A trader who lacks the understanding of the dividend process can lose out on profit. Trading is a difficult occupation as it is, no being able to capitalize on trades for maximum profit is unacceptable. Failure to understand the dividend process can lead the trader into selling his stock to early which may mean taking an unneeded loss. Selling early will also mean the trader is ineligible for the dividend payout. Holding the stock to long after the dividend is paid out can bring other problems. Many traders may sell a stock after the dividend is paid out causing a dip in price. This dip will decrease the traders chance of maximizing profit.

The EX-Dividend Date is the first day a stock trades without the dividend attached. If you buy a stock on the Ex-Dividend Date you are not qualified for the dividend. Therefore, if you’re very interested in receiving a companies dividends, you must own prior to the Ex-dividend date.This also means you can sell a stock on the Ex-Dividend date and still receive the dividends even though they have not been placed in your account yet. Some of the other names sound more formal, such as record date and payment date but the one you need to focus on is the Ex-Dividend Date.
The Record Date is when the company begins to work on dividend payments to the shareholders, or the shareholders on record.

The Payment Date is when the company expects the payout to shareholders to be completed. It must be noted that this can all happen rather quickly but that there can be a long period of time between the ex-dividend date and the payout date and that is very important in case you feel the need to exit ownership of a stock but would like to receive the dividend first.

For those long term buy and hold traders these problems will never arise unless your planning on buying a stock for the dividend or selling one after you receive your dividend. Most long term traders will hold a stock through the price cycles.

EX-Dividend Date and Penny Stocks

Dividends with penny stocks follow the same rules as every other company. With penny stocks problems have arisen during forward splits because a company may not understand how the process works and begin to sell shares they do not own yet. Not only is this a bad sale on the part of company ownership but now those shares are eligible for the forward split. These mistakes have been known to increase the share amount beyond the authorized share limit with the SEC having to step in and halt trading.

The main issue with penny stocks and dividends is the ability to pump and dump the dividend excitement. Pumpers create scams that drive the price of a penny stock up so that others may sell for higher profit and leave those traders waiting for dividends at a loss. There are a few ways these scams are perpetrated, anyone who has traded penny stocks for a while will notice these scams immediately. Hopefully they weren’t victims of these scams themselves. It can be a tough lesson to learn.

A reason companies often exploit penny stocks in this manner is their ability to manipulate penny stock traders who are often novices to trading and can easily be duped. One way a penny stock company will exploit the dividend process is to announce a dividend in advance of actually filing it. The press release will say something to the effect of: Company XYZ trading at.015 has just announced they are issuing a.02 per share dividend to each share holder pending shareholder approval. This causes excitement in the penny stock world, a 100+% dividend! That’s a big dividend for a penny stock company and then the pumping begins. After purchasing company XYZ they begin to place the dividend announcement on ever penny stock forum and penny stock chat room they can find. This causes the volume in the stock to rise which in turn causes the price of the stock to rise. While the price rises, those who own the company and own the majority of shares begin to sell into the excitement. This allows them to sell at a better price without worrying that the amount of shares they are dumping will drop the price per share. The may even continue to issue press releases that remind traders of the promise of the company and the fact that they are issuing such a large dividend. At a time in the future they will announce that there will be no dividend as a majority of shareholders voted no. Being that the same people who write the press releases also own 51% of the company this is obviously a fixed outcome and a very simple penny stock scam.

Visit us to learn more about the Ex-Dividend Date.

Article Source: http://EzineArticles.com/?expert=Keith_E_Guyette

Contrarian investors believe that following the crowd leads to losses and missed opportunities. When the crowd reacts to news or speculation about a stock or the market, the price can rise of fall so far, that has mis-priced the value of the company or the market.

For example, a company finds it must recall a product due to a design or manufacturing problem. The recall causes widespread pessimism about the company and drives the price of the stock to new lows. The problem is real though the perception of the value of the stock is misplaced. Contrarian investors recognize these situations as opportunities. Once the selling is over and the company puts in place the necessary actions to correct the problem, the price recovers. Any investors who bought shares when the problem was at its worst, realize above average gains.

Similarly, widespread optimism often results in high valuations that cannot be justified by fundamentals. Eventually, the market recognizes the situation and the price falls. Again, contrarian investors try to avoid these highly hyped stocks, as the risk of a fall is greater than the reward of it climbing higher.

The contrarian investor looks to be part of the “smart money,” those few investors who recognize that crowd behavior tends to be wrong often. When the smart money players recognize this situation, they seek to benefit from the extreme sentiment expressed by the crowd. Bad news often overstates the risk and prospects of a company. Many investors will sell these shares in a panic to avoid owning the company’s shares. Contrarian investors identify and buy distressed stocks, selling them when the company recovers, leading to market beating returns.

In similar fashion, overly optimistic investors can drive up the price of a stock or the market to valuations that do not make economic sense. Eventually, these high expectations do not pan out and the price plunges. Contrarian investors are careful to exit or avoid these exaggerated situations. By going against the crowd, that has an unfounded belief in direction of the market, contrarian investors prepare to go the other way and avoid the losses the masses experience.

Deciding when to enter a contrarian trade requires a certain amount of fortitude and confidence. In 1999 and early 2000, the dot-com boom was underway. Many investors believe that the internet ass changing the nature of business. As a result, many of the fundamental and technical measures of performance were no longer valid. Along the way, many people bought into the market driving up the net capital inflows to all time highs. Much of this new money came from retail or non-professional investors driving up the NASDAQ. Once the inflow of new money tapered off, there was nothing left to support the extremely overvalued market. The market crashed.

Those who recognized that the market was overvalued were able to exit their positions. A few contrarian investors did not believe the hype. While many of them missed the run up, they also avoided the plunge. A few others maintained their trading discipline keeping their down side protection in place. When the market turned against them, they were able to exit their positions after enjoying the incredible run up.
The April 28, 2008 issue of Barron’s had an article titled “Back in the Pool.” They surveyed a number of professional investors to get an idea of their thoughts on the market. At the time the market had been in a rally that began in 2003 and was reaching what some thought were over heated conditions. Here are the results of the survey:

1) Describe your investment outlook through December 2008:

• Very Bullish: 7%
• Bullish: 43%
• Neutral: 38%
• Bearish: 12%
• Very Bearish: 0%

2) Is the U.S. stock market overvalued, undervalued, or fairly valued at current levels?

• Overvalued: 10%
• Undervalued: 55%
• Fairly valued: 35%

Essentially, there was a strong crowd mentality as the vast majority viewed the market favorably. By the end of 2008, the S&P 500 had fallen from a high in the 1400 area to 735 area. Those that stayed long saw their portfolios fall by more than 40%.

How to be a Contrarian

A contrarian investor does not always go against the crowd. Rather they look for situations when the market, a sector or a stock is significantly mis-priced. Along the way, they maintain their trading discipline keeping down side protection in place should the market change direction. Contrarians know they must not fight the prevailing trend. If the market is moving from the lower left to the upper right, they participate. When signs the trend is ending, they add more down side protection to their portfolios including reducing the size of their long positions.

Once the trend has turned and their trailing stops and protective puts have down their job, they look to find a new trend to follow. This can be a downtrend. They do not fight the trend. Rather they embrace it.

Contrarian investors look for situations when the market, sector, or stock becomes significantly overvalued or undervalued. These situations offer good entry or exit opportunities to capture additional profits. When an opportunity presents itself, contrarian investors complete their thorough evaluation before the make a commitment. Mis-priced opportunities arrive when people let their emotions take control over logic and analysis.

Hans E. Wagner
I began investing in high school and have remained active in the markets. A graduate of the US Air Force Academy with an MBA majoring in Finance from the University of Colorado, I continued to invest throughout my career in the US Air Force, Bank of America, Coopers & Lybrand, and working for Ross Perot before retiring at 55. During that time I have gained a very good understanding of what works and what doesn’t. I hope to impart that knowledge to others so they can achieve financial independence as well.
Hans runs a very successful investing site at http://www.tradingonlinemarkets.com that helps people learn to invest using proven stock market portfolio strategies. The site also includes several sample portfolios that substantially beat all the market averages.

Article Source: http://EzineArticles.com/?expert=Hans_Wagner

That’s because they don’t have a plan or the plan they are working is bad.

Unfortunately, many traders lose in the stock market because they trade with hunches, instincts and emotions

Wasting time and money on books and courses that don’t work, buying a charting program, opening a brokerage account and starting to trade without a plan is a plan for disaster.

Successful traders have one thing in common, a trading plan that they implement with confidence.

Jesse Livermore the most successful trader in the world during the early part of the 20th century lost everything, because he did not stick to his plan. He wrote, “My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I’d have been right perhaps as often as seven out of ten times.”

If you have a plan, stick to it. If your trading plan is not working, then you need to consider another plan.

The most important feature of the plan relies on reversal patterns created during the course of any trading day. Market dynamics display trends that simulate patterns. For every buyer there is a seller and vise verse.

Ralph Nelson Elliott published a series of articles in Financial World Magazine in 1939 describing how the Dow Jones Index moves in rhythms.

According to Elliott, everything moves with the same pattern as the tides- low tide follows high tide, reaction follows action.

Elliott wrote, “Nature’s law embraces the most important of all elements, timing. Nature’s law is not a system, or method of playing the market, but it is a phenomenon which appears to mark the progress of all human activities. Its application to forecasting is revolutionary.”

A pattern is always in progress, forming over and over.

For example, In the course of a trading day, the first reversal period takes place approximately 9:50 A.M. to 10:10 A.M. after the market opens at 9:30 A.M. One reason this happens is that the market makers and specialist often take the opposite side of your trade. Remember for every buyer there is a seller. They will “bring the stocks in” to adjust their position.

