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A Guide To Investor Fees
Fees are one of the most important determinants of investment performance and something that every investor should focus upon. This article will show why fees are so important, list some of the typical fees investors can expect to pay, and focus on some investment types that generally carry high (and low) fees. (Discover how investment strategies and expense ratios impact your mutual funds returns. Check out Stop Paying High Mutual Fund Fees.) TUTORIAL: Choosing Quality Mutual Funds Why Fees Matter
It is easy for investors to forget about fees when focusing upon other important subjects such as asset allocation or security selection. However, in addition to the overall market movements and an individuals stock picking abilities, the level of fees that investors pay is one of the most important determinants of investor performance.
The following example might astonish you. The numbers below assume that you contribute $3,000 to your retirement account in year one. Each year, as your salary increases, you increase your contribution by $250. So in year two, you contribute $3,250, in year three you contribute $3,500, and in year four you contribute $3,750. You then continue to gradually increase your contributions for the remainder of your career (30 years) and earn an 8% annualized return on your diversified portfolio. Although you earn 8% gross returns, your net return will be reduced by the amount of fees you pay. The higher the fees, the lower the return you actually receive.
The only difference in the investment programs in the chart below is the level of fees - everything else is identical. Look at the difference in the amount that you end up with at retirement, depending upon how much you pay in fees each year. The numbers are nothing short of staggering.
Gross
Return Fees Net
Return Account
Value
Without Fees Account
Value
With Fees Amount
Lost
Due To Fees
8.00% 0.50% 7.50% $648,118.44 $596,477.60 ($51,640.84)
8.00% 0.75% 7.25% $648,118.44 $572,454.51 ($75,663.93)
8.00% 1.00% 7.00% $648,118.44 $549,551.41 ($98,567.03)
8.00% 1.50% 6.50% $648,118.44 $506,887.81 ($141,230.63)
8.00% 2.00% 6.00% $648,118.44 $468,078.69 ($180,039.75)
Source: From Piggybank to Portfolio
A common retirement goal is to be able to withdraw between 3-5% of an investment portfolio each year during retirement. In the scenario above, if two individuals had invested throughout their careers in a similar manner, but one person had paid 0.50% in fees and the other had paid 2.00%, the difference in their annual income during retirement would be more than $5,000 each year. That means that one person would have $420 less each month on which to live, just because they had paid excessive fees on their investment portfolio during their working years. (If you are investing small amounts regularly into an exchange-traded fund, be sure to do it right. See Dollar-Cost Averaging With ETFs.)
Sample Fees
Hopefully, the above example has convinced you of the importance of fees. While it is not always necessary to aim for the lowest possible fees in a portfolio, it is generally a good idea to select investments and investment providers that fall in the range of those available. With that in mind, the matrix below demonstrates some typical fees. (Note: the fees in the matrix below are indicative and are intended to serve as a starting point for further research and analysis.)
Online Brokers Stock Trade ($) Option Trade ($)
Brokerage 1 8.95 8.95 0.75 per contract
Brokerage 2 7.99-9.99 7.99-9.99 0.75 per contract
Brokerage 3 7.95 7.95 0.75 per contract
Brokerage 4 9.99 9.99 0.75 per contract
Brokerage 5 7.00 7.00 1.25 per contract
ETFs Issuer X Issuer Y
S
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At this point though, we are still unsure if a large trading range will develop. The subsequent low in December, which was just higher than the October low, offers evidence that a trading range is forming, and we are ready to set the support zone.
Why You Should Be Wary Of Target-Date Funds
Its the in thing now; everybodys doing it, so why wouldnt you? Heres how the story repeatedly plays out, especially for those who recently opened a new 401(k) or 403(b) account. The benefits manager of your company sent you a big stack of documents and told you to complete the application. You thumbed through everything, skimming the microscopic print in these pamphlets called prospectuses, and found yourself completely overwhelmed.
Luckily, as you were completing the application, you noticed that you could either pick your own investment options or choose the ready-made option that placed all of your retirement funds into a target-date fund. You didnt know what it was, but you didnt know how to pick your investment options anyway, so into this target-date fund is where your money has gone.
What Is a Target-Date Fund?
The concept is very simple. A target-date fund adjusts the assets in the fund to line up with your retirement timeline. If youre planning to retire in 15 years, you might pick a target-date fund of 2025 or 2030. The fund manager will adjust the holdings and when you near retirement age, that fund will hold a lot of bonds, instead of the more risky stocks.
You dont have to worry about adjusting your investment portfolio because the fund does it for you. If you dont have the time or desire to learn how to manage your retirement portfolio, these target-date funds might be a great idea.
As your grandparents might have said, if its too good to be true, it probably isnt and that might be the case with target-date funds.
The Whole You
First, you are more than a date. Knowing that you plan to retire in 2025 or 2030 isnt enough information to assemble your retirement portfolio; imagine a doctor asking nothing more than your age. Your investment portfolio should be crafted around your tolerance for risk, the other assets you own, your family situation, social security and more. A target-date fund doesnt take any of that into account, because its designed for a large amount instead of you, personally.
They Might Cost a Lot
According to Consumer Reports, the median expense ratio of target-date funds is 0.68%, compared to 0.71% for stock funds. That isnt bad if your plan offers a target-date fund around the median, but the median expense ratio of index funds, a fund that tracks the performance of a certain investment index, is only 0.5% and you can find index funds for as low as 0.1%.
In general, actively managed funds, funds that have a team of people picking stocks and bonds in an attempt to beat the overall market, will cost more, but over the long term they dont perform any better than an index fund that is cheaper.
Theyre Hard to Understand
Target-date funds are like a brand new car . They look good on the outside but theyre hard to figure out when you open the hood. A recent SEC study found that many people believed that a target-date fund guarantees an income stream at retirement much like an annuity or a pension.
Others believed that once the fund reached the target-date, no more allocation changes in the fund were made. Both of these facts are untrue but this, along with the fact that a 2025 fund may vary greatly between companies, makes these funds dangerous for investors to take at face value.
The Bottom Line
Regardless of what you read today or in the future, there is no one investment product that will address all of your investing needs. A combination of products that may include a target-date fund is the best way to insure your retirement needs are met. Diversification will likely always be the best way to protect and grow your portfolio.
Once a broker-dealer receives an order, they often go through the following steps/decisions as part of the trading process.
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When this happens, the analyst basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong.
Whisper Numbers: Should You Listen?
During earnings season - the time when companies publicly report their results from the last quarter - many whisper numbers can be heard floating around Wall Street and on the Internet. It can be a period of extreme stock market volatility; the companies that dont meet earnings estimates are usually hammered hard, and experience a decline in share price. However, even companies that meet earnings estimates can suffer if they dont match the seemingly mysterious whisper number. What are whisper numbers? Where do they come from? Well attempt to demystify the whisper number, and evaluate its importance to you as an individual investor. (To learn more, see 5 Tricks Companies Use During Earnings Season.)
Earnings Estimates
When a company releases its earnings, any increase or decrease in its profitability is secondary to how well the company fared compared to investor expectations. This is because a stocks price almost always takes into account all future information. In other words, how well (or poorly) a company is expected to do is already built into a stocks price. For example, the market will punish a company that is expected to grow earnings by 20% if actual earnings only increase by 15%. Conversely, a company thats expected to grow 10% but expands 12% will be rewarded. This phenomenon occurs because future earnings are the driving force behind share price valuations. An unexpected earnings surprise for a companys current quarter will very likely have far-reaching effects on earnings forecasts for many years to come, and can significantly change how investors calculate the present value of the companys shares. (For further reading, see Getting The Real Earnings and How To Evaluate The Quality Of EPS.)
It is not surprising, then, that most analysts spend the majority of their time trying to make an exact prediction of a companys future earnings, called forward earnings. Surprising or disappointing Wall Street estimates by even a few cents can have a dramatic effect on a stock. If a large brokerage firm can make a prediction that is even one cent more accurate than that of its competitors, it stands to earn a lot of extra money.
