Investors who are well informed know what questions to ask to zero in on what a broker is all about. They also know the right questions to ask when it comes to communicating their needs as effectively as possible to the broker they have decided to work with. As well an investor who is “in the know” about brokers is less inclined to be charged higher commission fees then he/she should be. You need to do everything in your power to make sure that both your broker and the brokerage firm you select have your best interests at heart.

Research Your Broker

One of the first things you should do is to research your broker online. Search for him or his firm on the NASD website .  Be specific about what you are looking for. You want to know whether there have ever been any judgments or liens against him. You want to see if any complaints have ever been lodged. If yes then when? What was the complaint about? You also want to see if he has ever been let go by a former employer. All of this information is pertinent to you. It is also free. You can request that a detailed report be sent to you. From there you can look it over more thoroughly.

Being privy to this information will help to provide a basis for your relationship with a brokerage firm and a particular broker. It will also help you to decide whether you can have confidence in the firm and the brokers its hires or whether you should look elsewhere.

Ask Questions, Get Answers

It then will become necessary to ask the prospective broker how long he has been working as a broker, how long he has been with the firm, and why he chose that firm. You will also want to know how many clients he works with on a regular basis. Asking questions and listening carefully to the answers can help you to learn plenty about the individual.

You also need to inquire about what the broker’s money line is. To put it another way, you need to find out how the broker makes his money. Once you know what the broker’s money line is you will know whether he has a sufficient number of clients. This will also provide insight into his terms of commission and/or changes made to commission charges. 

Market Makers or Not?

You need to find out if the brokerage firm in question makes markets or whether it does not. The majority of brokerage firms are market makers. What this means is that they act as intermediaries between buyers and sellers when it comes to the trading of NASDAQ stocks. Many of these firms use the status they have as market makers to build an inventory of stocks. What this means is that they make a commission from their clients (like you) but they also make money off of the purchase and/or sale of the stock. The brokerage buys at the bid and sells at the offer (or ask). You on the other hand as an investor do the exact opposite.

This is something that many investors fail to ask brokers they are contemplating working with. This is a mistake. You need to ask. When you ask whether or not the brokerage firm makes markets in the stocks that you, the investor buy, this will give you a clearer picture of the amount of money that they are generating from your brokerage account. It can also provide you some leverage when it comes to negotiating the structure of the commission they receive from you.

Negotiate Commissions

Commissions are not written in stone. There is room for negotiation and then for further negotiation if need be. Bear in mind that there is a tremendous amount of information available online when it comes to discount brokers and stock research. For this reason the broker you select must remain as competitive as possible in terms of the commissions he charges his clients. This can work in your favor.

One thing you might suggest doing is to have the commissions you pay tied in with the performance of the broker. This can make the situation fair for both yourself and the broker. Most brokers that are worth your time and money will be willing to consider this idea of yours. Be aware of course that you get what you pay for. If you want the absolute best then you will pay more. For example, a full-service broker who has access to the top research and shares in an IPO will cost you more than if you go to a deep-discount brokerage firm. The key is to look around and shop around to find out what other brokerage firms are charging, regardless of the type of service(s) you are seeking.

Catch Up on Your Reading!

The more you know about a firm the better position you will be in to make the right decision about which one best suits your needs. You need to read up on the firm or firms you are considering. When it comes to researching the brokers with big names look to web resources as well as trade journals for the information you seek. While you do not want to be pessimistic or to assume the worst you need to look for any problems within the brokerage or any high-level departures. It also is a good idea to see if you can determine whether the company in question is competitive when it comes to the products they offer as well as the commissions they charge.

Underwriting and Research- Is it Done in House?

A conflict of interest can exist for firms that peddle their own research. This is particularly the case for the ones that recommend companies that they currently have a banking relationship with. This is something you should look out for as be informed about. If you are aware that such a conflict exists then you should let the broker know that you are aware of it. This makes it much less likely that you will be taken advantage of by the broker.

Benchmarking Performance

It is wise to let the broker know that you are benchmarking his performance against other major indexes. Examples of these include the S& P 500 and the Dow. If you are not familiar with the term “benchmarking” it refers to a standard by which something can be judged or measured. Benchmarking is commonly done in all different areas of business. It is defined as “the process of comparing one’s business processes and performance metrics to industry bests.”

You should also inform the broker that if he is not outpacing the Dow or the S & P 500 after a particular duration of time that you will purchase a no-load mutual fund that will be able to track those indexes for you. This is bound to get the broker’s full attention!

Review Your Statements

Do not become complacent about where your money is going. It is important for you to review every one of your monthly and quarterly statements. Make sure you can account for every dollar that you have invested. Focus in on every trade that you have made and confirm that the commission that was agreed upon is actually what was charged. If you find any discrepancies or any errors then speak with the broker without delay. Or you might want to instead make a call or pay a visit to the sales manager at the brokerage firm.

Communicate with the Sales Manager

Speaking of the sales manager, it would be a smart idea to speak to this individual periodically. Not all investors know that sales managers often receive an override on commissions that are made from the investors’ accounts. To explain it more clearly, this means that the sales manager earns money on trades that take place in your account when it comes to supervising the broker you work with as well as  in terms of ensuring that the trades that are taking place are in line with your objectives for investing.

For these reasons it is wise for you to open the lines of communication with the sales manager of the brokerage firm. Develop a habit of speaking with this person as regularly and as consistently as possible. While the sales manager will not know every single solitary detail of your account as well as your broker does, he can still provide a wealth of information about the firm’s history as well as your broker’s history. The sales manager can also confirm any information that you are given from your broker. All of this can help you to feel better about the firm you have entrusted your financial and investing goals with.

A Golden Opportunity

The expression “All that glitters is not gold” does not fit in terms of investing in gold. Gold is the most sought after and indeed the precious metal that takes top honors. There are many reasons for this. Gold is very durable as it does not rust nor does it corrode. It is also malleable and has the ability to conduct electricity and heat. It is also versatile in that it can be used in electronic as well as dental applications. The principal uses of gold however are as a type of currency as well as a base for many pieces of jewelry, from rings to necklaces to earrings to bracelets.

The value given to gold is determined by what is happening in the financial markets, on a 24/7 basis. The price of gold is not as affected by the laws that govern supply and demand as much as other types of precious metals. Sentiment plays a role here. The reason for this is primarily because new mine supply is greatly outweighed by the size of the above-ground gold that is hoarded. To put it a slightly different way, when the gold hoarders decide that they want to sell then the price of gold drops. When they want to buy gold the new supply of the precious metal is absorbed at a rapid rate and the prices of gold go up.

There are a variety of factors that can cause an increase in the desire to hoard gold. These factors include systemic financial concerns, inflation and political crises or war. Let us look at those now.

When financial institutions and the money they have are perceived as being unstable then gold is often sought out as safe in terms of its store of value. The same can be said if the stability of a government is in question. This therefore constitutes systemic financial concerns.

Inflation is another factor that makes a difference. When the real rates of return are negative in the real estate markets or in terms of bonds or equities then individuals look to gold as an asset that will continue to be valuable.

Any type of political crisis or upheaval and/or war cause people to hoard gold like crazy. This is because gold can make a lifetime worth of savings as portable as possible and can then be stored until the point at which it can be traded for food, shelter or a safe voyage to a destination that is out of danger’s way.

The Attributes of Silver

Let us turn our attention now to another precious metal, that of silver. Unlike gold the price of silver tends to swing back and forth from being perceived as a store of value to playing a significant role for its use as an industrial metal. This explains why the fluctuations in the price of silver are more volatile than the price fluctuations for gold.

While silver can be hoarded every bit as much as gold due to the investment demand, the industrial supply and demand for it has a tremendous impact on its price. The supply/demand equation in this case fluctuates with its share of new innovations.

These innovations are many. For example, silver once played a very essential role in the world of photography. Silver-based photographic film was dominant until the digital camera came on the scene and changed that. The rise of the vast middle class in terms of the emerging market economies of the East created a very high demand for everything from medical products to electrical appliances to any type of industrial item that contains parts made of silver. Silver is very versatile and is used for everything from electrical connections to bearings. The properties of silver make it a commodity that is in much demand. Silver is used in microcircuit markets, superconductor applications and batteries. These new innovations have caused silver to be more and more desired.