At 10:10 A.M. the market resumes. The next reversal takes place at 10:25, but last only five minutes. You may not notice it. By 11:30 traders start taking profits before lunch, and institutional managers leave for a break. The pattern subsides.

After lunch fresh action moves the market between 1:30 to 2:30 P.M. The next reversal begins at 3:30 P.M. when Treasury Bonds close. Institutional managers adjust their positions for the following day and traders exit their position.

Knowing that the market is driven by the human machine, it follows the laws of nature. Support and resistance, or Action and reaction. Timing plays a critical role in making profits in the stock exchange.

Anticipation and recognition of market direction with Fibonacci retracements, Bollinger Bands, Relative Strength Index, Moving Average Convergence-Divergence, On balanced Volume, Stochastic Oscillators, multiple time frames, Candlesticks, Pennants and triangles Flags and wedges, Head and shoulders, double tops, cup with handle, Lakes under patterns, Average true range, and many many more useful tools will only help you recognize the prevailing market direction. But all these tools will Never give you the opportunity to predict it.

Nobody can predict where the market will go. Not in ten minutes, ten days or ten years. However, with a Profitable trading Plan, you can make money in a highly unpredictable environment.

http://www.clevertradingplan.weebly.com

Article Source: http://EzineArticles.com/?expert=Dave_Delgado

Successful traders specialize in a trading niche which suits their temperament. In the process of doing this they may try different vehicles and strategies which are unsuccessful (for them). This is usually because the strategy is unsuited to the trader, not because it is “bad”.

After following a few blind alleys, I found my niche day trading grain futures contracts. I enjoy getting almost instant feedback on my trades, and having my money safely parked on the sidelines most of the time. It turns out that day trading suits my temperament, whereas longer term trading does not.

Day trading critics often trade relatively stodgy Forex markets. However, trading costs can sink a day trader, and, despite “commission free” trading offered by brokers, Forex trading costs are too high due to spread and slippage charges.

I prefer markets with greater volatility and enough volume to ensure a tight spread, but not such a huge volume that the market becomes hard to read. The grains (soybeans, wheat and corn) do the trick for me.

Do NOT decide on a market before you decide on your trading style. Find the style that suits you, then find the markets that respond best to that trading style.

Successful day traders should:

* Learn the concept of support and resistance in a market.
* Develop a trading system based on tactics at support and resistance levels.
* Test the system on independent data to make sure it has a positive Expectancy.
* Learn money management techniques to prevent taking on to too much risk.

Day trading often involves regular repetition of a simple trading plan to place high probability trades. If you learn the principles outlined above, stick strictly to your plan, and learn to avoid mistakes made in the heat of the moment, you are well on the way to day trading success.

Most day trading is done by professional traders who experience lower stress levels than you because they are using bank funds. You have to beat them at their own game despite the additional anxiety of having your own money at risk!

Two cardinal sins for a day trader are trading without a plan, and over-trading. You must have a plan which dictates your every move in the fast paced cut and thrust of a market session. Otherwise you will be a victim of bad decisions driven by emotions, the downfall of many a trader!

Over-trading often arises because you experience a loss and try to get it back by taking an unplanned trade. Very often, you end up making a bad day into a disastrous day. Sometimes people over-trade because they feel the more trades they take, the more money they make. In fact, all they are doing is building up huge trading costs which make it very difficult to make a profit.

Even though I am a day trader, I take less than one trade per day on average. If the trades you take are good quality, you can still make good returns. (For example, I placed 15 trades in February 2010 and recorded a return of 39% on trading capital invested. You can see the trades here).

David Bennett trades US commodity futures from his home on the Gold Coast in Australia. He provides coaching and mentoring services for people wanting to start trading for themselves. Visit http://www.12oclocktrades.com to read more futures trading articles.

Article Source: http://EzineArticles.com/?expert=D_Bennett

For the most part, dividend paying companies pay dividends on a quarterly basis. What if you could use the same amount of money and “work the system” so that you could get six dividends per year rather than four? That is exactly what happens with a dividend capture strategy. If that is really true then why doesn’t every one do it?

In order to answer that question, and to determine whether a dividend capture strategy is right for you, it is important to understand exactly how the strategy works, what is involved in executing it, and what the risks are. Quite simply, this strategy is one where an investor buys an equity purely to receive the dividend, then sells it to buy another equity that is about to pay a dividend. This enables a buyer to achieve many more dividends than if they were to buy one stock and simply wait for the quarterly dividend. At first blush, with so many different dividend paying stocks with so many different dividend dates, it would appear that a dividend seeker would be able to employ this strategy and use the same money to receive dividends every month by carefully switching from one dividend payer to another. In theory this is true, but from a practical standpoint it doesn’t make much sense. First of all tax law requires that a stock be held for 61 days in order to be eligible for the 15% tax rate. If held for a shorter period the dividend is taxed at the stockholders regular income tax rate.

Secondly, trading costs would mount up significantly cutting into any potential dividend profits. Thirdly, and most importantly every stock that pays a dividend drops by the amount of the dividend on ex-dividend day (the day that a new buyer will not receive the dividend when purchasing the stock). This drop reflects the fact that paying out a dividend reduces the net value of the company by the amount paid. On the opposite side, stocks often increase in value just prior to going ex-dividend as buyers come in to take advantage of the upcoming income. Therefore buys and sells require very careful timing, and there is no “formula” that can be used for that timing as each individual stock reacts differently each and every dividend period. The goal of a dividend capture strategist would be to buy a stock before it goes into a “dividend run up” prior to ex-dividend day, and then hope that after 61 days the stock will have regained the amount of the ex-dividend drop. Then the investor would repeat the process with another company whose dividend is imminent but hasn’t passed ex-dividend day. While, in theory, the strategy is relatively easy to understand, in practice it is rather difficult to achieve the desired goal. A typical problem that occurs is that, while the investor is able to achieve the six dividends, their profits are eroded by capital losses. Either they fail to buy before the “divvy run” or the price of the stock has not recovered from the drop that occurred on ex-dividend day.

Dividend capture investors track the history and pattern of individual stocks to determine what is likely to happen around ex-dividend day and try to use historical data in determining when to buy and when to sell. Nevertheless, the short window of opportunity caused by the 61 day holding period, makes it very difficult. Additionally, as other investors trade in and out of stocks around ex-dividend date, the old adage that past history is no guarantee of future results has never been more true.

There are professionally managed funds which employ this strategy and yield very high dividends(Google Dividend Capture Funds). These funds are run by professionals who focus all their efforts on achieving their high dividend goals. A careful look at their history will show that typically they are relatively more successful in rising markets, and many investors have found that by buying in at the wrong time their total yield was significantly eroded by capital losses.

In summary, a dividend capture strategy is not as simple as it may first appear. Each individual investor that is considering this strategy should carefully consider the time that they have available to monitor their chosen stocks, and should be cognizant of the very specific timing necessary for this strategy to work. Each individual investor has different investment criteria and their own idea of how much time they should spend on their investments. While I am certain that there are some astute investors that have employed this strategy successfully, I have determined that it is not for me. I personally believe it is more likely that total return will be better by carefully researching high dividend paying stocks and then employing a modified* buy and hold strategy. It may not be as exciting or sexy as a dividend capture strategy appears in theory, but for me it works.

*Modified buy and hold strategy: Carefully research investments prior to purchase, establish goals for the stocks that are bought, regularly review performance versus goals, make mid-stream corrections replacing equities that fail to meet performance goals.

Copyright 2010 Boyd Investment Holdings LLC. All rights reserved worldwide.

Visit the High Yield Dividend Stock Report for further articles and a regularly updated high yield dividend stock list: http://bihdividends.blogspot.com This blog is dedicated to assisting investors with their due diligence in the highly volatile and often misunderstood category of high yield dividend investing as part of a diversified investment program.

Article Source: http://EzineArticles.com/?expert=Robert_W_Boyd

A call option is a contract to buy a stock at an exact price within a specific time period. If a trader believes stock XYZ is going to increase in price, he can buy a call option for much less than the cost of the stock. He enjoys any increase in stock price as the option will increase in price as the stock goes up. If the stock price declines, the option can only decrease in price to $0.00 thus limiting the losses of the holder of the option to the purchase price of the option.

Let’s look at an example:

Present stock prices and amount committed:

XYZ stock priced at: $50.00 x 100 shares = $5,000.00

XYZ March $50 call: $ 3.00 x 100 = $ 300.00

Third Friday in March price:

XYZ stock priced at: $55.00 x 100 =$5,500.00

XYZ March $50 call: $ 5.00 x 100 =$ 500.00

In this instance, our trade made 10% on invested capital if we bought the stock, but made a 67% return on invested capital on the option contract. Now let’s look at the results if the stock did not perform as expected.

Present stock prices and amount committed:

XYZ stock priced at: $50.00 x 100 shares = $5,000.00

XYZ March $50 call: $ 3.00 x 100 = $ 300.00

Third Friday in March price:

XYZ stock priced at: $45.00 x 100 =$4,500.00

XYZ March $50 call: $ 5.00 x 100 =$ 0.00

In this example the XYZ stock lost $5 in price during the holding period. Our trade returned $4500 for a loss of $500, a 10% loss of capital. Our option expired worthless, but we only lost $300 on the trade rather than $500

This trade demonstrates three advantages of options:

1. If you are right in predicting the movement of the underlying stock, you will capitalize on most of the movement higher.
2. If you are wrong and the underlying stock moves against you, losses may be smaller than if you owned the stock itself.
3. Returns on invested capital can be much higher on option contracts with small moves in the underlying stock.

