Complacency

During the month of January the Dow Jones Industrial Average, usually referred to as the DOW, had an almost 1,000 point range, most of it down and the average investor has yawned and said 'so what, this has happened many times before'.

Is there any reason to worry now?

The terrible event of September 11 shocked investors who sold heavily and then watched the market climb back to where it was on September 10. The investing public as well as many professional money managers now believe that soon this year we will see the DOW move back up for another bull market like we had in 1999. Let's hope they are right, BUT suppose they are wrong. What will happen to the stocks and mutual funds you own now?

What will be the valuation of those equities if the DOW smashes through the 8,000 level and goes even lower? Do you have anything in place that can protect you from such a catastrophe? Is there a solution to that potential disaster?

Yes, there is. And it is very simple.

If you believe that the market is going lower you could sell every stock you own and buy some bonds, but no one knows for sure. If the stocks and mutual funds you own go up you will kick yourself. Here is a sure-fire way to protect your money. Place an open stop-loss order of about 10% under its most recent low price. That way if it goes up you will be able to move the stop up to lock in additional profit and if it goes down you will not take a bigger loss. This is how every professional trader makes money. You allow yourself to take big winners and only small losses.

The biggest problem with doing this is YOU. Huh? Yes, it is the fact that few people want to sell even with a small loss. They prefer to sell with a big loss. I'm not joking.

I know the story all too well. Investors say, "When it goes back up, I'll sell and get out even" Or "It can't go any lower. I'll hold on." How about this one, "How can I sell it now when it has dropped this far?" Folks, things aren't going to get any better. If you had had that stop-loss order in you would have been out at a much higher price. With mutual funds you cannot put in a stop order so you must call in your order when it breaks the price barrier you have set. