Beginners Investing

If you are visiting this website chances are very good that you want to make money in the stock. Before we go much further lets discuss risk. Before you invest on dollar in any investment vehicle you need to understand there is measure of risk associated with your investment.

The degree of risk varies from investment to investment and as we have discovered recently with the ebb and flow of financial markets. Investing in stocks, bonds, or mutual funds carries risks of varying degrees and all investments are risky.

That being said there are ways to reduce risk and still maintain a decent return on your investments, but understand this, high rates of return bring with them high risk concerns. CD’s and Money Market funds will keep your investment safer and reduce risk, but it also reduces your potential reward.

Every investor has a risk threshold. How much risk they can live with comfortably and it is different for each investor. Each defines what is acceptable risk and should be a priority for any beginning investor. Everyone needs to sleep at night and not held hostage to high levels of anxiety caused by worrying about their investments.

Hint: if this is happening to you already, its time to change your approach. When you find your own comfort zone, you’ll know your personal risk tolerance, the amount of risk you are willing to tolerate in order to reach your financial goals.

Investing in stocks on a long-term basis will help lessen the risk, but not eliminate it completely. It would be better to choose some lower risk investments as a beginner and let your investing philosophy evolve over time.

One o f the biggest issues for beginning investors is the inevitable question of; Is this the right time to get into the stock market?  Consider your goals and motives for investing in the stock market. Define a plan and then work the plan and risk and reward will take care of itself.

• Read More »

To those of you that are interested in trading on margin if you are just beginning to day trade or invest, my first piece of advice would be do not use margin!! If you have practiced your strategy paper trading stocks and you are happy with your results then use your own money to trade with and if you are still comfortable with your results, try a couple trades using a little margin. I only use margin for short term trading.

Margin trading is a high-risk strategy that can give you a huge profit if executed correctly, the flip side of that is that you can have huge losses. One of the only things riskier that investing on margin is doing it without understanding what your doing and what the consequences could be!

Buying or trading on margin means that you are borrowing money from your broker to purchase stock. You are using leverage. It’s a loan that allows you to buy more stock than you would be able to normally. To trade on margin you need a margin account, which is different than just a cash account in which, you trade using money that you have deposited. There is an initial investment required to open a margin account and each brokerage house is different. Once you have your margin account open, you can borrow up to 50% of the stock purchase price, it’s important to know that you do not have to margin up to 50% you can do less 10% or 20%, I personally would not recommend to margin up to 50%!!

You can keep your loan as long as you want, but remember you borrowed money and no one gives a loan for free. You have to pay interest on that loan. The stocks held in your account are collateral for your loan. When you sell a stock in a margin account the proceeds go to the broker for repayment of the loan until it is paid in full.

Buying on margin should be used as a short term strategy. The longer you hold a margined investment, the greater the return that is needed to make a profit or even break even. The longer you hold a margined investment, odds are you will not make a profit.

Not all stocks can be bought on margin. Brokers will not allow the purchase of penny stocks, over the counter Bulletin Board (OTCBB) securities or Initial public offerings (IPOs) to be purchased on margin because of the high volatility and risk associated with these types of stocks.

You have two different types of margin restrictions on your account. One is the initial margin, which is the amount you can borrow. The next is the maintenance margin, which is the amount you need to maintain after you trade. These amounts are set by the Federal Reserve Board. Minimum initial margin is 50% and maintenance margin of 25%, some brokerages can have stricter limits.

If the equity (which is the value of the securities you hold minus what you owe the brokerage) falls below the maintenance margin, the brokerage will issue a margin call. If you are issued a margin call you will need to deposit cash into the account or liquidate your stock positions to cover the call.

For example you purchased $20,000 worth of stock by borrowing $10,000 from your broker and paying $10,000 yourself. The value of your stock drops to $12,000, so the equity in your account falls to $2,000 (12,000 -10,000 = 2,000) 25% of 12,000 = 3,000. You would be issued a margin call for 1,000, which is the difference between the equity in your account and the 25% maintenance’s margin on the value of your 12,000 worth of stock.

If you do not take care of the margin call by depositing money or selling stock, the brokerage has the right to sell securities (stock) to increase your account equity until you are above the maintenance margin. Under most margin agreements, a firm can sell your securities without waiting for you to meet the margin call, and they don’t need to consult you before doing it!

• Read More »

We are getting perilously close to that 7800 area on the Dow that was the intraday low we hit in November and bounced back up. This time if we hit it, I do not think it will hold. I believe we will be heading a lot lower around the 6500 area possibly 6000.

The markets just keep getting disappointing news.

This past week a bunch of banks reported worse than expected earnings and loan losses that are still growing. Bank of America saying they will possibly need billions more in aid from the Federal Government. Then besides all of Thain’s earlier missteps, came the revelation this past week that he spent 1.2 million redecorating his office!! All I could do was shake my head in utter disbelief. What’s 1.2 million when the company (Bank of America) that your are second in command of is getting Billions of dollars of taxpayer money from the Federal Government.

Microsoft released a disappointing earnings report and because of the market volatility they are unable to provide guidance for revenue or EPS (earnings per share) for the rest of the year.

Then there was a decline GDP(Gross Domestic Product) in Q4 for both China and the UK. This means that growth is slowing which is a bad thing.

To top it off housing starts fell to an annualized rate of 550 thousand units, the lowest on record going back to 1959. Initial jobless claims jumped back up to 589 thousand, which is a 26 year high.

