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Stock investing strategies – Growth Stock Investing

admin — Thu, 20 May 2010 18:51:08 +0000

Generally speaking, a strategy employed by an investor selecting stocks with above average growth potential is considered growth stock investing. These targeted stocks are corporate assets whose quarterly earnings are anticipated to grow relatively quickly in comparison to the overall market within its particular industry.

Often termed as capital growth strategy by growth investors, maximizing capital gains is the overall goal. Though many say growth investing is diametrically opposed to value investing, it\’s more appropriate to accept the two strategies in light of a Warren Buffet quote, where he talked about growth as well as value investing being tightly joined. Similarly, another investing mogul by the name of Peter Lynch is credited with first implementing an intermediate approach between the two, commonly spoken of as the GARP strategy, or growth at reasonable prices.

By the end of the 1990\’s, during the big tech stock boom, those employing growth investing tactics yielded extraordinary returns for investors. It should be noted, however, that growth stock investing has some substantial risks. This method is not for the faint of heart, and it\’s potential gains and losses should be well understood prior to making any such leap.

Perhaps the easiest way to illustrate exactly what growth investing is is to show what it isn’t as compared to it\’s counterpart, value investing. The value investor takes into account current expectations. Those stocks trading below their perceived value are considered value purchases, on the speculation they will return to their true value in the short term. In contrast, growth investors buy shares of companies that are expected to balloon from their current value over a considerably greater length of time, with little concern of the stock\’s current pricing. In this type of trading, buying at levels above the perceived worth of the stock can and does occur. The strategy is reliant on the potential for overall growth of that company in the future.

Those stock\’s that are considered growth stocks are shares of companies speculated to grow relatively quicker than other similar interests. It stands to reason that younger companies are of a higher interest to growth investors. This takes into consideration the theory that earnings and revenue growth will translate directly to an increased share price for the stock. Those industries expected to increase rapidly in their asset value are good candidates, most especially ones leading in new technologies. Capital gains are the means to realizing profits here, not dividends, as more often than not these types of ventures are prone to earnings reinvestment leaving very little for dividend pay-outs.

A major player in teaching and utilizing growth stock investing strategies is The National Assn of Investors Corp., or NAIC. They have a five point checklist to assess growth stock candidacy. All five requirements should be met to consider the stock a prime option. These are the five points in paraphrase:

*Does the stock historically show strong earnings?
*Is strong growth expected going forward?
*Is the management of the company effective in controlling revenues and costs?
*Does the management show signs of continual improvement and innovation?
*Does it seem likely that the price of stock can double within the next five years?

Following these guidelines, and an affirmative answer to all of them, will provide a stock that is likely a good candidate for growth stock investing.

Stock Investing Research – How to use a simple stock investing checklist?

admin — Tue, 18 May 2010 02:01:28 +0000

One of the most common terms you hear analysts discussing is the raising and lowering of stock ratings. The rating of a stock directly impacts how well it does on the market, so understanding this ebb and flow can net you quite a bit of significant gain. Doing your own stock investing research can yield quite a bit of knowledge that will let you analyze stock trading trends just as well as any analyst. In order to understand how analysts determine this ebb and flow, I’ll be explaining the process in a simple manner so you can learn how the entire process works. If you are interested in knowing more, there are tons of books that have been written entirely devoted to analyzing stocks. For beginners, it is best not to get too technical.

When picking the right stocks in which to invest, you should conduct a bit of research into the history of the stocks you are considering. Understanding how the company works and the services they offer, as well as their stated business goals will better help you understand the direction the company is likely to take in the future. With your inner understanding of how the company works and their business plans, you will be able to better understand and apply stock valuation techniques to reap the benefits of early stock purchasing.

Since researching stocks is the key, you need to be sure you are researching properly. Understanding the company inside and out is a good start, since it will help you decide whether or not you wish to purchase stock in the company. One of the best ways many people use to form opinions on a company and the stock is by following a stock investing checklist. Understanding information given in press releases, quarterly reports, and industry reports will help you determine the quality of a stock. Another great way to gain an understanding of industry analysis is to follow this simple checklist:

* Find a broker with minimal fees, such as maintenance an inactivity fees.
* Be sure your leverage is kept at a minimum. You don’t want to feed your profits to your broker or bank.
* Insure your account. You can’t afford to go with a broker who will go under and take your money with it.
* See if your broker has a free trial before you invest any large amounts of money with them.
* Understand tax laws. Taxes are the biggest bite when it comes to investing, so understanding what you are allowed to deduct and what kind of records you need to keep is essential.
* Always account for inflation. By investing in stocks that provide equal return when considering inflation, you are covering yourself in the future.
* Always keep in mind there are really no risk free investments.