At the present time it is unclear as to whether these developments in various industries will affect the non-investment demand for silver overall, and to what extent it will affect it. What is known at the present time is that the price of silver is impacted by the applications it is used for. Silver is therefore not just used to make jewelry or as a store of value.

Get Ready to Go Platinum!

In much the same way as the other precious metals described here- gold and silver- platinum is traded nonstop, 24/7 on global commodities markets. During routine periods when the market is stable, as well as when there is political stability, platinum tends to get traded for a higher price because it is much less rare. As well a smaller proportion of the metal is mined on a yearly basis.

There are other factors that come into play when it comes to determining the price of platinum. In fact all of these factors are the reason why platinum is the most volatile of all of the precious metals.  For example, platinum in much the same way as silver is an industrial metal. The largest demand for this metal is automotive catalysts. These are used to reduce the dangers that come from emissions. Jewelry would be the second industry that has the greatest demand for platinum. It is also readily used for petroleum and chemical refining catalysts as well as the computer industry.

Due to the fact that the automobile industry relies so heavily on platinum the prices are therefore determined in large part by production numbers and auto sales. Legislation that relates to “clean air” could make it such that companies that make automobiles are required to install more catalytic converters. This would then increase the need for platinum in this industry. However in 2009 both American as well as Japanese automobile companies were beginning to use recycled auto catalysts and/or use more of platinum’s sister group metal palladium, which is very reliable and less expensive than platinum.

The majority of mines for platinum are heavily concentrated in two countries in particular. These include Russia and South Africa. This lends itself to a greater potential for cartel-like action that supports the price of platinum as well as artificially raises it.

Investing in Precious Metals

So what options do you have when it comes to investing in precious metals? Let’s take a look at what your portfolio could be made up of in this area.

Commodity exchange traded funds (ETFs) are available for gold, silver and platinum. As of 2009 to access a commodity ETF for platinum you must be able to trade on the London Stock Exchange (LSE). Exchange traded funds are both liquid and convenient in terms of buying and selling any of the three precious metals.

Common stocks and mutual funds are other options worth looking into. Shares of precious metal miners are leveraged to price movements in terms of precious metals. Be aware however that unless you are knowledgeable of how mining stocks are valued it may be smarter and in your best interests to stick to funds that have managers that come with solid performance records.

Both the futures as well as the options markets allow for both leverage and liquidity to those investors who wish to make big bets on precious metals. The greatest potential for both profits (and unfortunately also losses) can be found with derivative products.

Bullion is yet another viable option for you. If you do not have a place to put coins and bars then you are better off looking to something else. If you tend to expect the worst then bullion should be the option you choose. However if you are an investor with a time horizon then bullion is illiquid and is a pain to hold. Pass it up in this case.

Certificates provide investors with all of the benefits that come with owning gold in its physical form but without the hassle of transporting and storing it. Certificates are just paper at the end of the day however and do not provide any real type of insurance. You cannot exchange them for anything of true value.

Precious Metals and You

Precious metals offer a type of unique and special protection from inflation. They also have intrinsic value and can provide just the type of insurance you are looking for. They also provide to every investor both a beneficial as well as an effective means of diversifying a portfolio. Regardless of whether you choose gold, silver, platinum (or a combination of these) you will not be disappointed in your investment choices.

An investment that makes it possible for a person to buy or sell the option on a security is known as the derivative. Derivatives can be described as types of investments whereby the investor does not own the asset that is underlying but instead makes a bet on the direction that the price will move by way of an agreement with another investor.

There is more than one type of derivative instrument. There are options, futures, forward contracts and swaps. Derivatives can be put to use for more than one reason. They have a variety of risks attached to them but generally speaking they are considered to be an alternative means of participating in the financial market.

Derivative Terms

Derivatives can sometimes be difficult to comprehend because they have a language that is all their own. To use an example of this, there are many instruments that have a counterparty. It is the counterparty that is responsible for the opposite side of the trade that is to take place. Be aware that each derivative comes with an underlying asset on which the derivative’s price, basic term structure and risk are based. Remember this- it is the perceived risk of the underlying asset that in turn influences the perceive risk inherent in the derivative.

A derivative’s pricing can also be a complicated concept to understand. The pricing of such may come with a strike price. This means the price at which the derivative can be exercised at. When it comes to fixed income derivatives there may be a call price. A call price is the price at which the issuer is able to convert a security. When it comes to derivatives there are also an array of positions that an investor can decide to take. This can be confusing for the newbie investor to understand. A long position is the name given to the buyer of the derivative while a short position is the name given to the seller.

Derivatives and Your Portfolio

Derivatives are used by investors for three main reasons. The first reason is to hedge a position; the second is to increase leverage and the third is to speculate on the movement of an asset.

Hedging a position is generally done in order to protect against or to insure the risk of a particular asset. For example, if you own shares of a stock and you want protection in the event that the price of the stock falls then you may decide to purchase a put option. If the stock price rises then you have gained because you are the owner of the shares. If the stock price falls then you gain because you own the put option. The potential loss from holding the security in the first place is hedged with the position of the options.

Derivatives can play a significant role when it comes to leveraging. Options are especially valuable when the financial markets are volatile. To explain this another way, when the price of the underlying asset moves a great distance in a positive direction then the movement of that option is magnified.

Speculating on the movement of an asset is a technique that investors put to use when they bet on the future price of an asset. Options provide investors with the ability to leverage their positions. For this reason large speculative plays can take place at a very low cost.

Trading Derivatives

Buying and selling derivatives can take place in two different ways. Some derivatives are traded over-the-counter (OTC) while others are traded on an exchange. The OTC derivatives constitute contracts that are privately arranged between parties. An example of this would be a swap agreement. This market is the bigger of the two and does not have any regulations. On the other hand, derivatives that trade on an exchange are contracts that are standardized. OTC contracts contain counterparty risk because they are private and unregulated while exchange derivatives do not contain this risk because the intermediary is the clearing house.

Types of Contracts

Contracts can be broken down into three types and each type has its own variations. There are options, swaps and futures/forward contracts. Let us take a look at these now.

Options

Options are contracts that offer the right to buy or sell an asset but not the obligation to do so. Option contracts are most often used when an investor does not want to risk taking an outright position in the asset but does wish to increase their exposure in the event that the price of the underlying asset begins to move greatly. There is more than one option trade that an investor can use. The most common ones used include long call, long put, short call and short put.

Long Call

If you have reason to believe that the price of a stock is about to go up then you can buy the right (long) in order to buy (otherwise known as call) the stock. As far as the long call holder is concerned the payoff is positive if the price of the stock exceeds the exercise price by more than the premium that is paid for the call.

Long Put

If an investor feels that a stock price could go down then he can buy the right (long) in order to sell (or put) the stock. For the long put holder the payoff is positive if the price of the stock ends up being below the exercise price by more than the premium that was paid for the put.

Short Call

If as an investor you are concerned that the price of a stock is about to decrease then it is best to write a call or sell it. If you decide to sell the call then the investor who buys the call (the long call) then gets to decide whether the option will be exercised or not. As the short or seller you relinquish control. For the writer of the call the payoff is equal to the premium that is received by the call’s buyer if the stock price does indeed decline. However if the stock price goes up more than the exercise price plus the premium then the call writer will lose money.

Short Put

If you have reason to believe that the price of a stock will increase then you can choose to write a put or sell it. As the put writer the payoff is equal to the premium that comes from the buyer if the stock price goes up. However if the stock price drops below the exercise price minus the premium then money will be lost by the writer.

Swaps

Another type of derivative is a swap. Swaps are such that counterparties exchange cash flows or other variables that are connected with different kinds of investments. It often happens that a swap will take place because one party has an advantage in one specific area (such as borrowing funds under variable interest rates) while another party is able to borrow more freely because of the fixed rate. The simplest variation of a swap is referred to as a “plain vanilla” swap.
There is more than one type of swap. The most common ones include interest rate swaps, currency swaps and commodity swaps.

