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.
All three of these advances would appear as the same vertical distance on a logarithmic scale. Most charting programs refer to the logarithmic scale as a semi-log scale, because the time axis is still displayed arithmetically.
The chart above uses the 4th-Quarter performance of VeriSign to illustrate the difference in scaling. On the semi-log scale, the distance between 50 and 100 is the same as the distance between 100 and 200. However, on the arithmetic scale, the distance between 100 and 200 is significantly greater than the distance between 50 and 100.
Trade Smarter With Equivalent Positions
How can two trades have the same risk and reward when they look so very different?
Thats the frequent response when investors first learn that every option position is equivalent to a different option position. For clarification, equivalent refers to the fact that the positions will earn/lose the same amount at any price (when expiration arrives) for the underlying stock. It does not mean the positions are identical.
Of all the ideas that a rookie options trader encounters, the idea of equivalence is a real eye-opener. Those who grasp the significance of this concept have an increased chance of succeeding as a trader. (For a background reading, see our Options Basics Tutorial.)
Different but Equal
Lets begin with an example, and then well discuss why equivalent positions exist and how you can use them to your advantage. And it is an advantage. Sometimes you discover that theres an extra $5 or $10 to be earned by making the equivalent trade . At other times, the equivalent saves money on commissions.
There are two commonly used trading strategies that are equivalent to each other. But you would never know it by the way stock brokers handle these positions. Im referring to writing covered calls and selling naked puts. (For more, readUnderstanding Option Pricing.)
These two positions are equivalent:
1. Buy 300 shares of QZZ
Sell 3 QZZ Aug 40 calls
2. Sell 3 QZZ Aug 40 puts
What happens when expiration arrives for each of these positions?
Buying the Covered Call:
• If QZZ is above 40, the call owner exercises the options, your shares are sold at $40 per share, and you have no remaining position.
•
If QZZ is below 40, the options expire worthless and you own 300 shares
Selling the Naked Puts:
• If QZZ is above 40, the puts expire worthless and you have no remaining position.
•
If QZZ is below 40, the put owner exercises the options and you are obligated to purchase 300 shares at $40 per share. You own 300 shares.
Trade Conclusion
After expiration, your position is identical. For those who are concerned with details (and option traders must be concerned) the question arises as to what happens when the stocks final trade at expiration is 40. The answer is that you have two choices:
1. Do Nothing
You can do nothing and wait to see whether the option owner allows the calls to expire worthless or decides to exercise. This places the decision in the hands of someone else.
2. Repurchase the Options
Before the market closes for trading on expiration Friday, you can repurchase the options you sold. Once you do that, you can no longer be assigned an exercise notice. The goal is to buy those options for as little as possible, and I suggest bidding 5 cents for those options. You may want to be more aggressive and raise the bid to 10 cents, but that should not be necessary if the stock is truly trading at the strike price as the closing bell rings.
If you do buy back the options sold earlier, you may write new options expiring in a later month. This is a common practice, but its a separate trade decision.
The positions are equivalent after expiration. But does that show that the profit/loss is always equivalent? No, it doesnt. But the truth is that options are almost always efficiently priced. When priced inefficiently, professional arbitrageurs arrive on the scene and trade to take the free money offered. This is not a trading idea for you. Instead, its a reassurance that you will not find options mispriced too often. The available profit from these arbitrage opportunities is very limited, but the arbs are willing to take the time and effort to frequently earn those few pennies per share. (Read Arbitrage Squeezes Profit From Market Inefficiency.)
Proof
To determine if one position is equivalent to another, all you need to know is this simple equation:
S = C – P
This equation defines the relationship between stocks (S), calls (C) and puts (P). Being long 100 shares of stock is equivalent to owning one call option and selling one put option when those options are on the same underlying and the options have the same strike price and expiration date.
The equation can be rearranged to solve for C or P as follows:
C = S P
P = C - S
This gives us two more equivalent positions:
1. A call option is equivalent to a long stock plus a long put (this is often called a married put).
2. A put option is equivalent to a long call plus a short stock .
From the last equation, if we change the signs of each attribute, we get:
-P = S – C, or a short put equals a covered call
As long as you are cash-secured, meaning you have enough cash in your account to buy the shares if you are assigned an exercise notice, there are two very practical reasons for selling a naked put:
1. Reduced Commissions
The naked put is a single trade. The covered call requires that you buy stock and sell a call. Thats two trades.
• Exiting the Trade Prior to Expiration
Sometimes the spread turns into a quick winner when the stock rallies way above the strike price. Its often easy to close the position and take your profit easily when you sold the put. All you must do is buy that put at a very low price, such as 5 cents. With the covered call, buy the deep-in-the-money call options. Those usually have a very wide market and there is almost no chance to buy that call at a good price (and then quickly sell the stock). Thus, the strategic edge belongs to the put seller, not the covered call writer.
• Other Equivalent Positions
These positions are equivalent only when the options have the same strike price and expiration date.
Selling a put spread is equivalent to buying a call spread, so:
• Sell ZXQ Oct 50/60 Put Spread = Buy ZYQ Oct 50/60 Call Spread
Selling a call spread is equivalent to buying a put spread, so:
• Sell JJK Dec 15/20 Call Spread = Buy JJK Dec 15/20 Put Spread
Selling put spread is equivalent to a buying collar. so:
• Sell XYZ Nov 80/85 Put Spread = Buy 100 XYZ; Buy one Nov 80 put; Sell one Nov 85 call
To convert a call into a put, just sell stock (because C - S = P)
To convert a put into a call, just buy stock (because P S = C)
The Bottom Line
There are other equivalent positions. In fact, by using the basic equation (S = C – P) you can find an equivalent for any position. From a practical perspective, the more complex the equivalent position, the less easily it can be traded. The idea behind understanding that some positions are equivalent to others is that it may help your trading become more efficient . As you gain experience, you will find it takes very little effort to recognize when an equivalent is beneficial. It just takes a little practice thinking in terms of equivalents.
For thou convenience $HYSR BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/HYSR
The Random Walk theory is an example of the semi-strong form of market efficiency.
OTC Pink is an open marketplace that has no financial standards or reporting requirements. The stock of companies in the OTC Pink tier are not required to be registered with the SEC. Companies in this category are further categorized by the level and timeliness of information they provide to investors and may have current, limited or no public disclosure.
Savings Accounts Not Always The Best Place For Cash Assets
Individuals and entities can find themselves holding cash for any number of reasons: general savings, specific savings for planned expenditures, asset sales, and more. Most people would agree that they would like to maximize their cash assets, but many people assume that a savings account at a bank is the only way to go. As you will see, there are other ways to maximize your cash assets over the short term. If you are an independent-minded investor, read on to uncover two very attractive options for achieving this end: the premium brokerage account and the direct mutual fund account.