Following this stock analysis checklist will keep you ahead of your game in many different situations. Since no company and stock investing option is the same, you will need to apply your general knowledge to the situation to determine whether the risk will be worth the reward. Always remember that federal savings bonds are about as close as you can get to a risk-free investment, so keep this in mind when you begin studying the market.

Small Cap Stock Investing – Why is it good to invest in small cap stocks also?

admin — Sat, 15 May 2010 08:57:34 +0000

Many people had watched their retirement funds hemorrhage out over the past several years. The volatile stock market paired with uncertain economic times have left many scrambling for better investment options. Small cap stock investing could be the solution they have been looking for.
Even though the stock market is leveling out, it is far from smooth sailing. Leaving investment decisions in the hands of financial gurus and stock brokers may still be a smart idea for many folks; however, those with meager savings to invest may not be able to sacrifice the handler fees for these services. This leaves financial risk and benefit research left to the individual investor. Small capitalization company stocks may be more lucrative than stocks with larger companies. The values of the small cap have grown annually by over twelve percent compared to large cap values coming in at around ten.

This type of investment is not one to be made lightly with the intent to turn around and sell it back almost immediately. One of the reasons this method of investment works is because smaller, more unknown companies, will have stocks available at lower prices than the high profile ones. As the small company builds it’s brand name and becomes more sought after, the stock value will grow with the company. This is not a flash in the pan process.

Giant conglomerates are comprised of many committees who make decisions, or rather, discuss decisions that need to be made and make recommendations that are passed to other committees to deliberate over. As you can see, the larger the company, the larger amount of time it takes to pass new ideas and the longer it takes to get new products out to the market. Smaller companies have fewer employees, fewer levels of red tape, and a strong need for a quick turn around for decisions and products to hit the shelves. Small businesses need to move at a quick pace to stay productive. This also contributes to the climb of it’s stock values.

Another attribute of smaller companies is the potential to merge with slightly larger and possibly better known companies. The strength of both company names together adds a multiplier to the value of stock. When larger companies merge in very public ways, it can shake the confidence the public has with the company. The general masses will assume the company bought out was in trouble and wonders if keeping the stock will be wise. Fear in the economic realms will lead to hasty decisions and the large company stocks feel it the hardest.

For a patient investor, small businesses can be a component to help them grow their portfolios. While small cap stocks should not be the only food on the proverbial portfolio plate, it could be used as the main dish that was slow cooked to satiate the investor. However, with any investing diet, variety is the wisest and healthiest way to go.

Dividend Stock Investing – Lessons learnt in recent past

admin — Sat, 15 May 2010 08:51:14 +0000

The entire dividend landscape changed during 2008 and 2009, and it was not for the better. There were 288 companies that were forced to cut payouts just during the final quarter of 2008. Standard and Poor’s reported that there were another 804 public companies that followed suit the following year. The cost to investors was an additional $58 billion.

Before getting involved in dividend stock investing there are five major lessons you should learn.

1. Dividends are never guaranteed

There were many people who chose to ignore this particular lesson in the months and years that led up to the financial crisis. Collecting interest on investments like bonds and CDs is a given but that is not so with dividends. It is up to the board of directors to decide whether shareholders will receive cash dividends or not. It is in the best interests of the company for the board to attempt to maintain or even increase payouts because it is a sign that the company is financially sound. A company that is financially strong can, in turn, attract more investors.

2. Do not chase high yields

Greedy investors in recent years were taking higher risks to find acceptable yields. This was because market yields and interest rates were so low. This proved to be costly in the long run. Any dividend yield that is higher than 2.5 times the market average is something to avoid. With the current rate at two percent, you should avoid anything listed at five percent or higher.

3. Cash flow is king

Pay close attention to cash coming in and going out for at least the past five years. Focusing on earnings will not give you a true picture of whether a dividend will be sustainable or not. Make sure you account for capital expenditures and the amount that is left is the cash flow available to the company to buy back shares or pay dividends. This is called free cash flow. You also want to find out how much the company paid out in dividends annually. If the cash flow amount that is considered to be free is bigger that the dividends paid, then you can be assured that the company can maintain the current dividend.