Interest Rate Swaps

In an interest rate swap two parties can exchange a fixed rate for a loan with a floating rate. If one of the parties has a fixed rate loan but has floating liabilities then that party may decide to swap with another party and by so doing exchange a fixed rate for a floating rate in order to match the liabilities. These kinds of swaps can also take place through option strategies. What is known as a swaption provides the owner with the right to enter into the swap but not the obligation. This is very similar to what happens with an option.

Currency Swaps

When it comes to a currency swap loan payments and principal in one currency are exchanged for the same two things in another currency.

Commodity Swaps

A commodity swap is a contract whereby payments are based on the underlying commodity’s price. The producer in this case can decide what price that the commodity will be sold for while the consumer can decide the price it will be paid for.

Futures/ Forward Contracts

These types of contracts are drawn up for two parties and relate to buying or selling an asset in the future for a particular price. In most cases these contracts are written in reference to the price for the given day (the spot price). The profit or loss of the buyer makes the difference between the spot price at the time of delivery and the future or forward price. Contracts of this kind are used in order to speculate on prices in the future or to hedge risk. Forwards and futures are slightly different. Forwards are non-standard contracts that trade OTC while futures are standardized contracts that trade on exchanges.

Step One- Asset Allocation

To begin you must take a close look at your own personal financial situation and determine what your investment goals are. You must take into consideration your age, how much money you have to invest, your future financial needs and how much time you have to build your investments. A 24 year old single individual fresh out of university will need to devise a very different investment strategy than will a 45 or 50 year old married individual trying to pay off a mortgage and getting ready to send a son or daughter off to college.

You also need to consider your risk tolerance as well as your personality. Are you a big risk taker or a little one? Are you willing to invest and take the risk knowing that you could lose but could also reap greater returns or does that make you shudder inwardly? Both of these items are connected and play a role in which type of investments you should select.

Once you are aware of your present situation as well as your future requirements for capital and your risk tolerance you will then be able to decide which asset classes you should allocate for your investments. Risk/return tradeoff is the name given to the principle of the possibility of greater returns at the expense that comes with the greater risk of losses. This is different for everyone.

Are You a Conservative or Aggressive Investor?

The more risk you are willing to bear in terms of your portfolio the more aggressive investor you are. If this describes you then you should concentrate more of your attention on equities and less on bonds and other types of fixed-income securities. On the other hand, the less risk you are willing to bear, the more conservative will your portfolio be. You must define yourself as an investor.

The primary goal of a portfolio that is conservative is to protect the value of it. An example of such a portfolio includes 70 to 75 percent fixed income securities, 15 to 20 percent equities and 5 to 15 percent cash and equivalents.

An aggressive or moderately aggressive portfolio is geared towards those who have an average risk tolerance. The goal of this type of portfolio is to strike a balance between income and capital growth. It might look something like this- 50 to 55 percent equities, 35 to 40 percent fixed income securities and 5 to 10 percent cash and equivalents.

Step Two- Achieving the Portfolio You Desire

After you do what is required in step one, which is to determine the proper asset allocation for your portfolio you then need to divide the capital you have amongst the asset classes you have chosen. On a very elementary level that means breaking down bonds into the bond class and equities into the equity class, etc.

You can also take it one step further and break down asset classes into subclasses that come with different types of risks and different potential returns. For instance you might take your equities and divide them between different sectors and market caps. You also might divide them between domestic stock and foreign stock.

There is more than one way to select the assets and securities that will satisfy the asset allocation strategy you have chosen. It is important that you analyze both the potential as well as the quality of every investment before you purchase it.

Stock picking is one option. You should select stocks that are in line with the amount of risk you are willing to take in the equity section of your investment portfolio. Consider such factors as stock type, market cap and sector. Make use of stock screeners to analyze companies and then create a shortlist of your top choices. If you go this route then you must regularly monitor the price changes that occur in your holdings as well as to keep up-to-date on the latest news in the industry.

Bond picking is another option. When selecting bonds consider such important things as the bond type, the bond rating, coupon, maturity and the general interest rate environment.

As far as mutual funds are concerned, be aware that they are available for a vast range of asset classes. Mutual funds make it possible for you as an investor to have both stocks as well as bonds that are well researched and chosen by professional fund managers.

If you do not wish to invest your money in mutual funds then exchange-traded funds (ETFs) are another alternative worth considering. ETFS are comparable to mutual funds that can be traded like stocks. They represent a large assortment of stocks that are generally grouped together by capitalizations, sector and country. However ETFs are not actively managed but what they do instead is they track a chosen index or other assortments of stocks. ETFs can cover a wide range of assortment classes and are an excellent means of rounding out a portfolio.

Step Three- Taking the Time to Reassess Portfolio Weightings

After your portfolio has been established it then becomes time to analyze and rebalance it on a periodic basis. You need to do this because movements in the market can sometimes cause the initial weightings you have to change. In order to assess the actual asset allocation of your portfolio you need to quantitively categorize all of your investments as well as to figure out the value proportions in relation to the whole.

Over time other things can change as well. Your financial situation can change as well as your future need for capital and your risk tolerance. These things can change at different times throughout an investor’s life. When any of these things become altered you need to adjust your portfolio to reflect these changes. For example, if your risk tolerance has gotten lower then you may have to reduce the number of equities you have.

To rebalance your portfolio you must figure out which of the positions you hold are overweighted and which are underweighted. To use an example, if 30 percent of your current assets are in small-cap equities and your asset allocation says that you should have approximately 15 percent of your assets in this class then you need to rebalance. When you rebalance you take a close look at your position and from there figure out what you need to reduce and what needs to be allocated to different classes.

Step Four- Doing a Strategic Rebalancing Act

By the time you reach this step you know which securities you require and which ones need to be reduced and by how much the reduction must be. You also know which securities are overweighted and underweighted.

When you decide to sell some of your assets in order to rebalance your portfolio consider the tax implications this brings with it. You also need to consider what the outlook of your investment securities are. If you have reason to believe that you have overweighted growth stocks that are about to drop then it might be in your best interests to sell some of them even if the tax implications say otherwise. To gauge the outlook it helps to look to research reports as well as listen to the opinions of financial analysts.

Investment Diversification Matters

Always bear in mind this rule of thumb for building a profitable portfolio- diversify as much as possible. If you don’t put all of your eggs in one basket then you are in a much stronger position investment wise. Always maintain diversification. Having securities from each asset class is important but it is not enough. Instead you must diversify within each asset class. Take the holdings you have in an asset class of your choice and spread them across a variety of subclasses as well as sectors of industries.

To achieve the diversification you need to be as profitable as possible and to see your money grow it is wise to use both mutual funds as well as exchange-traded fund (ETFs). These will make it possible for you as an individual and average investor to see the economies of scale that characterize large fund investors.

To be an investor is one thing but to be a conservative investor is something else all together. The conservative individual is traditional and likes to stick with the tried and true. As well he/she likes stability and is more in favor of gradual development as opposed to abrupt change.

When the word conservative is used in relation to investing the vast majority of individuals believe that it is all about placing your money into the most stable and largest enterprises around. This then guarantees that the principal will remain as safe as possible. If the capital that has been invested in this case appreciates then this is even better for the investor, it is more than trading a stock .

While many enterprises are described as being conservative in their investing practices, such as utilities for example, it is important to note that simply purchasing a big and well known company does not automatically make the investment diversification approach successful from a conservative point of view. There is a difference between acting in a conservative manner and behaving in a conventional manner.

Conservative Investment vs. Conservative Investing

A conservative investment is not the same as conservative investing. Many people mix up the two and think that the terms are interchangeable but they are not. It is worth noting that conservative investing is not a strategy that is low in risk and low in return. In order to be able to invest conservatively you must know the difference between a conservative investment and conservative investing.

A conservative investment is one in which the greatest likelihood of retaining the buying power of capital comes with the smallest degree of risk. On the other hand, conservative investing is understanding what a conservative investment is and what it entails. From there it is following a particular course of action that must be put into play in order to ascertain whether or not the investment you are considering is a conservative one or not.

Many investors make errors when it comes to investing conservatively because they assume incorrectly that any security that is deemed a conservative investment makes them conservative investors. To put this in even simpler language, these types of investors focus their attention on the first definition (the conservative investment) and disregard the second.