Assumptions
There are two assumptions that should be made plain with regards to this discussion. First, the short-term nature of cash demands a very low risk exposure or, stated in a different manner, a high degree of price certainty. Specifically, this article will not advocate the comparison of checking account funds to longer-term instruments such as equity mutual funds because the value of equity mutual fund shares can often vary on a daily basis. This is not an apt comparison because a return-maximizing investor seeking to conduct an everyday transaction (i.e. buying groceries) must be certain that his or her short-term cash has not been reduced by yesterdays stock market sell-off.
Second, cash-like funds should be accessible in a reasonable time frame without a penalty. Thus, certificates of deposit (CDs) and the like are not a viable option in this regard. Although CDs are generally considered to be short-terminvestments , they cannot be turned into transactional money without the issuer assessing a penalty that destroys the investors return.
What is disintermediation?
Before exploring the actual instruments, it is important to understand the differences between financial intermediation and disintermediation.
Anyone with a checking/demand deposit or savings account uses the services of a financial intermediary (a bank). The bank, acting as a middleman, combines the small deposits of many and goes to the primary and/or secondary security markets to purchase larger denominated short-term interest bearing instruments (i.e. Treasury bills). The bank then promises to pay the depositor a stated interest rate for the funds, subject to periodic adjustment, and collects the difference.
Disintermediation, on the other hand, occurs when the depositor goes directly to the primary or secondary market to purchase short-term interest bearing instruments. The fact that a depositor uses a mutual fund arrangement to accomplish this does not change the fact that this is a direct method of investing. Under the mutual fund arrangement, shareholders collect the market interest rate minus a management fee paid to the mutual fund manager .
There are two important distinctions between using the bank and the direct method. The first difference is the existence of government-sponsored account insurance; banks are part of the Federal Deposit Insurance Corporation (FDIC) system of deposit insurance, while the direct method is subject to the many market risks and is not insured. However, if one establishes a direct account through a brokerage firm, that account may be covered by the Securities Investor Protection Corporation (SIPC), which provides limited protection against investment losses as a result of certain broker-related actions Second, money market funds are regulated under the Investment Company Act of 1940 and are sold by prospectus only.
The Premium Brokerage Account
Most brokers offer several levels of brokerage accounts. Virtually every brokerage account comes embedded with a money market mutual fund account . These funds are invested in short-term fixed income securities via mutual funds shares. The underlying instruments used by bank and direct participants are often identical; the difference is that the direct method funnels all of the interest of those underlying securities to the mutual fund shareholder minus a management fee (approximately 50 basis points). This can be a yield of several hundred basis points compared to what banks may offer on similar accounts. Factors affecting the realized difference in interest rates include the banks desire to attract funds and the prevailing market environment.
Both regular and premium accounts have the ability to hold marketable securities and money market mutual fund shares, but premium brokerage accounts stand apart from regular brokerage accounts primarily in terms of access to funds and additional features. Premium accounts may offer check-writing capabilities and debit card access to funds, allowing continuous access to funds as needed. This maximizes interest earned when funds are not needed. Furthermore, it is possible that the premium account arrangement could simplify the investors monthly statement routine through elimination and consolidation of accounts.
The Direct Mutual Fund Account
The second option for maximizing interest is the use of a fund-direct money-market mutual fund account. Most mutual fund companies offer and manage a money market mutual fund. Again, this is a direct investment in money market instruments by way of mutual fund shares. Oftentimes, both the interest rate received and the management fee charged on these funds will be approximately equal to those earned on the premium account established at a brokerage house.
The key distinction between these two options is the availability of the funds and the mechanics of moving funds. Fund-direct mutual fund account funds are not available on demand, but funds are available to be sold and transferred on non-holiday business days throughout the year. Generally, mutual fund shares require a one business day settlement period. Once settled, the funds can be dispersed via a physical check or automated clearing house (ACH) deposit directly into a checking or savings account. This is still a very attractive option considering the interest rate earned and the expectation of having liquid funds available within a few days.
Additional Considerations
There are nuances between the offerings of competing companies for both of the above products. With that in mind, an investor should be prepared to critically view the benefits and drawbacks to any one firms offering with regards to the premium brokerage account. Investors should also pay attention to the return generated on money market funds (tax-free interest funds may also be available); specifically, the net expected performance must exceed that of your next best option. The investor should analyze his or her expected balance level in relation to savings
For thou convenience $NILA BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/NILA
Knowing Who's Who
Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group.
Short selling carries with it unlimited risk because the purchase price of a security can rise to any price point. Conversely, long investors (buyers) may only lose the amount invested – if, for example, the security price drops to zero.
Test Your Money Personality
Like almost everything else in life, your response to money is largely dictated by your personality. But have you given much thought to how you behave in regard to your finances and how that behavior affects your bottom line? Understanding your money personality is the first step and will help you shape your approach to spending, saving and investing. So whats your money personality? Read on to find out.
Whats Your Type?
Money personalities have been analyzed in a variety of ways and many people can identify with aspects of several profiles. They key is to find the profile that most closely matches your behavior. The major profiles are: big spenders, savers, shoppers, debtors and investors.
• Big Spenders
Big spenders love nice cars, new gadgets and brand-name clothing. Big spenders arent bargain shoppers; they are fashionable and they are looking to make a statement. This often means a desire to have the smallest cell phone, the biggest plasma TV and a beautiful home. When it comes to keeping up the Joneses, big spenders are the Joneses. They are comfortable spending money, dont fear debt and often take big risks when investing.
• Savers
Savers are the exact opposite of big spenders. They turn off the lights when leaving the room, close the refrigerator door quickly to keep in the cold, shop only when necessary, and rarely make purchases with credit cards. They generally have no debts and are often viewed as cheapskates. Savers are not concerned about following the latest trends, and they derive more satisfaction from reading the interest on a bank statement than from acquiring something new. Savers are conservative by nature and dont take big risks with their investments .
• Shoppers
Shoppers derive great emotional satisfaction from spending money. They often cant resist spending money, even if its to purchase items they dont need. Shoppers are usually aware of their addiction to spending and are even concerned about the debt that it creates. They look for bargains and are pleased when they get a good deal. Shoppers will often shop to entertain themselves, even if the items they buy go unused.
Shoppers are an eclectic bunch when it comes to investing. Some invest on a regular basis through 401(k) plans and other automatic investments and may even invest a portion of any sudden windfalls such as bonuses or inheritance money, while others view investing as something they will get to later on. (To learn more, read Seven Common Financial Mistakes.)
• Debtors
Debtors arent trying to make a statement with their expenditures, and they dont shop to entertain or cheer themselves up. They simply dont spend much time thinking about their money and therefore dont keep tabs on what they spend and where they spend it. Debtors generally spend more than they earn and are deeply in debt and they dont put much thought into investing. Similarly, they often fail to even take advantage of the company match in their 401(k) plans . (For more, check out Digging Out Of Personal Debt.)