Taking things one step farther, there are companies out there that do nothing but sell earnings estimates to institutional investors. Their job is to contact as many brokerage firms as possible and get quarterly earnings predictions from each firms analysts. The estimates that you see in the newspaper, online or on TV are usually compiled by these firms, and are often reported as an average, or what is called a consensus estimate. Often, when you read the consensus estimate you will see that the highest and lowest estimate values are also reported - this can give you a sense of the variance of analysts estimations. Large proportional differences between the high and low estimates generally indicate greater uncertainty about a given earnings report. (To read more about earnings estimates, see Earnings Guidance: The Good, The Bad And Good Riddance?)
The Whisper Number
Even after plenty of research, however, consensus earnings estimates often still arent that accurate. An explanation might be that there just arent that many analysts covering the entire market. Large caps often have dozens of analysts, but there are plenty of mid-caps and small-caps who dont have any analyst coverage! On top of that, as news of the earnings estimate spreads, the game then turns to trying to predict what the discrepancy will be between the actual earnings and the estimates. (To learn more, see What Mutual Fund Market Cap Suits Your Style?)
This is where the whisper number comes into play. While the consensus estimate tends to be widely available, whispers are the unofficial and unpublished earnings per share (EPS) forecasts. In the past, these came from professionals on Wall Street and were meant for the wealthy clients of top brokerages. However, post Sarbanes-Oxley, the definition of whisper numbers has changed. You see, with all the regulations on Wall Street, you wont find analysts providing favorite clients with insider earnings data - the risk of getting in trouble with the SEC is just too great. (To learn more about the SEC, read Policing The Securities Market: An Overview Of The SEC.)
While over the past few years it has become more difficult (if not impossible) to get whispers from insiders on the street, a new type of whisper has emerged in which the expectations of investors as a whole (based on shared information, fundamental research and past earnings performance) create a sense of what to expect from a company, which spreads much like insider information.
In other words, the whisper now is the expectation from individual investors. The whisper is still unofficial, if you consider the consensus estimate to be the official number, but the difference is that it comes from individuals, not from professionals. The source has also changed from your broker, to websites that put the whisper together.
The most obvious concerns here are manipulation of this consensus by investors who have a vested interest in promoting (or trashing) a stock.
Should You Follow the Whisper?
While the quality of the source of a whisper number is certainly important, whether or not you should take heed of a whisper mostly depends on what type of investor you are. For a long-term (buy-and-hold) investor, the price action around earnings season will, over time, be merely a small blip, making the whisper number a relatively trivial statistic.
However if you are a more active investor who is looking to profit from share price changes during earnings season, a whisper can be a much more valuable tool. Differences between actual earnings results and consensus estimates can have a significant effect on a stocks price. Whisper numbers can be useful when they differ (and of course, are more accurate) than the consensus forecast. For example, a lower whisper can provide a signal to get out of a stock you own before earnings come out. Also, whisper numbers certainly have a use when it comes to the large number of stocks that arent covered by any analysts. If you are analyzing a stock with little coverage, a whisper number at least provides some insight into the upcoming financials.
There certainly is an ethical issue with what we referred to as the older type of whisper number. Lets assume that there are analysts breaking federal laws and providing you (or a website) with non-public information. Do you really want to take the chance with illegal data? While all investors are continually looking for a leg-up on the competition, insider trading laws are serious business - just ask Martha Stewart. (To learn more, see Should Insider Trading Be Legal?)
Conclusion
Whisper numbers used to be the unpublished EPS forecasts circulating around Wall Street, now they are more likely to represent the collective expectations of individual investors. For more active investors, an accurate whisper number can be extremely valuable over the short term. The extent to which this is important to you depends on your investing style. While whisper numbers arent a guaranteed way to make money (nothing is), they are another tool that serious investors should consider.
The firm has the authority to immediately sell any security in your account, without notice to you, to cover any shortfall resulting from a decline in the value of your securities. You may owe a substantial amount of money even after your securities are sold.
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Business Plan
The business plan, model or concept forms the bedrock upon which all else is built. If the plan, model or concepts stink, there is little hope for the business. For a new business, the questions may be these: Does its business make sense? Is it feasible? Is there a market?
Callable CDs: Check The Fine Print
If youre looking for bigger yields with limited risk, callable certificates of deposit (CD ) might be right for you. They promise higher returns than regular CDs and are FDIC insured. However, there are a few things in the fine print that you should be aware of before you turn your money over to the bank or brokerage firm, otherwise, you could end up very disappointed.
Just like a regular CD, a callable CD is a certificate of deposit that pays a fixed interest rate over its lifetime. The feature that differentiates a callable CD from a traditional CD is that the issuer owns a call option on the CD and can redeem, or call, your CD from you for the full amount before it matures. In this article, we will provide you with some important terms to watch for in the fine print of your callable CDs , should you decide to invest.
Important Terms
Callable CDs are similar in many ways to callable bonds.
Callable Date
This is the date that the issuer can call your certificate of deposit . Lets say, for example, that the call date is six months. This means that six months after you buy the CD, the bank can decide whether it wants to take back your CD and return your money with interest. Every six months after the call date, the bank will have that same option again. Well get to why the bank would want to call back the certificate shortly.
Maturity Date
The maturity date is how long the issuer can keep your money. The farther in the future the maturity date, the higher the interest rate you should expect to receive. Make sure you dont confuse maturity date with the call date. For instance, a two-year callable CD does not necessarily mature in two years. The two years refers to the period of time you have before the bank can call the CD away from you. The actual amount of time you must commit your money could be much longer. Its common to find callable CDs with maturities in the range of 15 to 20 years.
To Call, or Not to Call
A change in prevailing interest rates is the main reason the bank or brokerage firm will recall your CD on the callable date. Basically, the bank will ask itself if its getting the best deal possible based on the current interest rate environment. (To learn how interest rate changes affect other investments , see How Interest Rates Affect The Stock Market and Its In Your Interest.)
Interest Rates Decline
If interest rates fall, the issuer might be able to borrow money for less than its paying you. This means the bank will likely call back the CD and force you to find a new vehicle to invest your money in.
Example - Callable CD When Rates Decline
Suppose you have a $10,000 one-year callable CD that pays 5% with a five-year maturity. As the one-year call date approaches, prevailing interest rates drop to 4%. The bank has therefore dropped its rates too, and is only paying 4% on its newly issued one-year callable CDs.
Why should I pay you 5%, when I can borrow the same $10,000 for 4%?, your banker is going ask. Heres your principal back plus any interest we owe you. Thank you very much for your business.
The good news is that you got a higher CD rate for one year. But what do you do with the $10,000 now? Youve run into the problem of reinvestment risk.
Perhaps you were counting on the $500 per year interest ($10,000 x 5% = $500) to help pay for your annual vacation. Now youre stuck with just $400 ($10,000 x 4% = $400) if you buy another one-year callable CD. Your other choice is to try to find a place to put your money that pays 5% such as by purchasing a corporate bond - but that might involve more risk than you wanted for this $10,000 . (For more on the risks of these bonds, see Corporate Bonds: An Introduction To Credit Risk.)
Interest Rates Rise
If prevailing interest rates increase, your bank probably wont call your CD. Why would it? It would cost more to borrow elsewhere.
Example - Callable CD When Rates Rise
Lets look at your $10,000 one-year callable CD again. Its paying you 5%. This time, assume that prevailing rates have jumped to 6% by the time the callable date hits. Youll continue to get your $500 per year, even though newly issued callable CDs earn more. But what if youd like to get your money out and reinvest at the new, higher rates?
Sorry, your banker says, only we can decide if youll get your money early.
Unlike the bank, you cant call the CD and get your principal back - at least not without penalties called early surrender charges. As a result, youre stuck with the lower rate. If rates continue to climb while you own the callable CD, the bank will probably keep your money until the CD matures.
What to Watch For
Whos Selling
Anyone can be a deposit broker to sell CDs. There are no licensing or certification requirements. This means you should always check with your states securities regulator to see whether your broker or your brokers company has any history of complaints or fraud.