Taking this viewpoint is very limiting in nature and it is also costly in a monetary way. A conservative investment approach that is successful necessitates that the investor thoroughly understand what a conservative investment is but even more significantly, understand what the suitable approach is to be able to identify what makes a conservative investment such and what does not make a conservative investment.

A Closer Look at a Conservative Investment

If an investor knows what qualifies an investment to be a conservative one then the next step is to be aware of what the characteristics of a conservative investment are. This is where the definition and discussion of conservative investing comes into play. When identifying a conservative investment there are three categories that an investor must examine. They include the safety factor, the people factor and the characteristics of the business. Let us explore at one of these now.

The Safety Factor

A conservative investment must be able to weather the rise and fall of the financial markets better than all of the rest. In order for it to do this there are certain types of characteristics that must figure prominently. One of the most significant is that the business or company should have production that is low in cost. The greatest advantage of being a low-cost producer is that when there is a bad year financially it is still possible that a profit can be made and that a smaller net loss will be reported and be very much available.

It is also essential that a company have a research and marketing department that is strong and very aware of what is going on. Any company that is not able to compete by staying on top of the changes in the markets and being aware of the current trends will fail, perhaps not in the short-term but definitely in the long-term.

The management of a company needs to have as much financial skill as possible; the more that they have the more it works in their favor. Possessing much skill in this area means that they are well acquainted with items such as maximizing return on investment capital, per unit cost of production and other necessary elements of the success of a business.

The People Factor

To qualify as a conservative investment the people factor plays an integral role as well. It is important however that the excellence of the people in a company does not come into play until the business has been able to demonstrate that it possesses all of the signs that nave been described previously in the safety factor.

A company that is small can still become successful as long as it is run by one or two individuals who are very talented and are focused and know exactly what they are doing. However as time passes and the company grows the people within it must be counted if the business is to become even stronger and more successful. This will allow it to continue to be a conservative investment.

Characteristics of the Business

There is yet a third quality of a conservative investment to discuss. It is that of the characteristics of the business. This requires more work for the investor but it is work that is well worth it. The goal for investors is to decide what the advantages and disadvantages are that may inhibit the business from growing and from bringing in greater profits even if the first two conditions- the safety factor and the people factor- are met.

One thing that all investors must think about is the “competitive landscape of the business.” How many competitors a company has and/or how simply and easily new competition can enter the picture can affect any business. The potential in this regard for excessive regulation can alter circumstances which can make a difference. When evaluating a conservative investment you should determine whether it first satisfies the safety factor, as well as the people factor. Once those conditions are as they should be then you should consider the third condition which is the characteristics of the business.

Some businesses pass the conservative investment test while others unfortunately do not. It is not always how how often a stock splits, although many beginners are attracted by splits . Some examples of well-known companies that have passed and continue to thrive include Coca-Cola, Johnson & Johnson and Wal-Mart. All of these popular companies which are very well-known have shown time and time again that their franchises are very strong and grow stronger with time. This has a great deal to do stock prices and the value behind them.

Gold as a Currency

Gold has traditionally been a means of storage of wealth and has been used as a currency for much longer than paper currencies themselves. Nevertheless, returning to the gold standard presents a problem because of the small amount of physical gold available versus the huge amount of paper money now in circulation.

As a case in point, the total amount of gold which has been mined on the planet has been estimated to only be approximately 142,000 metric tons. If you use $1,000 an ounce as an example gold price, this would imply that the total value for all the gold ever mined would be just $4.5 trillion.

How its Relationship to Gold Affects a Currency

To put this in perspective, the United States alone has over $8 trillion in Federal Reserve Notes in circulation or on deposit. This seemingly high amount has largely arisen due to the fact that the U.S. Dollar is a fiat currency that is only backed by “the full faith and credit of the U.S. Government” and not by something intrinsically valuable like gold or silver.

Also contributing to what seems to be excessive overprinting of the U.S. Dollar is the fact that fractional reserve banking is permitted in the United States with the fraction set by the privately-owned Federal Reserve Bank. This allows banks to lend out a multiple of the amount they are required to hold in reserve that can be as large as a factor of ten.

Other factors have also contributed to this discrepancy which has grown over time since former U.S. President Richard Nixon unilaterally took the U.S. Dollar off of the gold standard in the early 1970s. The last national currency which had full convertibility to gold until the year 2000 was the Swiss Franc. This enhanced its reputation as a safe haven currency in times of trouble.

Holding Gold in Reserve

Gold is currently held in reserve by most of the world’s central banks as a way of defending the value of their currency. Nevertheless, only an estimated 19% of all above-ground gold is held in this capacity by central banks.

Furthermore, the U.S. Dollar has been the world’s premiere reserve currency for an extended period. Nevertheless, the value of the dollar has been gradually deteriorating due to inflation and investing in gold is typically used as a hedge against the dropping value of the U.S. Dollar.

The best growth stocks should provide hints of potential and margin of safety to its investors. They also should fall under these conditions:

·    Impressive or substantial growth rate

Which would you rather choose to invest in – a company with fast growth or a company with slow growth? Any kind of growth is good as long as the company is growing. A small percentage is already a big deal to investors, how much more if the growth is awesomely substantial? It will pay to find the fastest-growing stock in any industry – and it will be good to be riding on this growth as an investor.

·    Sustainable investments

Now, the company is growing, but you should not overlook one very important matter – will this company able to sustain this growth for a long period of time? It is therefore important to pay attention to the competitiveness of a company aside from the growth rate, as this will propel it further into further growth.

·    Good price for investment

Before finally purchasing a stock, be sure that it is fairy priced. Many people commit the mistake of paying huge sums of money to buy stocks in a company based on its growth rate. It could come to a point where you find it hard to get a decent profit despite continuous company growth because of the steep price you paid initially.

There is money to be made the stock market, but you must not be foolish, Stock market investing is not gambling although many people think so. There isn’t any big secret to investing. It is a matter of proper research and analysis of companies you potentially want to invest your money with. Buying stocks is not like buying lotto tickets, but with diligent methodology you can be successful in stock market investing. We will post articles in the coming weeks and months that may help you with strategies and principles to help you be successful.

Depending on the performance of an individual stock your potential return could double or could quickly become worthless. Volatility then defines the degree to which a value of an investment tends to fluctuate over time.

One basic principle of investing for the beginner or the veteran stock picker, risk and volatility go hand in hand with investment returns, the higher the risk, the higher its volatility and potential returns. Investments with high risk and volatility have a greater chance of losing value is held over shorter periods of time, say less than five years. The effect or chance of a stock increasing in value over longer periods of time worked the same way.

Risk tolerance is defined by the amount of risk that you, the individual investor, are willing to withstand and be comfortable with in your investments. Not identifying what kind of risk tolerance you possess can surely lead to investing disaster.

Determining your risk tolerance is easy once you identify two very important factors. They are your time horizon for your investments, essentially how long you plan to hold your investments, and your personal response to risk. That means, what decision are you likely to make when you’re investment loses 15% in a day.

Obviously the longer you can hold your investment the more risk tolerance you are able to withstand. The longer period of time keep you from making hasty decisions over short-term ups and downs in the price of your stock. Longer-term can be defined as 10 years or more. Investors with moderate time horizons, say 5 to 10 years generally have moderate risk tolerance and should invest in growth and income by investing in stocks, bonds and cash equivalents.

Investors were shorter time horizons one to five years generally have low risk tolerance should invest almost entirely for income by buying bonds and cash equivalents. There is some correlation between risk tolerance and age however, that doesn’t apply across the board to everyone. Identifying your personal response to risk should include an examination about how you feel personally about taking risk in losing money. If you avoid risk in everyday life chances are you should avoid it in your investment strategy.

For example if you worry on a daily basis, that will easily trans-late into worrying about your stock investments. If you enjoy risk and don’t worry easily you should feel comfortable investing for growth or trading options online assuming you have a longer time horizon.