• Investors
Investors are consciously aware of money. They understand their financial situations and try to put their money to work. Regardless of their current financial standing, investors tend to seek a day when passive investments will provide sufficient income to cover all of their bills. Their actions are driven by careful decision making, and their investments reflect the need to take a certain amount of risk in pursuit of their goals. (To learn more about how investors think, read The Successful Investment Journey.)
Advice for Your Personality
Once you recognize yourself in one of these profiles and have put some thought into how you approach money, its time to see what you can do to make the most of what you have. Sometimes making just small changes can yield big results.
• Spenders: Shop a Little Less, Save a Little More
If you love to spend, you are going to keep doing it, but you should seek long-term value, not just short-term satisfaction. Before you splurge on something expensive or trendy, ask yourself how much that purchase is going to mean to you in a year. If the answer is not much, skip the purchase. In this way, you can try to limit your spending to things youll actually use.
When you channel your energy into saving, you have another opportunity to think long term. Look for slow and steady gains as opposed to high-risk, quick-win scenarios. If you really want to challenge yourself, consider the merits of scaling back. (Downsize Your Home To Downsize Expenses and The Disposable Society: An Expensive Place To Live.)
• Savers: Use Moderation
Ben Franklin once recommended moderation in all things. For a saver, this is particularly good advice. Dont let all of the fun parts of life pass you by just to save a few pennies.
Tune up your savings efforts too. Pinching pennies is not enough. While minimizing risk is any investors prime goal, minimizing risk while maximizing return is the key to investing success. (For more on how to do this in your portfolio, read Asset Allocation Strategies and Achieving Optimal Asset Allocation.)
• Shoppers: Dont Spend Money You Dont Have
A critical step for shoppers is to take control of their credit cards. Unchecked credit card interest can wreak havoc on your finances , so think before you spend - particularly if you need a credit card to make the purchase. (To learn more, read Take Control Of Your Credit Cards and Understanding Credit Card Interest.)
Try to focus your efforts on saving your money. Learn the philosophy behind successful savings plans and try to incorporate some of those philosophies into your own. If spending is something you use to compensate for other areas of your life that you feel are lacking, think about what these might be and work on changing them.
• Debtors: Start Investing
If you are a debtor, you need to get your finances in order and set up a plan to start investing. You may not be able to do it alone, so getting some help is probably a good idea. Deciding on who will guide your investments is an important choice, so choose any investment professional carefully. (To find out more, see Invest In Spite Of Debt.)
• Investors: Keep Up the Good Work
Congratulations! Financially speaking, you are doing great! Keep doing what you are doing, and continue to educate yourself. (To see if you are on track to achieve post-work bliss, read A Pre-Retirement Checkup.)
Knowledge is Power
While you may not be able to change your personality, you can acknowledge it and address the challenges that it presents. Managing your money involves self awareness; knowing where you stand will allow you to modify your behavior to achieve your desired outcome.
For thou convenience $EARH BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/EARH
These participants each perform different functions and each has different constituents. Understanding how they work together and compete against each other to create a more efficient OTC marketplace will help make understanding more complex market concepts easier.
To assess a industry group's potential, an investor would want to consider the overall growth rate, market size, and importance to the economy. While the individual company is still important, its industry group is likely to exert just as much, or more, influence on the stock price.
$CVX Chevron (NYSE:CVX), Valero Energy (NYSE:VLO) and Delta Air Lines (NYSE:DAL) have complained to the FERC about fees Colonial Pipeline charges to ship gasoline, diesel and jet fuel over its vast fuel network.
What Are The Odds Of Scoring A Winning Trade?
When many of us think of probabilities, the first thing that comes to mind is a coin toss - having a 50% chance at being right on a given toss. Can something as simple as a coin toss be applied to the market effectively? It can at least provide us with some tools for approaching the markets, and it can be applied in many more ways than one might expect. A traders current views of probability could be completely wrong, and could very well be why they are not making money in the markets. This article is an introduction to the probabilities of trading and to a commonly overlooked but integral part of the financial system - statistics. But dont be scared off by the word statistics; everything will be explained in plain English and without many numbers or formulas.
Understanding the Coin Toss
In the short term, anything can happen; this is why the coin toss is an appropriate analogy for the stock market . Lets assume that at a given moment in time the stock could just as easily move up as it could move down (even in a range, stocks move up and down), thus our probability of making a profit (whether short or long) on a position is 50%.
While hopefully no one would make completely random short-term trades, we will start with this scenario. If we a have an equal probability of making a quick profit (like a coin toss), does a run of profits or losses signal what future outcomes will be? No! Not on random trades. This is a common misconception. Each event still has a 50% probability, no matter what outcomes came prior.
Runs do happen in random 50/50 events. A run refers to a number of identical outcomes that occur in a row. Here is a table displaying the probabilities of such a run; in other words, the odds of flipping a given number of heads or tails in a row.
Run Length
Chance
1
50%
2
25%
3
12.5%
4
6.25%
5
3.125%
6
1.5625%
Here is where we run into problems. Lets say we have just made five profitable trades in a row. According to our table, which is giving us the probability of being right (or wrong) five times in a row based on a 50% chance, we have already overcome some serious odds. The odds of getting the sixth profitable trade looks extremely remote, but actually that is not the case. Our odds of success are still 50%! People lose thousands of dollars in the markets (and in casinos) by failing to realize this. The reason is that the odds from our table are based on uncertain future events and the likelihood they will occur. Once we have completed a run of five successful trades, those trades are no longer uncertain. Our next trade starts a new potential run, and after the results are in for each trade, we start back at the top the table, every time. This means every trade has a 50% of working out. (Learn how to illustrate an asset returns sensitivity read Find The Right Fit With Probability Distributions.)
The reason this is so important is that often, when traders get into the market, they mistake a string of profits or losses as either skill or lack of skill. This is simply not true. Whether a short-term trader makes multiple trades or an investor makes only a few trades a year, we need to analyze the outcomes of their trades in a different way to understand if they are simply lucky or if there is actual skill involved. Statistics apply on all time lines, and this is what we must remember.
Long-Term Results
The above example gave a short-term trade example based on a 50% chance of being right or wrong. But does this apply to the long term? Very much so. The reason is that even though a trader may only take long-term positions, he or she will be doing fewer trades and thus it will take longer to attain data from enough trades to see if simple luck is involved or if it was skill. A short-term trader may make 30 trades a week and show a profit every month for two years. Has this trader overcome the odds with real skill? It would seem so, as the odds of having a run of 24 profitable months is extremely rare unless the odds have shifted more in his favor somehow. (Find out if mutual fund managers can successfully pick stocks or if youre better off with an index fund. Read Is Stock Picking A Myth?)