Early Withdrawal
If you want to get your money before the maturity date, there is a possibility youll run into surrender charges. These fees cover the maintenance costs of the CD and are put in place to discourage you from trying to withdraw your money early. You wont always have to pay these fees; if you have held the certificate for a long enough period of time these fees will often be waived.
Check the Issuer
Each bank or thrift institution depositor is limited to $100,000 in FDIC insurance. There is a potential problem if your broker invests your CD money with an institution where you have other FDIC insured accounts. If the total is more than $100,000, you run the risk of exceeding your FDIC coverage. (To learn more, read Are Your Bank Deposits Insured?)
Wrap Up: Callable or Non-Callable?
With all of the extra hassle they involve, why would you bother to purchase a callable CD rather than a non-callable one? Ultimately, callable CDs shift the interest-rate risk to you, the investor. Because youre taking on this risk, youll tend to receive a higher return than youd find with a traditional CD with a similar maturity date.
Before you invest, you should compare the rates of the two products. Then, think about which direction you think interest rates are headed in the future. If you have concerns about reinvestment risk and prefer simplicity, callable CDs probably arent for you.
Use this checklist when you are shopping for callable CDs to help you keep track of the important information.
Callable CD Checklist
Traditional CD Callable CD #1 Callable CD #2
Callable Date N/A
Maturity Date
Seller Background
Surrender Fee
Issuer
Interest Rate
The real-time dissemination of quote information provides price transparency, which leads to a more efficient investment/trading process. The dissemination of price information and company financial data to the investment community (including individuals) leads to the development of new prices via trading decisions. This continuous flow of information between participants defines the OTC market and all market places.
Even though many principles of technical analysis are universal, each security will have its own idiosyncrasies.
Conclusions
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Market Problems? Blame Investors
Sure, the economy sometimes hits a slump, whether because of a war or unforeseen natural disaster. Of course, these things are beyond an investors control. But turbulence in the market can often be linked not to any perceivable event but rather to investor psychology. A fair amount of your portfolio losses can be traced back to your choices and the reasons for making them, rather than unseen forces of evil that we tend to blame when things go wrong. Here we look at some of the ways investors unwittingly inflict problems on the market.
Following the Crowd
Humans are prone to a herd mentality, conforming to the activities and direction of others. This is a common mistake in investing. Imagine you and a dozen other people are caught in a theater thats on fire. The room is filled with smoke and flames are licking the walls. The people best qualified to get you out safely, such as the building owner or an off-duty firefighter, shy away from taking the lead because they fear being wrong and they know the difficulties of leading a smoke-blinded group.
Then the take-charge person steps up and everyone is happy to follow the leader. This person is not qualified to lead you to the local 7-11, let alone get you out of an unfamiliar burning building, so, sadly, you are more likely to end up as ash than find your way out. This tendency to panic and depend on the direction of others is exactly why problems arise in the stock market, except we are often following the crowd into the burning building rather than trying to get out. Here are two actions caused by herd mentality:
• Panic Buying - This is the hot-tip syndrome, whose symptoms usually show up in buzzwords such as revolution, new economy, and paradigm shift. You see a stock rising and you want to hop on for the ride, but youre in such a rush that you skip your usual scrutiny of the companys records. After all, someone must have looked at them, right? Wrong. Holding something hot can sometimes burn your hands. The best course of action is to do your due diligence. If something sounds too good to be true, it probably is.
• Panic Selling - This is the end of the world syndrome. The market (or stock) starts taking a downturn and people act like its never happened before. Symptoms include a lot of blaming, swearing, and despairing. Regardless of the losses you take, you start to get out before the market wipes out whats left of your retirement fund. The only cure for this is a level head. If you did your due diligence, things will probably be OK, and a recovery will benefit you nicely. Tuck your arms and legs in and hide under a desk as people trample their way out of the market. (For more on this kind of behaviour, check out our Behavioral Finance Tutorial.)
We Cant Control Everything
Although it is a must, due diligence cannot save you from everything. Companies that become entangled in scandals or lie on their balance sheets can deceive even the most seasoned and prudent investor. For the most part, these companies are easy to spot in hindsight (Enron), but early rumors were subtle blips on the radar screens of vigilant investors. Even when a company is honest with an investor, a related scandal can weaken the share price. Omnimedia, for example, took a severe beating for Martha Stewarts alleged insider activities. So bear in mind that it is a market of risk. (For more on stock scandals, check out The Biggest Stock Scams Of All Time.)
Holding Out for a Rare Treat
Gamblers can always tell you how many times and how much theyve won, but never how many times or how badly theyve lost. This is the problem with relying on rewards that come from luck rather than skill: you can never predict when lucky gains will come, but when they do, its such a treat that it erases the stress (psychological, not financial) youve suffered.
Investors can fall prey to both the desire to have something to show for their time and the aversion to admitting they were wrong. Thus, some investors hold onto stock that is losing, praying for a reversal for their falling angels; other investors, settling for limited profit, sell stock that has great long-term potential. The more an investor loses, however, the larger the gain must be to meet expectations.
One of the big ironies of the investing world is that most investors are risk averse when chasing gains but become risk lovers when trying to avoid a loss (often making things much worse). If you are shifting your non-risk capital into high-risk investments, youre contradicting every rule of prudence to which the stock market ascribes and asking for further problems. You can lose money on commissions by overtrading and making even worse investments. Dont let your pride stop you from selling your losers and keeping your winners.
Xenophobia
People with this psychological disorder have an extreme fear of foreigners or strangers. Even though most people consider these fears irrational, investors engage in xenophobic behavior all the time. Some of us have an inborn desire for stability and the most seemingly stable things are those that are familiar to us and close to home (country or state).
The important thing about investing is not familiarity but value. If you look at a company that happens to look new or foreign but its balance sheet looks sound, you should not eliminate the stock as a possible investment. People constantly lament that its hard to find a truly undervaluedstock, but they dont look around for one; furthermore, when everyone thinks domestic companies are more stable and try to buy in, the stock market goes up to the point of being overvalued, which ironically assures people theyre making the right choice, possibly causing a bubble. Dont take this as a commandment to quit investing domestically; just remember to scrutinize a domestic company as closely as you would a foreign one. (For ideas on how to get involved with foreign stocks, check out Go International With Foreign Index Funds.)
Concluding with a Handy List
Some problems investors face are not isolated to the investing world. Lets look at the seven deadly sins of investing that often lead investors to blindly follow the herd:
1. Pride - This occurs when you are trying to save face by holding a bad investment instead of realizing your losses. Admit when you are wrong, cut your losses, and sell your losers. At the same time, admit when you are right and keep the winners rather than trying to over-trade your way up.
2. Lust – Lust in investing makes you chase a company for its body (stock price) instead of its personality (fundamentals). Lust is a definite no-no and a cause of bubbles and crazes.
3. Avarice – This is the act of selling dependable investments and putting that money into higher-yield, higher-risk investments. This is a good way to lose your shirt--the world is cold enough without having to face it naked.
4. Wrath – This is something that always happens after a loss. You blame the companies, brokerages, brokers, advisors, the CNBC news staff, the paperboy - everyone but yourself and all because you didnt do your due diligence. Instead of losing your cool, realize that you now know what you have to do next time.
5. Gluttony – A complete lack of self-control or balance, gluttony causes you to put all your eggs in one basket, possibly an over-hyped basket that doesnt deserve your eggs (Enron, anyone?). Remember balance and diversification are essential to a portfolio. Too much of anything is exactly that: TOO MUCH!
6. Sloth – You guessed it, this means being lazy and not doing your due diligence. On the flip side, a little sloth can be OK as long as its in the context of portfolio activity. Passive investors can profit with less effort and risk than over-active investors.
7. Envy – Coveting the portfolios of successful investors and resenting them for it can eat you up. Rather than cursing successful investors, why not try to learn from them? There are worse people to emulate than Warren Buffett. Try reading a book or two: knowledge rarely harms the holder.
Conclusion
Humans are prone to herd mentality, but if you can recognize what the herd is doing and examine it rationally, you will be less likely to follow the stampede when its headed in an unprofitable direction.