One of the best ways to identify how you will respond to market fluctuations and risk is to own a stock. Let’s say an issue at $20 per share. Over three months the stock appreciates and gains four dollars a share to $24. You begin by feeling pretty good about yourself having picked the winner and you are enjoying a nice gain. Now, through no fault of your own, earnings start to come out by companies related to the industry of your stock. Since they are not good your stock loses eight dollars per share over four days. Ask yourself this question, how would you react in that situation? If you can answer this question and answer this question truthfully you are on your way to identifying your investing risk and risk tolerance factors. Not everyone is comfortable trading in Forex Mini Accounts, and not everyone wants to trade in bonds. Everyone fits in somewhere, find your place and you will be a much happier investor

While ETFs don’t yet number thousands of options like mutual funds, an equivalent ETF essentially exist for every type of index funds. So you have your choice of ETFs that track the indexes of stocks, commodities, real estate, specific sectors and industries.

How to Buy and Sell ETFs

ETFs are offered by traditional mutual fund companies and brokerage firms. ETFs each has a ticker symbol like stocks and can be bought or sold through a stockbroker or brokerage house at any time during a regular trading day.

ETFs Instead of Mutual Funds?

ETFs generally have low expense ratios and many are even lower than those of comparable index mutual funds. Whereas mutual funds can be sold at the end of each trading day ETF can be bought and sold throughout the trading day. ETFs often track indexes not offered by mutual funds. Still ETFs may not fix your investing need when compared to mutual funds.

Mutual funds in many cases do not have transaction fees. As with stops you’ll pay a commission each time you buy or sell in ETF. Mutual funds offer many more choices and ETFs when it comes to particular types of investments.

As with all investing models investing solely in ETFs, or investing solely in mutual funds will not give your portfolio diversification that is needed to balance risk and reward.

Perhaps at no time in history is diversification of your investment dollar more important than it is right now. If you are making money investing in markets right now, count yourselves as one of the fortunate few. However, investing in ETFs even for the beginning investor might be a good place to get your portfolio back in the black.

For those still in the productive years of their working life this may not be disconcerting. Conservative investors are turning away from the stock market in record numbers. For those nearing retirement the effect can be devastating. Nothing can compare with stocks over the long term, however many investors are not in that position.

Bonds and income investing offers security that stocks cannot match. No matter your investment strategy preservation of capital is rule number one. Barring a bankruptcy by the company in which the bonds were purchased the investor can be near certain of receiving the amount originally invested.

Bonds pay interest incrementally over time and provide income to retirees or people who want cash flow. The tax advantages of investing in bonds from governments and municipalities are the interest is tax exempt. This is attractive to those wishing to limit their tax liability.

No one can say for certain what will happen in the stock market. One this we do know it that all the major indexes are trending down with no end in sight. Investing in bonds becomes a more attractive option everyday.

Today’s investors are much wiser than in days past. Information is available for most any type of investor and investors make money in any type of market. Today’s investor also seeks portfolio diversification unlike investors of the past. Bonds and fixed income securities are an essential part of that equation Investing in bonds is very safe, and the returns are usually very good. Investing in bonds is generally considered safe.

Bonds are a foundational element of any financial plan to invest and grow wealth. Bonds will pay a steady income. Investment advisers typically recommend that investing is stocks and bonds, and cash can lead to portfolio diversification if each investment vehicle is tailored to meet individual investment objectives.

Bonds investing offers almost as many options as investing in stocks, . Bonds are essentially loans you make to corporations or governments. Bonds are also called fixed income securities because they pay interest that is fixed at a coupon rate. Bonds tend to be safer than stocks because if you hold bonds until the maturity date. Investors who agree to buying municipal bonds effectively loan money to the issuer in exchange for an agreed number of payments over a prearranged time period.

Investors need to consider their time frame to choose bonds that fit their needs. Investors in high-income brackets are almost always better off investing in tax-free municipal bonds. Investment takes plenty of effort, timing and crucial decisions, making it a rather difficulty, but ultimately rewarding endeavor .

For illustration purposes, lets assume I have just invited you over for dinner. Assuming you accepted the invitation, one of the first questions your would ask is “How do I get there? “ The same applies to beginner investors. Every investor was at one time a beginner investor. The investors who reach the finish line with a nest egg had a plan to get there.

Lets get back to dinner. I live in Florida. You live in California. That would not provide enough information for your arrival. You have a starting place and a destination, but what about the plan to get to dinner? You would need to know specifics. The same applies to investing. You would prepare for the journey, chart a course and arrive safely in Florida as you would with your investment goals.
The same principle applies to beginner stock market investing. Lets assume you have $10,000.00 to invest right now. So how do you prepare?

Understand How The Stock Market Works

Individual investors should start right here. What makes a stock price move? Hint: it is not individual investors. Institutional investors, such as mutual funds, and banks, move stock prices up and down. Simple supply and demand I the order of the day. Institutions make a living buying and selling stocks. Following along with how institutions trade is a good place to start. Understand your 1000 shares of XYZ are not going to move the stock price.

Defining Yourself as An Investor

My personal stop loss point is 6%. Why is that? Because I do not like the way it feels losing 10% or even 7%. This is a hard and fast rule for me. I remember following a stock once down to a 20% loss thinking all the while it would come back. It did not. The point is I know myself, and I know my rules. They are non-negotiable factors for me with investing in the stock market.

Where Are You Now As an Investor?

Every journey begins with a starting point. Every journey has a destination point. Everything you do in between will either define your success or document your failure. Set your goals; practice your strategy with paper trading stocks. Set aside capital for short term investing. Plan to include long-term investments. Open a money market account for safely keeping your cash. If you want to trade options, first learn how to trade options . Determine your plan and then work your plan. Dinner is at 6

The degree of risk varies from investment to investment and as we have discovered recently with the ebb and flow of financial markets. Investing for beginners 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.

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!

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

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

First off beware of days where the market rallies. Changing the direction of this market will take more than a day or two of positive gains. A novice can look at a stock chart right now and spot a trend. Trust what your eyes see. In her Weekly Stock Market Updates Becky Smith accurately predicted lower lows recently, and we may be headed lower.

The Sidelines Is Not A Bad Place to Be

There are times when holding cash is a good thing. Consider at least for now paper trading stocks. This is a great opportunity for you to hone your trading skills. Stocks that reach new lows more often that not go lower and trying to find a bottom on individual stocks can prove costly.

Watch The News

This market is being driven by news. Look at what happened to the market late Friday when word leaked out of a new cabinet member for President Elect Obama. His likely choice for Treasury secretary, Timothy Geithner rallied the market on that news. Will that be a sustained rally?

Patience, Patience and More Patience

This market will call for investors to be patient beyond what has been normal. The markets will turn around. They always do. However, beware of misleading signals. In the end there will buying opportunities. Watch what the institutions do and follow their lead. It is a time for bears , but the bulls will reappear.

Becky seemingly everyone wants to makes a living day trading. Can you tell us in reality, how hard is that to accomplish?

That is a hard question to answer. I would say that most people could not make a living day trading. You need to have a good understanding of the markets, their trends and how the markets and individual stocks react to news. You need to know what things to take into consideration (PE, float, volume, chart) before trading a stock.  It takes confidence in your research. You need to have the time to watch the financial news and your stock trades.

You need to know what your risk tolerance is and how you would handle the volatile moves in stock prices. It’s something that comes by trial and error it is something that is learned and it is not learned without risk of monetary loss. But if it is a passion and you have the time to read and learn and the money to risk, yes that type person can make a living day trading.

I did not go to college, have never studied finance or economics, I am a homemaker and a mother that makes money by day trading stocks online. I have been involved in the markets, trading stocks for the past 10 years not necessarily day trading. I had never shorted a stock until this past year. When a market is in a downtrend it is very hard to make money being long.

My thanks go out to theStreet.com and Jim Cramer for sponsoring the Beat the Street contest last year. I did well in the first game (42nd place) and then won their second game, it gave me the confidence to open a margin account and start day trading and shorting stocks.

How much money does a person need to start day trading?

You can open an account with two thousand dollars at Ameritrade (which I use) or
E-Trade. There are other online brokerages Scot trade only requires five hundred dollars to open an account. Keep in mind this type of account you would only be able to buy and sell. To be able to short stocks you would need to apply for a margin account, which requires quite a bit more money. At Ameritrade minimum to open a margin account is twenty-five thousand dollars. You would need to check with each brokerage house to get their requirements for a margin account.