Now what about a long-term investor who has made three trades over the last two years and has been profitable. Is this trader exhibiting skill? Not necessarily. Currently, this trader has a run of three going, and that is not difficult to accomplish even from totally random results. The lesson here is that skill is not just reflected in the short term (whether that is one day or one year, it will differ by trading strategy ), but will also be reflected in the long term. We need enough trade data to accurately determine whether a strategy is significant enough to overcome random probabilities. And even with this, we face another challenge: while each trade is an event, so is a month and year in which trades were placed.
A trader who placed 30 trades a week has overcome the daily odds and the monthly odds for a good number of periods. Ideally, proving the strategy over a few more years would erase all doubt that there was luck involved due to a certain market condition . For our long-term trader making trades that last more than a year, it will take at least several more years to prove that his strategy is profitable over this longer time frame and in all market conditions.
When we consider all time frames and all market conditions, we actually begin to see how to be profitable on all time frames and how to move the odds more in our, attaining greater than a random 50% chance of being right. It is worth noting that if profits are larger than losses, a trader can be right less than 50% of the time and still make a profit. (This phenomenon can cause a trader to abandon a proven strategy or risk everything on chance. Find out how to avoid it, check out Random Reinforcement: Why Most Traders Fail.)
How Profitable Traders Make Money
So, obviously people do make money in the markets, and its not just because they have had a good run. So how do we get the odds in our favor? The profitable results come from two concepts. The first concept is based on what was discussed above - being profitable in all time frames or at least winning more in certain periods than is lost in others.
The second concept is the fact that trends exist in the markets, and this no longer makes the markets a 50/50 gamble, as in our coin toss example. Stock prices tend to run in a certain direction over periods of time, and have done this repeatedly over market history. For those of you who understand statistics, this proves that runs (trends) in stocks occur and thus we end up with a probability curve that is not normal (remember that bell curve your teachers always talked about) but is skewed and commonly referred to as a curve with a fat tail. This means that traders can be profitable on a consistent basis if they use trends, even if it is on an extremely short time frame.
Bringing It All Together
If trends exist and thus we can no longer have a random sampling of data (trades) because there is a bias in those trades that will likely reflect a trend, why is the 50% chance example above useful? The reason is that the lessons are still very valid. A trader should not increase his or her position size or take on more risk (relative to position size) simply because of a string of wins, which should not be assumed to occur as a result of skill. It also means that a trader should not decrease position size after having a long profitable run. (Find out if taking the path less traveled will work in your favor - or against it, see Trading Systems: Run With The Herd Or Be A Lone Wolf?)
This information should be good news. New traders can take solace in the fact their researched trading system may not be faulty but rather is experiencing a random run of bad results (or it may still need some refining). It also should put pressure on those who have been profitable to continually monitor their strategies so they remain profitable.
This information can also aid investors when they are analyzing mutual funds or hedge funds. Trading results are often published showing spectacular returns; knowing a little more about statistics can help us gauge whether those returns are likely to continue or if the returns just happened to be a random event. (From picking the right type of stock to setting stop-losses, learn how to trade wisely
Feast thine eyes upon $CYUXF BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/CYUXF
Companies that are unwilling or unable to meet OTC Markets' Guidelines for Providing Adequate Current Information but have submitted some but not all of current information required are rated as having limited information. These are often companies with financial reporting problems, economic distress, or in bankruptcy.
Granted, there are many studies and disputes raging on the performance of equity mutual funds, but it is safe to assume that about 75% of equity mutual funds underperform the S
Investing Basics: Flight To Quality
Investing in stocks comes with the prospect of earning big returns, but it can also carry some considerable risks. At times of financial market stress, investors will often flee from risky assets and into investments that are perceived as very safe. Investors will act as a herd and try to rid themselves of any risk in what is termed a flight to quality. Whether or not an investor takes part in the flight, it is important to understand the concept, its indicators and its implications for the market.
What is a flight to quality?
A flight to quality occurs when investors rush to less risky, more liquid investments. Cash and cash equivalents, such as Treasury bills and notes, are key examples of the high-quality assets investors will seek. Investors try to allocate capital away from assets with any perceived risk into the safest possible instruments they can find. Investors usually tend to do this en masse and the effects on the market can be quite drastic. (Knowing what the market is thinking is the best way to determine what it will do next. Read Gauging Major Turns With Psychology.)
The Causes
The causes for a flight to quality are usually quite similar, and normally follow or are concurrent with some level of distress in the financial markets. Fear in the market generally leads investors to question their risk exposure and whether asset prices are justified by their risk/reward profiles.
While every market has its own intricacies, most upswings and downturns are somewhat similar: a sharp downturn follows what, in retrospect, were unjustifiable asset prices. A lot of the time the asset prices were unjustified because many risk factors such as credit problems were being ignored. Investors question the health of companies they are invested in and may decide to take profits from their riskier investments , or even sell at losses in order to move into lower-risk alternatives. Unfortunately, most investors dont get out at the early stage. Many join the flight to quality after things start to turn sour and leave themselves open to even bigger losses. (The option to bolster after-tax stock returns through tax-loss harvesting can reverse investor gloom. Check out Tax-Loss Harvesting For An Unsteady Market.)
Once major issues in the market come to light, the bubble begins to burst and panic occurs in the market as participants reprice risk. Sharp declines in asset prices add to the panic, and force people to flee toward very low-risk assets where they feel their principal is safe, without regard for potential return. A flight to quality is often a pretty abrupt shift for financial markets; as a result, indicators such as fear and shrinking yields on quality assets arent noticed until the flight has already begun.
Negative T-Bill Yield
An extreme example of a flight to quality occurred during the 2008 credit crisis. U.S. T-bills are perceived as some of the highest quality, lowest risk assets. The U.S. government is considered to have no default risk, meaning that Treasuries of any maturity have no risk of principal loss. T-bills are also issued with maturities of 90 days, so the short-term nature makes interest rate risk minimal, and, if held to maturity, non-existent.
T-bill interest rates are largely dependent on the federal funds target rate. When the Federal Reserve consistently lowered rates during 2008, eventually setting the federal funds target rate at a range of 0-0.25% on December 16, 2008, T-bills were certain to follow the trend and return next to nothing to their owners. (For more on T-bills, see the Money Market Tutorial.)
But, could they actually return less than nothing? As the flight to quality drove institutions to shed any sort of risk, the demand for T-bills quickly outpaced supply, even as the Fed was quick to create new supply. After taking a bloodbath in nearly every asset class available, institutions tried to close their books with only the highest, most conservative assets (aka T-bills) on their balance sheets. (Learn about the components of the statement of financial position and how they relate to each other in Reading The Balance Sheet.)
The flood of demand for T-bills, which were already trading at near-zero yields , caused the yield to actually turn negative. On December 9, 2008, investors bought T-bills yielding -0.01%, guaranteeing that they would receive less money three months later. Why would any institution accept that? The main reason is safety. If an institution bought $1 million worth of T-bills at the -0.01% rate, three months later their loss would about to about $25. (For more on what happened, see Why Money Market Funds Break The Buck.)