Another ponzie scheme was discovered in California. Approximately 1000 people lost 52 million dollars.

Should I keep going on or just quit now? There is just no good news out there.

If the government announces plans to create a bad bank, that’s a bank that buys all the toxic loans from the troubled banks to get the loans off their books, that might put a floor in the financial markets and turn things around. It’s an idea that has been kicked around. We’ll have to wait and see.

Back on November 7th I wrote in my Stock Market Updates “Obama plans to raise the amount of federal money spent on science and technology research, to spur innovation and job creation. He will be seeking approval to spend 150 billion dollars over the next 10 years on clean energy technologies, and 10 billion a year over the next five years on healthcare information systems. He has pledged to double federal funding for basic research in science and technology, this includes embryonic stem cell research.”  As bad as the market has been the last few weeks, stem cell biotechs and healthcare stocks have been moving up. Geron’s announcement this past week about starting stem cell trials in humans for spinal cord injuries really caused a move. Keep in mind it is only a 10 person trial and it’s many years from being marketed. I am not recommending that you go and invest in these stocks, do you own research and investigation. These are sectors to keep your eyes on.

Some economic events this week are:
Existing home sales Jan 26th
Consumer confidence Jan. 27th
Durable goods orders Jan. 29th
Jobless claims Jan. 29th
None of which I expect to be good or surprise us with better than expected numbers.

As always whether you are long or short may all of your trades be profitable!!

Becky

• Read More »

Written By Becky Smith

Well ,so much for the trend being up. I am not sure how much more investors can take when it  comes to the scandals that keep hitting  the market. First we find out about Madoff, the biggest ponzi scheme in history, a 50 Billion dollar fraud . Then two smaller ponzi schemes were discovered this week, one for 17 million and one for approximately 50 million. To top it off Wednesday Satyam Computer Services chairman, Ramalinga Raju, announces that the company is a gigantic fraud. We are not talking some small unknown company.This is the 4th largest information technology services company in India, that employs 54,000 people! Satyam was founded 20 years ago. Amazing!!

The unemployment rate rose to 7.2%, the highest level in 16 years. More than 524,000 people lost their jobs in December, but that number was less that many analyst were expecting. In 2008 more than 2.5 million jobs were lost, with more lay-offs expected this year.

Earnings start in earnest this week and they are not expected to be pretty. Most companies are likely to write off as many losses as possible in their results. The only areas expected to post gains are the utilities, healthcare and consumer staples.

I’ll be watching for Alcoa’s earnings after close on Monday. They have already announced lay-offs(13,500 employees) and that they are reducing capacity(18%) and that they would stop “all non-critical capital investments”. Their shares are down 65% over the last 52 weeks. There is worry that they might cut their dividend, if they do I believe the shares will go down. If they say anything that can be construed as a positive and leave the dividend intact I think it will bounce.

Infosys Technologies Limited reports earnings on Tuesday this company could bounce if they hit their numbers. They could also benefit from the Satyam scandal picking up business in their enterprise solutions, financial services and manufacturing divisions.

There are a few other major earnings reports this week Xilinx reports Wednesday. Intel and Genentech report Thursday after the bell. It’s also thought that Roche of Switzerland is preparing an offer for Genentech, of which it owns a 56% stake. The offer is expected to be approximately $95 a share. Genentech closed Friday at $86.34. That’s not to say it’s a sure thing, last July independent directors rejected an offer of $89 a share.

Fed Chairman Bernanke will speak Tuesday at the London School of Economics.

Wednesday data will include retail sales numbers for December: import prices and business inventories

Jobless claims, inflation data will be released with producer prices Thursday the consumer price index, industrial production and consumer sentiment and personal finance on Friday.

Keep in mind that all of these reports have varying amounts of importance to the markets and can move them up or down.

As always keep your eyes on the markets and whether you are long or short may all of your trades be profitable!!

Becky

• Read More »

Written By Becky Smith

This was a short week with light trading as will be next week. We had a few economic reports of which none moved the market too much one way or the other. New and existing home sales tumbled in November. Jobless claims surged.The U.S. Richmond Fed Index reached a new record low and the final U.S. 3rd quarter GDP was unrevised.

Next week there will be some economic reports released. Tuesday we’ll get Consumer Confidence numbers and the Chicago Purchasing Manager numbers for December. Wednesday we’ll get Initial Jobless Claims and Continuing claims. Friday we get the ISM manufacturing for December and ISM prices paid. Fridays ISM manufacturing number has the most importance to the markets.

Last week I had said to keep your eyes on the REITS (Real-estate Investment Trusts).  I had noticed many of the stocks in this sector starting to move up. This week ProLogis sold their Chinese unit for 1.3 Billion on Tuesday and on Wednesday was upgraded by Deutsche Securities to a buy and Wachovia to an outperform. This week it went from about $8.00 a share Monday to close Friday at $13.59. Some of the other stocks I was watching were DCT, BDN, BPO and LXP most of which had 10% plus moves over the week. Keep in mind I am a trader I am watching for sectors/stocks that I can trade. I am not recommending that you go out and buy these stocks, nor am I recommending them for a trade after their move last week. When one stock in a sector has good or bad news many of the other stocks in the sector move in sympathy with them. This is something you need to look for if you want to be a trader.

I wish you all a Happy and Prosperous New Year, and as always whether you are long or short may all of your trades be profitable!!

Becky

See more Weekly Stock Market Updates

• Read More »