What is the largest disadvantage to options; time. You own a contract to purchase that is limited by time, and time decay can eat into your profits quickly. In the example above, our trader paid $3 ‘rent’ or time premium to control the underlying stock. If XYZ ended the time period at $52 dollars you would make back $2.00 for a loss of one dollar per share. It doesn’t matter if the stock goes to $55 per share a week after the option expires. You can be right in your prediction, but wrong in time frame and lose money. If you owned the stock outright, you could sell for the $52 per share and make a smaller profit or chose to wait longer for the higher target price.

Regular puts and calls may not be bought, or sold, in IRA or 401K accounts. The exception being covered calls. You must sign an option addendum with your online brokerage company to sell and buy options.

To buy a call option we enter the option symbol, it is generally made up of five letters. You may have to enter a (.) period in front of the symbol. Enter the quantity of contracts you want to purchase, remember each contract is for 100 shares. Option contracts trade with a Bid and Ask price, we highly recommend using limit orders on option contracts as the ’spread’ is usually wider on options than on stocks. We use the ‘Buy to Open’ to place the order. This refers to ‘Opening’ the contract. If we chose to sell the option contract before it expires, we would ‘Sell to Close’ to close the contract.

We have talked about buying call option contracts; you can also sell call options. Using the XYZ company trading at $50, if we did not believe it would increase to $55 before the option expiration date, we could sell to open the $55 call for $3.00 per share. If it stays under $55 through option expiration day we get to keep the $3.00 premium. If XYZ goes over $55 per share we would have to buy the stock at the higher market price and sell it for $55 to the option owner, incurring a loss. This is not a trade you want to enter lightly, it can be dangerous. Thus it is called selling a “naked” call. The graphic description depicts you do not own the underlying security and can lose your shorts!

I hope this has been helpful to you. If you have experience in options, it may seem elementary, but remember the first option you bought. We all have to start somewhere. I encourage you to start by buying one contract, and monitoring your trade for experience. Experience is the very best teacher, and will help you understand the concepts better. There are wonderful resources available on options; we may write a more advanced article in the future.

John Dalt writes about the stock market daily for online investors. His MarketToday e-letter is sent to subscribers of galtstock. You can subscribe at http://www.galtstock.com

Article Source: http://EzineArticles.com/?expert=John_Dalt

The first thing to do is take a deep breath. This isn’t rocket science, and there are ways to effectively manage your money without getting a doctorate in economics from Harvard. The very first step is to define your goals. What specifically is it that you want to do? Are you looking to build up a nest egg over a period of time? Are you near retirement and need to develop an income stream to supplement social security benefits? Identifying your goals will be of tremendous assistance in establishing your investment plan. Next it is important to determine how much risk you want to take. Only you can determine this, but there is a good way of figuring it out called “the sleep test.” Whatever you invest in, you should be comfortable enough with your choices that you are able to sleep well at night and not lie awake worrying about them. The next step is to decide if you want to spend time managing your funds yourself, utilize the services of an investment manager, or if you want to select mutual funds to place your money in, and let the fund manager make the decisions as to when to buy and sell.

If you determine that you want to manage your money yourself you then will want to decide whether or not to use a full service broker, who will provide advice as requested, or an online broker. The primary differences are in cost and availability of information. Full service brokers will charge up to 20 times what an online broker charges. Most online brokers do provide extensive information regarding stocks, but you generally have to go to their website and dig it out yourself, while a full service broker will be happy to do the research for you, but of course you are paying for that service. If you choose the mutual fund route, there are mutual funds designed to meet just about any investment objective that you might come up with whether it is long term growth, current income, or a balance between the two. There are sector funds specializing in just about any category that you might be interested in, and there are funds that provide every level of risk/reward to meet just about any specific investment criteria. There are some funds which have no sales charge (no-load) and others that are generally sold by brokers that do have a sales charge. Google is a great source for finding funds which meet your investment criteria. Simply type into the search box whatever type of fund you are looking for such as “high yield mutual funds” or “growth mutual funds” and a world of information will be at your fingertips.

If you are more adventuresome and have determined that you want to manage your own investments, and choose to go the online broker route, you will want to research stock candidates prior to buying. Again, the internet is a wonderful source for easily finding information. Yahoo Finance, Google Finance, and MSN Money are only the tip of the iceberg in the plethora of internet sites available to research individual stocks. So, what are the types of things to look for? If you are looking to develop an income from dividends, when looking at a stock, you will not only want to look at the current yield, but you need to determine if the dividend has been consistent and what its growth has been. If you are looking for a growth stock you will want to determine how the stock has done in good economic times and bad. You will want to look at a company’s price earnings ratio (PE) to see how it compares with other companies in its sector. You will want to look at a chart to see whether the trend is up or down, and to see where it is in its business cycle. Information regarding profit, growth, and yield trends, as well as price per share trend, is readily available at the previously mentioned websites. Company information is available in corporate annual reports, and even more detailed information is published by every publicly traded company in their quarterly reports, called 10Ks. Additionally, every time a publicly traded corporation does something or has something happen to them that can materially impact their stock, they are obligated to report it, and this information is picked up by any one of the many financial news services.

Perhaps one of the most important criteria in determining which stock to buy is the easiest one to master. That is don’t buy anything that you don’t understand. The Campbell Soup Company, or McDonald’s are examples of companies that everyone can understand. While a mortgage real estate investment trust (MREIT) or a master limited partnership (MLP) should be the realm of more sophisticated investors. If, after reading the company profile (available from every company website), you still don’t “get” how the company makes its money, then that is a stock for you to stay away from.

Once you have established your investment goals, determined your tolerance for risk, and created your investment portfolio your work is not over. It is important to regularly look at your investments to see if the choices you have made continue to meet your objectives. If one stock has grown to where it represents too much of your investment portfolio you may want to sell a portion of it and buy something else to maintain diversity. If something unexpected happened, and one of your selections is not meeting your expectations, you will want to sell it before even more money is lost, and buy another stock that will be more likely to achieve your goals. This isn’t complex, but it does require regular attention. Whether you review your investments daily, weekly, monthly or quarterly is up to you and how involved you choose to be in managing your portfolio.

If you have chosen to use an investment advisor, a full service stock broker, or mutual fund manager to make your investments for you, be sure that the investments that they select are within your tolerance for risk and meet your investment criteria. It is equally important to be sure that your money manager or mutual fund are regularly reviewing your positions to insure that they continue to meet your goals After all no matter whether you are managing your portfolio, or an investment manager is doing it for you, it is important to remember that no one cares more about your money than you do!

Visit the High Yield Dividend Stock Report for further articles and a regularly updated high yield dividend stock list: http://bihdividends.blogspot.com This blog is dedicated to assisting investors with their due diligence in the highly volatile and often misunderstood category of high yield dividend investing as part of a diversified investment program.

Article Source: http://EzineArticles.com/?expert=Robert_W_Boyd

Large, medium and small cap stock

If you’ve heard the term “large cap” or “small cap” stock, it refers to the value the market has given to a particular stock or sector. Stocks are broken down into the following capitalization categories:

1) Large Cap: Stocks valued at 10 billion dollars or more are known as “large caps”. This would include stocks such as General Electric, Caterpillar and Alcoa. The Dow Jones Industrial Average includes the largest 30 stocks in the American stock market. There is a matching ETF (exchange traded fund)whose symbol is DIA. Commonly known as “Diamonds”, this ETF matches the movement of the Dow Jones Industrial Average. Remember the Dow only includes the largest 30 industrial stocks listed on the New York Stock Exchange. If you wanted additional diversity, you could choose a mutual fund or ETF that matched the S&P 500; SPY is the symbol which will closest correspond to the returns of the S&P 500. The symbol SPY is commonly referred to as “Spiders”.
2) Mid Cap: Stocks valued at 1 to 10 billion dollars are known as “mid cap”. Examples of a mid cap stock would be Ross Stores. The closest index matching this asset class would be the S&P 400. You can purchase a mutual fund matching the S& P 400 or the corresponding ETF (MDY)
3) Small Cap: Stocks with a market capitalization of Stocks valued at 300 million to 1 billion dollars are known as small cap stocks. The index matching this asset class would be the S&P 600 or Russell 2000 Small Cap Index. A close matching ETF would be FSLCX
4) Micro cap: Stocks valued from 300 million or lower are known as micro cap stocks. These are considered the smallest and most risky publically traded stocks. Micro cap stocks are also the most illiquid and lightly traded stocks. As with most investments, the higher the risk, the higher the reward. A close matching ETF would be IWC.

Large capitalization stocks are also known as “blue chip stocks” and are usually the industry leaders within their group. They often can offer you foreign exposure as they typically sell worldwide. Since they are behemoth companies, large cap will usually grow slower than small cap. While stocks like General Electric may be The Titanic, a small or micro cap cap stock would be a speedboat.

As always, there are positive and negative factors to both asset classes. While they won’t grow as quick as a small cap stock or index, large cap stocks are more stable (in general) and will sometimes pay a dividend. Small cap stocks reinvest their sales and profits back into their company and thus usually do not pay a dividend. Small cap stocks can also be extremely volatile and may exhibit huge price swings. However over the long term, they outperform large cap stocks by a considerable margin. Why not just invest in small caps and set your portfolio on auto-pilot? Each of these asset classes will exhibit different characteristics depending upon the current market cycle. Small cap stocks will typically outperform large capitalization stocks when the economy emerges from a recession. There will be a period of years or perhaps a decade when large caps outperform small caps. If you properly allocate your investments, you will experience better long term returns than if you invested in a single investment class.

Value versus Growth
Within the universe of small, midcap and large cap stocks, there is the distinction of value and growth stocks.

Growth stocks are shares of fast growing companies that are accelerating rapidly and outpacing the market as a whole. An example of growth stock would be Google. Growth stocks can be high flyers, experiencing huge returns. However, if the stock falls short of earnings expectations or hits an extended setback in sales, their shares can plummet quickly.