In a time of market panic and flight to quality, investors will take that very small nominal loss in exchange for the safety of not being exposed to the larger potential losses of other assets. Negative T-bill yields are not characteristic of every time the market experiences a flight to quality, but an extreme case of where demand forces down the yields of high-quality assets. (Learn more in The Fall Of The Market In The Fall Of 2008.)
Dont Panic
A flight to quality is logical to a certain point as investors reprice market risk, but can also have many adverse consequences. First, it can help exacerbate a market downturn. As investors grow fearful of stocks that have experienced sharp declines, they are more inclined to dump them, which helps worsen the decline. Investors suffer again as their fear will prevent the buying of risky assets, which after the declines may be very attractive. The best thing for an investor to keep in mind is to not panic and be the last person selling their stocks and moving into cash when stocks are likely hitting lows.
The consequences read through to businesses also, and can affect the health of the economy, possibly prolonging a downturn or recession. During and following a market crash and flight to quality, businesses may grasp cash similar to investors. This low-risk, fear-driven strategy may prevent businesses from investing in new technologies, machines, and other projects that would help the economy.
Conclusion
Just like with bubbles and crashes, a flight to quality of some degree during a market cycle is pretty much inevitable, and impossible to prevent. As investors become jaded with the risky assets, they will seek out one thing and one thing only: safety.
Is there a way to profit from a flight to quality? Not unless you can predict what everyone else will do and do the opposite. Even then, you need to time it perfectly to avoid being trampled by the herd. It may be hard, but dont panic.
Feast thine eyes upon $NNHE BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/NNHE
After an extended advance from 27 to 64, WorldCom (WCOM)[WCOM] entered into a trading range between 55 and 63 for about 5 months. There was a false breakout in mid-June when the stock briefly poked its head above 62 (red oval). This did not last long and a gap down a few days later nullified the breakout (black arrow). The stock then proceeded to break support at 55 in Aug-99 and trade as low as 50. Here is another example of support turned resistance as the stock bounced off 55 two more times before heading lower. While this does not always happen, a return to the new resistance level offers a second chance for longs to get out and shorts to enter the fray.
When you open a brokerage account, you must sign a new account agreement. You should carefully review all the information in this agreement because it determines your legal rights regarding your account.
When Stock Prices Drop, Wheres The Money?
Have you ever wondered what happened to your socks when you put them into the dryer and then never saw them again? Its an unexplained mystery that may never have an answer. Many people feel the same way when they suddenly find that their brokerage account balance has taken a nosedive. So, where did that money go? Fortunately, money that is gained or lost on a stock doesnt just disappear. Read to find out what happens to it and what causes it.
Disappearing Money
Before we get to how money disappears, it is important to understand that regardless of whether the market is in bull (appreciating) or bear (depreciating) mode, supply and demand drive the price of stocks, and fluctuations in stock prices determine whether you make money or lose it.
So, if you purchase a stock for $10 and then sell it for only $5, you will (obviously) lose $5. It may feel like that money must go to someone else, but that isnt exactly true. It doesnt go to the person who buys the stock from you. The company that issued the stock doesnt get it either. The brokerage is also left empty-handed, as you only paid it to make the transaction on your behalf. So the question remains: where did the money go?
Implicit and Explicit Value
The most straightforward answer to this question is that it actually disappeared into thin air, along with the decrease in demand for the stock, or, more specifically, the decrease in investors favorable perception of it. (For more on what drives stock price , see Stocks Basics)
But this capacity of money to dissolve into the unknown demonstrates the complex and somewhat contradictory nature of money. Yes, money is a teaser - at once intangible, flirting with our dreams and fantasies, and concrete, the thing with which we obtain our daily bread. More precisely, this duplicity of money represents the two parts that make up a stocks market value: the implicit and explicit value.
On the one hand, money can be created or dissolved with the change in a stocks implicit value, which is determined by the personal perceptions and research of investors and analysts. For example, a pharmaceutical company with the rights to the patent for the cure for cancer may have a much higher implicit value than that of a corner store.
Depending on investors perceptions and expectations for the stock, implicit value is based on revenues and earnings forecasts. If the implicit value undergoes a change - which, really, is generated by abstract things like faith and emotion - the stock price follows. A decrease in implicit value, for instance, leaves the owners of the stock with a loss because their asset is now worth less than its original price. Again, no one else necessarily received the money; it has been lost to investors perceptions.
Now that weve covered the somewhat unreal characteristic of money, we cannot ignore how money also represents explicit value, which is the concrete worth of a company. Referred to as the accounting value (or sometimes book value), the explicit value is calculated by adding up all assets and subtracting liabilities. So, this represents the amount of money that would be left over if a company were to sell all of its assets at fair market value and then pay off all of liabilities. (For more insight, read Digging Into Book Value and Value By The Book.)
But you see, without explicit value, implicit value would not exist: investors interpretation of how well a company will make use of its explicit value is the force behind implicit value.
Disappearing Trick Revealed
For instance, in February 2009, Cisco Systems Inc. (Nasdaq:CSCO) had 5.81 billion shares outstanding, which means that if the value of the shares dropped by $1, it would be the equivalent to losing more than $5.81 billion in (implicit) value. Because CSCO has many billions of dollars in concrete assets, we know that the change occurs not in explicit value, so the idea of money disappearing into thin air ironically becomes much more tangible. In essence, whats happening is that investors, analysts and market professionals are declaring that their projections for the company have narrowed. Investors are therefore not willing to pay as much for the stock as they were before.
So, faith and expectations can translate into cold hard cash, but only because of something very real: the capacity of a company to create something, whether it is a product people can use or a service people need. The better a company is at creating something, the higher the companys earnings will be and the more faith investors will have in the company.
In a bull market, there is an overall positive perception of the markets ability to keep producing and creating. Because this perception would not exist were it not for some evidence that something is being or will be created, everyone in a bull market can be making money. Of course, the exact opposite can happen in a bear market .
To sum it all up, you can think of the stock market as a huge vehicle for wealth creation and destruction.
Disappearing Socks
No one really knows why socks go into the dryer and never come out, but next time youre wondering where that stock price came from or went to, at least you can chalk it up to market perception.
For thou convenience $NYXO BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/NYXO
Assist with Entry Point
Technical analysis can help with timing a proper entry point. Some analysts use fundamental analysis to decide what to buy and technical analysis to decide when to buy.
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
OTC trading, and all securities trading, responds to the supply and demand in the market place for certain securities. Individual investors, professional investors, and broker-dealers desire to buy and sell securities at certain prices. The number of orders, the volume (e.g., share size), the timing of buy and sell orders, and the availability of information determines how prices will move for a particular security.
For thou convenience $STVF BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/STVF
Support Equals Resistance
Another principle of technical analysis stipulates that support can turn into resistance and vice versa.