OTC Markets Group Inc. (“OTC Markets”) identifies securities with a Caveat Emptor symbol to inform investors that, in OTC Markets’ opinion, there is reason to exercise additional care and perform thorough due diligence in making investment decisions for a particular security.
At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy
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Understanding The Ticker Tape
Youve seen them on business programs or financial news networks: a flashing series of baffling letters, arrows and numbers scrolling along the bottom of your TV screen. While many people simply block out the ticker tape, others use it to stay on top of market sentiment and track the activity of certain stocks. What exactly is that cryptic script reeling by? It obviously tells us something about stocks and the markets, but how does one understand the ticker tape and use it to his or her advantage?
Brief History
Firstly, a tick is any movement, up or down, however small, in the price of a security. Hence, a ticker tape automatically records each transaction that occurs on the exchange floor, including trading volume, onto a narrow strip of paper or tape.
The first ticker tape was developed in 1867, following the advent of the telegraph machine, which allowed for information to be printed in easy-to-read scripts. During the late 19th century, most brokers who traded at the New York Stock Exchange (NYSE) kept an office near it to ensure they were getting a steady supply of the tape and thus the most recent transaction figures of stocks. These latest quotes were delivered by messengers, or pad shovers, who ran a circuit between the trading floor and brokers offices. The shorter the distance between the trading floor and the brokerage, the more up-to-date the quotes were.
Ticker-tape machines introduced in 1930 and 1964 were twice as fast as their predecessors, but they still had about a 15 to 20 minute delay between the time of a transaction and the time it was recorded. It wasnt until 1996 that a real-time electronic ticker was launched. It is these up-to-the-minute transaction figures - namely price and volume - that we see today on TV news shows, financial wires and websites; while the actual tape has been done away with, it has retained the name.
Due to the nature of the markets, investors from all corners of the globe are trading a variety of stocks in different lots and blocks at any given time. Therefore what you see one minute on a ticker could change the next, particularly for those stocks with high trading volume, and it could be some time before you see your ticker symbol appear again with the latest trading activity.
Reading the Ticker Tape
Heres an example of a quote shown on a typical ticker tape:
Ticker Symbol The Unique Characters used to identify the company.
Shares Traded The volume for the trade being quoted. Abbreviations are K = 1,000, M = 1 million and B = 1 billion
Price Traded The price per share for the articular trade (the last bid price).
Change Direction Shows whether the stock is trading higher or lower than the previous days closing price.
Change Amount The difference in prie from the previous days close.
Throughout the trading day, these quotes will continually scroll across the screen of financial channels or wires, showing current, or slightly delayed, data. In most cases the ticker will quote only stocks of one exchange, but it is common to see the numbers of two exchanges scrolling across the screen.
You can tell where a stock trades by looking at the number of letters in the stock symbol. If the symbol has three letters, the stock likely trades on the NYSE or American Stock Exchange (AMEX). A four-letter symbol indicates the stock likely trades on the Nasdaq. Some Nasdaq stocks have five letters, which usually means the stock is foreign. This is designated by an F or Y at the end of the stock symbol. To learn more, see Why do some stock symbols have three letters while others have four?
On many tickers, colors are also used to indicate how the stock is trading. Here is the color scheme most TV networks use:
Green indicates the stock is trading higher than the previous days close.
Red indicates the stock is trading lower than the previous days close.
Blue or white means the stock is unchanged from the previous closing price.
Before 2001, stocks were quoted as a fraction, but with the emergence of decimalization all stocks on the NYSE and Nasdaq trade as decimals. The advantage to investors and traders is that decimalization allows investors to enter orders to the penny (as opposed to fractions like 1/16).
Which Quotes Get Priority?
There are literally millions of trades executed on more than 10,000 different stocks each and every day. As you can imagine, its impossible to report every single trade on the ticker tape. Quotes are selected according to several factors, including the stocks volume, price change, how widely they are held and if there is significant news surrounding the companies.
For example, a stock that trades 10 million shares a day will appear more times on the ticker tape than a small stock that trades 50,000 shares a day. Or if a smaller company not usually featured on the ticker has some ground-breaking news, it will likely be added to the ticker. The only times the quotes are shown in predetermined order are before the trading day starts and after it has finished. At those times, the ticker simply displays the last quote for all stocks in alphabetical order.
The Bottom Line
Constantly watching a ticker tape is not the best way to stay informed about the markets, but many believe it can provide some insight. Tick indicators are used to easily identify those stocks whose last trade was either an uptick or a downtick. This is used as an indicator of market sentiment for determining the markets trend.
So next time youre watching TV or surfing a website with a ticker, youll understand what all those numbers and symbols scrolling across your screen really mean. Just remember that it can be near impossible to see the exact price and volume at the precise moment it is being traded. Think of a ticker tape as providing you with a general picture of a stocks current activity.
In the OTC market, companies that qualify and are current in their financial disclosure may choose to apply their currently tradeable security(ies) for OTCQX. Companies may also choose to provide adequate disclosure either to regulators or OTC Markets Group in order to be classified in a ‘Current’ OTC Market Tier.
Technicians are just as likely to believe that fundamental data is hogwash pure and simple.
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4 Signs A Private Company Is Going Public
When a private company makes plans to go public, there is rarely any fanfare or advance notice. Some of the radio silence is due to SEC requirements in relation to official filings of notices and the prospectus, and some is simply due to the fact that a company going public is often big news and puts the corporation under a magnifying glass. It is easier for a company to make preparations in the relative solitude of anonymity. There are, however, several signs, prior to the official notification and filing, that can indicate that a company is about to make the big leap.
SEE: IPO Basics
Corporate Governance Upgrades
Public companies that trade on U.S. stock exchanges are required under the Sarbanes-Oxley Act of 2002 (SOX) to maintain certain standards in the management of the corporation. These standards include having an external board of directors, developing and assessing an effective set of internal controls over the financial management of the company, and creating a formal process where employees and others can have direct access to the audit committee to report on illegal activities, as well as those that violate company policy. A sudden flurry of new policies and procedures could be an indication of a move towards an initial public offering (IPO).
Big Bath Write-Downs
Public companies, and those that are about to go public, have their annual and quarterly financial statements scrutinized by investors and analysts. Private companies considering going public often assess their own financial statements and take any write-offs they are allowed under GAAPall at once, to present better income statements in the future.
For example, accounting rules require that companies write down inventory that is unsalable or worth less than its original cost. However, there is substantial leeway in making that determination. Companies often keep inventory on their balance sheets as long as possible to ensure that they are meeting asset ratios for banks and other lenders . Once a company contemplates going public, it often makes sense to write off the inventory sooner rather than later, when it would impact shareholder profitability.
Sudden Changes in Senior Management
Once a company contemplates going public, it has to think about how qualified its current management is and whether it is need of some spring cleaning. To attract investors , a public company needs to have officers and managers who are experienced and have a track record of leading companies to profitability. If there is a full scale overhaul in the upper echelons of a company, it may be a signal that it is trying to improve its image in advance of going public.
Selling-Off Non-Core Business Segments
A company that springs up from scratch can often have some business units attached to it that are ancillary to its core, or main, business purpose. An example of this is an office supplies company that has a payroll processing business; the secondary business does not connect directly to the main business. In order to market a company in an initial public offering, the prospectus is expected to show a clear business direction. If a company is shedding its non-core operations, it may be a sign that it is getting lean and mean in preparation for a public share offering.
The Bottom Line
Because of the ability of a private company to keep quiet on its intentions to go public until the formal SEC-required filings and announcements, it can be difficult to assess whether a company is heading in that direction. However, there are always more subtle signals for those seeking them out.
There are no broker-dealers quoting this security. It is not listed, traded or quoted on any U.S. stock exchange or the OTC Markets. Trades in grey market stocks are reported by broker-dealers to their Self Regulatory Organization (SRO) and the SRO distributes the trade data to market data vendors and financial websites so investors can track price and volume. Since grey market securities are not traded or quoted on an exchange or interdealer quotation system, investor's bids and offers are not collected in a central spot so market transparency is diminished and Best Execution of orders is difficult.