Value stocks are often defined as companies that are considered undervalued by investors. If an investor buys a stock or sector they are betting it is “on sale” or cheap. Investors may study an investment and determine that the worst times are behind a particular company and that sales will again accelerate. There is also a possibility another company will buy out a value company who is suffering. Warren Buffet and Benjamin Graham are considered value investors. Long term, value investing has outperformed growth stocks.

Foreign Stocks
With the world in flux and in constant change, you might determine you need exposure in foreign and emerging markets. Investing in international stocks will give your portfolio additional diversification. Over the long term, foreign stocks usually outperform US stocks. However, much like small cap stocks, they can be very volatile. There is less government oversight and regulations overseas. In addition, there are always currency considerations to consider.

How to purchase foreign stocks
There are a number of ways to participate in foreign markets. While it may be difficult to get information or to invest in individual stocks, there are over 2500 mutual funds and ETFs which should be able to satisfy your investment needs. You’ll be buying into a basket of stocks which should get you extra safety as well as professional management.

Foreign investing can be extremely complicated. If investing overseas, you need to ask yourself the following questions:
1) Do you want exposure to a particular country?
2) Do you wish to invest in a region of the world?
3) Do you need the small, mid cap or large cap version of your investment?
4) Are you properly allocated within your foreign investments?
5) Do you want to invest in currency of a country or foreign bonds?
6) What percentage of my overall portfolio should be invested in foreign markets?

Get professional help
If you are overwhelmed, it’s understandable. This is the point where you really have to ask yourself if you want to be an investing by yourself or hire a financial advisor. Your financial advisor will determine your proper allocation and appropriate investments. Your allocation will be based on your financial goal, age and risk tolerance. By investing in mutual funds or ETFs which track an index, you will never be able to beat that specific index because of management fees. However, by being properly invested, you can manage to match or beat the standard benchmark of the S & P 500 which has returned about 9% over a period of 80 years. If you are truly interested in maximizing your returns, do not simply invest all of your money in one asset class.
Investing can be complicated. If you are armed with proper knowledge, you’ll be able to take advantage of the universe of possible investments available to you.

By shorting your portfolio just 2% per year, you will cost yourself tens of thousands if not hundreds of thousands of dollars per year.

Larry Lane is the editor for InvestorZoo.com, a social networking site specializing in personal finance

The article above is information of a general nature and the information provided may not apply to your personal situation. Please consult your financial advisor or licensed professional for investment advice.

Larry Lane is the editor for http://www.InvestorZoo.com a social networking site specializing in personal finance.
Check Investorzoo out for deals on credit cards, high yield checking accounts, blogs, and as well as CDs.

Are you a financial professional looking to help people with money issues and gain world wide exposure? InvestorZoo.com is the 1st true social network dedicated to the world of personal finance. Answer questions on our public forums, receive leads and start a profile. We are accepting profiles from any licensed professional (in good FINRA standing) or published financial author.

If you have questions, please reach me at larry.lane@investorzoo.com

Article Source: http://EzineArticles.com/?expert=Lawrence_J_Lane

The positive attitude to always hope for the best is good but they shouldn’t be extra optimistic but with optimism they should also use a bit of their minds to work out on each and every trade they do. A trader can make a good profit in the stock market but the choice of the stock which he is going to trade has to be appropriate. I know I am not speaking something which traders already don’t know but how to find that stock which will click for the trader is a tough task. It involves a sheer bit of efforts to find out Which Stock to Buy” which will bring him sure shot profit.

I will suggest here some crucial things which should be considered and given a thought before a person decides to buy a stock. In this world there is a simple funda – “More Money More Value”. And the same is true with the Value or reputation of a company. If a company has more Cash in Hand then its value is more and they have a good repo in the Stock market. Therefore there Shares are always profitable to buy. But what importance does the cash in hand have for deciding the Share Value of a company. The simplest explanation is that more money a company has in hand the more freely they can pay for their raw materials, technologies used, electricity bills, salaries of the employees etc. which are crucial factors for running a company and making it grow. Such company in the eye of the government and investor is a good company and its Shares are counted as Positive Shares. There for this company can be considered as a Company with Good Stocks to buy and will surely bring profit to the investors.

The next thing which the traders should keep an eye on is the P/E ratio. P/E Ratio is Price per Share/Earning per Share. The more earnings shares of a company give to an investor the better it is to purchase it. Also the PEG ratio of the company should be seen. The PEG ratio is PE/Growth of Company Ratio. The best level of PEG ratio for buying the stock of a company is 1.

Simply buying the Stock of a company by seeing the name of the company or the name of the person who owns it is not a wise thing to do. An investor should do a research on the company and find out what product or services that company sells. What and how is the demand of that particular service or product in the market. If the demand is more than in that case that company in the future is going to make a lot of money and hence the money of the person investing in the Shares will also increase. If the product of the services provided by that company is not in demand and old fashioned then there are less chances of the services of the product to be sold so the returns on Stock also will be very less and sometimes even less than what was invested.

One more thing to study about a company before buying its share is its QoQ growth i.e. Quarter on Quarter growth. The QoQ growth of a company gives an indication of whether the growth of the company is constant and what is the magnitude of that growth. More the QoQ the better for an investor to invest in such a Stock.

All these factor when studied as a combination for a company is called financial analysis of a company. If the analysis is done for day to day or intraday performance of Stock then its called Technical Analysis and when the analysis is done for a long term basis then its called fundamental Analysis. The persons who do this analysis are known as analysts. If a trader cannot do the analysis himself or don’t have the time to do it then he should take the help of the Research and Analysis Houses (Such as CapitalVia Global Research Limited) who have a lot of analysts working for them and they provides recommendations to the investors and the traders to buy or sell a particular stock in order to earn the maximum profit. I am sure if you seek the Assistance of CapitalVia Global Research Limited for your investment and Trading then you will make lots of profit from the Stock which CapitalVia recommend and you will not have to ask anybody that “Which Stocks to Buy?”

I work at CapitalVia Global Research Limited as a Team Lead – Internet Marketing.

CapitalVia Global Research Limited is the leading investment company in India and provides recommendations for investment in BSE, NSE, MCX and NCDEX.

IF you want Stock Tips and Commodities Tips then visit http://www.capitalvia.com

You can also visit my blog http://stock-tips-and-commodity-tips.blogspot.com for Weekly FREE Stock Tips and Commodity Tips.

Diveya Alok Simon

Article Source: http://EzineArticles.com/?expert=Diveya_Simon

I guess my free news sources including Routers and other sources saw me as the last drop off point for their baggage. Did you know that unless you pay for the premium services offered by Bloomberg and Reuters you receive the news with at least a 30 minute delay? On release of the earnings the company decided to issue more new stock to the market, the stock price had quadrupled in the previous 4 months to over $2 and the future was rosy, yet my delay in news hurt me. When this charlatan of a company decided to issue extra stock to raise capital for one of its new mega projects it issued them at 50% of the value of the stock available on the market. This immediately involved carnage to the stock price. In fact the price although eventually recovering, has again slumped to under $1.

I was not playing the news, the news played me. However there are those that play the news with some success. The problem with playing the news is it is not hard and cold facts it is feelings, interpretation and an abstract appreciation for how the public interprets news events.

How often does it happen that when a good earnings report is announced the stock falls? Too often! Why? There is a saying on Wall Street that you “buy the rumor sell the news”. That’s great if you mingle in the rumor circles that might pay, insiders, employees, good buddies with the CEO. However for us mere mortals we might not have these advantages. I have also heard of too many rumors that have backfired, tips from a friend in the industry, the nod from the supplier to a new startup company with a bright future. Apart from being illegal, insider trading of this nature especially when second hand is completely unreliable.

But to some extent we all play the news. One way or another it gets us. Turn on any news channels and the reporters are constantly overstating the meaning of things. We should not believe everything we read. One of my favorite headlines was from USA Today.

“Gas price decline may spur inflation” here

Honestly, really!

Of course economists can rationalize anything, but I am not buying it.

The fact is if we take news with a pinch of salt and make our own minds up it can be useful. But too much news can drag you in with the sheep on the road to the slaughter house. Try to imagine how important the news “really” is. Big headlines equal big readerships, big readerships mean more advertising revenue. Only you can decide what news is really important and what impact it will have on the stock market and your investments.

From small change to financial independence, your future in your hands with the Liberated Stock Trader.

Barry D. Moore.

Register free for access to the Traders Academy, a 10 Module Training Course covering Technical Analysis, Charting, Fundamentals and Strategy
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Stock Trading should not be more risk than profit, learn how with the liberated stock trader.

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Article Source: http://EzineArticles.com/?expert=Barry_D._Moore

Over 30 years ago I learned from a very successful trader, a trade secret I’ve never shared on the web before.  In fact, I only shared this trading secret with a few friends during that time.

I learned this trading secret from a trader named Bill… I am keeping his last name private as Bill is a very low-key guy and shuns any publicity.

http://www.ino.com/info/526/CD3208/&dp=0&l=0&campaignid=17

Using his special trading technique, Bill made millions and millions of dollars from his office. Now for the first time, I am going to share with you the exact same technique that Bill used so successfully for so many years. The best part is that this technique is still working more than 30 years after I learned about it. Now it’s time for the next
generation of traders to learn Bill’s secret.

http://www.ino.com/info/526/CD3208/&dp=0&l=0&campaignid=17

Bill didn’t even have a name for this killer trading technique. I named
it “The 52-week new highs on Friday rule”.

“The Trend is your Friend”

Step One: Find the trend of the market

Unless you have a contrarian stock that often goes against the market trend, most stocks will follow a market trend pretty safely. Many traders make the mistake of setting up a trade, only to find that they have bet against the market (I did that once!). While almost any of the major indexes will serve, I prefer to use the S&P500, simply because it is most representative of the general market. You may want to find the trend of the sector of your stock as well, as a back up. Essentially, you need one tool to find the trend, and one tool to measure the strength of the trend. You then use two other indicators to make sure that a reversal is not imminent.

