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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.
Limit Orders allow investors to specify the exact price they are willing to accept for a buy or sell order. While Limit Orders are designed to offer more price protection for investors, a Limit Order may not be executed if the price of the security does not reach the price stated in the Limit Order.
Mutual Funds Vs. ETFs: Small Cap Stocks
John C. Bogle, the founder of investment management firm Vanguard, has estimated that the investment industry collectively shaves around 3% from stock returns each year. This stems primarily from the fees it charges for managing assets for individuals and institutions. Bogle has also openly questioned the value of actively managed funds over index funds. Exchange traded funds (ETFs) are another low-cost way to invest primarily in passive, indexed strategies. Not surprisingly, Vanguard was founded on low-cost index funds and has moved into ETFs, as have most other well-known firms in the industry.
Mutual Funds
The industry also likes to divide up stocks by market capitalization. Generally, active managers of large capitalization stocks have the worst track records when compared to their underlying index. An industry report from late 2011 estimated that two-thirds of large-cap mutual funds underperformed their index over the past three years. The best category was in the small-cap space, but 63% of active managers still underperformed. The only space where managers steadily beat their bogey was in the small cap international space of the market. The small-cap value category was also a relatively strong category.
Based on the above data, for the most part, investors would be well served to invest in index funds that simply look to match market returns. Standard small-cap indexes include the Russell 2000 and S
Like weather forecasting, technical analysis does not result in absolute predictions about the future.
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Closed-End Vs. Open-End Funds
Wall Street can be a complicated place. Its full of products that even some of the experts dont understand and, much like the recent events that took place at JP Morgan, sometimes complicated investments produce unexpected results. Many of the more complicated investment products are likely inappropriate for retail or part-time investors, but that doesnt mean that stocks and mutual funds are all that are available to you. Have you considered closed-end funds?
Open-End Funds
Many investment products are not one single product, but are instead a collection of individual products. Just as you wear a collection of clothing products to make up your whole wardrobe, products like mutual funds and ETFs do the same thing by investing in a collection of stocks and bonds to comprise the entire look.
There are two types of these products on the market. Open-end funds are what you know as a mutual fund . They dont have a limit as to how many shares they can issue. When an investor purchases shares in a mutual fund, more shares are created, and when somebody sells his or her shares the shares are taken out of circulation. If a large amount of shares are sold (called a redemption), the fund may have to sell some of its investments in order to pay the investor.
You cant watch an open-end fund like you watch your stocks, because they dont trade on the open market. At the end of each trading day, the funds reprice based on the amount of shares bought and sold. Their price is based on the total value of the fund or the net asset value (NAV)
Closed-End Funds
Closed-end funds look similar but theyre very different. A closed-end fund functions much more like an exchange traded fund than a mutual fund. They are launched through an IPO in order to raise money and then trade in the open market just like a stock or an ETF. They only issue a set amount of shares and, although their value is also based on the NAV, the actual price of the fund is affected by supply and demand, allowing it to trade at prices above or below its real value.
There are currently about 650 closed-end funds trading on the market, yet they are not well known by retail investors. Some funds, like BlackRock Corporate High Yield Fund VI (HYT), pay a dividend of more than 8%, making these funds an attractive choice for income investors.
But investors have to know one key fact about closed-end funds. Nearly 70% of all of these products use leverage as a way to produce more gains. Using borrowed money to invest may produce big returns, but it could also put the fund under intense pressure. Recently, Moodys downgraded the rating of many of the largest banks that included debt securities issued by 38 closed-end funds.
These downgrades will likely make it more expensive for these and other closed-end funds to borrow money in order to invest. Higher borrowing costs impact the return investors receive from these funds, making them potentially less attractive in the future.
The Bottom Line
Open-end products may represent a safer choice than closed-end funds, but the closed-end products might produce a better return, combining both dividend payments and capital appreciation. Of course, investors should always compare individual products within an asset class; some open-end funds may be more risky than some closed-end funds.
While this can be frustrating, it should be pointed out that technical analysis is more like an art than a science, somewhat like economics. Is the cup half-empty or half-full? It is in the eye of the beholder.
The OTC market provides an alternative to stock exchange listing for securities of issuers that either choose not to be listed on a U.S. stock exchange or do not meet the relevant listing requirements. The term ‘OTC security’ is a catch–all phrase for any security that is not listed on a U.S. stock exchange.
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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.
Because long-term charts (typically 1-4 years) cover a longer time frame with compressed data, price movements do not appear as extreme and there is often less noise.
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FINRA halts may be lifted when FINRA determines that the basis for the halt no longer exists or 10 days have past. After the halt ends, market participants may re-enter the stock if the piggyback qualification has not lapsed. If the piggyback qualification has lapsed then market participants may re-enter the stock if they comply with Rule 15c2-11. This rule requires the filing, with FINRA, of a new Form 211 which must include the issuer’s current financial information.