4. Be selective

Be selective when you are choosing companies to invest in and keep your investments diversified. Cuts in dividends tend be widespread when the economy is in crisis. Do not rely solely on ETF’s or an index to protect you. You should know that the ETF is only permitted one rebalance each year. Many owners were left holding onto stocks that were suddenly not paying dividends at all or were paying out very low rates until the rebalance was allowed to occur.

5. It pays to diversify

It is still important to diversify. There is no doubt that the financial industry was hurt the worst over the last two years with deep dividend cuts. Even heavily diversified portfolios were hurt when the crisis hit but they were far less affected than those that were heavily weighted with financial stocks that were initially promising higher yields. Sector diversification is still very important even if you are forced to give up some yield at the outset.

With these five tips you will have no trouble building a portfolio of diverse companies that will yield above average dividends with enough free cash flow left over sustain continued growth.

Forex Swing Trading – How to do Swing Trading in Forex

admin — Thu, 14 Jan 2010 02:28:00 +0000

Forex is one of the biggest markets in the world. It is much bigger than any stock market in the world. If we talk about volume, the forex market is almost 5000 times bigger than the stock market of United States of America. From this, you can imagine the volume and number of transactions happening in forex market every day. On top of that, forex market is open twenty four hours a day. Forex swing trading is one of the trading strategies used by day traders in the forex market.

When we talk about normal swing trading, we know that the traders hold the stocks for 2 to 5 days and then close the transaction. It lies somewhere between day trading and long term investing. Swing trading can be done in forex market as well and it is known as forex swing trading. The same principles of forex market apply to the forex swing trading as well.

Forex swing trading strategies are also similar to strategies which are being used in the normal swing trading. It involves principles finding a suitable entry point after doing the trend analysis, then finding suitable pivot points and lastly find the exit points within a couple of days.

Like in usual swing trading, the trend analysis is done on currency pairs to find a suitable point of entry. One method is to apply 10ma and 30ema moving averages study to a candlestick chart.

Once you find a trend using above technique you find a suitable point of entry. In upward trend the currency will trade above the 10ma, and then swing down into the zone between the 10ma and 30ema. On the other hand, in downward trend, the currency will oscillate below the 10 ma, and swing up into the zone. Do a candlestick analysis and find doji, harami or engulfing pattern to find a suitable entry point.

After you enter into a trade, you need to start looking for an exit point. First of all, put a stop loss based on your risk appetite. Then set a profit target depending upon your own method of forex swing trading. You can use a candlestick analysis, Fibonacci method or any other technique to do that. Once you reach the target, you can sell the currency pair.

Swing Trading – Introduction to Swing Trading Basics

admin — Thu, 14 Jan 2010 02:19:28 +0000

Swing trading is a kind of fundamental trading in which the positions are held more than 1 day and up to 4 days. The traders which do this type of trading are known as swing traders. The swing traders make use of the technical analysis techniques to buy stocks which have short term price momentum.

Most of the time, the swing traders are not even interested in the fundamentals of the stocks or the intrinsic value provided by the company. They are just interested in the short term price trends and patterns. They don’t want to know what product is being sold or maybe even the name or industry of the company.

This type of trading is mostly done by traders who do trading full time from home or office or day traders. This type of trading is usually not done by big players like financial institutions since a couple of days is too less for them move in quickly. The individual traders can make swift decisions and exploit the market trends quickly.

The swing traders do the trading which is neither day trading nor long term trend trading. While day traders buy and sell the shares within the same day, the trend traders hold it for a considerable amount of time which can be weeks to many years. On the other hand, the swing traders typically hold the shares anywhere between 1 day and a week.

The best types of stocks which are suitable for swing trading are the large cap stocks. The large cap companies which are actively traded make the best shares for swing trading. Some of these shares are Intel (INTC), Microsoft (MSFT), CISCO (CSCO) and Citigroup (C).

Identifying whether a market is currently trending higher or lower, or trading sideways and when this will change is a challenge for many swing trading and long-term trend following trading strategies.

Swing trading is not everyone’s cup of tea. This is a very risky game for beginners in stock market. It needs a lot of experience, knowledge and patience. First, the trader should understand the basics of trading and swing trading in particular. Then he should understand various methods and strategies which are being used in swing trading. Then, he should get to know the tool of technical analysis like candlestick charts, Fibonacci stock charts etc to understand the short term price trends of stocks.

Stock market trading tips

admin — Wed, 09 Sep 2009 01:36:20 +0000

Stock market trading is a way to make money and that too way to big money than you can imagine. Hey but wait it is also a way to lose your money very easily. The best thing is that there is no short term thing as a money generating cash flow.