To find the direction of a trend, use the balance of moving averages. For medium term, you may wish to use the 10ma and the 30 ma. These show whether the market is trending upwards, sideways or downwards. If the 10ma line is ABOVE the 30ma line, it means that over the last 10 days, the stock has been trading higher (on average) than for the last 30 day period, and this means that you are in uptrend. The further the two lines are apart, the stronger the trend. However, there is a more objective way of measuring the strength of the trend, by using the Wilder’s DMI, also known as the ADX. If the ADX is above 25, you have a strong trend, irrespective of whether the trend is up or down. ADX does not show direction – it only shows the strength of the direction.

Once you have established the direction of the trend, and its strength, you need to check on the RSI and the VIX. If the RSI is below 30 or above 70, you have an indication that the trend has run for a while, and that a reversal may be about to happen – therefore, be cautious. The VIX gives a similar picture. Fibonacci lines can also help you decide when a reversal is close.

Step Two: Find the trend of your stock

Once you have the market trend established, you then focus on your chosen stock. You simply use exactly the same indicators, but this time in a more narrow sense. The balance of the moving averages will tell you the direction of the trend, and the ADX will tell you the strength of the trend. RSI will again help you decide how close you are to a reversal, and you can also look at Fibonacci or support/resistance lines to see how far the trend is likely to go.

Application

Once you have established that your stock is in a trend, you are immediately set up to do a momentum trade, or to to sell credit spreads. If the trend is positive, and you have enough money to cover your margin requirements, you can sell naked puts. Or you can use the fluctuations within the band of the trend to do some short term swing trades, either directly on the stock or by using options. By trading options, you get a much better return for the same investment.

Details of exactly how to carry out a trend analysis, and then apply it to credit spreads, naked puts or even swing trading with options, can be found at Swing Trading Options.

Article Source: http://EzineArticles.com/?expert=Rob_Forbes

Investing in the stock market need not be an overly risky prospect if you know what you’re doing. Follow the tips below to find the least risky and most lucrative opportunities to invest in the stock market.

Look for positive trends. Anything that tells you that the economy is growing, that a particular industry you’re interested in is growing, is a positive sign to invest. To identify positive trends, open your newspaper and look at economic and financial growth charts. Or open up an Internet site like Yahoo Finance and see the tables and graphs there for trends and forecasts.

Look at past winners and chart their history and future prospects. Look at factors that made them strong. Analyze whether they performed well in both the good times and the bad times as this will give you an indicator of their stability when the going gets tough.

Follow a strategy of finding companies with strong management and a strong business ethos. To find such companies, look at reports such as those taken out by Standard & Poor on the health of companies listed on the S&P 500. You can also find out about a company’s financial health by going over their public profiles, looking at their annual shareholder reports and calculating some basic accounting and income ratios to determine their prosperity or otherwise.

Be fully invested in a bull market while switching to evergreen and safer options in a bear market. Safer options include utilities, food and beverages and healthcare since these is a basic demand for these no matter how the economy is doing.

Become a value investor by closely analyzing a firm’s net worth, income statement, book value versus market value, P/E ratios.

Find bargain stocks that have plenty of upside price potential that is not yet reflected in the stock price, and not one that has already reached its peak and is in decline.

Be on the lookout for a company’s rise in earnings and rise in asset values coupled with a decrease in debt obligations

Follow companies that consistently receive good PR. This one’s easy – check for companies that have been in the news lately for positive or innovative developments.

When a company is about to have a significant breakthrough, those with the insider information are usually the first to have wind of it. Be watchful for heavy director dealings.

Sometimes takeover bids result in a higher stock price because the move is a positive one for the company or the industry.

Be on the look out for the points we have covered before investing in the stock market. Doing so will help ensure that you pick strong companies and get lots of practice in correctly forecasting trends, a skill that will prove to be very profitable in the world of stock market investing.

Kelly Clifford from StockMarketsMadeSimple.com has put together a complimentary report titled “Stock Market Basics: A Beginners Guide To Understanding The Stock Market” that will likely prove invaluable in putting you on the fast track to becoming a knowledgeable and successful Stock Market investor. To download your copy now instantly.. CLICK HERE

Article Source: http://EzineArticles.com/?expert=Kelly_Clifford

Internet investment scams are a plenty. But, they are of the same size and shape of the scams that preceded them. And the same points define them. Lets take a quick look at how to spot them.

Stay away! if you see these points in a potential investment:

1. You need to pay any money to look into it completely and satisfactorily.
2. The investment does not make sense. It’s not that your not smart, lots of data that leads nowhere is a great way to make your head spin while you pull out your credit card.
3. The money goes into a club or company where they keep your books or “separate accounts”. Usually the company will be offshore. It is easy to run away with all the clients money when its in one account.
4. Any proof or documentation of hearsay or sales pitch is hidden or missing.

These are points you should look for in an potential investment:

1. It is free to see results, documents and any other proofs that may be required to suit your due diligence and understanding needs.
2. Your investment is in your own account (you opened it in your own name) at a bank, brokerage or for some investment types an intermediary (expecting delivery of something or if your investment is secured by something tangible, make sure to deal with an intermediary).

False “positive” points to stay away from:

* “Your friend made money so it must be good.” Refer to the above points regardless.
* “Your friend is introducing you to the investment -he wouldn’t rip you off.” Well, maybe he wouldn’t, that does not mean his due diligence was any good in the first place. Do YOUR OWN Due Diligence to YOUR OWN satisfaction.

Points that are thought of as “golden rules” to keep you out of fraudulent investments, but are in fact irrelevant to due diligence:

* Low minimum.
* High return.
* Feels too good to be true.

For example; A car wash franchise was seeking start up capital for a pilot car wash; $100 dollar minimum investment. for private company shares that provided a dividend. Your return on investment was projected at 100% within 1 year plus bonuses like 1 free car wash per month for life, and investors had first dibs to buy the franchises. This scared so many potential investors away that in fact they had to turn down the profit margin to fully procure the capital they needed. But they passed through the above numbered points with flying colors. The projections were met and a few lucky investors got that first offer -which was unbelievable to most due ONLY to the 3 points directly above.

This has been terse and not nearly complete, but this generalized guide will keep you out of 90% of those pesky fraudulent investments.

The real golden rule is; If you are in doubt, stay out. (Or getout if you read this too late:)

Damon Hunt, President of Hunt Transparent Investment Services

Introducing investors to legitimate investments while exposing blatant fraudulent investments (blog).

Visit http://htis.info/Services

(Direct blog link) http://htis.info

Article Source: http://EzineArticles.com/?expert=Damon_Hunt

In this article, we will dive more into the return on capital figure and examine its importance and how it is calculated. So, what exactly does return on capital tell us? For most investors, an analogy may be the most apt way to grasp the meaning. Imagine you are an investor shopping for a mutual fund in which to park your money. Since you are investing for the long term, you leaf through prospectuses looking at the 10-year average return. Fund manager A has managed to deliver 15% annual gains to his investors, while fund manager B has delivered just 5%. Clearly, your money would have grown faster by being with fund manager A, as he would have better allocated your dollars to achieve wealth.

The concept is no different in business. Management has to decide how to allocate their capital, including equity capital (earned through the issuance of shares to the public), debt capital (acquired through bond issuance or bank loans), and operating earnings (earned through operations). The decision has to be made – do I spend to grow sales organically, for example by spending on product development or new sales territories? Or do I pay to acquire new business lines? Or are growth opportunities limited and acquisitions overpriced enough that I should just sit on my cash or pay it back to shareholders? These decisions are at the core of senior management, and the effectiveness of these decisions are reflected in the return on capital number. A business with a higher return on capital, like a mutual fund with a great manager, will deliver more wealth to its shareholders over the long term.

So, how is it calculated? First, there are several ways to measure it. The simplest and most widely available are return on assets (ROA) and return on equity (ROE). The return on assets equation measures the profit earned on each dollar of raw assets (buildings, cash, equipment, inventory, and so forth). The calculation here is:

Return on assets = Net Income / Total Assets

Return on equity is the profit earned on each dollar of equity capital – in essence, each dollar you own of the company. This is a bit more meaningful because it takes a firm’s liabilities and debt into account and gives a better estimate of what net capital actually is. The calculation here:

Return on equity = Net Income / Total Equity

There are problems with each of these measures, however. Return on assets is a useful equation for comparing firms within the same industry; for example, comparing Pfizer (PFE) against Merck (MRK). However, it is usually not useful for comparing firms in different industries with different capital requirements, and it also does not take into account what assets are actually employed in generating profits and which are “extra”. Return on equity, on the other hand, is somewhat better as it does subtract out liabilities. However, it can present a skewed picture for firms with a lot of debt. For example, check printer Deluxe (DLX) has a return on equity that looks outstanding at 175%, until you realize that the company has a nearly $900 million debt load, leaving just $65 million in equity!

Return on capital solves these problems. It counts only assets and liabilities that are employed in generating operating earnings, and removes the rest. Non-operating costs and profits, such as interest and equity investments, are removed to get a more clear picture of the business itself. The equation for calculating traditional invested capital is:

Return on Invested Capital (ROIC) = (Operating Earnings * (1 – Tax Rate)) / Invested Capital

Invested Capital = (Total Assets – Excess Cash – Interest Bearing Assets) – (Short-term Liabilities + Interest Bearing ST Liabilities)

To illustrate an ROIC calculation, we’ll use an example, Intel (INTC):

Total Assets = 55,651

Excess Cash = 12,797

Interest Bearing Assets = 987 (Equity Securities) + 4,398 (Other LT Investments) = 5,385

Short-term Liabilities = 8,571

Interest Bearing ST Liabilities = 142 (Short-term debt)

Invested Capital = (55,651 – 12,797 – 5,385) – (8,571 + 142) = 28,898

Intel earned $8.732 billion in operating earnings, and paid a tax rate of about 23.9%. Therefore, ROIC would be:

ROIC = (8,732 * (1 – 0.239)) / 28,898 = 0.230 or 23%

Clearly, 23% is a very good return on capital. Most investors would be quite pleased with an investment that earned that kind of return annually!