7 Investing Mistakes And How To Avoid Them
Making mistakes is part of the learning process. However, its all too often that plain old common sense separates a successful investor from a poor one. At the same time, nearly all investors, new or experienced, have fallen astray from common sense and made a mistake or two. Being perfect may be impossible, but knowing some of common investing errors can help deter you from going down the well-traveled, yet rocky, path of losses. Here are some of the most common investing mistakes.
SEE: How To Avoid Common Investing Problems
Using Too Much Margin
Margin is the use of borrowed money to purchase securities. Margin can help you make more money; however, it can also exaggerate your loses - a definite downside.
The absolute worst thing you can do as a new investor is become carried away with what seems like free money - if you use margin and your investment doesnt go your way, you end up with a large debt obligation for nothing. Ask yourself if you would buy stocks with your credit card. Of course you wouldnt. Using margin excessively is essentially the same thing (albeit likely at a lower interest rate).
Additionally, using margin requires you to monitor your positions much more closely because of the exaggerated gains and losses that accompany small movements in price. If you dont have the time or knowledge to keep a close eye on and make decisions about your positions and the positions drop, your brokerage firm will sell your stock to recover any losses you have accrued.
As a new investor, use margin sparingly, if at all. Use it only if you understand all its aspects and dangers. It can force you to sell all your positions at the bottom, the point at which you should be in the market for the big turnaround.
Buying On Unfounded Tips
We think everyone makes this mistake at one point or another in their investing career. You may hear your relatives or friends talking about a stock that they heard will get bought out, have killer earnings or soon release a groundbreaking new product. Even if these things are true, they do not necessarily mean that the stock truly is the next big thing and that you should run to the nearest phone to call your broker.
Other unfounded tips come from investment professionals on TV who often tout a specific stock as though its a must-buy, but really is nothing more than the flavor of the day. These stock tips often dont pan out and go straight down after you buy them. Remember, buying on media tips is often founded on nothing more than a speculative gamble.
Now this isnt to say that you should balk at every stock tip. If one really grabs your attention, the first thing to do is consider the source. The next thing is to do your own homework. Make sure you research, research and research so that you know what you are buying and why. Buying a tech stock with some proprietary technology should be based on whether its the right investment for you, not solely on what some mutual fund manager said on TV.
Next time youre tempted to buy a hot tip, dont do so until youve got all the facts and are comfortable with the company. Ideally, obtain a second opinion from other investors or unbiased financial advisors.
Day Trading
If you insist on becoming an active trader, think twice before day trading. Day trading is a dangerous game and should be attempted only by the most seasoned investors. In addition to investment savvy, a successful day trader needs access to special equipment that is rarely available to the average trader. Did you know that the average day-trading workstation (with software) can cost in the range of $50,000? Youll also need a similar amount of trading money to maintain an efficient day trading strategy.
The need for speed is the main reason you cant start day trading with simply the extra $5,000 in your bank account: online brokers do not have systems fast enough to service the true day trader, so quite literally the difference of pennies per share can make the difference between a profitable and losing trade. In fact, day trading is deemed such a difficult endeavor that most brokerages who offer day trading accounts require investors to take formal trading courses.
Unless you have the expertise, equipment and access to speedy order execution, think twice before day trading. If you arent particularly adept at dealing with risk and stress, there are much better options for an investor looking to build wealth.
Buying Stocks that Appear Cheap
This is a very common mistake, and those who commit it do so by comparing the current share price with the 52-week high of the stock. Many people using this gauge assume that a fallen share price represents a good buy. But the fact that a companys share price happened to be 30% higher last year will not help it earn more money this year. Thats why it pays to analyze why a stock has fallen.
Deteriorating fundamentals, a CEO resignation and increased competition are all possible reasons for the lower stock price - but they are also provide good reasons to suspect that the stock might not increase anytime soon. A company may be worth less now for fundamental reasons. It is important always to have a critical eye since a low share price might be a false buy signal.
Avoid buying stocks that simply look like a bargain. In many instances, there is a strong fundamental reason for a price decline. Do your homework and analyze a stocks outlook before you invest in it. You want to invest in companies which will experience sustained growth in the future.
Underestimating Your Abilities
Some investors tend to believe they can never excel at investing because stock market success is reserved for sophisticated investors. This perception has no truth at all. While any commission-based mutual fund salesmen will probably tell you otherwise, most professional money managers dont make the grade either - the vast majority underperform the broad market. With a little time devoted to learning and research, investors can become well equipped to control their own portfolio and investing decisions - and be profitable. Remember, much of investing is sticking to common sense and rationality.
Besides having the potential to become sufficiently skillful, individual investors do not face the liquidity challenges and overhead costs large institutional investors do. Any small investor with a sound investment strategy has just as good a chance of beating the market, if not better, than the so-called investment gurus.
Never underestimate your abilities or your own potential. That is, dont assume you are unable to successfully participate in the financial markets simply because you have a day job.