Stock market is all about guts and risk taking ability and confidence in stock research the way you think about the stock. Read this here at best stock investments advice

Before you start your journey as a stock market for beginners advice I would tell you that you ask yourself a few questions. These questions are

1) Are you in the stock market for long term

2) How risk can you take?

3) Do you know all about the stock market terminology?

4) Have you ever traded online?

There is a lot of information provided everywhere the main aim that you should have is to go for the information in structured manner then apply these strategies to use in your trading account. Yes the first step to learn all about the stock picking and that is done by these two important things

Fundamental Analysis of stocks – Your learn all about stocks, industry segments and the macro economy

Technical analysis – it is all bout trends and making money by catching the trends early.

Then the next step is to read the philosophy of a lot many stock market gurus and get some insight into various theories like the value investing or the momentum stock investing or day trading.

Once that is done then go in for a opening up a discount brokerage account with an online stock broker. Make sure you compare the stock broker before investing. Again the best thing to do is to make sure that you have the best trading platform available to start the investing.

Define your trading strategy – Armed with all this knowledge define your trading style and also build a diversified portfolio.

Once you have all the stock market tips then I would say that now you can begin making money on the stock market however make sure that you are not greedy. Also try to make intelligent decisions rather than rash decisions. Always have some cash available to you for investing just in case you find good opportunity.

P/b ratio definition and p/b ratio explained in simple terms

admin — Wed, 09 Sep 2009 01:31:35 +0000

In one of my earlier posts I have explained what is the p/e ratio and the eps. Similar to the pe/ ratio is the p/b ration. P/b ratio is the ratio which is known as the price to book ratio.

It is calculated by dividing the current price by the book value per share. For stock market for beginners this ratio to be learnt is a must for good stock picking

What does it signify?

A low p/b ratio is a sign that the stock is undervalued and that this stock should be worth a lot more.

This book value is calculated based on the actual assets on the company’s books minus the actual liabilities.

Now there is a way to look at it is that if the p/b ratio is low then the company is not returning good earnings on its assets which means it is undervalued and you should check the reason for this before you buy the stock. The second way to look at is that the asset value on the balance sheet is wrong and that will mean that either the management is trying to do some jugglery or the company made some wrong decisions. In each case you should not be buying the stock.

Again this may work well in some industries and in some industries it may not as the tangible assets are not even there in the big IT companies or the software firms. Think Google(GOOG)

That is why as is the norm with all the ratios you need to make sure that you take them with a pinch of salt and treat them as indicators and not the ultimate tool to make buying decisions.

As far as the stock market terminology goes this definitely is there at par with all other terms like p/e ratio and ROE and RONW. Each of them is an indicator for performance which necessitates further investigation to find out the real gem in these stocks.

Blue chip mutual funds

admin — Fri, 04 Sep 2009 06:28:50 +0000

Following my earlier posts on what are blue chip stocks and what is the definition of blue chip stocks here is another thing which the investors should be able to use for investing in the blue chip stocks and that is the blue chip mutual funds.

These blue chip mutual funds are the funds which consist solely of blue chip companies.

The best among them is the Fidelity Blue Chip Growth (FBGRX). They have very aptly said that this investment seeks growth of your money over the longer term. They also say that they will invest in well known established companies.

This is consistent with what is meant as bleu chip companies and as I said earlier that the best thing to look is the investing in the blue chip companies for long term as that is how your money will grow as these companies tend become more larger and well manage over the longer term and in short term they may not be able to get you good returns.

The term originated from the game of poker where the blue chips are the highest value stocks. That said there have been various definitions of blue chip but the best blue chip stocks are the Dow Jones blue chip stock index companies.

Now again different mutual fund managers may have different strategies and they may also have a different connotation of what is a blue chip fund but in general they are large caps as all other investors have been buying these stocks.

An example is T. Rowe Price Growth Stock Fund (PRGFX) and this fund has the best of the best stocks in it. Another good blue chip fund is Reynolds Blue Chip Growth(RBCGX).

Some examples of blue chip companies are the

Intel (INTC)

Wal-mart (WMT)

Research in Motion (RIMM)

Again the industry segments may vary and can range from consumer services to industrial materials to hardware to energy stocks.

Always go for the no load mutual funds but if you absolutely have to invest in the mutual funds which are the loaded ones then you for a systematic investment plan.

