Diversification Is Key To Success When investing in Stocks, Bonds, Mutual Funds, , FOREX, Commodities and ETF’s and just about every other legit investment available. Why is it that some people only buy one or two stocks? Others may have 15 stocks but have 50 percent of their investment assets in just one of those 15 stocks. In Wall Street we refer to this type of behavior as concentration. Some firms call it over-concentration. When this happens in a brokerage firm it is always considered dangerous. It is so dangerous, in fact, that if the brokerage firm is using a concentrated stock position as capital, then the market value of the security in question is given a haircut. This means that the full market value of the security is chopped by some fixed percentage in any capital computation. In other words, if you are over-concentrated, you don’t get full value. Some of you may have margin accounts. Its always best to have cash ownership of stocks you invest in. If you own stocks on margin, it is our opinion that you will get sold out on margin. Normally in a margin account you put up 50 percent of the value of the stock you acquire in cash. If equity falls below 35 percent, you get a margin call. Now, brokerage firms love it when clients have 15 or 20 different stocks in a margin account. If there are some bonds in that account, guess what, they love it even more. Why? Because brokerage firms know that stocks represent risky investments. Something can always go wrong in any one situation.... read more
The price earnings ratio is the number that is looked at more than any other on the stock market. The price earnings ratio examines the relationship between a company’s earnings and the stock price. This is the most popular form of stock analysis, but it is important for any investor that they do not rely on just one type of information to guide them. The price earnings ratio is calculated by dividing the earnings per share of a company by the share price. The formula looks like this: Price Earnings Ratio=Stock Price/ Earnings Per Share. Why is the price earning ratio important to stock traders? This ratio is used by traders to get a basic assessment of what the market will pay for the earnings of a company. The higher the price earnings ratio is, the more money the market is willing to pay for earnings from a company. Some investors stay away from stocks that have a high price earnings ratio, and this may be because they think the stock is overpriced. But a high price earnings ratio may also mean that there are high hopes for the company on the market. A low price earnings ratio may mean that there is no confidence in the company on the market, but that does not make this stock a loser. Some stocks, called sleepers, are good stocks that get overlooked by the market. These sleeper stocks are also known as value stocks, and many traders have made a killing by recognizing these stocks when the market does not. There is no right or good price earnings ratio. One investor... read more
The most important decision you will ever make when it comes to trading stocks is your choice of a stockbroker. With the large number of brokerage firms available online, finding one that is a good match with you can seem like an impossible task. By knowing some of the questions to ask and what to look out for, the decision will be easier and finding the right stockbroker will be a simple matter. There are several factors that must be considered when you are choosing the right stockbroker. These include any discounts, the site performance history, alternative contact methods like phone and mail, trade costs per trade, the brokers reputation and track record, account types available to you, any minimum deposit, customer service with the broker, and the selection of products, to name some of them. Any discounts you receive should not be the only reason you choose a specific broker. In the beginning it is better to have a full service broker. Once you get really comfortable with your trading strategies then you can start taking some of the task on yourself. Once you reach this point, then a broker who offers a discount may become right for you. The performance of the brokerage site you are looking at is an important chunk of information that is needed to evaluate a potential online site. It is a good idea to visit the brokerage site during peak market hours to see exactly how fast it loads at peak times. Thoroughly research the broker, and find out what alternate contact methods he has in place if the computer is not... read more
You know something is hot when the Wall Street Journal stands up and pays attention. In fact they full page ads for ETFs. So are you wondering why exchange traded funds are hot and what role they can play in your investment strategy? Although Exchange Traded Funds or ETF’s are not technically mutual funds they do offer some of the same types of advantages but they trade like stocks. They certainly should be part of your investment strategy because they are the best investment vehicle to come along since mutual funds and that’s why exchange traded funds are hot. This basket of securities is traded on the exchange and because of its stock like features combined with its index mutual fund similarity it has become a hotly traded commodity and just one reason why exchange traded funds are hot. There are plenty of advantages that tag along with the exchange traded funds. Because they are traded on the stock market they have a lot more flexibility than a traditional mutual fund. They can be bought and sold any time you want during the trading day just like any stock. Mutual funds don’t allow that kind of trading. We’ve been wanting for something new and exciting for awhile now and that’s why exchange traded funds are hot. You can even buy exchange traded funds on margin which isn’t an option with mutual fund. And when it comes to taxes thanks to SEC regulations ETF’s will actually beat the mutual funds. There’s plenty of reasons why exchange traded funds are hot plus they’ll compete nicely against even the cheapest mutual on... read more