When Buying a Stock, Overlooking the Big Picture
For a long-term investor one of the most important - but often overlooked - things to do is qualitative analysis, or to look at the big picture. Fund manager and author Peter Lynch once stated that he found the best investments by looking at his childrens toys and the trends they would take on. Brand name is also very valuable. Think about how almost everyone in the world knows Coke; the financial value of the name alone is therefore measured in the billions of dollars. Whether its about iPods or Big Macs, no one can argue against real life.
So pouring over financial statements or attempting to identify buy and sell opportunities with complex technical analysis may work a great deal of the time, but if the world is changing against your company, sooner or later you will lose. After all, a typewriter company in the late 1980s could have outperformed any company in its industry, but once personal computers started to become commonplace, an investor in typewriters of that era would have done well to assess the bigger picture.
Assessing a company from a qualitative standpoint is as important as looking at the sales and earnings. Qualitative analysis is a strategy that is one of the easiest and most effective for evaluating a potential investment.
Compounding Your Losses by Averaging Down
Far too often investors fail to accept the simple fact that they are human and prone to making mistakes just as the greatest investors do. Whether you made a stock purchase in haste or one of your long-time big earners has suddenly taken a turn for the worse, the best thing you can do is accept it. The worst thing you can do is let your pride take priority over your pocketbook and hold on to a losing investment, or worse yet, buy more shares of the stock since it is much cheaper now.
Remember, a companys future operating performance has nothing to do with what price you happened to buy its shares at. Anytime there is a sharp decrease in your stocks price, try to determine the reasons for the change and assess whether the company is a good investment for the future. If not, do your pocketbook a favor and move your money into a company with better prospects.
Letting your pride get in the way of sound investment decisions is foolish and it can decimate your portfolios value in a short amount of time. Remain rational and act appropriately when you are inevitably confronted with a loss on what seemed like a rosy investment.
The Bottom Line
With the stock markets penchant for producing large gains (and losses) there is no shortage of faulty advice and irrational decisions. As an individual investor , the best thing you can do to pad your portfolio for the long term, is to implement a rational investment strategy you are comfortable with and willing to stick to. If you are looking to make a big win by betting your money on your gut feelings, try the casino. Take pride in your investment decisions and in the long run, your portfolio will grow to reflect the soundness of your actions.
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After all, the data is the same and price action is price action. When all is said and done, it is the analysis of the price action that separates successful technicians from not-so-successful technicians.
While OTC Markets Group’s products and services facilitate the reporting, clearing, and settlement process by transmitting trade data to the broker-dealers, all three functions are the responsibility of the executing broker-dealers.
Dont Let Brokerage Fees Undermine Your Returns
Like a unicorn or Shangri La, the true picture of the smart investor is sometimes hard to define. Its true that some people are lucky but, by and large, most people who are successful in the market do their homework and analyze the stocks , period. Regardless of what kind of investor you are or want to be, there is one practical lesson that can help you maximize your returns: a penny saved is a penny earned. That is why smart investors will ensure that they dont give away more money than necessary to their brokerages.
Surprising Extras
Some brokerage firms will try to find any way to get you. In the times of competitive markets and low commissions, individual investors should ask themselves how brokers make their money. Large corporations are under constant pressure to help improve the bottom line, and as a result they have introduced new types of fees for individual investors . It is important to read over your account agreement and fee summaries to make sure that none of these fees takes you by surprise. Here are some to look out for:
• Inactivity fees – These you have to pay if you dont execute enough trades on your account during a set time frame.
• Transfer fees – These fees are meant to discourage you from jumping around from broker to broker.
• Account maintenance fees – These fees are placed on certain services, and are designed to reduce customer requests that require tasks that expend the brokers resources, such as searching for historical data, maintaining records and mailing statements.
• Minimum equity requirement fees - Some brokerages charge clients who dont maintain a minimum balance, which can consist of cash and/or securities.
Although these fees are not broadcast when you first open an account, they can, after a couple months, cause significant damage to your portfolio.
For instance, by missing your minimum equity requirements you can be charged close to $20 every quarter. This sum might not seem very large, but $80 a year adds up to the equivalent of a $1,000 bond paying 8% interest. Some of these charges are easy to avoid, but you need to be aware of them. If your brokerage account balance is below the equity requirements and you are carrying balances not being used for anything in other accounts, all you have to do is transfer them over for the duration.
Not All Orders Are the Same
You may or may not be aware that most discount brokerages charge a different price for limit orders than for market orders. A market order is an order to buy or sell a stock immediately at the best available price. A limit order is an order placed with a brokerage to buy or sell at a specific price. Placing a limit order with some brokers can cost as much as $5 more than a market order . If you use a limit order, make sure the price you pay more than offsets the extra $5 you will be charged on the commission.