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Is Your Broker Ripping You Off?
Despite the over-hyped stories on the news, most financial professionals are honest, hard-working people. After all, cheating clients isnt a good way to build a strong business and generate referrals; as a result, it isnt a common practice.
That said, the world of financial services can be complicated and confusing at the best of times and when you feel like you have a problem with your broker, it can seem even worse. Fortunately, with a little organization and a bit of elbow grease, most problems can be resolved.
The Process
The first step in the process is to contact your broker or financial advisor. Put your concerns in a letter and deliver it in a way that enables you to confirm receipt. Keep a copy for yourself. Many times, simple misunderstandings or miscommunication can be resolved quickly and easily. If the issue is not resolved, your copy of the letter serves as proof of your efforts to address the situation. (For related reading, see Evaluating Your Broker.)
If sending a letter does not resolve the issue to your satisfaction, the next step is to contact your brokers boss, generally referred to as a branch manager. Once again, do it in writing. If your complaint is legitimate, the branch manager has every incentive in the world to help you resolve it. Successful firms dont want unhappy clients.
If you still arent satisfied with the response you get, you can contact the firms compliance office. In todays heightened regulatory environment, compliance is something that most firms take very seriously. Send your complaint in writing, along with copies of your earlier letters. Provide details about the issue and the steps that you have taken to resolve it. Give the compliance officer 30 days to respond. Should the issue remain unresolved, the fourth step is to contact the regulators.
U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) oversees the securities market with a mandate to protect investors. If you file a complaint, the SECs Division of Enforcement will investigate by contacting the parties involved in the issue. In some cases, contact by the SEC leads to dispute resolution. In others, the SEC may take further action, such as filing a lawsuit and/or imposing sanctions. In cases where the company under investigation denies the allegations and no proof exists to contradict the denial, the SEC cannot act in place of a judge. Arbitration or legal action may be required. (To learn more about the SEC, read Policing The Securities Market: An Overview Of The SEC.)
The Financial Industry Regulatory Authority
Previously the National Association of Securities Dealers (NASD), FINRA is responsible for regulating all securities firms doing business in the United States, including registration of securities professionals, writing and enforcing securities laws, keeping the public informed and administering a dispute resolution platform. FINRAs compliance program is designed to address disputes with brokerage firms and their employees. Federal law gives FINRA the authority to discipline firms and individuals that violate the rules. However, disciplinary action is no guarantee that investors will be compensated for losses. The issues that FINRA addresses include the recommendation of unsuitable investments, unauthorized trading, failure to disclose material facts regarding an investment and unauthorized withdrawals from an investors account. FINRA also provides an investor complaint application that allows individual investors to submit a complaint regarding a brokerage firm or broker who has conducted business improperly.
State Securities Regulator
In the United States, each state has its own securities regulator. Contacting your states regulator is another avenue to explore when a dispute arises.
Understand the System
A significant number of investors set themselves up for disappointment because they dont understand their investments and they dont understand the regulatory system. Losing money on an investment is not always a reason to call for help. You need to read the fine print and make sure you understand everything your advisor has proposed for your portfolio - including the potential for a decline in value - before you agree to make the investment. Buying something that you dont understand and then trying to get your money back if the investment loses money is often a recipe for disaster.
The other important issue to remember is that regulators investigate breaches of industry rules and regulations. They do not assist with the recovery of lost money. Even if you have been the victim of an unscrupulous individual, litigation may be required to recover assets.
Mediation and Arbitration
Mediation is an informal, voluntary process whereby an independent third party facilitates a settlement between the parties involved in a dispute. Mediation is a voluntary process, and the outcome is non-binding.
Arbitration is another option. Some types of securities accounts include an agreement in which both parties agree to settle their differences in arbitration should a dispute arise. If you made such an agreement when you opened your account, the arbitrators will apply the applicable laws to your case. In some instances, the entire dispute is handled through written correspondence and records, so be sure to keep copies of all documents that will be relevant to your case. Arbitration decisions are final and binding.
Litigation - The Last Resort
If you have a legitimate compliant and it remains unresolved after you have followed all of the steps in the process in an effort to address it, contact an attorney. Litigation is often a slow and expensive process, and there is no guarantee that you will get the solution that you are seeking.
A far better choice than litigation is to make every effort to avoid this path altogether. Before you invest, learn about the various types of financial services professionals that are available to assist you. Some upfront research can save you a great deal of heartache, and money, later on.
States have their own requirements for finding and claiming unclaimed property. If you believe you have unclaimed property, the state will require you to send them information about yourself to verify your ownership of the unclaimed property. After verifying your ownership, the state will either mail you a claim form or permit you to fill out the form online and print it for submission to the state.
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So whom do we believe? Is fundamental analysis worth the time and effort? Are technicians a bunch of quacks? Or is it all a lesson in random futility?
Wars Influence On Wall Street
The world of business has always been a harsh, survival-of-the-fittest environment. Like any realm in which there is competition and the threat of losses, the investing world is rife with conflict. So it is not surprising to see so many military terms creeping into the vocabulary of everyday investors or TV analysts. Take a look at the war-related terms that have invaded the corporate ranks.
Scorched Earth
In 1812, Czar Alexander Romanov decimated the French army that Napoleon led against Russia - even though the French had superior numbers, tactics, quality of soldiers, munitions and everything else youd put on your guaranteed-victory checklist. So how did one of the greatest military minds of all time lose in such a horrendous fashion? The simple answer is the Czars scorched-earth policy: as the Russian army retreated, they burned every shelter, animal and plant that would catch fire, effectively leaving the French army without any found supplies to sustain them through a Russian winter. Napoleons previous campaigns relied heavily on the spoils of war to replenish the troops, so he was utterly unprepared for an adversary who would rather destroy his own kingdom than let another take it.
Scorched earth continues to be a terrifying strategy for aggressors to face. In business mergers and acquisitions, not every takeover is welcome. In order to scare off a hostile firm, the target firm will liquidate all its desirable assets and acquire liabilities. However, this approach can prove to be a suicide pill because, even if it is successful, the company must try to reassemble itself or go down in the flames of a self-inflicted fire. (For more on hostile takeover situaitons, read Corporate Takeover Defense: A Shareholders Perspective.)
Blitzkrieg Tender Offer
In the first two years of the World War II, Nazi Germany crushed its opponents all over Europe by means of the Blitzkrieg or lightning war strategy, a set of tightly focused military maneuvers of overwhelming force. Striking with tanks, artillery and planes in one area, the Nazis defeated Frances supposedly impenetrable Maginot Line, which was still accustomed to the traditional front-based warfare.
The Blitzkrieg strategy used in corporate takeovers is a slight departure from the German warfare of the 1940s. A Blitzkrieg tender offer is an overwhelmingly attractive offer a takeover firm makes to a target firm. The offer is designed to be so attractive that objections are few or non-existent, allowing an extremely quick completion of the takeover. This tender offers allusion to the World War II is based only upon the speed of the conquest; there was nothing alluring or attractive about the Nazis Blitzkrieg.
Dawn Raid
When organized warfare and the military were considered gentlemans affairs, a declaration of war, a location and a time would be issued to the adversary. Raids and guerilla warfare were the arenas of savages and rebels, not the tactics of a self-respecting army. However, the American Civil War, the two World Wars, the Vietnam War and the improvement of weaponry obliterated the old code of warfare, and made it commonplace to attack at any time - including dawn, when sleep is still thick in the enemys eyes. Because at day break the level of preparedness is lower, the dawn raid maximized enemy casualties and so became a standard military practice. This logic has carried over to the corporate sector.
A dawn raid in the investing world occurs when a firm (or investor) purchases a large portion of shares in a target firm at the opening of the market. A stock broker for the hostile firm helps the firm build up a substantial stake (and maybe a controlling interest) in the unsuspecting target. The hostile firm significantly lowers its takeover costs by already holding a big chunk of its prey. Because the process is initiated through a brokerage and at the market opening, the target firm doesnt figure out whats going on until its too late. Even though only 15% of a firms stock can be captured in a dawn raid, this percentage is often enough for a controlling interest. (When an individual investor decides to do this, he or she is referred to as a raider.)
A dawn raid is sneakier and more effective than a formal bid in most cases, but it may lead to resentment from the target firm. Unlike the dawn raid in war, the dawn raid of the corporate world makes the people you just attacked before their morning coffee not just your defeated enemies but now a part of your own army, meaning dissent may soon brew in the ranks.
Capitulation
Capitulation is a term that finds its roots in the Medieval Latin word capitulare which means to draw up terms in chapters. Since the 1600s, however, capitulate has been synonymous with surrender, or defeat, usually military defeat. In the stock market , capitulation refers to the surrendering of any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines, which are indicative of panic selling. After capitulation selling, many people believe the market place essentially becomes a bargain store because everyone who wanted out of a stock, for whatever reason (including forced selling due to margin calls), has sold. It follows logically (but only in theory) that the stock price should reverse or bounce off the lows. Simply put, some investors believe that true capitulation is the sign of a bottom. (To learn more, check out Panic Selling - Capitulation Or Crash?)
War Chest and War Bonds
The gathering of a war chest has been around as long as war. Emperors and kings would begin to amass tithes and taxes long before declaring war, presumably placing the funds in a chest (maybe labeled with a note to attack the Dutch or something). The reason for this hoarding was that experienced warriors cost money: mercenaries made up the bulk of the leadership, and peasants, who were conscripted, provided the cannon fodder.
This tradition of saving up to wage war, either aggressively or defensively, has continued on into the modern world of corporate warfare. Simply put, a war chest refers to the funds a company uses to initiate or defend itself against takeovers.
Rather than pulling out of already stretched budgets, the governments of some countries (U.S. included) use war bonds to raise a war chest. War bonds are government-issued debt, and the proceeds from the bonds are used to finance military operations. War bonds essentially fund a war chest that is voluntarily filled by the public. The appeal for these bonds is purely patriotic as they generally offer a return lower than the market rate. Basically, buying a war bond is supposed to make citizens feel like they are doing their part to support the troops - in the World War II, these bonds were hyped by sentimental persuasion and depictions of the evils of the enemy.
War Babies
War babies are quite common all over the world. Children are classified as war babies if they satisfy one or both of the following:
1. They were born or raised during an invasion of their country.
2. They were fathered by foreign soldiers. This was extremely common in Vietnam. In fact, there are still war babies attempting to gain U.S. citizenship.
In contrast, the war babies of the investing world are the companies that enjoy a jump in stock prices during or before a war (traditionally a time of decline for the market). These companies are usually defense contractors who build munitions, aircraft, artillery, tanks, etc. Although these companies arent the bastard children of foreign soldiers, people usually do avoid claiming war babies in times of peace.
Conclusion
Thats that for the military parade down Wall Street . Military terms have crept into many vocabularies and the fiercly competitive realm of finance is no exception.
The term "person associated with a broker or dealer" or "associated person of a broker or dealer" means any partner, officer, director, or branch manager of such broker or dealer (or any person occupying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with such broker or dealer, or any employee of such broker or dealer, except that any person associated with a broker or dealer whose functions are solely clerical or ministerial shall not be included in the meaning of such term for purposes of section 15(b) (other than paragraph (6) thereof).
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As new information becomes available, the market assimilates the information by adjusting the security's price up (buying) and down (selling).
The ABCs Of Mutual Fund Classes
In mutual fund investing, the old adage that high costs indicate quality couldnt be further from the truth. There is no proof that if you pay a higher fee youll get a higher return. If anything, the mutual fund manager of a high-cost fund might take more risks in the attempt to produce a higher return - and, of course, this higher return is not a sure thing. So, if the managers risky moves dont pan out, youve not only forked out more money in costs, but youve also seen your portfolio value shrink from capital losses.
To avoid paying high fees only to suffer losses, and to maximize your investment return, it is important to consider which class of mutual fund shares is suitable for you and to know what kind of fees you will be paying when you invest in a mutual fund. Here we give an overview of these different classes.
What Are Mutual Fund Classes?
While stock classes indicate the number of voting rights per share, mutual fund classes indicate the type and number of fees charged for the shares in a fund.
Although mutual fund companies can have as many as seven or more classes of shares for a particular fund , there are three main types of mutual fund classes that are most popular: A, B and C (also known as A-shares, B-shares and C-shares). Each of these classes has various benefits and consequences. Lets examine each in turn.
Class-A Shares
Class-A shares charge a front-end load that is taken off your initial investment.
Pros
• Lower 12b-1 fees - Class A shares tend to have lower 12b-1 fees, so if you plan on holding these shares for several years, a front-end load might be beneficial in the long run.
• Breakpoints - These provide a discount off regular front-end load rates each time your investment reaches a certain amount in a series. If the first breakpoint is $25,000, you could invest that amount initially to receive the first discount. (To learn more, read Break Free Of Fees With Mutual Fund Breakpoints.)
• Right of Accumulation - This gives you the opportunity to receive a discount on the front-end load if you reach the first breakpoint with the second installment. So, again, say that the first breakpoint is $25,000 and your initial investment is $10,000. If you invest $15,000 to reach the breakpoint on the second installment, youd receive a discounted front-load fee.
• Letter of Intent - Some companies also offer front-end load discounts up front to individuals who initially express their intent to invest an amount over a certain breakpoint by a certain point in time.
Cons
• High Initial Investment Required - Investors who do not have the funds to reach a breakpoint before the deadline indicated by a letter of intent will have to pay regular front-end fees.
• Long Time Horizon Required - These funds are not optimal for investors with a short time horizon. For example, say your initial investment is $4,750 after $250 in front-load fees, and your investment increases 3% during the course of a year. If you liquidate at the end of the year, you would have actually lost $107.50 [(4750*1.03)-5000], or 2.15%.
Class B Shares
These shares are classified by their back-end or contingent deferred sales charge. These shares are typically good for investors with little investment cash and a long investment horizon.
Pros
• No Front-End Fees - Your entire initial investment contribution earns interest income.
• Deferred Sales Charges - The longer you hold the shares, the lower your deferred sales charge.
• Conversion to Class A - Class B shares automatically convert to Class A shares after a certain period of time. This is beneficial because Class A shares have a lower yearly expense ratio than Class B shares (see below).
Cons
• Long Time Horizon Required - If you withdraw funds within a certain period of time (typically five to eight years) you are a charged a back-end or deferred sales charge.
• No Breakpoints - Class B shares do not provide breakpoints on the deferred sales charge, so regardless of how much you invest, there is no discount on these charges.
• Higher Expense Ratios - Class B shares charge higher expense ratios than both Class A and C shares, until shares are eligible to be converted to Class A.
Class C Shares
Class C shares are a type of level-load fund. This class works well for individuals who will be redeeming shares in the short term.
Pros
• No Front-End Fees - Your entire initial investment contribution earns interest income.
• Small Back-End Load - The back-end load is typically only 1%.
• Opportunity to Avoid back-End Load - The back-end load is normally removed after the shares have been held for one year.
Cons
• Back-End Load - A back-end load - although small - is typically charged if funds are withdrawn within the first year.
• Higher Expense Raios - Although the expense ratios of Class C shares are lower than those of Class B shares, they are higher than those for Class A shares.
• No Conversion - Unlike Class B shares, Class C shares cannot be converted into Class A shares, removing the opportunity for lower expense ratios. As such, if you have a long time horizon, Class C shares are not optimal for you as the high management fees are continuous. That is, your investment returns will be reduced the longer you stay invested because the fees will add up considerably over time.
• No Discounts - Class C shares do not offer discounts on expenses when the account reaches certain levels.
Applying the Pros and Cons
Lets look at how the characteristics and pros and cons described above work in the following share classes of the Index Plus Mid-Cap mutual fund shares offered by ING.
