers, the media and investors pressure analysts to focus on the hot sectors. Some analysts morph into promoters as they ride the market. Those analysts that remain rational practitioners are ignored and their research reports go unread. During the late 1990s, the business media catered to the audiences demands and gave the spotlight to the famous talking heads that are now under investigation.
Seeking to blame someone for investment losses is a normal event in bear markets. It happened in the 1930s and the 1970s, and its occurring today. Some of the criticisms are deserved, but the need to provide information has not changed.
Research in Todays Market
To discuss the role of research in todays market, we need to differentiate between Wall Street research and other research. Wall Street research is provided by the major brokerage firms, both on and off Wall Street. Other research is produced by independent research firms and small boutique brokerage firms.
This differentiation is important. First, Wall Street research has become focused on big cap, very liquid stocks and ignores the majority (over 60% based on research) of publicly-traded stocks. This myopic focus on a small number of stocks is the result of deregulation and industry consolidation. In order to remain profitable, Wall Street firms have focused on big-cap stocks to generate highly lucrative investment banking deals and trade profits.
Those companies that are likely to provide the research firms with sizable investment banking deals are the stocks that are determined worthy of being followed by the market. The stocks long-term investment potential is secondary. The second reason to distinguish Wall Street from other research is that most of the blame for the excesses of the last bull market is rightfully placed on Wall Street.
Other research is filling the information gap created by Wall Street. Independent research firms and boutique brokerage firms are providing research on the stocks that have been orphaned by Wall Street. Investors, now educated in the benefits of electronic trading, may not be willing to support boutique brokerage firms for their research by opening an account and paying higher commissions.
This means that independent research firms are becoming the main source of information on the majority of stocks, but investors are reluctant to pay for research, because they dont really know what they are paying for until well after the purchase. Unfortunately, not all research is worth buying. I have purchased reports from reputable sources only to find them inaccurate and misleading. (For more reasons to do your research read: What Is The Impact Of Research On Stock Prices?)
Who Pays for Research? Big Investors Do!
The ironic thing is that while research has proven to be valuable, individual investors do not seem to want to pay for it. This may be because, under the traditional system, brokerage houses provided research in order to gain and keep clients. Investors just had to ask their brokers for a report and retained it at no charge. What seems to have gone unrealized is that the commissions pay for that research.
A good indicator of the value of research is the amount institutional investors are willing to pay for it. Institutional investors hire their own analysts to gain a competitive edge over other investors. They also pay (often handsomely) independent research firms for additional research. Institutions also pay for the sell-side research they receive (either with dollars or by giving the supplying brokerage firm trades to execute). All this amounts to big money, but the institutions realize that research is integral to making successful investment decisions. (For more read The Impact of Sell-Side Research.)
If investors are unwilling to buy research how will the market correct the imbalance caused by the lack of coverage? The solution may be found by looking at the issue a slightly different way.
The Growing Role of Fee-Based Research
Fee-based research increases market efficiency and bridges the gap between investors who want research (without paying) and companies who realize that Wall Street is not likely to provide research on their stock. This research provides information to the widest possible audience at no charge to the reader because the subject company has funded the research.
It is important to differentiate between objective fee-based research and research that is promotional. Objective fee-based research is analogous to the role of your physician. You pay a physician not to tell you that you feel good, but to give you his or her professional and truthful opinion of your condition.
Legitimate fee-based research is a professional and objective analysis and opinion of a companys investment potential. Promotional research is short on analysis and full of hype. One example of this is the fax and email reports about the penny stocks that will supposedly triple in a short time.
Legitimate fee-based research firms have the following characteristics:
1. They provide analytical, not promotional services.
2. They are paid a set annual fee in cash; they do not accept any form of equity, which may cause conflicts of interest.
3. They provide full and clear disclosure of the relationship between the company and the research firm so investors can evaluate objectivity.
Companies who engage a legitimate fee-based research firm to analyze their stock are trying to get information to investors and improve market efficiency. Such a company is making the following important statements:
1. That it believes its shares are undervalued because investors are not aware of the company.
2. That it is aware that Wall Street is no longer an option.
3. That it believes that its investment potential can withstand objective analysis.
The National Investor Relations Institute (NIRI) was probably the first group to recognize the need for fee-based research. In January 2002, NIRI issued a letter emphasizing the need for small-cap companies to find alternatives to Wall Street research in order to get their information to investors. More recently, the NIRI is conducting a survey on research alternatives and will possibly have a session on this topic at their national conference this year. (For more information on fee-based research read Fee-Based Research: The Good, The Bad And The Ugly.)
The Bottom Line
The reputation and credibility of a company and the research firm depends on the efforts they make to inform investors. A company does not want to be tarnished by being associated with disreputable research. Similarly, a research firm will only want to analyze companies that have strong fundamentals and long-term investment potential.
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There are no broker-dealers quoting this security. It is not listed, traded or quoted on any U.S. stock exchange or the OTC Markets. Trades in grey market stocks are reported by broker-dealers to their Self Regulatory Organization (SRO) and the SRO distributes the trade data to market data vendors and financial websites so investors can track price and volume. Since grey market securities are not traded or quoted on an exchange or interdealer quotation system, investor's bids and offers are not collected in a central spot so market transparency is diminished and Best Execution of orders is difficult.