Discipline Is Key to Reducing Commissions
The two emotions that strongly characterize the financial markets are fear and greed. Keeping your emotions out of your portfolio could end up saving you a lot of money. Before you make hasty buy or sell decisions remember that there are commissions charged on both sides of the transaction. For example, if we assume that the commission related to an order is $15 per side, a trade that will allow us to crystallize a gain will cost $30 (one buy and one sell order).
Warren Buffett, one of the greatest investors of all time, suggests a hypothetical strategy: every investor is given a punch card with 20 slots, and, each time the investor buys a stock, a slot is punched out. Once all 20 slots are punched out, the investor is done investing for the remainder of his or her life. Using a similar guideline would help many of us not only save thousands of dollars in commission throughout our lifetime but also choose our investments much more carefully. (For more of Buffetts wisdom, read What Is Warren Buffetts Investing Style?)
Dont Forget About Potential Returns
One additional thing to remember is that money that is not working for you is money wasted. You work hard for your money, but by letting it sit in a checking account, you earn only meager interest. So spending some money on commissions is necessary to put your money work for you. If, on the other hand, you have large sums of money that is not invested, one of your options is to buy a money market fund or open a money market account with your bank. A money market account is a savings account that offers the competitive rate of interest in exchange for larger-than-normal deposits.
Conclusion
These tips might not make you $1 million dollars, but they may be necessary in your aim to maximize your investment income. By being aware of the extra fees out there, you can reduce transaction costs and increase returns on your investments.
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To initiate quotations in any OTC Equity security or resume quotations after a four day absence or SEC suspension on either the OTC Link or OTCBB inter-dealer quotation system, a market maker must first obtain and review certain specified information regarding the issuer. The information requirements are specified in the SEC's Rule 15c2-11. The information is supplied to FINRA on Form 211. When approved by FINRA, the member may submit its quotation to OTC Link or the OTCBB, as sufficient reliable current information is available in the marketplace to support the member’s quotation.
How Are Charts Formed?
We will be explaining the construction of line, bar, candlestick and point
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5 Reasons To Fear The Stock Market
Even for those who know nothing about investing, theyve heard of the stock market. Each night on the evening news telecasts, the level of the Dow Jones Industrial Average is reported. When there is a significant market move up or down, its often a front page story. This allows for the stock market to hold a kind of celebrity status in many peoples minds. However, for those looking to put some of their hard earned money to work, is the stock market a place to make money or is it a financial wolf in sheeps clothing?
1. The Market Is Rigged
If youre avoiding the stock market because youve heard that its rigged, that is debatable. When we hear stories of Bernard Madoff and the many other cases of insider trading scandals, its easy to believe that the market is made up of greedy people willing to break the law to make a few bucks - that theyre making the money by taking yours.
Barry Ritholtz is a well-known financial blogger who was interviewed by Yahoo Finance recently on this subject. He said that although insider trading certainly takes place, the bulk of the information that may be considered inside or privileged information is nothing more than rumor that is often untrue. Because of that, professional money managers conduct their own research and ignore the rumors. Ritholtz goes on to say that where the individual investor is at a disadvantage is that they lack the tools or manpower to sift through the huge volume of information publicly available. The market certainly has people who are breaking the law, but the pros are just as vulnerable as the little players. (Many would-be, first-time investors in the stock market do not believe it is a fair playing field. Check out Is The Stock Market Rigged?)
2. Computers Run the Show
This is true. Current statistics show that computers are responsible for 70% of all trading volume in the world markets. Millions of stock trades are taking place each second and those computers arent evaluating stocks using the typical screening criteria that is publicly available to the average investor. Proprietary computer programs are often not even fully understood by the people using them. While the retail investor might be evaluating the quality of the management at the company, a computer may be evaluating the mathematics of the price history of the stock.
If computers are controlling 70% of the price action of the stock, how is an individual supposed to forecast the direction of a stock? The modern part-time investor may be best served by long term investing that allows for the characteristics of the company to play more heavily in to the equation.
3. Its too Tough for the Average Investor
This may be cause for fear unless you ask former hedge fund manager and CNBC commentator Jim Cramer. As stated in his book, Real Money, Cramer believes that the retail or part time investor can make money in the stock market by following a set of rules. Among them, conducting at least one hour per week of research for every stock owned. Of his 25 investing rules, others include diversifying your portfolio and buying stocks that are undervalued but not purchasing stocks of damaged companies.
His contention is that many retail investors lose money not because the stock market is too difficult but because part-time investors dont have the time or may not be willing to put in the time needed to make informed decisions in a complicated market.
4. The Economy Is Bad
One of the real reasons to fear the stock market could very well be the economy. The Federal Reserve reports that for every 20% drop in the stock market, gross domestic product is reduced by 1.25% after one year. However, as any seasoned investor knows, the stock market rarely represents in real time the state of the current economy. When the economy is questionable, the stock market tends to be the same way. Investors may see a quick rise in prices presenting a false sense of security only to see it violently drop in value in a short time.
Which penny stocks will rise? Well tell you, free!
