Archive for Stocks
Growth Stocks Investment
Posted by: | CommentsCapitalization or cap refers to the combined value of all the share of a company’s stocks. The division between large cap, mid cap and small cap are often blurry and not sharp. When you start looking for good stocks, you often come across these terms like large cap, mid cap, small cap, growth and value. Let’s discuss these terms for a moment.
Mid caps are companies with $1 to $5 Billion in capitalization and small caps are companies with $250 million to $1 Billion in capitalization. Anything below $250 million can be considered as micro cap. However the following divisions are generally accepted: Large caps are companies with over $5 Billion in capitalization.
What is the P/E ratio? The P/E ratio divides the price of the stock by the earnings per share. Suppose, company ABC stock is presently selling for $50. Now suppose that last year company ABC earned $5 for every share of the stock outstanding. This means stock ABC P/E ratio is 50/5=10. So the higher the P/E ratio, the more investors are willing to pay for the stock.
Now the higher the P/E ratio, the more growth the company is supposed to have. So it can be either the company is growing real fast of the investor have high hopes of its growth. Now these hopes can be realistic or foolish, you never know!
The lower the P/E ratio, the more value the company has. Low P/E ratio companies are not considered to be the movers and shakers in the market. Now, if you follow financial news than you must know that the large growth companies always grab the headlines. But do the growth stocks really make best investment? According to Fama and French, two famous researchers who did ground breaking research on stocks, over the last 77 years, large growth stocks have only seen 9.9% annualized rate of return as compared to 11.5% for the large value stocks.
So most of these growth stocks become highly popular in a small period of time! Everyone rushes to buy these growth stocks thinking that they are great investments. The most probable cause seems to be their immense popularity. Since most of the headlines are captures by high growth companies, investors seem to think that they are the best investments. Now intuitively you might have thought that growth stocks are better. What can be the reason for their lower performance over the years?
Think about Google, how its stock price shot up within a matter of weeks after it hit the market. Weeks after that it began to cool off. So large growth stocks tend to get overpriced before you are able to buy them!
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MLPs (Part I)
Posted by: | CommentsInvesting in commodities may be something that investors thought of boring and dull only a few decades back but not anymore now. If you are interested in investing in companies that are involved in the production, transformation and distribution of commodities, than one of the best ways to do so is through investing in the Master Limited Partnership (MLP).
So how do you go about investing in an MLP? The shares that an MLP issues are called Units and the investors who own them are known as Unit Holders. MLPs are public entities that trade on public exchanges. An MLP issues shares that trade on an exchange just like a company stocks that trades on an exchange. You can invest in an MLP by buying its shares on an exchange. You can instruct your broker to buy the units of an MLP that you are interested in investing.
When you invest in an MLP, you are essentially investing in public partnership. There are tax advantages to investing in MLP. Unlike regular corporations, an MLP is only taxed once. Now most of the MLPs trade on the New York Stock Exchange. A few MLPs also trade on the NASDAQ and the AMEX.
Congressional Legislation, any MLP that derives 90% or more of its income from the production, distribution and transformation of commodities qualifies for this tax exempt scheme.
Tax exemption means that MLP have to generate a lower rate of return as compared to other companies competing with it in the same sector. Since an MLP has got the tax exempt status it will only have to generate only $1.54 for each dollar that you invest in it. Suppose you invest $1 in the stocks of a regular corporation and you are in the 35% tax bracket. Corporate tax is 30% of its before tax income. This means that for each dollar that you invest you need to get at least $1/ (1-0.35) =$1.54 just in order to breakeven. So the corporation will have to generate $1.54/ (1-0.3) =$2.2 for each dollar that you invest in order to return you $1 after tax profit.
However, most GPs do a good job of running the MLP as it is in their financial interests. Now you must know as a limited partner in an MLP, you have limited voting rights. This means when you invest in an MLP, you are giving away the keys of ownership to the GP. This means you are out of the decision making in an MLP.