Now, the Magic Formula strategy as devised by Greenblatt uses a slightly different calculation. First, it differs in calculating Invested Capital. Difficult to value assets like goodwill (the amount paid over book value for acquisitions) and intangible assets (like brands, patents, and so on) are removed, as different companies may use different accounting assumptions for these. Also, the tax rate is removed from the ROIC calculation, as some industries have the ability to manufacture favorable tax conditions. By removing them, a more comparable figure is created, although the actual meaning of that figure is somewhat diminished. In practice, an MFI return on capital figure north of 40% is pretty good. For Intel, calculating MFI invested capital looks like this:

MFI Invested Capital = Invested Capital – Goodwill – Intangible Assets

= 28,898 – 3,916 (Goodwill) = 24,982

MFI ROIC = Operating Earnings / MFI Invested Capital

= 8,732 / 24,982 = 34.9%

35% Magic Formula return on capital is good, but not outstanding. However, the fact that Intel’s traditional ROIC is so high is additional evidence that it is an exceptional business. For it to be a Magic Formula stock, the earnings yield hurdle would be set higher. Also, Intel has been able to maintain high returns on capital over a long period of time, evidence of a competitive moat.

Return on capital is a most important measure of the efficiency of a business and should be an important tool for stock investors, Magic Formula or otherwise.

Steven Alexander is the founder and editor of MagicDiligence.com. Joel Greenblatt’s Magic Formula Investing (MFI) strategy delivered over 30% annual returns over a 17 year period, but includes many fad stocks, cyclical commodity plays, and dying businesses. MagicDiligence researches the stocks on the MFI screen to weed out these undesirables and recommend only the very best stocks, with outstanding results. Try a 30-day trial and start investing successfully and independently today!

Article Source: http://EzineArticles.com/?expert=Steven_D_Alexander

It’s the first time I’ve looked at this market this year and one thing jumped out at me right away and I wanted to share it with you.

http://www.ino.com/info/513/CD3208/&dp=0&l=0&campaignid=3

It appears as though crude oil has an amazing cyclic quality that can be timed quite accurately with MarketClub’s “Triangle” technology. In this new short video, I showcase this cycle and how you can take advantage of it.

As always our videos are free to watch and there are no registration requirements.

Enjoy the video and let us know what you think.

Adam Hewison
President, INO.com
Co-creator, MarketClub

The Media has dubbed it “The Dismal Decade”.

Most of the investment community is either open-mouthed in shock or strident in blame about the somethings or someones who must be responsible for such horrific performance. Never again they swear to their clients— without ever a hint that they might themselves be the problem.

It won’t be long before the Wizards of Wall Street announce that they have studied the situation, and readied their sales minions to switch the shattered investment public into yet another fail proof (fool-magnet?) portfolio of hedges, gimmicks, signal responders, and panaceas for whatever the new decade brings.

Once again they will attempt to debug the market cycle and create an upward only future for the masses. Try not to be abused again— the markets aren’t broken, just the market shakers. Your portfolio should be up in market value— and not by just a little for the “dismal decade”.

These are the same geniuses that created the dotcom bubble by cramming valueless securities and speculative IPOs down your throats. They are the same charlatans who created the derivative markets and fraudulently hid their gaming devices in innocent looking rolls of tissue paper.

Wall Street thrives on the boom and bust scenario— because it doesn’t really matter to them how many of you win or lose. The evidence is clear; a boring-but-winning approach has been out there (and ignored) for three equally productive decades. The investment gods are outraged!

The past decade was a fabulous decade for old-fashioned value investors, particularly those with a reasonable selling discipline in their methodology!

It was a fabulous decade for those who understood that quality, diversification, and income generation are principles as opposed to media placating buzzwords.

It was a fabulous decade for those investors who were able to see over, beyond, and through artificial time constraints to find the long-term opportunities within every beautiful market cycle undulation. There were plenty of gyrations to gyrate to if you only knew how.

Investing is no longer a passive enterprise; and it never really was. If you can’t manage your portfolio throughout the market cycle, without succumbing either to greed, to panic, or to artificial and complicated hedging strategies, just stop. Right now. Listen and learn something old.

The only market cycle hedges needed are quality, diversification, and income— all classically defined. Throw in some disciplined selection and selling guidelines, a cost-based asset allocation formula, and a non-calendar year perspective and success will follow— cyclically.

You may miss a speculative spike or two (i.e., bubbles), but in the long run, Market Cycle Investment Management (MCIM) is a proven methodology for long run investment success.

You just can’t replace market cycle reality with calendar year gimmickry. Do better. Google investment grade value stock and request the ten-year MCIM numbers.

Change is good.

Steve Selengut
http://www.valuestockindex.com
Professional Portfolio Management since 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”

I received a publication today whose major theme was portfolio rebalancing – I added the word blind – I’ll get to this latter idea in a minute.

If the people that come to our office are any indicator (and they are), clients (and their advisors) who have used asset allocation over the last ten years, didn’t do any portfolio rebalancing when it would have been of some benefit back in 2007. One reason they didn’t, was because these folks were so far behind the curve based on the underperformance of asset allocation during the 1990’s. As a result they had to make up the opportunity that had been lost and so they stayed on too long.

Furthermore, many of these same folks sold at the bottom between November of 2008 and March of 2009 and have not yet reinvested. Therefore, they have no profits at this point in time to “rebalance”.

So once again the financial planning population at large recommends “closing the gate after the horse has left the pen”, as they do in each market cycle – “just like clockwork”. I observed it in the November to March timeframe when brokerages were advertising certificates of deposit as their primary offering. The time to buy CD’s for people who wanted out of the market was in 2007 – before the fact, not in 2009 after the fact.

Even though the planning profession is fixed on what has already taken place, when you stop and think about it, you realize that investment results are about what is going to happen in the future, and not the past. Blind portfolio rebalancing pays absolutely zero attention to assessing what will happen in the future. It simply instructs that if you have profits in one fund, you take some of those profits and redistribute to laggards, with no assessment of why things are lagging.

Based on this logic, investors should take profits in their Amazon or Google stock and buy Gannett (the newspaper publisher). Amazon is in it’s infancy as a company and Gannett is trying to determine how it’s going to stay in business another three years. Multibillion dollar losses have taken place in newspaper publishing on deals like the Chicago Tribune. Circulation at major newspapers nationwide has dropped precipitously over the last three years. Blind portfolio rebalancing considers none of this.

It’s also true that planners who recommend this blind portfolio rebalancing don’t own individual stocks like the ones mentioned above – they recommend mutual funds. This sounds like a better idea on the surface, but it’s not. Because mutual fund investors, particularly those in mutual funds with high portfolio turnover, have no earthly idea what they actually own through the fund. Therefore they have even less information to rely on in making reallocation decisions. We call that situation “the blind leading the blind”.

In order to be successful investing and managing your portfolio, you must have a system, a set of disciplines that allows you to accurately assess the state of each of your investments and what is reasonable performance going forward. No one is perfect in this – not even Warren Buffett. But the simple reality is that your investment performance is so far superior when you are approximately right instead of absolutely wrong.

Does your portfolio need a dose of common sense and the results that it produces? I’m here – email me dana@thebarfieldgroup.com.

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It is important to have a realistic sense of what the market is all about, and to not accept at face value what is promoted by trading educators, chat rooms, and vendors selling trading methods. Most of what is promoted for sale is useless and will put the trader a further distance from the goal of trading success. Most traders that have been in the business for any length of time will not fall victim to the hype, but many new traders are seduced by what seems to be an easy road to wealth. Even frustrated veteran traders can fall into the lure of the hype.

Most trading methodologies presented in chat rooms and so called trading schools try to predict the future by looking at past data, that is data to the left of the current price bar. These traders will spend their time facing backward on the chart, with their analysis looking over the past data, trying to find inflection points where they can draw their trendlines or fibonacci retracement levels, or their indicators and moving averages, often optimized from the very past data they are analyzing. They try to draw conclusions about the future from what happened in the past.

I contend that those market participants that have the financial means to actually move prices directionally are not that concerned about price data from the past, as the reason for those old prices are no longer influencing the current price. These traders are looking forward on the price chart, with their eyes on the current data, and with their backs to the past price data. The movement of prices that seem random to many are caused by traders trying to find areas of accepted value where trade can be facilitated. When new information enters the market prices will move to another level to find a new area of value. Whether that information is correct is not the point. Traders are still reacting to the information at hand and testing the market up and down to find value at that moment. The up and down movement creates a bell curve that can more easily be seen on a market profile chart, and will graphically display areas of price acceptance and price rejection. By facing backward on the chart and looking at price activity at some point in the past, caused by conditions that are no longer relevant, the trader is not listening to what the market is trying to communicate. Viewing a trend on a chart does require looking at past data only as a reference point to the current price, but doing so does not necessarily have any implication for future prices.