10 Books Every Investor Should Read
When it comes to learning about investment, the internet is one of the fastest, most up-to-date ways to make your way through the jungle of information out there. But if youre looking for a historical perspective on investing or a more detailed analysis of a certain topic, there are several classic books on investing that make for great reading. Here we give you a brief overview of our favorite investing books of all time and set you on the path to investing enlightenment. (To find more recommended books, see Investing Books It Pays To Read.)
The Intelligent Investor (1949) by Benjamin Graham
Benjamin Graham is undisputedly the father of value investing. His ideas about security analysis laid the foundation for a generation of investors, including his most famous student, Warren Buffett. Published in 1949, The Intelligent Investor is much more readable than Grahams 1934 work entitled Security Analysis, which is probably the most quoted, but least read, investing book. The Intelligent Investor wont tell you how to pick stocks, but it does teach sound, time-tested principles that every investor can use. Plus, its worth a read based solely on Warren Buffetts testimonial: By far the best book on investing ever written.
Common Stocks And Uncommon Profits (1958) by Philip Fisher
Another pioneer in the world of financial analysis , Philip Fisher has had a major influence on modern investment theory. The basic idea of analyzing a stock based on growth potential is largely attributed to Fisher. Common Stocks And Uncommon Profits teaches investors to analyze the quality of a business and its ability to produce profits. First published in the 1950s, Fishers lessons are just as applicable half a century later.
Stocks For The Long Run (1994) by Jeremy Siegel
A professor at the Wharton School of Business, Jeremy Siegel makes the case for - you guessed it - investing in stocks over the long run. He draws on extensive research over the past two centuries to argue not only that equities surpass all other financial assets when it comes to returns, but also that stock returns are safer and more predictable in the face of the effects of inflation.
Learn To Earn (1995), One Up On Wall Street (1989) or Beating The Street (1994) by Peter Lynch
Peter Lynch came into prominence in the 1980s as the manager of the spectacularly performing Fidelity Magellan Fund. Learn To Earn is aimed at a younger audience and explains many business basics, One Up On Wall Street makes the case for the benefits of self-directed investing, and Beating The Street focuses on how Peter Lynch went about choosing winning stocks (or how he missed them) while running the famed Magellan Fund. All three of Lynchs books follow his common sense approach, which insists that individual investors, if they take the time to do their homework, can perform just as well or even better than the experts.
A Random Walk Down Wall Street (1973) by Burton G. Malkiel
This book popularized the ideas that the stock market is efficient and that its prices follow a random walk. Essentially, this means that you cant beat the market. Thats right - according to Malkiel, no amount of research, whether fundamental or technical, will help you in the least. Like any good academic, Malkiel backs up his argument with piles of research and statistics. It would be an understatement to say that these ideas are controversial, and many consider them just short of blasphemy. But whether you agree with Malkiels ideas or not, it is not a bad idea to take a look at how he arrives at his theories. (For further reading, see What Is Market Efficiency?)
The Essays Of Warren Buffett: Lessons For Corporate America (2001) by Warren Buffett and Lawrence Cunningham
Although Buffett seldom comments on his current holdings, he loves to discuss the principles behind his investments . This book is actually a collection of letters that Buffett wrote to shareholders over the past few decades. Its the definitive work summarizing the techniques of the worlds greatest investor. Another great Buffett book is The Warren Buffett Way by Robert Hagstrom. (For further reading, see Warren Buffett: How He Does It and What Is Warren Buffetts Investing Style?)
How To Make Money In Stocks (2003, 3rd ed.) by William J. ONeil
Bill ONeil is the founder of Investors Business Daily, a national business of financial daily newspapers, and the creator of the CANSLIM system. If you are interested in stock picking, this is a great place to start. Many other books are big on generalities with little substance, but How To Make Money In Stocks doesnt make the same mistake. Reading this book will provide you with a tangible system that you can implement right away in your research.
Rich Dad Poor Dad (1997) by Robert T. Kiyosaki
This book is all about the lessons the rich teach their kids about money, which, according to the author, poor and middle-class parents neglect. Robert Kiyosakis message is simple, but it holds an important financial lesson that may motivate you to start investing : the poor make money by working for it, while the rich make money by having their assets work for them. We cant think of a better financial book to buy for your kids.
Common Sense On Mutual Funds (1999) by John Bogle
John Bogle, founder of the Vanguard Group, is a driving force behind the case for index funds and against actively-managed mutual funds. In this book, he begins with a primer on investment strategy before blasting the mutual fund industry for the exorbitant fees it charges investors. If you own mutual funds, you should read this book. (To learn more, see The Truth Behind Mutual Fund Returns.)
Irrational Exuberance (2000) by Robert J. Shiller
Named after Alan Greenspans infamous 1996 comment on the absurdity of stock market valuations, Shillers book, released in Mar 2000, gives a chilling warning of the dotcom bubbles impending burst. The Yale economist dispels the myth that the market is rational and instead explains it in terms of emotion, herd behavior and speculation. In an ironic twist, Irrational Exuberance was released almost exactly at the peak of the market. (To learn more on this topic, see Understanding Investor Behavior.)
The more you know, the more youll be able to incorporate the advice of some of these experts into your own investment strategy . This reading list will get you started, but it is only a fraction of all the great resources available. Do you have a favorite investing book that weve missed? If so, let us know.
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Securities in the OTC Pink (also known as Pink Sheets) market tier are further divided, based on the amount and timeliness of their financial disclosure, into three categories.
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