Investing in MLP units can give you quarterly cash flows as well as appreciation of the unit price. An MLP is obligated to distribute all available cash back to its unit holders on a quarterly basis, so you will be getting a quarterly income from your units. Secondly as the MLP expands and grows overtime, its units may give you capital gain as well.
Mr. Ahmad Hassam is a Harvard University Graduate. Trade Dow Futures . Learn Commodity Trading ! You are welcome to reprint this article – but get your own unique content version here.
Energy Futures (Part I)
Posted by: | CommentsOne thing should be clear to you. Energy markets will be a major focal point in the global financial makers and the global economy for many years to come. The key to understanding energy trading is to understand oil, natural gas, gasoline and heating oil futures.
NYMEX trades futures and options contracts for crude oil, natural gas, heating oil, gasoline, coal, electricity and propane. NYMEX is also home to trading in metals. Trading in energy futures is centralized at the New York Mercantile Exchange (NYMEX), the world’s largest physical commodity futures exchange.
For smaller traders NYMEX offers e-mini contracts for oil and natural gas that also trades on the GLOBEX network of the Chicago Mercantile Exchange (CME). Trading in NYMEX is conducted in two divisions: 1) The NYMEX Division and 2) The COMEX Division. You can trade crude oil futures. If you haven’t done futures trading before than before you start trading crude oil futures, you should first educate yourself on how to trade futures contracts. The good thing is that you can paper trade on your demo account with the use of virtual money. Paper trading is something that should not be missed by even professional traders. Practice makes your trading perfect!
The relationship between energy and interest rates is very important to understand. This relationship ties together the two most important aspects of the global economy: energy (the fuel for growth) and the interest rates (the catalyst that powers borrowed money to do things). Next to interest rates, energy and especially oil is the center of the universe not only for the industry but also for the financial markets.
As a trader, you should know this fact that oil price rise often tends to slow down the economy and lower retail sales as well as consumer confidence with lower traffic on the highways. Sometimes the rise in oil prices leads to the increase in interest rates through the bond market and the actions of central banks and the other times the opposite happens. Rise in oil prices if often inflationary.
Now you need to understand the Peak Oil Concept. Peak oil is the concept that the world oil production has peaked and the production of oil will never be as high again. Oil prices and the interest rates generally move in the same direction when viewed over long periods of time.
Many oil wells have gone dry. US was a major producer of oil in the beginning of the 20th century but over time, depleted all its oil reservoirs. The last oil well went dry in Texas in the early part of’70s. Oil production in countries like Venezuela, Iran and Nigeria has peaked and is going down. Non OPEC sources of oil like North Sea and Mexico are also showing sign of declining production. There has been no major oil well discovery for the last few decades. Some people consider the Peak Oil idea as controversial but this concept is increasingly plausible given the state of the global oil industry. The peak oil concept is very important for you to know. This means that now in the next few decades, we will be witnessing an uptrend in the oil prices as the global demand increases and the supply is unable to catch up with the global demand of oil. When oil prices reach above $100 per barrel, it becomes too expensive for the industry as well as the private consumer. With this price level, chances are that more and more investment will go into the alternative energy industry. Now you should keep these facts in the background of your mind as a trader. In any case, most of the experts now agree that in the next 10-20 years, the oil production will peak and after that it will start declining.
Now this means that in the short run, following oil prices can be a highly profitable strategy. Your aim as a trader is to make quick profits by trading the price fluctuations in the oil market. So the important facts that you need to keep in the back of your mind while trading oil is: 1) Demand fluctuates but supply of oil is finite. 2) The world runs on oil and any threat to the supply of oil often leads to rising prices. As an oil trader your primary goal is to consider the effects of events on the supply of oil and correlate this effect with your charts.
Mr. Ahmad Hassam has done Masters from Harvard University. Trade Dow Futures . Learn Commodity Trading ! You are welcome to reprint this article – but get your own unique content version here.