A struggling economy is definitely cause for fear of the stock market, and some would recommend new investors wait until some stability in the market and the overall economy is seen. The problem is that finding stability in the stock market may take a long time.
5. It Has Gone Up Fast
Since the 2009 lows, the stock market has risen more than 70%. For many, thats a recipe for disaster. If anything is a cause for fear, this may be it. On one hand, markets that move up fast tend to fall fast - with a market that has been in bull mode for the past year, that should scare any investor.
Others will argue that the market is up drastically because the Great Recession caused it to drop just as violently, which makes the recent uptrend a move towards fair value. So which of these opposing views does the part time retail investor believe? Do they have enough experience and expertise to make an informed choice? Unfortunately, there is no easy answer. (For additional reading, see The Rise And Fall Of The Shadow Banking System.)
The Bottom Line
When investing, the stock market is definitely cause for concern but sometimes a little bit of fear is healthy. Avoiding putting your money to work because of fear probably isnt the best course of action either. If you dont feel that you have the necessary knowledge, get help. Find an independent, fee based financial advisor in your area to help you make a reasonable return while teaching you about the ins and outs of the market.
1Fundamental Analysis
What is Fundamental Analysis?
Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies.
Indicates companies that are not able or willing to provide disclosure to the public markets - either to a regulator, an exchange or OTC Markets Group. Companies in this category do not make Current Information available via OTC Markets Group's 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. Publicly traded companies that are not willing to provide information to investors should be treated with suspicion and their securities should be considered highly risky.
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A growth strategy might involve the purchase of technology, biotech, semiconductor and cyclical stocks. If the economy is forecast to contract, an investor may opt for a more conservative strategy and seek out stable income-oriented companies.
6 Common Misconceptions About Dividends
During periods of low yields and market volatility, more than a few experts recommend dividend stocks and funds. This may sound like good advice, but unfortunately, it is often based on misconceptions and anecdotal evidence.
It is time to take a closer look at the six most common reasons why advisors and other experts recommend dividends and why, based on these reasons, such recommendations are often unsound advice.
Misconception No. 1: Dividends are a good income-producing alternative when money market yields are low.
Taking cash and buying dividend stocks isnt consistent with being a conservative investor, regardless of what money markets are yielding. Additionally, there is no evidence that money market yields signal the right time to invest in dividend-focused mutual funds. In fact,money market yields were anemic throughout 2009, a year that is also one of the worst periods for dividend-focused funds in history.
Many advisors also call dividends a good complement to other investments during times of high volatility and low bank yields. In an October 22, 2009 article, financial guru Suze Orman recommended the following dividend funds: iShares Dow Jones Select Dividend Index (NYSE:DVY), WisdomTree Total Dividend (NYSE:DTD)
Designed for companies with financial reporting problems, economic distress, or in bankruptcy to make the limited information they have publicly available. The Limited Information category also includes companies that may not be troubled, but are unwilling to provide disclosure pursuant to to OTC Pink Basic Disclosure Guidelines. Companies in this category have limited financial information not older than six months available on the OTC Disclosure
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There are many thinly-traded OTC securities which are not traded every day by broker-dealers.
After we have explored this area, we will then take a closer look at the random walk theory, fundamental analysis and technical analysis.
5 Reasons To Avoid Index Funds
Modern portfolio theory suggests that markets are efficient , and that a securitys price includes all available information. The suggestion is that active management of a portfolio is useless, and investors would be better off buying an index and letting it ride. However, stock prices do not always seem rational, and there is also ample evidence going against efficient markets. So, although many people say that index investing is the way to go, well look at some reasons why it isnt always the best choice. (For background reading, see our Index Investing Tutorial and Modern Portfolio Theory: An Overview.)
1. Lack of Downside Protection
The stock market has proved to be a great investment in the long run, but over the years it has had its fair share of bumps and bruises. Investing in an index fund , such as one that tracks the S
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In order to qualify for the OTCQB marketplace, SEC Reporting companies must be current in required SEC filings. During the time it is labeled Caveat Emptor, any stock that is not in OTC Pink Current Information or OTCQB will also have its quotes blocked.
The objective of analysis is to forecast the direction of the future price.
Market Capitalization Defined
You often hear companies or different mutual funds being categorized as small cap, mid cap or large cap. But what do these terms really mean? The cap part of these terms is short for capitalization, which is a measure by which we can classify a companys size. Although the criteria for the different classifications are not strictly bound, it is important for investors to understand these terms, which are not only ubiquitous but also useful for gauging a companys size and riskiness.
Calculating Market Cap
Market capitalization is just a fancy name for a straightforward concept: it is the market value of a companys outstanding shares. This figure is found by taking the stock price and multiplying it by the total number of shares outstanding. For example, if Corys Tequila Corporation (CTC) was trading at $20 per share and had a million shares outstanding, then the market capitalization would be $20 million ($20 x 1 million shares). Its that simple.