ING Index Plus Mid-Cap Funds, A,B,C Comparison
Class Symbol Front End Back End 12b-1 Fees Details
A AIMAX 3% n/a 0.25% • 2004 total yearly return = 16.09%
• expense ratio = 1%
• $1,000 min investment
B APMBX n/a 5% (6-yr declining balance) 1% (converted to Class A after 8 eight yrs) • 2004 total yearly return = 15.23%
• expense ratio = 1.75%
• $1,000 min investment
C APMCX n/a 1% (expires after one year) 0.75% • 2004 total yearly return = 15.5%
• expense ratio = 1.5%
• $1,000 min investment
Source: Morningstar.com, June 30, 2005, and ING Funds, July 22, 2005
In this example, you can see how each of these different share classes are better for different types of investors and situations. If you plan on investing in this fund for retirement and your retirement is 20 years away, Class A or B shares would work best because they both offer declining costs the longer you stay invested. Also, if you plan to invest just one lump-sum amount and it is enough to qualify for a breakpoint discount, Class A would be the best over time: you would get a discount on the initial load, and your yearly expenses (the expense ratio and 12b-1 fees) are very low, allowing your investment to grow. With Class B shares, you are not charged an initial fee; however, you are charged a 1.75% expense ratio per year rather than 1%, and you would need to keep invested for at least eight years before the Class B shares convert to Class A. At the same time, if you are planning to invest in the fund continuously, Class B may be better as each deposit is not charged.
Class C shares would work best if you are planning to invest for a limited period, optimally no less than one year. In this way, you avoid both front- and back-end loads. Although your expense ratio will normally be higher than Class A shares, your full investment will gain interest while it is invested.
To show you how Class C shares work best for a shorter-term investment, lets compare the returns of a one-year investment of $10,000 in Class A and the same kind of investment in Class C shares:
• Class A - Because $300 will be deducted for front-end fees, the value of the initial investment is $9,700. After one year with a 10% return and 0.25% 12b-1 fees, the investment would then be worth $10,645.75 ($9,700*1.0975).
• Class C - There are no deductions for front-end loads, and the back-end load requirement expires after the year is up. The value of a $10,000 investment with a 10% return and 0.75% 12b-1 fees would be $10,925 ($10,000*1.0925).
Note the difference - youve made $279.25 more with Class C shares. Over a long period, however, Class A shares would be more optimal: the Class Cs higher 12b-1 fee paid over the course of more than 10 years would eat into your returns to a point where Class A shares would provide you with a higher return.
Conclusion
When deciding which class of mutual fund shares to choose, remember to read the prospectus. In addition, you must take into account your investment horizon, the amount you have to invest initially, the frequency of your investments and the probability you will need to withdraw funds before you initially intend to do so. For an overview of mutual funds
This tier indicates companies that are unwilling or unable to provide disclosure to the public markets. Companies in this category do not make current information available via OTC Markets disclosure and news service, or if they do, the available information is older than six months. This category includes defunct companies that have ceased operations as well as 'dark' companies with questionable management and market disclosure practices. Securities of publicly traded companies that are not willing to provide information to investors are considered highly risky.
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To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value.
Institutional Knowledge/Research
In spite of regulations meant to level the playing field between individuals and institutions (such as Reg FD, which outlines a companys disclosure responsibilities), institutions often employ teams of seasoned industry analysts. These trained experts typically have many contacts throughout the supply chain and tend to have more frequent contact with a given companys management team than the average individual investor. (Read more about the role of Reg FD in Defining Illegal Insider Trading.)
Not surprisingly, this gives the institutional analysts a far better idea of what is going on at a company or within a given industry. In fact, it is almost impossible for the individual to ever gain the upper hand when it comes to such knowledge.
This relative lack of knowledge about future earnings potential, opportunities for growth, competitive forces, etc. can adversely impact investment results. In fact, a lack of knowledge is another major reason why many individual investors tend to underperform mutual funds over time. (You can piece together your own analysis if you have the right information. Read Do-It-Yourself Analyst Predictions to find out how.)
This is compounded by the fact that analysts can sit and wait for new information ,while the average Joe has to work and attend to other matters. This creates a lag time for individual investors, which can prevent them from getting in or out of investments at the best possible moment.
Keeping Tabs on Institutions Is Tough
Even if an individual has enough money to adequately diversify him- or herself, the willingness to hold positions for an extended period of time and the ability to accurately track and research multiple companies, it is difficult to copy the actions of most institutions.
Why? Because, unlike Berkshire Hathaway, many mutual funds buy and sell stocks with great vigor throughout a given quarter.
In fact, take T. Rowe Price as an example. According to the companys website, its Capital Opportunity Fund (which invests primarily in domestic securities) has a turnover rate of 63.5 as of July 31, 2008. Thats big. This makes positions like these are hard to mimic because even if you had access to databases that track institutional holdings the information is usually updated on a quarterly basis.
What happens in between? Frankly, those looking to mimic the institutions portfolio are left guessing, which is an extremely risky strategy, particularly in a volatile market. (Learn some ways you can keep track of institutional investment activities in Keeping An Eye On The Activities Of Insiders And Institutions.)
Trading Costs Can Be Huge, and Treatment May Vary
By definition, institutions such as mutual funds have more money to invest than the average retail investor. Perhaps not surprisingly, the fact that these funds have so much money and conduct so many trades throughout the year causes retail brokers who service these accounts to fawn over them.
Funds often receive favorable treatment. In fact, its not uncommon for some funds to be charged a penny (or in some cases a fraction of a penny) per share to sell or purchase a large block of stock – whereas individual investors will typically pay 5-10 cents per share.
In addition, even though there are rules to prevent this (and time and sales stamps that prove when certain trade tickets were entered), institutions often see their trades pushed ahead of those of retail investors. This allows them to realize more favorable entry and exit points. (ReadPatience Is A Traders Virtue and A Look At Exit Strategies for a discussion of setting entry and exit points.)
In short, the odds are that the individual, regardless of his or her wealth, will never be able to garner such preferential treatment. Therefore, even if the individual was able to match an institution in terms of holdings and diversification, the institution would probably spend fewer dollars on trades throughout the year, making its investment performance, on a net basis, better overall.
Bottom Line
While it may sound good in theory to attempt to mimic the investment style and profile of a successful institution, it is often much harder (if not impossible) to do so in practice. Institutional investors have resources and opportunities that the individual investor cannot hope to match. Retail investors may benefit more, in the long run, from an investment strategy more suited to their means.
Compliance with the Information Requirement of SEA Rule 15c2-11 – To initiate quotations on an inter-dealer quotation system for an OTC security not currently being quoted or to resume quotations after a four day absence or SEC suspension, a market maker must submit a Form 211 to FINRA. Once FINRA approves the 211, the market maker may submit a quotation to the applicable inter-dealer quotation system(s) they selected on the Form 211.
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A comparative analysis of the competition within a sector will help identify those companies with an edge, and those most likely to keep it.
5 Ways To Invest $5,000
In this economy, $5,000 may feel like a lot more money than it did just a few years ago. There are numerous ways that you may find yourself with an extra $5,000: a bonus at work, inheritance, an extra contract job that you werent expecting or a tax refund. Maybe you have it now or youre expecting it soon, but regardless of the time frame, what are you expecting to do with the money? Here are a few ideas that may help.
Pay off Credit Cards
If your household has credit card debt, you have, on average, $15,956 worth. Almost one third of that debt could be wiped out with that $5,000. If your credit card interest rate is average, you are paying 13% ,or $650 each year, to hold that balance. That $5,000 could reduce the interest youre building up by $54 a month. How long was it going to take you to save $5,000 for the sole purpose of paying your credit card debt? If it was two years, you just saved $1,300 making the return on your $5,000 - 26% over two years or 13% per year. Any investor would be very happy with that figure. Although its not necessarily fun, the best return youll get on your money is to service your debt.
High Quality Stocks
Investing in high quality, dividend paying stocks for a long period of time has shown to be a very safe investment. Because its nearly impossible to pick the few correct stocks that will perform better than the overall market, look at an index mutual fund or exchange traded fund (ETF) that tracks the total stock market.
Historic returns for the stock market over the past 50 years have averaged around 10%, making this a good investment, but not nearly as good as paying down debt.