Priced quotations in the OTC Link or the OTCBB inter-dealer quotation systems are firm for certain minimum sizes. Minimum quote sizes are based upon quote price. As the price of a quote decreases, the size associated with a price increases. Mandatory sizes assure a minimum amount of liquidity in the market and add weight to a member’s firm quote obligation.
Introduction To Investment Diversification
Diversification is a familiar term to most investors. In the most general sense, it can be summed up with this phrase: Dont put all of your eggs in one basket. While that sentiment certainly captures the essence of the issue, it provides little guidance on the practical implications of the role diversification plays in an investors portfolio and offers no insight into how a diversified portfolio is actually created. In this article, well provide an overview of diversification and give you some insight into how you can make it work to your advantage.
What Is Diversification?
Taking a closer look at the concept of diversification, the idea is to create a portfolio that includes multiple investments in order to reduce risk. Consider, for example, an investment that consists of only stock issued by a single company. If that companys stock suffers a serious downturn, your portfolio will sustain the full brunt of the decline. By splitting your investment between the stocks from two different companies, you can reduce the potential risk to your portfolio.
Another way to reduce the risk in your portfolio is to include bonds and cash. Because cash is generally used as a short-term reserve, most investors develop an asset allocation strategy for their portfolios based primarily on the use of stocks and bonds. It is never a bad idea to keep a portion of your invested assets in cash or short-term money-market securities. Cash can be used incase of an emergency, and short-term money-market securities can be liquidated instantly incase an investment opportunity arises, or in the event your usual cash requirements spike and you need to sell investments to make payments. Also, keep in mind that asset allocation and diversification are closely linked concepts; a diversified portfolio is created through the process of asset allocation. When creating a portfolio that contains both stocks and bonds, aggressive investors may lean towards a mix of 80% stocks and 20% bonds, while conservative investors may prefer a 20% stocks to 80% bonds mix.
Regardless of whether you are aggressive or conservative, the use of asset allocation to reduce risk through the selection of a balance of stocks and bonds for your portfolio is a more detailed description of how a diversified portfolio is created rather than the simplistic eggs in one basket concept. With this in mind, you will notice that mutual fund portfolios composed of a mix, which includes both stocks and bonds, are referred to as balanced portfolios. The specific balance of stocks and bonds in a given portfolio is designed to create a specific risk-reward ratio that offers the opportunity to achieve a certain rate of return on your investment in exchange for your willingness to accept a certain amount of risk. In general, the more risk you are willing to take, the greater the potential return on your investment.
What Are My Options?
If you are a person of limited means or if you simply prefer uncomplicated investment scenarios, you could choose a single balanced mutual fund and invest all of your assets in the fund. For most investors, this strategy is far too simplistic. While a given mix of investments may be appropriate for a childs college education fund, that mix may not be a good match for long-term goals, such as retirement or estate planning. Likewise, investors with large sums of money often require strategies designed to address more complex needs, such as minimizing capital gains taxes or generating reliable income streams. Furthermore, while investing in a single mutual fund provides diversification among the basic asset classes of stocks, bonds and cash (funds often hold a small amount of cash from which the fees are taken), the opportunities for diversification go far beyond these basic categories.
With stocks, investors can choose a specific style, such as focusing on large, mid or small caps. In each of these areas are stocks categorized as growth or value. Additional choices include domestic and foreign stocks. Foreign stocks also offer sub-categorizations that include both developed and emerging markets. Both foreign and domestic stocks are also available in specific sectors, such as biotechnology and healthcare.
In addition to the variety of equity investment choices, bonds also offer opportunities for diversification. Investors can choose long-term or short-term issues. They can also select high-yield or municipal bonds. Once again, risk tolerance and personal investment requirements will largely dictate investment selection.
While stocks and bonds represent the traditional tools for portfolio construction, a host of alternative investments provide the opportunity for further diversification. Real estate investment trusts, hedge funds, art and other investments provide the opportunity to invest in vehicles that do not necessarily move in tandem with the traditional financial markets. Yet these investments offer another method of portfolio diversification.
Concerns
With so many investments to choose from, it may seem like diversification is an easy objective to achieve, but that sentiment is only partially true. The need to make wise choices still applies to a diversified portfolio. Furthermore, it is possible to over-diversify your portfolio, which will negatively impact your returns. Many financial experts agree that 20 stocks is the optimal number for a diversified equity portfolio. With that in mind, buying 50 individual stocks or four large-cap mutual funds may do more harm than good. Having too many investments in your portfolio doesnt allow any of the investments to have much of an impact, and an over-diversified portfolio (sometimes called diworsification) often begins to behave like an index fund. In the case of holding a few large-cap mutual funds, multiple funds bring the additional risks of overlapping holdings as well as a variety of expenses, such as low balance fees and varying expense ratios, which could have been avoided through a more careful fund selection.
Tools
Investors have many tools to choose from when creating a portfolio. For those lacking time, money or interest in investing, mutual funds provide a convenient option; there is a fund for nearly every taste, style and asset allocation strategy. For those with an interest in individual securities, there are stocks and bonds to meet every need. Sometimes investors may even add rare coins, art, real estate and other off-the-beaten-track investments to their portfolios.
The Bottom Line
Regardless of your means or method, keep in mind that there is no generic diversification model that will meet the needs of every investor. Your personal time horizon, risk tolerance, investment goals, financial means and level of investment experience will play a large role in dictating your investment mix. Start by figuring out the mix of stocks, bonds and cash that will be required to meet your needs. From there, determine exactly which investments to use in completing the mix, substituting traditional assets for alternatives as needed. If you are too overwhelmed by the choices or simply prefer to delegate, there are plenty of financial services professionals available to assist you.
Feast thine eyes upon $TRTH BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/TRTH
Short sellers are subject to price manipulation schemes – or short squeezes. In a short squeeze, traders believing that there are a lot of short sellers begin buying shares to force the price and the short sellers losses higher. These traders hope that the short sellers will be forced to buy pushing the price even higher at which point they can sell their shares at a profit. Short squeezes are easier to execute in illiquid securities.
Management
In order to execute a business plan, a company requires top-quality management. Investors might look at management to assess their capabilities, strengths and weaknesses. Even the best-laid plans in the most dynamic industries can go to waste with bad management (AMD in semiconductors).
Feast thine eyes upon $QASP BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/QASP
Contemplating Collectible Investments
If you have much space for storage, your attic and garage might be stuffed with old furniture, books and other items youve held onto over the years. If this is the case, you may be sitting on a few valuable collectibles just waiting to make you money. That said, you are just as likely to be looking at little more than a pile of junk. In this article well take a look at collectibles as an investment and help you decide whether this emotional market is a good place to park your money.
All Things Old Made New Again
140,000,000 B.C: A young Allosaurus missteps and finds itself mired in a sink hidden beneath the underbrush. Millions of geological ages later, an amateur paleontologist helps him out - or at least what was left of his head. In 2005, the Allosaurus restored skull sells for the high price of $600.