How much time do you spend researching stocks to trade?

I spend approximately two to three hours after the market closes checking earnings reports. In this market I’m looking for missed EPS, Revenue, downside guidance for the next quarter or coming year. I take notes on everything so the next morning I remember what sector the company is in, what they do, how bad the miss was. Next I go research the stock for the PE, float, volume and look at the chart trend. I make notes on that, I read the news releases. If I have more than a few possibilities I narrow my choices to just two or three. In the morning I watch the volume and the amount of the gap down in pre-market and I watch the futures so I have an idea of what the market is going to do when it opens. I also have CNBC on all day.

Do you have a pre-determined exit strategy when you buy a stock?

If I buy or short a stock for a day trade and it moves enough that I make 150.00 to 300.00 I’m out. If it goes against me if it gets to a 20% loss I am out. If it goes against me and does not hit 20% I will watch the daily chart and volume, it will make a high or peak on the chart and go back down if it comes back up and breaks that peak I’m out.

Does your portfolio have long term investments?

Yes, I have long term investments. I think you should have a separate account for those investments. That way it’s easier to track how well you are doing with the day trading. If you have long term investments you have been losing money the past 10 months or so.

What is the number one number mistake a new day trader makes?

I can’t speak for other day traders, but a big mistake I made was to under estimate my risk tolerance and being greedy, holding out for just a little more. For example I shorted 5000 shares of XYZ at 5.88 per share the price goes to 5.80 (that’s a 380.00 profit after commissions), do I cover no I’m hoping for more, the price starts going up it passes the 5.88 I shorted at and I’m losing 50.00 every penny it moves I cover at 5.92 (a loss of 220.00 including commissions) and then it starts moving back down and had I held it I would have had a large profit. I have learned not to make such large trades and when I have a profit, take it.

Now for the last question I would like you to ask yourself a question that people would like to see answered. In other words if you were a new prospective day trader what would you want to know?  Stock picks not included.

Be sure to use limit orders not market orders!! When a stock is moving fast, you used a limit order, and it does not get filled, it is not usually a good idea to chase the stock. There is always tomorrow and a lot more stocks.

I would want someone to tell me to practice first, paper trade stocks. Find a stock that you want to trade, do all of the research. See if it moves like you thought it would. Write down the opening price, your price would be somewhere close to that. Decide to sell or cover, write the price down. See how well you do. I would say to practice for at least two to three months before risking your money. It is not an easy thing to do, and paper trading is way less stressful than when your real money is at risk!

To all of you out there that would like to try your hand at day trading, you need to keep some things in mind. The market has been in a downtrend since December. We have been in a Bear market for the past couple of months. A bear market is when a market index (Dow, S&P 500, Nasdaq) is down over 20%.Right now the indexes are all down between 30% to 50%. In a down market, most stocks are going to go down. There will be individual stocks or sectors that pop on news, but then they will follow the market back down, for example GOOG, ISRG, POT (some of Wall Streets darlings) these companies beat their earnings expectations in the last couple of weeks, but are selling off because the market is trending down. Because of the reasons I stated above I have not been going long with my day trades, I look for stocks to short that have released bad news after the close.

Some things that I look at when I locate a possible short is the float. The float is the number of shares available for the retail investor to trade. The smaller the float the more unpredictable, and wild the swings. I usually do not short a stock that has less than a 15 million share float. I check the volume, I like 75,000 minimums, more is better. I look at the PE (price to earning ratio) the higher the pe the more expensive the stock the better chance it will come down a lot, on bad news. Also check how much of the float is shorted the higher the percentage there is a good chance that a big drop in price they will start covering and the price will start going back up.

If you do not have the time to sit at your computer and watch a stock that your thinking about day trading do not do it! For example last night XYZ reported earnings after market close. Their EPS was .25 vs .26 analyst estimate, their revenue was 130 million vs 142.8 analyst estimate they also issued a downside full year forecast, 562.1 million vs 582.1 analyst estimate.(This is the kind of news that I personally look for). Their float is 64.49 million, average daily volume is 1,059.310 shares traded, and the short ratio is 18.10%. This morning you could have shorted shares of XYZ at 4.90 at the open and within 15 minutes covered your short and made hundreds of dollars, depending on how many shares you shorted.. The share price fell to 3.70 a share within 15 minutes before recovering some. It is best to take your profits while you have them. When the price is falling fast or going up fast and you have a profit take it, don’t wait hoping for a little more. Over reaction is something that happens on good news and bad news, and the price usually adjusts.

It could be that the market has made a bottom and is going to start to rally again, we have had our best week in a very long time, but it was in the worst month that the markets have had in years. Next week will be interesting, with the election on Tuesday you might want to wait and see who gets elected and how the markets react. The job numbers are also being released on Friday, which could affect market direction.

To anyone that is just starting to day trade I would suggest that you paper trading stocks and see how you do before risking your money. This is not an easy thing to do consistently. There are also games that you can enter on the Internet and you can practice your strategy and possibly win prizes and money in the process. Wallstreetsurvivor.com has Online Paper Trading weekly and monthly games going and CNBC is starting a contest November 10.

However you trade short or long, may all of your trades be profitable!

Just like we have said, day trading takes lots of research and experience. We hope to have Becky Smith back as a guest columnist. If you would like to read more from her leave a comment and we will forward them to her. Becky is developing her own website, The Stock Trading Housewife, thanks Becky

Buying Stocks On Hot Tips

Begin buying stocks because someone, a friend, a relative, or a stockbroker gave you a hot tip. Buying stocks is not like buying a lottery ticket, although many people buy stocks the same way. This is gambling and investing should never be confused with gambling. Investing properly require research in the company and research in the market. Failure to do both will guarantee failure, and subsequently lost money.

Buy Stocks Because of Name Recognition

Many people think they are buying stock in huge corporations and that will minimize the risk of losing money. Nothing could be further from the truth. Filings for bankruptcy protection occur everyday and that includes large corporations. When you think to yourself, this company is too big to go out of business, remind yourself of Enron.

Trust your investing decisions with a stranger

As in any business there are unscrupulous individual who prey on unsuspecting victims. Before you hand your resources over to anyone, make sure you have researched their background and their historical performance. Do not rely on their word as the final say. It is likely that you have worked very hard for your money. Saving money is difficult and requires sacrifice in today’s economy. Investing money in the stock market requires that same kind of diligence.

Buying Stocks That Have Recently Fallen in Price

Many beginner investors choose stocks because they are perceived to be cheap. Financial markets often affect stock price. However more often stocks that have fallen out of favor have done so because of the company is not on firm financial ground. Bottom fishing often results is falling further to the bottom. Stocks that have reached new lows more often than not go lower.

Buying Penny Stocks

This is a favored place for beginning investors to begin with investing in stocks. The reasons are simple. Penny stocks are priced right for new investors. Beginner investors are told, 20,000 shares of XYZ can be purchased for pennies per share. The immediately think the stock needs only to appreciate in price a few cents to double their money. The lure of easy money draws then in and frequently the loss of their investments teaches them a lesson. Concentrate on stocks that are proven winners. Leave the speculative stocks to the speculators and train yourself to become an investor.

The market reacts to every bit of economic news that’s hits the news wires. It always has it always will. Fortunes have been made off both positive and negative results. Are you a trader or an investor? Swing traders actually can flourish in markets like these. Their positions are usually tied to news, and enter and exit stocks on a short-term basis, from a few days to a few weeks. Swing traders watch for technical and fundamental analysis in determining their strategies, bent more towards technical signals.

However the investor uses a different tact. Their decisions are based on the fundamentals of the company. 90% of all stocks follow the market regardless of how good stock fundamentals are. This is where your own strategy comes into play. Determining who you are as an investor well in advance of trading the stock market is a key factor in determining your success as an investor.

We were recently asked a question. A woman stated she had lost 35% on paper with her investments recently. “What should I do?” We cannot answer that question for her, nor can anyone else. You will never be able to buy any stock at its absolute bottom, nor will you be able to determine the absolute top when selling. That’s simple fact is as much a part of investing in the stock market as any other rule you may apply.

