Value investing is a very well known strategy. The theory of value investing was laid out by two Columbia finance professors, Graham and Dodd, in the 1930s. The theory is simple: Buy stocks being sold beneath their real value.

Good earnings, dividends, and cash flow are earmarks of a good company that can belie a seemingly low trading price. The value investor hunts for companies that are under-rated by the market currently, and looks to profit when market investors catch on to their mistake and share prices rises.

The potential flaw in value investment strategy is that their is truly no objective intrinsic value to stocks. Individual investors working with the same info constantly take the same information and reckon different values for the same stock. This is why the concept known as “margin of safety” is important in value investing. This indicates buying cheaply enough that a profit will still be turned if one overestimates the ultimate rise in share prices when the market fluctuates. In the extreme case, attempting to practice value investment on such junk assets would amount to throwing money into a hole.

Further, there is no exact, objective definition for “value investing”. A certain percentage of value investors look only at a companies present earnings and assets, ignoring future growth, while other value investors craft a more long-term revolving around potential future growth and profit expansion for the company. The value investor must distinguish between a temporarily undervalued bargain company and one that will simply continue falling in value for the foreseeable future. If company X has been trading for the past quarter at $35.00 a share but drops to $15.00 a share, this is not necessarily a value company. It may simply indicate that the company has problems the market is responding to, indeed, the company in question may be going belly-up.

Here is a rundown of the rules of thumb value investors use for choosing stocks.

1. Price per share must be equal to or less than 66.66% of intrinsic worth.
2. Pay attention to companies featuring P/E rations at the cheapest 10% of traded equity securities.
3. The PEG should be below one.
4. The stock price must be less than or equal to book value.
5. Equity should be greater than or equal to debt.
6. Current assets must be at least double liabilities
7. Dividend yield must be at least 66.66% of the AAA bond yield over the long term.
8. Growth in earnings must be at minimum 7% per year, compounded over the previous decade.

Value investing lacks the glamor of the higher risk/reward styles. It relies not on hot tips or intuition, but a simple, cool headed process of screening stocks by the numbers. However, there is something to be said for a method that outperforms the S&P to the tune of thirteen percent over a 40 years.

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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.

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These companies are the best when it comes to the their respective industry segments

Let us begin by talking about the list of blue chip companies and there are a huge number of companies but I will stick to the well known which the Dow Jones blue chip stocks are and the list is the 30 stocks that comprise that index and these are

3M (MMM)

Alcoa (AA)

American Express (AXP)

AT&T (T)

Bank of America (BAC)

Boeing (BA)

Caterpillar (CAT)

Chevron Corporation (CVX)

Cisco Systems (CSCO)

Coca-Cola (KO)

DuPont (DD)

ExxonMobil (XOM)

General Electric (GE)

Hewlett-Packard (HPQ)

The Home Depot (HD)

Intel (INTC)

IBM (IBM)

Johnson & Johnson (JNJ)

JPMorgan Chase(JPM)

Kraft Foods (KFT)

McDonald’s (MCD)

Merck (MRK)

Microsoft (MSFT)

Pfizer (PFE)

Procter & Gamble (PG)

Travelers (TRV)

United Technologies Corporation (UTX)

Verizon Communications (VZ)

Wal-Mart (WMT)

Walt Disney (DIS)

Have they delivered blue chip returns?

I would say that if you look at the recent past with the sub prime mortgage crisis and all other recessionary trends then these stocks have weathered the storm better than the others.

IBM is still strong as ever.

Mcdonald’s is also strong

Bank of America gobbled up Merrill Lynch and has emerged stronger and with less competitors. That is not to say that these have not failed as you can see from the earlier blue chip companies which were like Citigroup(C).  The major characteristics of what is a blue chip stock I have given in my earlier post.

That is why it is always better to diversify and not invest all your money only in blue chip stocks and you can also invest in the best mid cap stocks as well as the best micro cap stocks

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S&P 500 index is one of the most widely used indices after DOW Jones index for following large cap companies. This index is maintained by Standard and Poor’s which is a division of McGraw Hill. The ticker symbol for the S&P 500 index varies. Some examples of the symbol are ^GSPC, .INX, and $SPX.