1908: Honus Wagner of the Pittsburgh Pirates hits his tenth home run and ends the year with a .354 batting average, marking one of the best years of his career. The next year, the American Tobacco Company commemorates Wagner by putting a trading card inside its cigarette packages. Less than 60 make it into stores before it is discovered that Honus is vehemently against smoking. In 2000, Wagners cigarette trading card is sold on EBay for $1.1 million.
1962: Stan Lee creates a superhero who has to worry about rent, his ailing aunt and passing his next test - all in addition to saving the world. Peter Parkers misadventure with a radioactive spider hit the stands with a $0.12 cover price. And, in 2006, the first edition of The Amazing Spider-Man is among the most valuable comics with a price around $6,000 or more, according to Wizard: The Guide To Comics pricing guide.
These are all examples of the strange and wonderful world of collectibles. While there is no denying the thrill of owning a juvenile Allosaurus skull, is collecting really a form of investment?
All That Glitters ...
The reason we began by discussing a fossil, a comic and a baseball card is that people have no qualms about calling them collectibles. However, when you speak about diamonds, gold and other precious materials, people tend to call theminvestments . In theory, these materials - and even stocks - could be termed collectibles because their price is based more on what people are willing to pay for them (or market value) than on their actual intrinsic value. But in the practical world, precious metals and stocks have an intrinsic value. For metals, this value is based on rarity and the fact that if you melt it, burn it or bend it, you still have the same atomic substance in the end. For stocks, the value is produced by the underlying brick and mortar company that the share represents - a company that is generating earnings to justify the prices you pay for its stock.
What makes collectibles different is that even a little damage can erase all of a collectibles value. This is because a collectibles value is based on emotional factors like nostalgia. These emotional factors can be as erratic as they are powerful. If you were asked whether people would be willing to pay more for a dinosaur skull or a baseball card, even if you chose one over the other you would give them both a higher value than, say, a torn up baseball card or a box of bone fragments. Those items you would probably call worthless (unless you are an archaeologist or a fan of papier-mâché).
The 20-Year Itch
It is said that nostalgia runs in 20-year cycles. In other words, the things that are popular now will become collectibles in 20 years when people want to reconnect with their past. This doesnt mean that you can buy the top 10 items from consumer polls, incubate them for 20 years and then sell them for a fortune. It means that some items this year will become collectibles if they meet two conditions: rarity and appeal.
Rarity is becoming a harder thing to find as mass production methods allow companies to (over)fill demand without incurring that much extra cost. Beanie Babies have devalued as more and more product lines are introduced. It is profitable for a company to sell as many products as it takes to satiate demand, and that mentality destroys a future collectors profits. (For more on this concept, check out Economics Basics.)
Appeal is also a difficult thing to nail down. To make money at collecting, you have to predict what will become popular in retrospect - perhaps something that is not in high demand now will become popular in the future, either because they are rare or they were not fully appreciated at the time. For example, in the 1950s and 1960s, wing-tipped plastic sun glasses with glass lenses were sold for a few dollars in drugstores, but they can now fetch hundreds of dollars in collectors markets.
Reasons Not To Buy Collectibles
Mark-ups
When you buy a collectible from a dealer, that dealer is usually marking up the price to make a profit. Unlike collectors, dealers do not have the luxury of holding an item for years and years while the value may or may not increase - they have sales to make and a business to run.
Maintenance
Many collectibles require special care to keep them in top condition. These can range in cost from the $1 plastic cover used to keep hockey cards safe to a special room with moisture, heat and light monitors to lengthen a paintings life. On top of the storage costs, there are the added costs of buying insurance for the more valuable types of collectibles as well as paying to have professionals, appraisers, restorers and dealers look at the collectible before you sell it. A collectible doesnt produce income while you hold it, and it may actually eat income while you wait for it to increase in value.
Wear
Most categories of collectibles - from Pokemon cards to antique plumbing fixtures - have a manual classifying how much an item is worth in pristine condition and what sorts of damage degrades it by what percentage of value. For example, a well-read copy of the aforementioned Amazing Spiderman #1 may only be worth 30-60% of the $6,000 list price, depending on what type and what degree of wear it shows.
Counterfeiting
Most museums display dinosaur fossils models - not the real thing. Can you tell the difference between an Allosauras skull made of plaster and cement and one made of fossilized bone? No matter how experienced the appraiser, forgeries do make it to the dealers and then through to the collectors, which could leave you holding a very expensive piece of criminal art.
Low Returns
Collectibles tend to have lower returns than a stock market index fund, a money market account and most bond funds. If you took an average of the returns on all collectibles – which is practically impossible to do given some have little or no market to measure – it would be dismal compared to the S
The security is being promoted to the public, but adequate current information about the issuer has not been made available to the public. OTC Markets believes adequate current information must be publicly available during any period when a security is the subject of ongoing promotional activities having the effect of encouraging trading of the issuer's securities.
It is important to be aware of these biases when analyzing a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis.
Behold the $NTRR BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/NTRR
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.
It used to be that free cash flow or earnings were used with a multiplier to arrive at a fair value. In 1999, the S
BarChart Technical Analysis NITE-LYNX $PVSP
http://www.barchart.com/technicals/stocks/PVSP
Although they may not be required to make financial information available to the public, many OTC-traded companies do so voluntarily. You can search our Financial Reports to obtain the reports of any issuer that has voluntarily provided their financials and other disclosure to investors via the OTC Disclosure and News Service.
Getting Started In Stocks
So youve decided to invest in the stock market. Congratulations! In his 2005 book The Future for Investors, Jeremy Siegel showed that, in the long run, investing in stocks has handily outperformed investing in bonds, Treasury bills, gold or cash. In the short term, one or another asset may outperform stocks, but overall stocks have historically been the winning path.
Tutorial: Stock Basics
But there are so many ways to invest in stocks. Individual stocks, mutual funds, index funds, ETFs, domestic, foreign - how can you decide what is right for you? This article will address several issues that you, as a new (or not-so-new) investor, might want to consider so that you can rest more easily while letting your money grow.
Risk Taker, Risk Averse or in the Middle?
You may be eager to get started so that you, too, can make those fabulous returns you hear so much about, but slow down and take a moment to contemplate some simple questions. The time spent now to consider the following will save you money down the road.
What kind of person are you? Are you a risk taker, willing to throw money at a chance to make a lot of money, or would you prefer a more sure thing? What would be your likely response to a 10% drop in a single stock in one day or a 35% drop over the course of a few weeks? Would you sell it all in a panic?
The answers to these and similar questions will lead you to consider different types of equity investments, such as mutual or index funds versus individual stocks. If you are naturally not someone who takes risks, and feel uncomfortable doing so but still want to invest in stocks, the best bet for you might be mutual funds or index funds. This is because they are well diversified and contain many different stocks. This reduces risk - and doesnt require individual stock research. (For more insight, read Personalizing Risk Tolerance, Mutual Fund Basics and The Lowdown On Index Funds.)