Preservation of capital should be your number one priority with investing. Your pre-determined rules for trading stocks should be the rules you follow. The real question is do you have rules that you follow. Frankly most do not, and that is why most people lose money in a market correction.

There are many online brokerages that have a system on place to paper trade stocks. You start with a hypothetical sum of “money” and place buy and sell orders according to your strategy for a given security or stock, You place your buy orders as you normally would except you are not risking real money, this the term paper trading. Sell orders work similarly.

Paper trading allows you time to research companies and essentially trains you to pick stocks according to your criteria.. For example, buying XYZ at $12.00 per share. Determine why that is a good entry level. Why is this stock poised for a move? Are good earnings due? One of the hardest things you will do as a stock trader or investor is planning an exit strategy. Why is that? In a word greed . There is nothing mire exhilarating than purchasing a stock and watching it make a run of 20% over the course of a day. Contrarily there is nothing more frustrating than watching a stock head south and you cannot figure out why. This is why before you buy a stock it is advisable to have an exit strategy. Paper trading can help you to prepare yourself to make these decisions.

Now for a word of caution. Paper trading does not expose a very important component of trading with real money. Were it not for emotional decisions, everyone might be able to make successful stock trades. However we are humans and we tend to make emotional decisions. The stress level is just not present when paper trading stocks. Beware of building a fable confident attitude when you transfer your money to a real trading account.

Still the positives far outweigh the negative as paper trading stocks allows you to get familiar with the processes to become a successful stock trader.

The process of buying and selling stocks within the day to take advantage of sharp changes in their values within seconds or minutes is called day trading.  Profits are quickly locked in once the rising or the falling of the interplaying stocks is judged to be most beneficial to one’s investment.  The time restriction however, has the negative advantage of the transaction being most risky which can sometimes result to great financial losses within short periods of time.  The usual practice for the day traders is to buy stocks on borrowed money, and heavily leaning on leveraging in order to reap bigger profits.  The success of this endeavor is highly possible, creating wealth overnight, but as mentioned, the reality of having high risks for loss is also quite significant.

Many consider day trading as a sophisticated form of gambling, day trading however, is not unethical, nor illegal.  If an unprepared beginning investor negotiates this type of investment, the stress may be too unsettling especially if the situation calls for a quick decision.  The strategy, timing, and temperament of successful day traders win the day in this game.  The term ‘investment’, actually, is a misnomer in this field of trading.  Stocks are not really owned as traders look for those clues that will make them get out of these stocks before they change course for the worse.  The day traders take advantage of the momentum in the present movement of the stocks’ values.  The beginning investor commonly suffers severe losses in this type trading.

With the great risk of losing high amounts of money, funds intended for living expenses, education or retirement should never be used for this type of complicated day trading.

Our advice is to stay away from day trading if you are a beginner. Talk to any day trader and the tendency will be to tell you about the winners, not so much about the losers. Does that sound familiar? It should, many gamblers are wired the same way.

When considering how much you should invest, one of the first questions you should ask yourself is how much can I afford to invest.  In your deliberations, you should consider factors we have discussed previously, like your current financial situation.

Are you making payments on high interest credit cards or other debts?  Do you have enough money to sustain you for at least three months should you meet with some unforeseen misfortune like a sudden medical illness or finding yourself unemployed?  Do you have a home or other responsibilities that may require some unexpected out of pocket expenses?  These are all things to take into consideration when you set out to determine how much you should to invest

Many first time investors or beginner investors often want to begin by investing their entire savings.  Although for some this may be an option and if it’s true for you, great!  However, you should consider your entire financial situation and keep your investments strategy in line with your long range financial goals.  Think about what your savings was originally for.  This may prompt you to reconsider a full investment from long standing savings.

So, begin by determining how much of your savings should remain in your savings account, and how much can be used for investments. Unless you have income or funds from another source, such as an inheritance, this will quite likely be all that you have available to invest.

Next, determine how much you will be able to add to your future investments. If you are employed, you will continue to receive an income, and you can plan to use a portion of that income to build your investment portfolio over time. Most employers offer 401K plans and other savings plans to assist their employees with meeting their financial goals for retirement.  You can also speak with a qualified financial planner who can assist you in setting up a budget and help you determine how much of your future income you should invest to meet your financial goals.

With the educated and knowledgeable assistance of a financial planner, you can be sure that you are not investing more than you can afford – or less than you should in order to achieve your specific investment goals.

As with many types of investments, you can be assured that a certain initial investment will be required.  Research the investments you plan to make and be armed with all the information you can obtain prior to investing your money.  If you don’t have the required initial investment amount, you may need to look for other investment options like best cd rates.  Beginning investors should never borrow money to invest.

No matter what type of investor you are, or how long you have been investing your money, invariably you have probably made some mistakes along the way, perhaps even some costly mistakes. But, first and foremost, one of the biggest mistakes people tend to make is to not invest at all.  Do you want to make your money work for you?  You can!  Even if all you can spare is a few dollars a week, now is the time to commit to doing so.  You’d be amazed at how much money you could put aside to invest if you were to really get creative and analyze your monthly outlay with new frugal vision.  As with any decision, what it really boils down to is a choice.  You too, can make a choice to start investing today.

While choosing not to invest and delaying and postponing investment into your financial future are two of the biggest mistakes many people make, investing before you are in the financial position to do so is another rudimentary problem.  Before you begin investing you will want to ensure that your financial situation is in order first.  Get your credit cleaned up first.  Start by paying off high interest loans and credit debts you may be carrying, then set aside at least three months of living expenses in savings and don’t touch it.  Make that your emergency fund should you find yourself unemployed or unable to work for an extended period of time due to an emergency medical situation.  Once you have your financial house in order, you will be ready to begin letting your money work for you with a sound investment strategy.

That brings me to another common mistake people make when they invest.  Don’t invest to get rich quick.  Let’s face it; we have all heard the Cinderella stories of investors who were in the right place at the right time with the right amount of cash that turned an obscure, risky opportunity into one of the most astounding investments in their financial portfolio. How may Cinderella’s do you know?  That’s what I thought, me too, not a one!  But I do know many who equipped themselves with the knowledge they needed to invest based on their particular financial goals and situations that have capitalized on the opportunities that do exist in today’s financial markets.   If you are going to invest to get rich quick, you will likely loose most if not all of your investment.

Next, don’t put all your eggs in one basket.  Depending on your financial situation spread out your investment strategy to incorporate various types of investment for the best possible return.  As you gain more knowledge, experience, investment savvy and capitol within your portfolio, the more opportunities you have to diversify and capitalize on investments that are risky which may prove to be highly lucrative.  Again, it will depend a lot on your particular investment style.

For the beginning investor or the seasoned stiock picker , consistency, strategy, and long term planning will help you to achieve your financial goals. So make the commitment and judiciously embark upon your journey to financial security today!

We have talked about defining yourself as an investor . Depending on what kind of investor you are, there are, for the most part, three different types of investments or categories within which you can invest.  Essentially they include stocks, bonds, and cash.  Seems pretty simple, right?  Well, it certainly is not.  My advice is to proceed with caution, investing as in any other technique you develop to accomplish a specific purpose, especially one of achieving financial freedom or amassing significant wealth, can easily become very complex and risky. But, a lot can be accomplished by educating yourself, expanding your knowledge and understanding through solid research, and last but not least, by learning from your mistakes and continually honing and refining your strategy and system.

Fortunately, the amount of information and knowledge that you’ll need to equip yourself with is directly associated with the sort of investor you are.  As there are basically three types of investments as stated above, there are also primarily three types of investors.  They include the conservative, moderate, and aggressive.  And as with the varying combinations of investments your can make within the financial markets, there are also a broad spectrum of each type of investor within each of the three basics.

The conservative investor is often an investor who may be a bit older and have less time to play their hand in the financial markets before retirement.  They may also just be conservative by nature and not readily willing to part with their hard earned dollar and seek to achieve low but consistent returns on their investments.  They tend to place their money in interest bearing savings or money market accounts, Treasury bills, or Certificates of Deposit.  These investments are representative of the safest investments as they are low risk and grow over a long period of time.