There are various index funds and exchange traded funds (ETFs) which are based on S&P 500 index. Some of these funds are:

Vanguard 500 Index Fund (VFINX)

Fidelity Spartan US Equity Index Fund Advantage (FUSVX)

E*TRADE S&P 500 Index Fund (ETSPX)

Columbia Large Cap Index Fund (NINDX)

DWS Equity 500 Index Fund (BTIEX)

USAA S&P 500 Index Fund (USSPX)

Rydex S&P 500 A (RYSOX)

Rydex S&P 500 C (RYSYX)

The S&P 500 stock market index, maintained by Standard & Poor’s, comprises 500 large-cap American companies. S&P 500 is a core component of the U.S. indices that could be used as building blocks for portfolio construction. It is also the U.S. component of S&P Global 1200.

Index constituents exhibit the following characteristics:

• Market Coverage – Approximately 75% of the U.S. equities market
• Weighting – Market capitalization
• Market Capitalization – Minimum of US$ 3 billion
• Public Float – At least 50%
• Reconstitution – As needed basis

The companies which constitute this index are:

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What are small cap companies?

Small cap companies are those which have the market capitalization between 250 million dollars to 2 billion dollars. Most of the time, small cap companies can trade in any exchanges but you can see most of the small caps on NASDAQ and OTCBB exchanges since the listing rules and regulations are a bit liberal in these exchanges.

Some investors think small caps in a similar way as penny stocks. However, there is a big difference between the two. Usually, penny stocks have a stock price of a few cents but small caps can have stock prices of more than one dollar as well.

Advantages of investing in small caps:

1. Huge growth potential – Since these are small companies, they are lean and mean. Most of the times, these companies are quickest to recover from recession since they are able to mend their ways very fast. Every good contract they get increases the bottom line thus appreciating the value of the share.

2. Since these are small caps, institutional investors don’t touch them until they are recognized. This means that you have the opportunity to find them first before their value appreciates.

3. The recent recession has shown that earnings alone won’t give you returns. If you see blue chip stocks over the last year or so, you will see big blue chip companies like Microsoft (MFST), CISCO (CSCO) and the big car makers having no appreciation at all. Meanwhile, the small caps which are innovative had returns of 2 to 10 times.

4. There are still a lot of opportunities for innovative companies in America. There are a lot of new young entrepreneurs coming up with great innovative ideas unlike dotcoms. If they get the required financial backing, they can make it big.

Some of the best small caps for this year are listed below:

GeoEye Inc. (NASDAQ: GEOY)
Chipotle Mexican Grill, Inc. (NYSE: CMG), (NYSE: CMG.B)
eHealth, Inc. (NASDAQ: EHTH)
PROS Holdings, Inc. (NYSE: PROS)
Zix Corporation (NASDAQ: ZIXI)
Somanetics (Nasdaq: SMTS)
Almost Family (AFAM)
Neutral Tandem (TNDM)
MasTec (MTZ)
Ebix (EBIX)
Thoratec (THOR)
American Italian Pasta Company (AIPC)
Volcano Corp. (VOLC)
Emergent Biosolutions (EBS)
AZZ Inc. (AZZ)
Baytex Energy Trust (BTE)
NVE Corporation (NASDAQ:NVEC)
DG FastChannel Inc. (NASDAQ:DGIT)
Nabi Biopharmaceuticals (NASDAQ:NABI)
Art Technology Group, Inc. (NASDAQ:ARTG)
Sutor Technology Group Ltd. (NASDAQ:SUTR)
Multi-Color Corporation (NASDAQ:LABL)
Orchids Paper Products Company (AMEX:TIS)
Youbet.com, Inc. (NASDAQ:UBET)

Keep in mind that some of these best small caps can give you great returns. Since these stocks are risky as well, a lot of background verification is required while putting in your hard earned money into these small caps. These stocks are good stock investments if done after thorough research and analysis.

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The investors may need to know about the historical stock prices of a particular stock to understand how it behaves in particular situations. People may want to know how many times IBM stock has split? Or they want to know how Microsoft (MFST) behaved during the year two thousand bubble burst? Or what was Coca Cola (KO) stock price ten years ago? Or what was the price of Google (GOOG) when its IPO came in? They may also want to follow a particular index like Dow Jones Industrial Average or S&P index to see trends.

There are various websites available today which will provide you with this stock market data. They will let you see the historical stock prices for a particular stock as well as details about any particular index. You can see charts for any given range of time if you want to visualize the data. You can also compare two or more stocks in a single chart by overlaying them which is a great tool to do research. You can see when and how many times have a stock split in last so many years. What more, you can even download the data in a local excel spreadsheet for future reference for yourself.