Stock Market Term – What is market capitalization?

admin — Thu, 03 Sep 2009 03:39:18 +0000

Market capitalization is a very frequently used stock market term by the investors. While doing the research on which type of stock to buy most investors choose the market cap of the company. You would have often heard terms like large cap, mid cap, small cap and micro cap companies. But, very often people don’t actually know what these terms mean and what really is the difference between a mid cap company and a small cap company. In this article, we would learn what market capitalization means and what the different categories of market capitalization are.

What is market capitalization?
Market capitalization is a fancy name given to a very simple term. Market capitalization is actually the value of the outstanding shares of the company. It is very simple to calculate. For example, we want to calculate the market capitalization of Microsoft Technologies (MSFT) we would take its current market price and multiply it with the number of its outstanding shares.

What is the significance of Market Capitalization?
Market capitalization tells you what stock price does not. Many people think that higher stock price means a bigger company but that is not true. A company with stock price of $100 having 5 billion outstanding shares is bigger than a company having stock price of $150 but having only 1 billion outstanding shares.

What are the different market capitalization types?
There are a few categories in which companies can be divided based on their market cap. These are listed below along with some examples.

1. Mega Cap Companies – There are very few companies which fit into this category since these companies have greater than $200 billion as market cap. Mostly only the industry leaders are present in this category. One example is Exxon Mobil (NYSE: XOM).

2. Large Cap Companies or Big Cap Companies – These companies have market cap between $10 billion to $200 billion. Most of the big and well known blue chip companies belong to this category. These companies are considered to be stable and are supposed to be secure investments. Some of these companies include Microsoft (Nasdaq: MSFT), IBM Corporation (YSE: IBM), General Electric (NYSE: GE), Wal-Mart (NYSE:WMT), Apple Inc (AAPL), Applied Materials Inc (AMAT), eBay Inc (EBAY), Abbott Laboratories (ABT), Baxter International Inc (BAX), Honeywell International Inc (HON), Hewlett-Packard Co (HPQ) and McGraw-Hill Companies Inc (MHP), Citigroup Inc (C), Bank of America Corp (BAC), Cisco Systems (CSCO), Wells Fargo & Co (WFC) JPMorgan Chase & Co. (JPM), Berkshire Hathaway Inc. (BRK.B) etc.

3. Mid Cap Companies – These companies have market cap between $2 billion to $10 billion. These companies are those which are considered growth companies and may well become a part of large cap companies soon. Some of the popular mid cap companies include ABM Industries Inc (ABM), Citrix Systems Inc (CTXS), DreamWorks Animation SKG Inc (DWA), Endo Pharmaceuticals Holdings Inc (ENDP), Garmin Ltd (GRMN), MSCI Inc (MXB), Red Hat Inc (RHT), Microchip Technology Inc (MCHP)

4. Small Cap Companies – These small cap companies have market cap of between $300 million to $2 billion. These are generally new companies which have a good appreciation possibility but they come with higher risk. Some of the examples of micro cap companies include Alliance Financial Corp (ALNC), Duncan Energy Partners LP (DEP), Patni Computer Systems Ltd (PTI), Unica Corp (UNCA), ATS Medical Inc (ATSI)

5. Micro Cap Companies – These are generally referred to as penny stocks and are highly volatile and risky. Mostly, institutional investors don’t invest in these micro-cap stocks since their market cap is only between $50 million to $300 million. Examples of micro cap companies are Oculus’ (OCLS), Raptor Networks Technology (RPTN), Neuralstem (CUR), CEVA (Nasdaq: CEVA), CE Franklin (AMEX: CFK), Matrixx Initiatives (Nasdaq: MTXX), Central Sun Mining (AMEX: SMC), Technology Research Corp (TRCI), Antares Pharma Inc (AIS), Alpha Pro Tech Ltd (APT)
Core Molding Technologies Inc (CMT), Copa Holdings SA (CPA), iGo Inc (IGOI), Inhibitex Inc (INHX), Image Sensing Systems Inc (ISNS), Lime Energy Co (LIME), New York Mortgage Trust Inc (NYNT), SoundBite Communications Inc (SDBT), Sepracor Inc. (SEPR),

6. Nano Cap Companies – Companies with less than $50 million come into this category. These are extremely risky stocks and are traded only on OTCBB or Pink Sheets. Some of the examples n this category include

Of course, the market cap category can change as well due to various reasons. For example, companies line Fannie Mae (FNM) and Freddie Mac (FRE) used to be much bigger companies which have recently lost their market cap.