So is it possible to forecast future prices, and to make a living trading on those forecasts? Certainly in the very long term there have been some very successful investors who have benefited from the long term direction of the markets and by being able to find the best values within the various sectors. But there can be very long periods of time without adequate upward price movement to be able to make a living from such an activity, apart from taking fees. If one tries to actually earn a living from the market, apart from commissions or fees charged, then trading must be considered, rather than investing. However, the odds of trading success are not great. The very best traders and funds, with very deep pockets, access to information, and with sophisticated proprietary trading models and computer power, most often underperform a benchmark such as the S&P 500. The very best trading systems and indicators have a difficult time getting over 30% winning trades when using any sensible form of profit objective and risk control. Systems that tout very high winning percentages usually are optimized over a very short sample period, or they take very small profits on each trade, and let the losses run. It is very difficult to devise a directional trading strategy that can produce more than 30% winning trades and still be profitable after slippage and commissions. Many are advertised, but few that I’ve seen can pass the test of a large sample size. So if 30% is the figure of winning trades that is possible or probable using a directional methodology, is it not better to just flip a coin and have 50% odds. It would seem so. However, by looking forward on the chart instead of backwards the trader at least has some clue of the direction the market is trying to go, and I believe with practice and experience a trader can improve on those dismal odds. But it can still seem like a futile task to rely on having to correctly predict market direction.

Another point to consider is that the market has three possible directions: it can trend up, it can trend down, and it can trend sideways. Trying to call market direction therefore seems to have about a one in three chance of success, which is close to the 30% odds of a trading system or strategy. Taking that into account it seems any analysis on a market would be about the same as random selection. It would seem, with these dismal statistics, that it is not possible to trade by calling market direction. It is certainly compelling to see perfect examples of indicator or pattern set-ups with positive outcomes. A quick look at a chart with a perfect pattern or indicator set-up would make it look like a piece of cake to trade such a pattern every time it appears. Successful indicator or pattern trades tend to jump out from the charts. But be careful of the well-chosen example when viewing trading methods for sale or in chat room hype. Usually when you analyze these perfect set-ups by looking at more data and apply the same rules, without the benefit of seeing the eventual successful outcome, you’ll find many more identical set-up that didn’t work out. The eye has a tendency to gloss over the unsuccessful outcomes, and only seeks those that work out. The trader wants to see success, not failure. However, the usual outcome once real money is committed to these set-ups is quite the opposite of what is promised.

Trading directional seems an obvious choice when someone first wants to become a trader, but for a trader who wants to take consistent profits out of the market in order to make a living, it can be a very difficult and stressful occupation, with very low odds of success. Many traders will even further reduce these odds by buying options. It is difficult enough to call market direction, but buying an option with its inevitable time decay will decrease the odds further. And since most novice traders prefer to trade from the long side of the market, doing so via a long call option can make the odds even worse as option premiums tend to decline due to declining implied volatility during uptrending markets. Add all of these ingredients together and you must conclude that the odds of trading success by calling market direction, and then using leverage such as puts and calls, will leave the trader with a very slim chance of a winning trade.

But these low odds of success can possibly be turned around be doing just the opposite. Regarding my earlier point that the market can trend in one of three directions, it would seem that one could improve the odds by not picking the direction the trader thinks the market will go, but by picking the direction that the market may be least likely to go. That would seem to improve the odds from a one in three chance, to a two in three chance, which is closer to a standard deviation. A good, tested trading approach should help to pick a direction the market is least likely to go, especially if one were to use a forward looking approach such as that offered by the market profile. Even a simple moving average and oscillator approach with money management should be able to help the trader avoid the wrong side of the market at least some of the time. It doesn’t have to be perfect. The market might still go the wrong way and adjustments might need to be made, but there are at least better then even odds that the market will either stay the same or move in the desired direction.

But how does one profit if the market does not move directionally? This is difficult if one is taking net long or short positions. But one logical approach is to use the inevitable decay of options. One can easily sell option premium instead of buying. It is like using gravity, or having the wind at your back. All option time value decays to zero at expiration. Of course, if the option is in the money then that option will have intrinsic value, but the time premium will be gone. The time decay of an option is referred as theta. Purchasing an option would be a theta negative trade whereas selling an option to benefit from the decay in time value would be a theta positive trade. Trading option positions that are theta positive can greatly improve the odds of a successful trade, but money management must still be used, and all the short options should have a long hedge.

Many traders that survive in the pits for many years are not necessarily trading directionally, but employ strategies that are hedged and not dependent on directional market movement. An option trader might spread front month options against back month options, or hedge a position against the cash underlying. A futures trader might trade small discrepancies between similar markets, or trade the same market between different exchanges. Many of these techniques are difficult to employ by the retail trader, however the concept of a hedge can be helpful if one is considering profiting from option decay. Some theta positive traders will sell option contracts short, thus being naked short an option. This is a very risky trade and not recommended. It is highly advisable to have a long option to hedge the short option. This also greatly reduces the margin requirement of the position.

If the trader has a bullish bias, or at least the belief based on his trading approach that the market will at least not go down, that trader could use a bull put credit spread. This spread is constructed by selling a put and then simultaneously buying a cheaper put at a lower strike price. The put that is sold can be at the money, or the trade can be given a little more room by selling it a bit further out the money. If the trader is correct the spread will decline in value over time and that becomes the profit that will accrue to the trader. The maximum gain can be achieved if the market goes up, stays flat, or even goes down a bit. If the market goes down past a certain point the maximum loss is known in advance. One downside of this trade is that the profit potential is limited, but so is the loss. If the trader is very bullish a long call could be purchased using part of the credit received from the spread. This would allow a greater profit if the bullish move did indeed occur, but would still allow the credit spread to produce some profit if the market only moved sideways. A profit might still be had if the market moved down if the short put was placed a bit under the market. Of course the short put could be placed a little in the money to receive more dollars, but there would be less actual time premium, or extrinsic value received, and there would be more risk. If the trader had a bearish perspective, the same strategy could be applied using call credit spreads sold above the current price.

Other spread opportunities using theta positive trades would include doing a butterfly or a calendar spread. A butterfly is simply doing a credit in both directions, so there would be two short options, either puts or calls or both, and then a long option higher to protect one of the shorts, and another long option lower, to protect the other short option. A calendar is simply a short option in the near month hedged with a long option in a later month. Both of these spreads benefit from time decay. The main difference between them is that a calendar spread works better when the trend of implied volatility is increasing, and a butterfly benefits in the near term from a decline in volatility, but near expiration is can still work out regardless of the direction of volatility. The butterfly uses four options per spread, so commissions and slippage can be a bit higher. These spreads can be put on with the short strikes near the current price if the outlook is for the market to trend sideways. If there is a directional forecast the short strike can be placed at the objective or target price, that is above the current price if bullish, or below if bearish. If the butterfly is employed the wings, or long options, can be spread out to give a wider breakeven range. That way the current price could be included in the range of the expiration breakeven so if prices remain stable or move toward the direction of the short strike the trade would become profitable, with the most profit occurring with the price at the short strikes. One downside of the butterfly or calendar spread is that the price can overshoot the expiration range, so a loss could result if price moves too far too fast. The vertical credit spread described previously is not affected if the price moves too far in the favored direction, however the credit spread usually does not have as favorable a risk reward ratio. There is always a give and take when considering various option strategies. There are many adjustments that can be made to keep price within the expiration breakeven range of the various option spread strategies. The subject of adjustments and money management is beyond the scope of this article.

What can discourage traders from doing theta positive spread trades is that the profit potential is often limited and less that what a trader would want to accept for the risk taken. Novice traders who think they have the ability to accurately call market direction often view each trade as having the potential to hit a home run, and therefore view each trade in terms of how much can be made if the forecast turns out correct. But if a trader constantly swings for the fences, the odds of success will be very low. A more successful approach might be to accept trying for singles, with a much higher win rate, and then employing the power of compounding to build the account. It can be very satisfying profiting from a very large market move, but these large moves are very difficult to find in real time, and difficult to profit from on a consistent basis. The smaller moves are more accessible and frequent, and one might build up an account faster by accepting the smaller moves, and then simply repeating the process over and over. And of course it is vital to use good money management at all times so the inevitable bad trades don’t become larger that the winning trades. The probability distribution, or standard deviation, favors this approach rather than always trying to hit the home run, which is actually trying to trade far outside of the normal distribution of prices.

This article is not meant to be a complete trading methodology. Rather it is just an introduction to an alternate approach to trading that might have a better chance of success that the methods used by most retail traders. There are many more theta positive spreads available to research in addition to what is presented here. There is a wealth of free information available in the learning center on the CBOE website. If this methodology is of interest it would be wise to study the various methods of making adjustments when prices do not cooperate with what is expected. Of course strict loss control and use of realistic profit targets is essential. It is best to create a detailed trading plan in writing, and to paper trade for a time by practicing entering trades in a simulated trading platform. Entering spread trade can be a bit tricky at first if one only has experience placing orders for net long or short positions.

Doug Tucker has a blog with daily commentary on stock indexes, precious metals, and other markets. There are many articles on technical analysis and indicator design and interpretation. To visit go to: http://tuckerreport.com/

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Goal setting is the top priority. Determine specific and attainable goals, short and long term, and make sure you write them down. Physically writing them down gives them power. The act of writing and visualizing your goals makes it much more likely that you will actually achieve them.

You must also understand your current financial situation. Add up your assets and your liabilities. Find out how much you owe on your home, your cars and your credit cards and conclude how best to whittle those liabilities down a bit during the year ahead. It’s always a good idea to get rid of debt, especially high interest debt. The beginning of the year is also a great time to establish any new insurance needs. Examine the validity of your current life, disability, home, health or auto policies and decide whether changes are required.

The best way to create a solid financial plan is to save, save, save. The general rule is to put away 5 percent to 10 percent of your take-home pay, if you can. Remember to pay yourself first and don’t wait for what’s left over after you pay your bills. If that’s your strategy, you’ll find it difficult to save anything. You should also be sure to set aside your savings in an interest-bearing account, such as a money market account, or in a tax-deferred account like an individual retirement plan (IRA). If your company offers a 401(k) plan, start contributing as soon as you possibly can, especially if the company matches your contributions. Once you’ve finished the basics, then you can start examining your portfolio and other investment opportunities.

