Stock Market For Beginners

Stock Investing Strategies – Value Stock Investing

admin — Sun, 23 May 2010 05:45:48 +0000

Value stock investing is a method that involves purchasing stocks that are going at prices below their worth. Value investors search out stocks the market has under priced. They work on the theory that the stock mark over-corrects in relation to fluctuating economic indicators, thus causing stock price changes that do not reflect companies’ long term value. Thus value investors seek to to buy stocks when their price is arbitrarily low.

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.

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.

Stock Market For Beginners – Investing Carnival for the beginners

admin — Mon, 08 Feb 2010 01:39:22 +0000

We are pleased to host the investing carnival. Each of these sites mentioned below have a wealth of information which will help you invest correctly and also make sure that your earnings and income grows. So read on and also make sure to leave a comment on each of these sites if you find the information useful. Constructive feedback will help each one of us improve the offering and help everyone learn better.

Well if you are afraid to take a plunge straight away into the stock market then here comes the Stock market fantasy game. Practice investing in the stock market, without losing any of your own money! This free stock market fantasy game is not only informative, but it’s fun. They’ll start you with $1,000,000 reserve and you can start playing after you register and create a profile. Have fun learning!

This post here talks about the topic which is essential for your to understand well if you want to make more money. It’s key in this economic environment to learn to invest money, and if you’re a new investor, the Saving Cash Tips blog has resources for getting started. Some of their ideas include using a self-directed investing or IRA account, using ETFs to invest, and looking to diversify with gold, real estate and other investments.

I have frequently talked about gold investing as part of your portfolio diversification as well as an effective hedge against currency and inflation risk. So this post is really informative and gives you information on gold investing via 401k. You will get all your answers about 401k rollover and more importantly about gold 401k rollover. It is important to know that you can invest in gold and other precious metals with your 401k account.

Saving for retirement can be a difficult and often daunting task but at Retire Early Guide you can find tips on how to make saving for retirement enjoyable! You’ll find advise on everything from how to cut variable expenses, how to reduce your mortgage debt faster, how to save for your children’s post secondary education, the right asset allocation for your retirement portfolio and more!

A lot of people worry about 401k rollovers and this site explains that really well.If you are leaving your current employer and are not sure what your next move should be regarding your 401k plan, you have the option to leave your money where it is. While you should not leave your retirement funds with your previous employer for too long, it is a good option while you get 401k rollover info and weight your options.

Ty Coon over at Stock Market Investing Today has started a unique Thirty Day Stock Market Investing Challenge. Each day, he’ll pick one stock and invest $1,000 in a stock simulator. Over the course of 30 trading days, he’ll pick 30 stocks and play them until he is either stopped out or reaches his target gain. Be sure and follow along.

I hope that you will get to know a ton of new things by reading these posts above and will be able to invest better for your future. Happy reading !

Dividend reinvestment plans

admin — Wed, 27 Jan 2010 05:22:08 +0000

he DRP system is a system that allows for shareholders and investors alike to directly purchase stocks on a regular basis from the respective company, usually through a third party such as a transfer agent, in high or small volumes. Already paid dividends are used to reinvested in additional stock, therefore the derivative of the system’s “Dividend Reinvestment Plan” name.

The specifications of each plan dictate the obligation to either reinvest the dividend or not, and only a small amount of cash is required to initiate the process.
In fact, in most cases it is sufficient to own a minimum of one single share to be able to partake in a DRP. These plans are an efficient way for Fools to put their dividends to much better use, instead of either spending them or leaving them inactive in a money market account.

Furthermore, most DRPs do not even charge to have the dividends reinvested, while many companies offer the option to investors to buy extra shares for a small amount, if indeed at all.
Stock Purchase Plans (SPPs), often known as Optional Cash Purchase Plans (OCPs) enable any investor to put in cash ranging from $10 to $50 to buy stock at a lower rate than the market value, usually a discount that amounts to around one to ten percent. DRPs effectively put an obligation on investors to frequently purchase stock and to guard it.
It encourages a more deep-rooted financial vision from investors through the consistent investment of a measured amount of money which does not necessarily have to be a huge, as long as it is indeed consistent.

These consistent investments are encouraged to be made by companies through this system of DRPs, which can be taken through the direct debiting from the bank account of shareholders and investors.

Dividend investing for stocks with high dividends choose DRIPs

admin — Wed, 27 Jan 2010 05:20:01 +0000

Passive Income is basically the art of making the most amount of money with the least amount of effort. There are many ways that one can achieve this coveted aim that any sane person would want to know as much as they can about. Dividend investing in companies is one of the ways that an ambitious investor can achieve this aim. When you become a shareholder in one of these companies, they will pay out an appropriately apportioned share of their profits to you.

The word dividend comes from the Latin word ‘dividendum’ referring to anything that is divided up. This was applied to a number of participants dividing war booty or the rewards from trading. Now, similar to then one would want to raid the richest city or hopefully invest in stocks with high dividends.

