Finance Tips

Beliefs of Technical Analysis – A Technical Analysis Tutorial

Technicians say that a market’s price reflects all topical information, so their analysis looks more at ‘internals’ than at ‘externals’ like news events. Price action also has a tendency to repeat itself because investors collectively incline toward patterned behaviour — therefore technicians’ concentrate on identifiable trends and conditions.
Market action discounts everything
Based on the premise that all important information is already reflected by costs, technical researchers believe it is redundant to do fundamental criteria — they are saying stories and news events do not noticeably influence price, and cite supporting research such as the study by Cutler, Poterba, and Summers titled’What Moves Stock Prices?’ Continue reading ‘Guidelines of Technical Analysis’ »

If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securities. If you think logically about this approach for a moment, you will recognize how truly foolish it is.

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A stock’s earnings yield is the inverse of its P/E ratio. So, a stock with a P/E ratio of 25 has an earnings yield of 4%, while a stock with a P/E ratio of 8 has an earnings yield of 12.5%. In this way, a low P/E stock is comparable to a high – yield bond.

Now, if these low P/E stocks had very unstable earnings or carried a great deal of debt, the spread between the long bond yield and the earnings yield of these stocks might be justified. However, many low P/E stocks actually have more stable earnings than their high multiple kin. Some do employ a great deal of debt. Still, within recent memory, one could find a stock with an earnings yield of 8 – 12%, a dividend yield of 3- 5%, and literally no debt, despite some of the lowest bond yields in half a century. This situation could only come about if investors shopped for their bonds without also considering stocks. This makes about as much sense as shopping for a van without also considering a car or truck.

All investments are ultimately cash to cash operations. As such, they should be judged by a single measure: the discounted value of their future cash flows. For this reason, a top down approach to investing is nonsensical. Starting your search by first deciding upon the form of security or the industry is like a general manager deciding upon a left handed or right handed pitcher before evaluating each individual player. In both cases, the choice is not merely hasty; it’s false. Even if pitching left handed is inherently more effective, the general manager is not comparing apples and oranges; he’s comparing pitchers. Whatever inherent advantage or disadvantage exists in a pitcher’s handedness can be reduced to an ultimate value (e.g., run value). For this reason, a pitcher’s handedness is merely one factor (among many) to be considered, not a binding choice to be made. Continue reading ‘Against Top Down Approach to Stock Picking’ »

Are you getting consistent 10-15% or more yields from your CD’s, Stocks, Savings Accounts, IRA’s and other investments? If not, read on…

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Did you know that there is a very safe investment that produces consistently high yields while at the same time provides security and liquidity? I’m referring to an investment secret that banks and financial institutions use. Smart people have been utilizing this investment for years. This secret is very common in real estate circles and has been going on right under your nose in every city in America. It’s called mortgage lending. So how is that a big secret you might ask? The secret part of this is that you can make this same type of investment and make far more than a regular bank does!

If you have funds to invest but are afraid to try your hand at the stock market because of the massive losses experienced in recent years, private mortgage lending might be the perfect investment tool for you. As a private lender you can make a high rate of return on your investment. How high? How about 10, 12, 15% … and sometimes even higher!

So how does this work? Real estate investors often come across great deals and they need to get them funded quickly in order to close the deal. We are referring to investors who buy run down properties at a deep discount, fix them up and then sell them for a great profit. These “rehabbers” need access to money quickly and can’t wait months for a traditional bank to wade through all the paperwork. Continue reading ‘Alternatives to Stock Market Investing’ »

I am in the process of putting together a beginners guide to the stock market for a new website I am working on and I thought I might let you have a look too. I hope that the few articles I write (I’m planning three) won’t be too insulting to you, dear reader, but hopefully they may contain a nugget of use too.

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Before I start, I ought to point out that these won’t be like any other pages ‘for beginners’ that you have ever seen. Here’s why …

I have been fascinated by investments since I was in my teens. Most teenagers read the sports pages, I read the financial pages. I bought my first shares aged 18. Into adulthood and I became a financial adviser at the grand old age of 24. I have sat and passed numerous financial exams and several investment specific professional qualifications.

I have read dozens of books about stock picking, economics, finance, politics, business, marketing, investment gurus and their autobiographies. In short, I am now past 30 and have spent the better part of my thinking life interested in investments. Continue reading ‘Stock Exchange For Beginners’ »

The most important decision you’ll ever make in your life is in no way concerned with stocks, bonds or mutual funds. This crucial decision is picking a suitable broker. Your online broker will execute your trades and store your money and stock in an account. There are dozens of companies offering brokerage services on the internet. Choosing the one that is right for you is indeed a daunting task.

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Here are a few factors you may want to consider:

•Discount: Discount should not be the sole criterion. It is better to start with a full-service broker for novice investors who wish to develop confidence and knowledge of the markets. As you get familiar with the process, you can handle all the tasks yourself.

•Site performance: Check out the company’s website particularly during peak hours and check how fast their site loads. It is very important to feel comfortable with the site environment as you’ll be using it regularly. If the order page is confusing, you are prone to making mistakes. Continue reading ‘How to Choose an Online Stock Broker’ »

We all know that opportunity does not come knocking every day. The phrase ‘lightning never strike twice on the same place’ illustrates the point. Investors are successful because they can identify opportunity as well as the courage to act on it. This article is written to identify what constitutes a good turnaround stock investment. Here are several steps necessary in finding your next stock investment.

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Scour the 52 week-low list – This is a useful preliminary screening where you identify stocks that has fallen. While stocks that fall have their own specific problems, it is generally better to buy low rather than high.

Calculate Its Net Cash. The next step would be to gauge the strength of the company’s balance sheet. This is done by calculating the company’s net cash. Net cash is calculated by adding cash equivalents, short term investments and long-term investments in the asset column and subtract it with long-term debt. If possible, you need to find stocks that has a positive net cash valued at 10% of its market capitalization or more. All the companies in our stock portfolio has positive net cash.

Calculate Earning Per Share Going Forward. This step is critical in determining the fair value of the common stock. It is also the hardest part to master in stock investing. Generally, you predict earning per share by constructing your own pro-forma income statements where all its components are based on your prediction of the company. At the bottom of the income statement is the profit/loss figure in which you can convert to earning per share. Continue reading ‘How to Find Good Stock Investment Ideas’ »