Moderate investors tend to be a little younger than the conservative investor and likely have a bit more time to accomplish their specific financial goals.  They tend to be somewhat more diverse than the conservative investor and invest in cash, bonds and may dabble in the stock market.  Moderate investing is a cadre of low to moderate risk investment within the cash and bond market and may also include investments in real estate, providing the investment is of relatively low risk.

Aggressive investors tend to be young and commonly do most of their investing in the stock and financial markets within specialized, highly unpredictable sectors and may even invest significant portions of their portfolio in foreign markets. All can be highly volatile and extremely risky; however, these investments tend to be the ones that provide the greatest, sometimes even astounding, returns on investment.

Before you begin investing your hard earned money, it’s important to clearly analyze and understand your particular financial position and consider what your goals are.  You want to ensure that you possess a thorough understanding of your investment style and strategy and develop a plan that fits within that framework.  Lastly, knowledge is power.  The more you know and understand about the particular investments and their associated risks, the better off you will be when it comes to meeting your long range financial goals.

Growth Stocks

Stocks are priced according to the value of the companies’ earnings in the perfect world. We do not live in a perfect world. That is an understatement, for sure. Growth stocks are stocks whose earnings are expected to grow at an above average rate relative to the market. Growth stocks don’t usually pay dividends. They prefer to re-invest the company. Generally speaking, one will pay a premium for growth stocks as investors are paying for the future profitability of the company. Growth stock investors don’t mind paying premiums for growing stocks because they believe the increases in earnings will justify the higher valuation.
Growth stocks are more volatile, but produce quicker profit and loss than for example income stocks. It is all about expectations with growth stocks. Growth stocks usually have P/Es of 25 or higher, which reflect those lofty expectations. As long as those expectations are met with earnings the stock will continue to grow and with it your profit potential. Growth stocks usually feature strong growth rates. Lets say you find a company with a PE of 25 and a growth rate of 54%. You may have found a winner here, but these types don’t usually fall into your lap very often. On the other hand lets say you are invested in a growth stock and the company reports less than expected earnings for a quarter. Expected earnings are those that professionals are predicting. One bad report and all you paper profit can be lost or reduced.. Many companies can remain growth stocks for years. Home Depot is a excellent example. I owned several hundred shares of Home Depot in the late 1980’s and it remained a stellar performer for a decade, but all good things come to an end.

Value Stocks

On the other hand values stocks function and trade differently than growth stocks. Value stocks are those with low price-earnings ratios and high projected earnings-growth rates. Value investing has proven to be a successful investment strategy.  These stocks have usually fallen out of favor for some reason. Perhaps a negative earning report or negative company new about the future outlook for earnings. This doesn’t make these stocks bad investments. Value investors want firms that, although going through a rough period, have a solid history of profitability.  As with any commodity, buying at discount to true value is good for the bottom line, in time. Value investors look at value stocks as bargains, like the stock is on sale. Value stocks are often confused for cheap stocks, which they are not. They are undervalued for some reason. A company with a track record for producing profit generally will produce that profit again. When this happens the market, the investors will notice and prices will begin to increase and you will fell all the wiser for spotting this company and buying its shares at a discount when no one else was noticing.

Defining what kind if investor you are is not really hard if you apply some basic principles and answer simple questions about yourself. These questions should be answered honestly and the only one who could be hurt here for shading the truth is you. Investing is not gambling, although many satisfy their gambling urges with the stock market. More on that later

How old are you? Seems simple, but it is important. The 25-year-old female college graduate can assume more risk in her portfolio simple because she has more productive years of work left than the 45 year old administrative assistant.

What are you investing goals? This one is not quite so simple. Most people would say their goals are to make money with investing. Fair enough, but you need to get more specific. Are you investing for retirement? Are you investing for your children’s education?

Imagine that you had 10,000.00 to invest in the stock market. Would your priority be watching that money grow slowly over time while limiting your risk? Or perhaps you want your money to grow quickly and assuming risk to accomplish your goals doesn’t bother you at all. The first example would be defined as a conservative investor, the second a more aggressive investor. Most people fall somewhere in between the two.

Risk and reward apples to everyone who invest money in the stock market. The stock market shows no partiality in either rewarding or relieving someone of their money. Defining who you are as investor will help you make better decisions when choosing your investments

Full service stock brokers generally charge a flat rate for making your trades for you, but often attach percentages and other unexpected costs to each of your trades. Keep in mind stock brokers make money buying your stock and selling your stock. Full service brokers provide their customers with research beyond what many are able to do themselves and this works for many people Stock brokers can give advice on investing, and assist customers by doing company and investment vehicle research. Still you must use caution. Many times suggested by your broker are made because the brokerage house they work for has taken a position in the company being suggested. Many of these market makers exist today. Again their interest lies in making the trade , not necessarily making the client money.

Discount Brokers are completely different. Look at them as order takers. Discount stock brokers provide and execute a variety of trades at discounted prices. You make your decision call or connect with your broker online and minutes later your trade is completed. Online stock brokers’ fees are kept lower because they offer fewer services Discount stock brokers offer the buying and selling of stocks and typically do not research or give advice. However the savings in transaction fees can be significant. There are many online brokers who can trade equity for you for under $10.00.

Many people do not want to do their own research and rely on full service stock brokers for their needs. Still others want to call their own shots and revel at the opportunity for researching companies and find that hidden stock no one else has. I have used both and now rely on discount brokers and abiding to the number one rule of preservation of capital

Day Traders

Traders that participate in day trading are called day traders. Day trading is a very risky trading style. Day Trading by definition is the buying and selling of a security within a single trading day. Stocks are never kept overnight because of extreme risk of prices changing to the detriment of the trader. The rewards of a day trading strategy can be substantial. The risk follows suit. Remember anytime the reward of trading any equity is great, conversely the risk carries the same weight or more if things go south. Ill give an example. I explored day trading a a strategy briefly in my investing career . A stock was purchased at 10 AM one Friday morning priced at $ 8.32 . 2000 Shares were purchased. The stock quickly rose to near $9.00 one hour later. The stock was held. Why? Pure and simple greed. If it went that high that quick perhaps it would go higher, right? That’s the problem with most beginning day traders. There are ways to make money with dat trading but it is not for the faint of heart. By the way the stock mentioned above was sold at the market close that day at under $7.50 a share, money lost and lesson learned

Long Term Investing

Long Term Investing on the other hand reduces your risk substantially and your stress level. Thinking of your investment on a long-term basis, takes away the day-to-day monitoring, even the minute-by-minute monitoring required in day trading. So what happens if your stock goes down on price? Market declines are a normal part of the equity investing cycle. So long as the story behind the stock is still good, market downturns can provide investors with buying opportunities that can add to their long-term growth potential. Stock experts say over the long term the stock market is still the place to put your money if you’re looking for the best returns. Here is another example , albeit one that has a measure regret. There was a day when IBM was the bell weather stock of the Stock Market. As IBM went so did the market. IBM simply controlled the comuter industry. I had read about a company named Dell Computers and did some research on the company. I decided no one could compete with IBM. I was wrong obviously , but the point is what if I had invested just $ 1000.00 dollars in Dell on that day and held the stock. I will figure out what it would be worth today and post in another article . Suffic to say it would be a significant amount.

Mutual Funds are still the best vehicle for beginning investors. Mutual fund investors receive the return earned on the holdings in the fund’s portfolio less any fees or expenses, but before investing in any mutual fund, ask for and obtain a prospectus. Mutual funds are required by law to provide prospectuses. Mutual funds are no different than any other investment; before you invest, you must know invest your own investment goals and objectives.  Mutual funds offer another alternative to investment. Fund managers just don’t go out and pick investments with your money out of a magic hat. They are professionals and this is their business. Although you may not know them personally, they are handling a personal product on your behalf, your money. Checking their track record BEFORE you send your check is imperative to preserving your investment capital and helping you to sleep in peace at night. Fund shares can be bought either through a brokerage firm or directly from the fund itself. Investing through the fund itself will usually save you some money in commissions, but that is not always the case. If all this sounds confusing, it is supposed to. You are a beginning investor, you will learn more and it will start to make sense. Now why do we say mutual funds are a great place for the beginning investor to start? The answer is very simple. They limit your risk and you can still enjoy a handsome reward.