Why Its Important
A common misconception is that the higher the stock price , the larger the company. Stock price, however, may misrepresent a companys actual worth. If we look at two fairly large companies, IBM (NYSE:IBM) and Microsoft (Nasdaq:MSFT), we see that at as of March 18, 2009stock prices were $91.75 and $16.75 respectively. Although IBMs stock price is higher, it has about 1.34 billion shares outstanding, while MSFT has 8.89 billion. As a result of this difference, we can see that MSFTs market cap of $148.91 billion is actually larger than IBMs $122.95 billion. If we compared the two companies by solely looking at their stock prices, we would not be comparing their true values, which are affected by the number of outstanding shares each company has.
The classification of companies into different caps also allows investors to gauge the growth versus risk potential. Historically, large caps have experienced slower growth with lower risk. Meanwhile, small caps have experienced higher growth potential, but with higher risk.
Different Types of Capitalization
While there isnt one set framework for defining the different market caps , here are the widely published standards for each capitalization:
• Mega cap - This group includes companies that have a market cap of $200 billion and greater. They are the largest publicly traded companies such as Exxon (NYSE:XOM). Not many companies will fit in this category, and those that do are typically the leaders of their industries.
• Big/large cap - These companies have a market cap between $10 billion to $200 billion. Many well-known companies fall into this category, including companies like Microsoft, Wal-Mart (NYSE:WMT) and General Electric (NYSE:GE), and IBM. Typically, large-cap stocks are considered to be relatively stable and secure. Both mega and large cap stocks are often referred to as blue chips.
• Mid cap - Ranging from $2 billion to $10 billion, this group of companies is considered to be more volatile than the large- and mega-cap companies. Growth stocks represent a significant portion of the mid caps. Some of the companies might not be industry leaders, but they are well on their way to becoming one.
• Small cap - Typically new or relatively young companies, small caps have a market cap between $300 million to $2 billion. Although their track records wont be as lengthy as those of the mid to mega caps, small caps do present the possibility of greater capital appreciation - but at the cost of greater risk.
• Micro cap - Mainly consisting of penny stocks, this category denotes market capitalizations between $50 million to $300 million fall into this category. The upward potential of these companies is similar to the downside potential, so they do not offer the safest investment, and a great deal of research should be done before entering into such a position.
• Nano cap - Companies having market caps below $50 million are nano caps. These companies are the most risky, and the potential for gain is often relatively small. These stocks typically trade on the pink sheets or OTCBB
Remember, these ranges are not set in stone, and they are known to fluctuate depending on how the market as a whole is performing.
Conclusion
Understanding the market cap is not just important if youre investing directly in stocks. It is also useful for mutual fund investors, as many funds will list the average or median market capitalization of its holdings. As the name suggests, this gives the middle ground of the funds equity investments, letting investors know if the fund primarily invests in large-, mid- or small-cap stocks.
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No Information - Companies that are not able or willing to provide disclosure to the public markets - either to a regulator, an exchange or OTC Markets.
This information will likely include annual reports, SEC filings, earnings reports, announcements and other relevant information that can be readily gathered.
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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The OTC market and broker-dealers’ activities in the market are regulated by The Financial Industry Regulatory Authority (FINRA), the U.S. Securities and Exchange Commission (SEC) and various state securities regulators. As well, companies with SEC-registered securities are regulated by the SEC. OTC Markets Group is neither a stock exchange nor a self-regulatory organization (SRO).
Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying.
Getting Into The Gold Market
From ancient civilizations through the modern era, gold has been the worlds currency of choice. Today, investors buy gold mainly as a hedge against political unrest and inflation. In addition, many top investment advisors recommend a portfolio allocation in commodities, including gold, in order to lower overall portfolio risk.
Well cover many of the opportunities for investing in gold, including bullion (i.e. gold bars), mutual funds, futures, mining companies and jewelry. With few exceptions, only bullion, futures and a handful of specialty funds provide a direct investment opportunity in gold. Other investments gain part of their value from other sources. (For background reading, see Does It Still Pay To Invest In Gold?)
Gold Bullion
This is perhaps the best-known form of direct gold ownership. Many people think of gold bullion as the large gold bars held at Fort Knox. Actually, gold bullion is any form of pure, or nearly pure, gold that has been certified for its weight and purity. This includes coins, bars, etc., of any size. A serial number is commonly attached to gold bars as well, for security purposes.
While heavy gold bars are an impressive sight, their large size (up to 400 troy ounces) makes them illiquid, and therefore costly to buy and sell. After all, if you own one large gold bar worth $100,000 as your entire holding in gold and then decide to sell 10%, you cant exactly saw off the end of the bar and sell it. On the other hand, bullion held in smaller-sized bars and coins have much more liquidity, and is a very common method of holding bullion.
Gold Coins
For decades, large quantities of gold coins have been issued by sovereign governments around the world. For investors, coins are commonly bought from private dealers at a premium of about 1-5% above their underlying gold value.