Something else to pay close attention to is your tax strategy. When you receive your annual W-2s, make sure your monthly tax payments are being deducted at the proper level. The trick is to come as close to breaking even as possible on your federal tax returns. You should keep and invest your money throughout the year rather than allow the government to use your hard-earned cash.

There are an almost infinite number of financial topics to consider but the bottom line is getting the education you need to determine what you need to do to establish a positive financial position for 2010. Go to the library and check out books that deal with the financial issues you are most interested in (plus, you’re already saving money by checking the books out of the library rather than buying them).

Subscribe to magazines, listen to radio, watch television programs that explain the financial news of the day and surf the Internet. There are so many top-notch areas where you can find the information you need to educate yourself about your financial situation. You might even take a course at the local community college or university. Remember, it doesn’t matter how old or young you are, now is the time to start improving your financial situation.

Again, I’d like to wish you a Happy New Year! You will increase the chances of experiencing a joyous and profitable 2010 if you constructively plan for your financial future. Happy Investing!

http://www.jamesdicks.com
http://www.jamesdicksblog.com

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It doesn’t matter.

As a trader I am only interested in what the market does, not why it exhibits certain tendencies. I realize that is a bit of an obtuse answer, but it is one I have learned to live with comfortably. Of course, it is often discussed among traders and each day trader has his opinion, but to trade the markets it is not necessarily important why this phenomena occurs.

On the other hand, some days the market pays absolutely no attention to pivot points and goes along its merry way without stopping at any particular point on the chart. More often than not, though, the market will stop at the pivot points, or pause, or reverse right at the plotted lines. My point is a simple one; pivots are very useful, except when they are not useful. Whether the market will adhere to the predicted support and resistance is something that you must glean from watching the price action for a bit. I typically don’t initiate my first trade of the day based on pivot points.

The formula for calculating the days support, resistance, and pivot point is as follows:

R2 = P + (H – L) = P + (R1 – S1)
R1 = (P x 2) – L
P = (H + L + C) / 3
S1 = (P x 2) – H
S2 = P – (H – L) = P – (R1 – S1)

S=support levels
R=resistance levels
H=hi
L=low
C=close

As you might have surmised, the formula plots five lines on your trading chart. These lines are commonly referred to as S1, S2, PP, R1, and R2. S1 and R1 are the first lines of potential support/resistance on your chart. The pivot point is the primary line of support and/or resistance.

Most traders have their own set-up to trade pivots, and I have three that are favorites of mine. One is a break out through a resistance/support level.

Break outs often time occur when the market is in a consolidating mode and forms a horizontal channel, with the price banging off the top and bottom of the channel, especially if the channel is on a support/resistance line, as is often the case.. After this price action continues for two, maybe three cycles, I will set a sell a point below the channel and a buy a point above the channel. (I am referring to the ES contract here) Generally the price action will break out of the channel and continue in the direction of the break out and you pick up the trade as it blasts through the channel parameters. This is a pretty good strategy and can be very profitable.

Breakdowns are also a great way to use your pivots. This trade is especially good if the market has been hitting a support/resistance line and stopping. As the price action approaches the support/resistance line, I will set a buy one point below the line in hopes of picking up the trade as it pierces the line. This trade can be a bit dodgy, especially if the market has been bouncing off the lines all day because the earlier bounces were usually followed a move in the other direction. Your hope is that the move does not go through the line a bit (as it often does), pick up your trade and change directions. Again, here you can set your order lower, maybe 1.5 points below the line if you are uncomfortable.

Finally, you trade the pullbacks from R and S. Let’s say the market pierces S1 and heads straight to S2 and stops and reverses. Often times the change in direction will go straight to S1 again, retracing it’s move down in the opposite direction. Once it reaches S1 I will set a trade 1 point below S1. More often than not, the trade will hit S1 and reverse field to the short side, and if it continues upward you stayed out of the trade by virtue of setting your sell 1 point below S1. This probably my favorite pivot point trade, and comes with a higher degree of safety than most. Of course, no specific trade works every time. If I am stopped out twice on a pivot point trade, I forget pivot points for the rest of the day.

In summary, we learned that pivot points are predictors of future activity. Further, as predictors they may or may not be effective on a given day of trading. Your power of observation is key to understanding the effectiveness of a pivot point every trading day. We reviewed three basic trades that I use; the breakout, breakdown and pullback. If you learn to combine your trades with an oscillator or a tick chart, you will develop and even higher degree of activity in your trading. Remember to check yourself when trading pivot points, never trade without stop-loss orders in place.

I am a long time retail and institutional trader who now only trades part time, usually in the morning. I enjoy writing informational articles about my style of trading so others may benefit. I endorse a state of the art trading program for beginners at Trading Concepts, Inc. It’s an awesome product that will have you well on your way to success. Plus, it has a money back guarantee…you have nothing to lose and thousands to gain.

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The Media has dubbed it “The Dismal Decade”.

Most of the investment community is either open-mouthed in shock or strident in blame about the somethings or someones who must be responsible for such horrific performance. Never again they swear to their clients— without ever a hint that they might themselves be the problem.

It won’t be long before the Wizards of Wall Street announce that they have studied the situation, and readied their sales minions to switch the shattered investment public into yet another fail proof (fool-magnet?) portfolio of hedges, gimmicks, signal responders, and panaceas for whatever the new decade brings.

Once again they will attempt to debug the market cycle and create an upward only future for the masses. Try not to be abused again— the markets aren’t broken, just the market shakers. Your portfolio should be up in market value— and not by just a little for the “dismal decade”.

These are the same geniuses that created the dotcom bubble by cramming valueless securities and speculative IPOs down your throats. They are the same charlatans who created the derivative markets and fraudulently hid their gaming devices in innocent looking rolls of tissue paper.

Wall Street thrives on the boom and bust scenario— because it doesn’t really matter to them how many of you win or lose. The evidence is clear; a boring-but-winning approach has been out there (and ignored) for three equally productive decades. The investment gods are outraged!

The past decade was a fabulous decade for old-fashioned value investors, particularly those with a reasonable selling discipline in their methodology!

It was a fabulous decade for those who understood that quality, diversification, and income generation are principles as opposed to media placating buzzwords.

It was a fabulous decade for those investors who were able to see over, beyond, and through artificial time constraints to find the long-term opportunities within every beautiful market cycle undulation. There were plenty of gyrations to gyrate to if you only knew how.

Investing is no longer a passive enterprise; and it never really was. If you can’t manage your portfolio throughout the market cycle, without succumbing either to greed, to panic, or to artificial and complicated hedging strategies, just stop. Right now. Listen and learn something old.

The only market cycle hedges needed are quality, diversification, and income— all classically defined. Throw in some disciplined selection and selling guidelines, a cost-based asset allocation formula, and a non-calendar year perspective and success will follow— cyclically.

You may miss a speculative spike or two (i.e., bubbles), but in the long run, Market Cycle Investment Management (MCIM) is a proven methodology for long run investment success.

You just can’t replace market cycle reality with calendar year gimmickry. Do better. Google investment grade value stock and request the ten-year MCIM numbers.

Change is good.

Steve Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

Article Source: http://EzineArticles.com/?expert=Steve_Selengut

You want to buy a new car. You’ve done all the research, and based on your needs you have determined that a new Lexus ES350 4 door sedan V6 is the perfect automobile for you. You then do your homework and find the best deal with the options you are looking for is $36,000 at a dealer near you. As soon as you have the money available, you go down to the dealership to buy the car. When you get there you find that the dealer has lowered the price on the very same car to $30,600, an unadvertised 15% discount! What do you do? Are you angry that the price is lower? Do you question the intrinsic value of the Lexus? Do you wait to buy until the price goes back up? Of course not. You thank your lucky stars, and jump on the deal.

The stock market often presents the same scenario. You do your research. You find an equity that you want to buy. You feel it is priced right, the fundamentals are excellent, and you decide to buy. On the day that you decide to make the purchase the entire market, or the sector, or perhaps just that security is down significantly for no apparent reason. What do you do? Why is it that we are so hesitant to buy when a stock that we like has gone down. On the other hand, how often have we chased a stock that is rapidly rising and find that ultimately we have bought it at a price significantly higher than we originally planned? I think the answer to both questions is one of knowledge and confidence. When the market is dropping it is fear that prevents us from buying at just the time we should. When the market is rising it is greed that makes us buy a rising stock even when it may have passed the point of a judicious purchase. However, if you have done the proper due diligence and you know the real value of an individual stock then if you see that it has dropped, you will likely buy more shares than you initially anticipated because your available dollars will buy more at the lower price. You will feel good and confident that you have made a good decision based on your knowledge of the underlying value of the stock. Similarly, if a stock you are knowledgeable about has risen rapidly, perhaps beyond where the fundamentals justify, you will probably wait until reason prevails and wait to buy until the stock settles back to a price in line with its true value.

Simply stated, if you have really done your homework, and a stock was truly a buy at a higher price, isn’t it a better buy at a lower price? Isn’t it odd that contrary to buying a car or almost anything else, our human nature causes us to want to buy when a stock is going up yet to hesitate buying after it has dropped. Knowledge is the tool that allows us to act with confidence and make the right decision even when our human nature (fear and greed) tells us to act otherwise.

Moral: Do your due diligence and know what you are buying and don’t let an irrational market fool you. Take advantage of it!

Visit the High Yield Dividend Stock Report for further articles and a regularly updated high yield dividend stock list: http://bihdividends.blogspot.com This blog is dedicated to assisting investors with their due diligence in the highly volatile and often misunderstood category of high yield dividend investing as part of a diversified investment program.

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