Have much time and interest do you have for investing?
Should you invest in funds, stocks or both? The answer depends on how much time you wish to devote to this endeavor. Careful selection of mutual or index funds would let you invest your money, leaving the hard work of picking stocks to the fund manager. Index funds are even simpler in that they move up or down according to the type of company, industry or market they are designed to track.
Individual stock investing is the most time consuming as it requires you to make judgments about management, earnings and future prospects. As an investor, you are attempting to distinguish between a money-making stock and financial disaster. You need to know what they do, how they make their money, the risks, the future prospects and much more.
Therefore, ask yourself how much time you have to devote to this enterprise. Are you willing to spend a couple of hours a week, or more, reading about different companies, or is your life just too busy to carve out that time? Investing in individual stocks is a skill, which, like any other, takes time to develop. (For more on this research, read Introduction To Fundamental Analysis.)
Eggs in One Basket
It is best that you not be exposed to only one type of asset. For instance, dont put all of your money in small biotech companies. Yes, the potential gain can be quite high, but what will happen to your investment if the Food and Drug Administration starts rejecting a higher percentage of new drugs? Your entire portfolio would be negatively impacted. (For related reading, see The Ups And Downs Of Biotechnology.)
It is better to be diversified across several different sectors such as real estate (a real estate investment trust is one possibility), consumer goods, commodities, insurance, etc., rather than focusing on one or two or three, as above. Consider diversifying across asset classes, as well, by keeping some money in bonds and cash, rather than being 100% invested in stocks. How much to have in these different sectors and classes is up to you, but being invested more broadly lessens the risk of losing it all at any one time. (For more insight, check out Introduction To Diversification.)
A Portfolio for Beginners
If you are just starting out, think seriously about investing most of your money in a couple of index funds, such as one tracking the broad market (e.g. the S
Supply, Demand, and Price Action
Many technicians use the open, high, low and close when analyzing the price action of a security. There is information to be gleaned from each bit of information. Separately, these will not be able to tell much. However, taken together, the open, high, low and close reflect forces of supply and demand.
For thou convenience $DECN BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/DECN
OTC Markets has determined that there is a public interest concern regarding the security. Such concerns may include but are not limited to promotion, spam or disruptive corporate actions even when adequate current information is available.
What You Should Know About Inflation
Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase as reported in the Consumer Price Index (CPI), generally prepared on a monthly basis by the U.S. Bureau of Labor Statistics. As inflation rises, purchasing power decreases, fixed-asset values are affected, companies adjust their pricing of goods and services, financial markets react and there is an impact on the composition of investment portfolios.
Tutorial: All About Inflation
Inflation, to one degree or another, is a fact of life. Consumers, businesses and investors are impacted by any upward trend in prices. In this article, well look at various elements in the investing process affected by inflation and show you what you need to be aware of.
Financial Reporting and Changing Prices
Back in the period from 1979 to 1986, the Financial Accounting Standards Board (FASB) experimented with inflation accounting, which required that companies include supplemental constant dollar and current cost accounting information (unaudited) in their annual reports. The guidelines for this approach were laid out in Statement of Financial Accounting Standards No. 33, which contended that inflation causes historical cost financial statements to show illusionary profits and mask erosion of capital.
With little fanfare or protest, SFAS No. 33 was quietly rescinded in 1986. Nevertheless, serious investors should have a reasonable understanding of how changing prices can affect financial statements, market environments and investment returns.
Corporate Financial Statements
In a balance sheet, fixed assets - property, plant and equipment - are valued at their purchase prices (historical cost), which may be significantly understated compared to the assets present day market values. Its difficult to generalize, but for some firms, this historical/current cost differential could be added to a companys assets, which would boost the companys equity position and improve its debt/equity ratio.
In terms of accounting policies, firms using the last-in, first-out (LIFO) inventory cost valuation are more closely matching costs and prices in an inflationary environment. Without going into all the accounting intricacies, LIFO understates inventory value, overstates the cost of sales, and therefore lowers reported earnings. Financial analysts tend to like the understated or conservative impact on a companys financial position and earnings that are generated by the application of LIFO valuations as opposed to other methods such as first-in, first-out (FIFO) and average cost. (To learn more, read Inventory Valuation For Investors: FIFO And LIFO.)
Watch: Monetary Inflation
Market Sentiment
Every month, the U.S. Department of Commerces Bureau of Labor Statistics reports on two key inflation indicators: the Consumer Price Index (CPI) and the Producer Price Index (PPI). These indexes are the two most important measurements of retail and wholesale inflation, respectively. They are closely watched by financial analysts and receive a lot of media attention.
The CPI and PPI releases can move markets in either direction. Investors do not seem to mind an upward movement (low or moderating inflation reported) but get very worried when the market drops (high or accelerating inflation reported). The important thing to remember about this data is that it is the trend of both indicators over an extended period of time that is more relevant to investors than any single release. Investors are advised to digest this information slowly and not to overreact to the movements of the market. (To learn more, read The Consumer Price Index: A Friend To Investors.)
Interest Rates
One of the most reported issues in the financial press is what the Federal Reserve does with interest rates. The periodic meetings of the Federal Open Market Committee (FOMC) are a major news event in the investment community. The FOMC uses the federal funds target rate as one of its principal tools for managing inflation and the pace of economic growth. If inflationary pressures are building and economic growth is accelerating, the Fed will raise the fed-funds target rate to increase the cost of borrowing and slow down the economy. If the opposite occurs, the Fed will push its target rate lower. (To learn more, read The Federal Reserve.)
All of this makes sense to economists, but the stock market is much happier with a low interest rate environment than a high one, which translates into a low to moderate inflationary outlook. A so-called Goldilocks - not too high, not too low - inflation rate provides the best of times for stock investors.
Future Purchasing Power
It is generally assumed that stocks, because companies can raise their prices for goods and services, are a better hedge against inflation than fixed-income investments. For bond investors, inflation, whatever its level, eats away at their principal and reduces future purchasing power. Inflation has been fairly tame in recent history; however, its doubtful that investors can take this circumstance for granted. It would be prudent for even the most conservative investors to maintain a reasonable level of equities in their portfolios to protect themselves against the erosive effects of inflation. (For related reading, see Curbing The Effects Of Inflation.)
Conclusion
Inflation will always be with us; its an economic fact of life. It is not intrinsically good or bad, but it certainly does impact the investing environment. Investors need to understand the impacts of inflation and structure their portfolios accordingly. One thing is clear: depending on personal circumstances, investors need to maintain a blend of equity and fixed-income investments with adequate real returns to address inflationary issues.
The objective of analysis is to forecast the direction of the future price.
For thou convenience $MINE BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/MINE
Followers
|
1493
|
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: |