The advantages of bullion coins are:
• Their prices are conveniently available in global financial publications.
• Gold coins are often minted in smaller sizes (one ounce or less), making them a more convenient way to invest in gold than the larger bars.
• Reputable dealers can be found with minimal searching and are located in many large cities.
Caution: Older, rare gold coins have what is known as numismatic or collectors value above and beyond the underlying value of the gold. To invest strictly in gold, focus on widely circulated coins and leave the rare coins to collectors.
Some of the widely circulated gold coins include the South African krugerrand, the U.S. eagle and the Canadian maple leaf.
The main problems with gold bullion are that the storage and insurance costs, and the relatively large markup from the dealer both hinder profit potential. Also, investing in gold bullion is a direct investment in golds value, and each dollar change in the price of gold will proportionally change the value of ones holdings. Other gold investments, such as mutual funds, may be made in smaller dollar amounts than bullion, and also may not have as much direct price exposure as bullion does.
Gold ETFs and Mutual Funds
One alternative to a direct investment in gold bullion is to invest in one of the gold-based exchange-traded funds (ETFs). Each share of these specialized instruments represents a fixed amount of gold, such as one-tenth of an ounce. These funds may be purchased or sold in any brokerageor IRA account just like stocks. This method is therefore easier and more cost effective than owning bars or coins directly, especially for small investors, as the minimum investment is only the price of a single share of the ETF. The annual expense ratios of these funds are often less than 0.5%, much less than the fees and expenses on many other investments, including most mutual funds.
Many mutual funds own gold bullion and gold companies as part of their normal portfolios, but investors should be aware that only a few mutual funds focus solely on gold investing; most own a number of other commodities. The major advantages of the gold-only oriented mutual funds are:
• Low cost and low minimum investment required
• Diversification among different companies
• Ease of ownership in a brokerage account or an IRA
• Require no individual company research
Some funds invest in the indexes of mining companies, others are tied directly to gold prices, while still others are actively managed. Read their prospectuses for more information. Traditional mutual funds tend to be actively managed, while ETFs adhere to a passive index-tracking strategy, and therefore have lower expense ratios. For the average gold investor, however, mutual funds and ETFs are now generally the easiest and safest way to invest in gold.
Gold Futures and Options
Futures are contracts to buy or sell a given amount of an item, in this case gold, on a particular date in the future. Futures are traded in contracts, not shares, and represent a predetermined amount of gold. As this amount can be large (for example, 100 troy ounces x $1,000/ounce = $100,000), futures are more suitable for experienced investors. People often use futures because the commissions are very low, and the margin requirements are much lower than in traditional equity investments. Some contracts settle in dollars while others settle in gold, so investors must pay attention to the contract specifications to avoid having to take delivery of 100 ounces of gold on the settlement date. (For more on this, read Trading Gold And Silver Futures Contracts.)
Options on futures are an alternative to buying a futures contract outright. These give the owner of the option the right to buy the futures contract within a certain time frame at a preset price. One benefit of an option is it both leverages your original investment and limits losses to the price paid. A futures contract bought on margin can require more capital than originally invested if losses mount quickly. Unlike with a futures investment, which is based on the current value of gold, the downside to options is that the investor must pay a premium to the underlying value of the gold to own the option. Because of the volatile nature of futures and options, they may be unsuitable for many investors. Even so, futures remain the cheapest (commissions interest expense) way to buy or sell gold when investing large sums.
Gold Mining Companies
Companies that specialize in mining and refining will also profit from a rising gold price. Investing in these types of companies can be an effective way to profit from gold, and can also carry lower risk than other investment methods.
The largest gold mining companies operate extensive global operations; therefore, business factors common to many other large companies influence their investment success. As a result, these companies can still show profit in times of flat or declining gold prices. One way they do this is by hedging against a fall in gold prices as a normal part of their business. Some do this and some dont. Even so, gold mining companies may provide a safer way to invest in gold than through direct ownership of bullion. However, the research and selection of individual companies requiresdue diligence on the investors part. As this is a time consuming endeavor, it may not be feasible for many investors.
Gold Jewelry
Most of the global gold production is used to make jewelry. With global population and wealth growing annually, demand for gold used in jewelry production should increase over time as well. On the other hand, gold jewelry buyers are shown to be somewhat price sensitive, buying less if the price rises swiftly.
Buying jewelry at retail prices involves a substantial markup – up to 400% over the underlying gold value. Better jewelry bargains may be found at estate sales and auctions. The advantage of buying jewelry this way is that there is no retail markup; the disadvantage is the time spent searching for valuable pieces. Nonetheless, jewelry ownership provides the most enjoyable way to own gold, even if it is not the most profitable from an investment standpoint. As an art form, gold jewelry is beautiful. As an investment, it is mediocre - unless you are the jeweler.