The practice nowadays is that companies retain a portion of the profits, called the retained earnings and the remainder is divided amongst the shareholders according to the equity or amount of shares each shareholder owns. This dividend payout is done once a month, a year or a few times a year. If you get lucky you might even, in addition receive a bonus dividend.

Now, the question is what do you do with your share from said dividend investing? Well you can either keep the dividends as cash or reinvest in the same company using dividend reinvestment plans or DRIPS. This is a very good way to increase your share in the relevant company, thus increasing your share in a positively producing company holding stocks with high dividends. DRIPS investment portfolios run on automatic and are a great long term investment strategy as long as the company in question, on average performs positively and steadily. An added bonus is of course that you save on transaction fees usually incurred from the purchase of additional shares.

DRIPS dividend investing is a great way to invest if you are one of those people who do not like to watch the ups and downs of the markets with an eagle eye. Of course you should keep an eye on all your investment, but with DRIPS you do not have to do it as much.

Dividend yield definition and Ex-Dividend Defined

admin — Wed, 27 Jan 2010 05:18:40 +0000

A company is usually financed by a number of stockholders who have invested some money on a company and in return they have a percentage of the shares. As a shareholder, they would be entitled to dividends given out by the company every year.

Normally when a company earns money out of its production, after retaining a certain amount, they would give out the rest of its earning to its shareholders as dividends. In short, after investing your money on a certain company, naturally if the business is good they should be able to earn a certain amount. This amount is what you give back to your investors.

A dividend yield indicates how much one gets for a certain stock. It is computed as dividends that are given out annually, divided by the price per share. As an investor, they usually look at these data to see which stocks or companies are worth investing in.

Thus, if two companies give out the same dividends, it doesn’t automatically mean that they would have the same dividend yields because it would greatly depend on a price per share. And so let us look at the following example:

Company A Dividends: $10
Price Per Share: $20

Dividend Yield: 50%

Company B Dividends: $10
Price Per Share: $40
Dividend Yield: 25%

Based on this, one could assume that just because a stock has a higher price per share does not necessarily mean that it has higher Dividend Yield. And for sure they would prefer the stocks of Company B.

Some investors would prefer stocks with higher dividend yields as it means they could get more money for what they have invested in. However, some would say that having high divident yields could indicate an underpriced share and may mean that the company would not earn soon. It’s still an ongoing discussion about the importance and accuracy of dividends yields. Well, there is always two sides to a coin.

In relation to this, there is also the Ex-Dividend which is important to understand. Once the Ex-Dividend Date is declared, whoever owns the stock during that time will receive the dividends declared, however after receiving such dividends, anyone who buys these stocks will no longer benefit from receiving dividends. Naturally the price for these stocks would also decrease as there would be lesser demand for them.

California tax free municipal bonds or califoRnia muni bonds

admin — Wed, 27 Jan 2010 05:13:59 +0000

Municipal bonds can be viewed in two ways. The first is the type that is issued by the federal states to bolster specific streams of revenue. These types of bonds can raise investments in the financial infrastructure of a particular state. The second type of municipal bond can be raised for further developments in major construction projects. For example a place like Chicago Airport with investments by United Airlines. There are many pros and cons to investing in municipal bonds.

Considering the current recession, it is often argued as to whether having tax free investments is a good thing. The municipal bonds certainly don’t attract any federal or state taxes, so the investor makes a huge long term saving on that. These type of bonds are usually considered to be good credit because they offer much better value than corporate bonds as well as taxable bonds. If you live in California then they are known as Califo bonds.

In the present climate Califo municipal bonds is the way forward, as they look really solid and can give you a good return. This is because California has the highest rate of tax and it makes sense to avoid paying excessively high tax at any cost. If you have a huge amount of cash to spare then it prudent to invest it so your money works for you earning interest. There is a marvelous opportunity to invest in Californian tax free bonds or the California tax free municipal. It does not matter which part of the country you live in, state is unimportant. Anyone living anywhere in the USA can afford to invest. This way you can avoid federal taxes, but not the local taxes. You can apply to invest in municipal bonds in any state where you reside.

The process is simple:

a/ You open up an account with the TreasuryDirect.gov and buy directly.

b/ Or you can go through the mutual funds and invest through them.

For (a) Municipal Income Fidelity is a good choice. The best way to invest is through the municipal bonds, as they are discounted in recessionary times.

For investment (b) there are many companies such as American Funds RTCFX, TAFTX,TECFX, The Vanguard CA tax free- VCADX, The Schwab tax free- SWCAX. There are also the electronically traded funds called ETF’s which are also tax free.

When considering any kind of investment make sure you ask for the yield on tax free bonds. The yield totally depends on the state of the economy, and these municipal bonds do incur some amount of interest rate risk. There are some options available like fixed rate bonds funds or the floating rate muni bonds. Generally speaking the state free munis bonds are considered to be highly rated as much as triple AAA. They have the backing of the state government these states can go into default and it could make the bonds a risky venture.

The other option to be considered is the Zero Coupon Bonds, which have little interest value, but they a nevertheless good value as they have a deep discount value.