Though there are many websites available, a few of them are most users friendly. These include Yahoo Finance website and bigcharts.com website. BigCharts is one of the most famous online tools to get the historical information about any chart. You just have to enter the stock symbol and you can get historical stock prices for that stock.

Yahoo Finance is also a great tool which is famous across the world. You can specify the date range while getting the historical stock quotes. You can choose the button for the type of values you want: Daily, Weekly, Monthly, or Dividends Only information. The output will give you data about stock prices (Open, High, Low, Closing Price), and Volume (number of shares sold). There is also an Adjusted Closing Price, to account for share splits, dividends, and any other unusual adjustments.

There are a lot of other very useful sites which provide this information free of cost. These include Investopedia’s research, MoneyCentral etc.

You should use the historical stock prices to make yourself a well informed stock investor. By studying the historical stock quotes, you can become more aware of the stocks and can invest in them in more confident manner.

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1. Real time stock quotes – how to get them?
2. Free real time stock quotes
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The first and the easiest way to get free real time stock quotes is your brokerage trading account. The online trading account has an in built feature which lets the investors see the real time quotes of any stock from any of the three major exchanges which are New York Stock exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ) and the American Stock Exchange (AMEX). But, people who don’t have any online trading account don’t have this facility.

For these people, newer avenues have started opening up. One of them is the Google Finance website. You just have to logon to your account and you would be able to see online and real time stock quotes absolutely free. This feature has been very recently made available for all users of Google account.

In a very new development, some cellphone carriers have started a facility in which they will provide you with free real time stocks quotes. This facility comes as a part of your monthly subscription of cellphone therefore you don’t have to pay anything extra for using this service. You should check with your cellphone carrier to see if they have started this service yet or not.

There are some free stock tickers also available which you can use to get online real time quotes without any fees. You can download one of these tickers and install on your desktop. You will have some options in which you can choose the stocks which you want to see, current price, opening price and closing price. Before installing such a stock ticker, make sure that it is free of any spyware and adware otherwise you will be at a risk of losing your personal information from your computer.

The real time stock quotes are very important of any investor. These are even more important for active traders since they always have to be up to date with the latest stock prices. As you see, there are various options available for free now so that you don’t have to pay the subscription fees to get the real time stock quotes. While the paid services have more information and news, these free alternatives are also worth a look.

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There are many people who want to start investing in stock market but they are afraid of losses since they don’t have experience of stock trading. Therefore, they don’t want to directly put their hard earned money into online stock trading. Most people think that just reading about stock markets on websites and books will give them enough information to start trading. But the fact remains that you can only learn definitions this way. The right way to gain experience is to actually do some investing.

How to invest without losing any money?

The question arises that how can someone start investing without any risk of loosing money. The answer is stock market simulator. A stock market simulator is nothing but a fantasy simulator which is popular in sports where you have some virtual money. You invest that money in doing trading in the stock market. This trading is a simulation of real trading which gives you experience of real world online trading systems. Since you are using virtual money, there is no risk of loosing it. On the other hand, even the profits are virtual.

The stock market simulators are simple, easy-to-use programs that imitate the real-life workings of the stock market. In other words, it is a program or application that attempts to reproduce or duplicate some or all features of a live stock market on a computer so that a player may practice trading stocks without financial risk. Usually, the software will give the investors a sum (like $100,000) worth of virtual money. Using this money, the investor can build his portfolio after buying stocks at real time market prices from exchanges like New York Stock Exchange (NYSE) or American Stock Exchange (AMEX). The software will also deduct commissions on trades to emulate the real trading procedure so that the investor has a feeling that he is investing in real exchange.

Advantages of stock market simulators

The stock market simulators are a great way to teach student in financial domain about the real life situation that arises in the markets. A lot of teachers use this method of teaching where the students compete with each other after starting at the same time. They would be able to understand their risk appetite and investing strategies. They also understand the financial terms better since they talk in those terms while playing this game. When mixed with fun learning becomes very easy. In the course of this competition, students also learn how to budget money, use comparative math, be part of a team, think critically and make decisions quickly.

There are various stock simulation software’s available in the market today. Some are free and some are paid. The good ones are paid and they simulate the stock market very closely.