There is a lot of information on the internet about forex signals; however, for the beginner understanding how signals work can be confusing at first. So what is a forex signal? It is nothing more that an alert that tells you the market is about to change.
In the forex market, a signal can benefit you in many ways. First, they can indicate favorable times when it is time to buy into a currency or sell an existing currency. There are more commonly called Entry and Exit signals and are sent by brokers to traders.
These signals help guide your currency investments so you can pour money into a currency that is about to favorably change or pull out of a trade that is about to tank. Having access to these signals can be priceless.
Everyone wants to make money in foreign currencies. Once you understand the fundamentals of using signals and how they help you, it will become a lot easier. Unfortunately, there are no specific books that can give you all of the answers you need.
Teaching others how to use signals within themselves have become a profitable opportunity for many brokers because they often are framed based on successful trading strategies and patterns. This only develops through years of experience as you trade across multiple currencies.
Broker and investment firms often make their trading signals available to traders, who make to make money in foreign currencies, but lack the experience and insight to develop their own profitable trading strategy. These services are available from many brokers. You are essentially buying successful trading strategies.
Once you subscribe to a service, the forex signals are usually sent by or SMS based on how you set up the account. These signals will have a unique identification number and will either alert you to a new opening trade on the market or alert you to a pending order combines with other useful data.
These forex signals are valuable when you have now idea of what to expect in a specific currency. If market fluctuations are changing which is causing the British pound to unexpectedly plummet and the Euro to take a sudden rise, you will get an email or SMS message alerting you to this activity. This information will help you adjust your accounts accordingly.
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Investment Strategies – Why Logic Is Important
Posted by: | CommentsI’ve been trading stocks and forex all my life. One thing I gradually became aware of during this experience was that the strategies which make the most logical sense typically are the ones which work the best.
There are so many investment strategies I get offered I could probably spend 2 life times working through them all. And a small fortune working out which ones don’t work. What I have found though is you can short cut this process simply by looking logically at them. Quite often when you robustly go through the logic of an investment strategy you will find holes in it. And big holes too, holes that will make you lose your money.
Most strategies presented to you will make sense. They have to or you would disregard them as nonsense. This is not what I am talking about though. The concern discussed in this article is logical completeness. If a strategy does not cover all possible scenarios you may come across, it will not take long before you find one of those scenarios. And when you do find a scenario which is not covered by your strategy, all of a sudden you need to make decisions outside the strategy. You will probably be left scratching your head or guessing.
When I am in this situation, where I have to make a decision outside a strategy I am trading because the strategy does not offer me guidance, I believe I am gambling. This is not good. I may make the right decision, but then again, I may lose my money. In all good investment strategies, you should not have to do this. You should simply plan the trade, and then trade the plan. There should not be room for guess work.
Also, the point about trialing a strategy is that you are finding out whether it will make consistent returns over the fullness of time. The point about trading a strategy is that you know it makes consistent returns over the fullness of time. If you have had a guess mid way through the strategy, you cannot be confident its the strategy or your guess which is making the money. You will need to start again.
So if someone presents you a trading strategy, go through the logic with a fine tooth comb. See if you can come up with scenarios which may happen in real life, which the strategy deos not cover. If you can think of some, try to get answers for these scenarios before you start trading with real money. Because believe me, if such scenarios exist, as soon as you put money down they will come up. I think 2007 – 2009 taught us all that.
And once you have covered off every situation you can think of, always remember to execute a preliminary trading exercise without putting money down. Spend a few months running the strategy in spreadsheets before you trade with money. You’ll be amazed at the real life situations which come your way which you’d never have dreamed of. And you will thank your stars you resolved these issues when you had nothing on the line.
After many years of successful investing, Gnifrus Urquart enjoys reviewing his favorite investment strategies and offering general investment advice Visit the Uber Article Directory to get a totally unique version of this article for reprint.