Education
The cost of a college education has risen 130% in the last 20 years, according to USA Today. If you have a two-year old child now, the cost to send your child to college in 16 years will be $95,000, if he or she chooses a college in the state where you are a resident. If your child chooses a private university, the cost rises to as high $340,000, if college inflation rates stay as they are for another 16 years.
The best way to save for college is to use a 529 plan. These tax advantaged college savings accounts are similar to 401(k) plans where you contribute a certain amount into the plan, the money is invested into funds of your choice and you withdraw those funds when the child reaches college age.
Some 529 plans allow you to purchase years of college at todays rates for use when the child reaches college age, but most plans now invest the money without guaranteeing future results. That same $5,000 is a great start to put in a plan like this, and although the returns will average less than the overall stock market , the plan is one of the best ways to save for future college expenses.
Bond ETFs
An ETF is a basket of investment products packaged into one fund. They often come with low fees, yet offer the safety of a diverse portfolio. Some of these ETFs hold bonds, which are historically safer than stocks. Some bond ETFs have dividends of 7% or more and, barring any large investment market event, those dividends are quite safe, because of the hundreds or even thousands of bonds held in these funds. If you choose to invest in Bond ETFs, you may need to ask for help from a trust financial adviser.
Start a Small Business
If your debts are paid, you dont have children or youre well on your way to having your kids college education paid for, consider starting a small business. To get your business off of the ground, $5,000 may not go very far, but some service-type businesses have very little startup costs. Before committing the money to a small business , make sure to carefully weigh the time and financial commitment that will come with this type of endeavor.
Forecasting the annual return is nearly impossible due to the many variables that come with starting a business, but even more important, this might jump-start your dream of becoming an entrepreneur.
The Bottom Line
Even if it isnt $5,000, before deciding how to utilize a larger sum of money that found its way into your bank account, think more long term. Sure, you could purchase the big TV that youve wanted for a long time but is that the best decision to make for years to come?
OTC Markets Group established a categorization system to indicate the level of financial and corporate disclosure provided by the companies using its quotation system. Apart from the OTCQX tier, the disclosure categories do not signify issuer quality or merit of any security. Categorization is based on the level and timeliness of a company's disclosure and OTCQB and any of the OTC Pink categories can include both high quality as well as speculative, distressed, or questionable companies. Investors are encouraged to use caution when considering many these companies for investment.
This link will help thou $CFTN BarChart Technical Analysis NITE-LYNX
http://www.barchart.com/technicals/stocks/CFTN
Support Equals Resistance
Another principle of technical analysis stipulates that support can turn into resistance and vice versa.
An Introduction To Depositary Receipts
A depositary receipt (DR) is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of equity, that is issued by a foreign publicly listed company. The DR, which is a physical certificate, allows investors to hold shares in equity of other countries. One of the most common types of DRs is the American depositary receipt (ADR), which has been offering companies, investors and traders global investment opportunities since the 1920s.
Tutorial: ADR Basics
Since then, DRs have spread to other parts of the globe in the form of global depositary receipts (GDRs) (the other most common type of DR), European DRs and international DRs. ADRs are typically traded on a U.S. national stock exchange, such as the New York Stock Exchange (NYSE) or the American Stock Exchange, while GDRs are commonly listed on European stock exchanges such as the London Stock Exchange. Both ADRs and GDRs are usually denominated in U.S. dollars, but can also be denominated in euros.
How Does the DR Work?
The DR is created when a foreign company wishes to list its already publicly traded shares or debt securities on a foreign stock exchange. Before it can be listed to a particular stock exchange, the company in question will first have to meet certain requirements put forth by the exchange. Initial public offerings, however, can also issue a DR. DRs can be traded publicly or over-the-counter. Let us look at an example of how an ADR is created and traded:
Example
Say a gas company in Russia has fulfilled the requirements for DR listing and now wants to list its publicly traded shares on the NYSE in the form of an ADR. Before the gas companys shares are traded freely on the exchange, a U.S. broker, through an international office or a local brokerage house in Russia, would purchase the domestic shares from the Russian market and then have them delivered to the local (Russian) custodian bank of the depository bank. The depository bank is the American institution that issues the ADRs in America. In this example, the depository bank is the Bank of New York. Once the Bank of New Yorks local custodian bank in Russia receives the shares, this custodian bank verifies the delivery of the shares by informing the Bank of New York that the shares can now be issued in the United States. The Bank of New York then delivers the ADRs to the broker who initially purchased them.
Based on a determined ADR ratio, each ADR may be issued as representing one or more of the Russian local shares, and the price of each ADR would be issued in U.S. dollars converted from the equivalent Russian price of the shares being held by the depository bank. The ADRs now represent the local Russian shares held by the depository, and can now be freely traded equity on the NYSE.
After the process whereby the new ADR of the Russian gas company is issued, the ADR can be traded freely among investors and transferred from the buyer to the seller on the NYSE, through a procedure known as intra-market trading. All ADR transactions of the Russian gas company will now take place in U.S. dollars and are settled like any other U.S. transaction on the NYSE. The ADR investor holds privileges like those granted to shareholders of ordinary shares, such as voting rights and cash dividends. The rights of the ADR holder are stated on the ADR certificate.
Pricing and Cross-Trading
When any DR is traded, the broker will aim to find the best price of the share in question. He or she will therefore compare the U.S. dollar price of the ADR with the U.S. dollar equivalent price of the local share on the domestic market. If the ADR of the Russian gas company is trading at US$12 per share and the share trading on the Russian market is trading at $11 per share (converted from Russian rubles to dollars), a broker would aim to buy more local shares from Russia and issue ADRs on the U.S. market. This action then causes the local Russian price and the price of the ADR to reach parity. The continual buying and selling in both markets, however, usually keeps the prices of the ADR and the security on the home market in close range of one another. Because of this minimal price differential, most ADRs are traded by means of intramarket trading. (Learn more about ADRs in ADRs: Invest Offshore Without Leaving Home.)
A U.S. broker may also sell ADRs back into the local Russian market. This is known as cross-border trading. When this happens, an amount of ADRs is canceled by the depository and the local shares are released from the custodian bank and delivered back to the Russian broker who bought them. The Russian broker pays for them in roubles, which are converted into dollars by the U.S. broker.
The Benefits of Depositary Receipts
The DR functions as a means to increase global trade, which in turn can help increase not only volumes on local and foreign markets but also the exchange of information, technology, regulatory procedures as well as market transparency. Thus, instead of being faced with impediments to foreign investment, as is often the case in many emerging markets, the DR investor and company can both benefit from investment abroad. (Learn more about investing in emerging markets in Equity Valuation In Emerging Markets.)
Lets take a closer a look at the benefits:
For the Company
A company may opt to issue a DR to obtain greater exposure and raise capital in the world market. Issuing DRs has the added benefit of increasing the shares liquidity while boosting the companys prestige on its local market (the company is traded internationally). Depositary receipts encourage an international shareholder base, and provide expatriates living abroad with an easier opportunity to invest in their home countries. Moreover, in many countries, especially those with emerging markets, obstacles often prevent foreign investors from entering the local market. By issuing a DR, a company can still encourage investment from abroad without having to worry about barriers to entry that a foreign investor might face.
For the Investor
Buying into a DR immediately turns an investors portfolio into a global one. Investors gain the benefits of diversification while trading in their own market under familiar settlement and clearance conditions. More importantly, DR investors will be able to reap the benefits of these usually higher risk, higher return equities, without having to endure the added risks of going directly into foreign markets, which may pose lack of transparency or instability resulting from changing regulatory procedures. It is important to remember that an investor will still bear some foreign-exchange risk, stemming from uncertainties in emerging economies and societies. On the other hand, the investor can also benefit from competitive rates the U.S. dollar and euro have to most foreign currencies.
Conclusion
Giving you the opportunity to add the benefits of foreign investment while bypassing the unnecessary risks of investing outside your own borders, you may want to consider adding these securities to your portfolio. As with any security, however, investing in ADRs requires an understanding of why they are used, and how they are issued and traded.
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