Conclusion
Larger investors, who wish to have direct exposure to the price of gold, may prefer to invest in gold directly through bullion. There is also a level of comfort found in owning a physical asset instead of simply a piece of paper. The downside is the slight premium to the value of gold paid on the initial purchase, as well as the storage costs.
For investors who are a bit more aggressive, futures and options will certainly do the trick. But, buyers should beware: these investments are derivatives of golds price and can see sharp moves up and down, especially when done on margin. On the other hand, futures are probably the most efficient way to invest in gold, except for the fact that contracts must be rolled over periodically as they expire.
The idea that jewelry is an investment is quaint, but naive. There is too much of a spread between the price of most jewelry and its gold value for it to be considered a true investment. Instead, the average gold investor should consider gold oriented mutual funds and ETFs, as these securities generally provide the easiest and safest way to invest in gold.
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The margin account agreement generally provides that the securities in your margin account may be lent out by the brokerage firm at any time without notice or compensation to you. The firm's lending of securities does not affect the value of your account.
For instance: A sell signal is given when the neckline of a head and shoulders pattern is broken. Even though this is a rule, it is not steadfast and can be subject to other factors such as volume and momentum.
Profiting In A Post-Recession Economy
People will always question what the future economy will look like after it suffers a recession. Though there are different implications with each recession - owing to its causes and the governmental and financial changes that are brought about - the economy will definitely shift and there will emerge new economic practices and trends for industries, consumers and investors.
Following the depths of the 2007-2009 recession theres a new world characterized by:
• Non-existent consumer discretionary spending
• Tighter credit and borrowing standards
• Reduced home ownership
• Increased consumer savings
The above effects will serve to:
• Hold down corporate profit growth
• Restrict employment growth
• Likely reduce future expected market returns
Despite the above, investors have options and opportunities as long as they keep their expectations in line with the expected future outcome. Some wonderful investment opportunities exist for investors in all stages of life.
Industries to Look For
When it comes to investing in the economy defined by the characteristics above, one question should dominate your investment consideration: Does this company make an essential or non-essential product?
When times are tough, people respond with their wallets. Unless folks are given great incentives, they wont buy unless they have to. In that kind of environment, I would favor food companies to retailers, healthcare providers to homebuilders, and defense contractors to automakers. Things like food, medicine and national security are musts in this world. An extra purse or a new car or bigger homes are not. And heres the best part: most of the companies that provide these necessary goods will continue to be around for a long time. (These type of companies are normally grouped in a sector called consumer staples – to learn more see A Guide To Consumer Staples.)
When economies are sour, the stock market tends to punish all companies regardless of what line of business they are in. In other words, a business like a Kraft or Johnson and Johnson that sell essential food and health products all over the world may likely see its shares suffer along with other discretionary businesses like retailers. And you can be comforted by the fact that even in tough times, people still need to buy food and Tylenol. Looking for these types of companies will likely earn you market-beating returns during the several years following a recession, despite an overall sluggish economy.
Despite the temptation, avoid retailers and other companies that make non-discretionary consumer goods. Such companies will likely experience reduced profit margins as they are forced to mark down their products to entice consumers.
Importance of Commodities
Commodities are the most fundamental of human essentials. Things like wheat, corn, oil, zinc, copper and coal. While you might not physically buy some of these commodities, you cant go through a normal day without them. Every time you turn on a light switch or power up your stove, the electricity used is provided by coal or natural gas. Grains are the basic building blocks for all the foods we eat. Oil, besides being refined into gasoline, goes in things like plastic, carpets, soaps and detergents.
Besides being essentials, commodities also have inflationary pricing power. If the government prints massive amounts of money to combat the recession, inflation will likely happen. It might not happen immediately afterwards, but it will rear its ugly head. Commodities, for those reasons are a good place to be.
Fertilizer companies are also great considerations. Fertilizer is the necessary ingredient to boost crop yield - that is, producing more food from the same amount of land. As the global population grows, so will the need to maximize food production. When looking at commodity plays, focus on the larger businesses with the quality assets such as the large integrated oil companies. We will always need oil and the biggest companies have the deepest pocket book to continue providing us with the black gold during various pricing environments. Otherwise look for those companies that are the low cost producers.
International Investment Exposure
To illustrate why investors should also consider diversifying internationally we can take a look at the 2007-2009 recession. Although this was a global economic recession, it didnt affect every country equally. According to J.D. Power Asia-Pacific, as of 2009, it was estimated that there were 820 cars for every 1,000 people in the US. In China, the figure was 34 cars per 1,000. Numbers like this illustrate the potential in countries like China, Brazil and India.
Major international commodity companies are now almost certain to have exposure to the growth in China. Such businesses enable investors to get the exposure without having to invest directly in China. The growth engines for companies like Johnson and Johnson is the fact that billions of people outside the U.S. will need its products.
Conclusion
As long as investors are aware of the likely economic shifts that lie before them in a post-recession environment, the opportunity to make excellent investments is there.
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