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1. White candlestick – White candlesticks or hollow candlesticks signal uptrend movement. These occur in different lengths; the longer the body, the more significant the price increase.
2. Black candlestick – Black candlesticks or filled candlesticks signal downtrend movement. These occur in different lengths; the longer the body, the more significant the price decrease.
3. Long lower shadow – Long lower shadow gives a bullish signal. The lower wick must be at least the body’s size; the longer the lower wick, the more reliable the signal.
4. Long upper shadow – Long upper shadow gives a bearish signal. The upper wick must be at least the body’s size; the longer the upper wick, the more reliable the signal.
5. Hammer – A hammer shows a bullish pattern during a downtrend. The hammer has long lower wick and small or no body. Shaven head hammer shows a bullish pattern during a downtrend & a bearish pattern during an uptrend since it has no upper wick. The Hanging man hammer candlestick shows bearish pattern during an uptrend. It has long lower wick, small or no body; wick has the multiple length of the body.
6. Inverted hammer – Inverted hammer signals bottom reversal; however confirmation must be obtained from next trade. It may be either a white or black body. Shaven bottom inverted hammer signals bottom reversal, however confirmation must be obtained from next trade. It has no lower wick. Shooting star inverted hammer shows a bearish pattern during an uptrend. It has small body, long upper wick, small or no lower wick.
7. Spinning top white – Spinning top white gives a neutral pattern. It gives a normal view until seen with respect to the other candlestick patterns
8. Spinning top black – Similar to spinning top white pattern and gives neutral pattern but in black candlestick. Again becomes meaningful when sees in combination with other candlestick patterns
9. Doji – Doji is a neutral pattern with no body and only shadows, meaningful in combination with other candlestick patterns
10. Long legged doji – This is a type of DOJI but have long shadows. It signals a top reversal
11. Dragonfly doji – As in a normal Doji, there is no body and a Dragonfly Doji signals trend reversal since it has no upper wick and long lower wick.
12. Gravestone doji – Opposite to Dragonfly doji and signals trend reversal. It has no lower wick and long upper wick
13. Marubozu white – Marubozu denotes dominant bullish trades and continued bullish trend. It has no upper or no lower wick.
14. Marubozu black – Marubozu black denotes dominant bearish trades and continued bearish trend. It has no upper or no lower wick.

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MACD technical analysis uses moving averages, creating a momentum oscillator by subtracting the longer term moving average from the shorter term moving average. In the end you get a line that crosses above and below zero without any limitations on the up or downside. Usually the MACD incorporates a 26 day and 12 day exponential moving average (EMA). 26/12 is the most common combination used by the experts where 26 day EMA is slower and 12 day EMA is faster.

Calculation of MACD

The MACD value can be calculated by simply deducting the longer EMA from the shorter EMA. This value oscillates around a zero point, zeros being where the 26 day EMA is identical, and therefore (usually) crosses over the 12 day EMA.

MACD = EMA (12) – EMA (26)

Once the MACD has been calculated, a 9 day Exponential moving average of the MACD value is then calculated. This value is then plotted and is known as the signal line (EMA (9)).

Purpose of MACD

When the MACD for a stock is positive, it means that that price trending in the long term for that stock is bullish. If the MACD is negative, long term outlook is bearish. It the MACD crosses the signal line; it means that the trend is changing. For example, you can see when the MACD crosses line for Citigroup (C), General Electric (GE) or Intel (INTC)

Characteristics of MACD

The MACD is:

MACD is a lagging trend deviation indicator using two EMAs as method of deviation.

• It is best when used as a technical indicator for long-term trends.
• It is plotted with stock trading software as a smooth series, ignoring insignificant price variation.
• Subject to whipsaw, often leading to poor market timing.

MACD interpretation

Analysts who follow MACD technical analysis use the following guidelines:

When the MACD crosses over from below the signal line and rises above the signal, this is a sign to buy. Conversely, when the MACD crosses over from above and drops below the signal, this is a sign to get rid of the stock.

• If the MACD crosses the zero point and moves from below zero to above zero, this is a buy signal and vice versa.
• In sideways trending markets, there may be numerous cross-overs, thus making interpretation unreliable. MACD buying signs are best used in a generally up trending stock or market.
• The signs to buy or sell are stronger if the movement up or down is sharp.

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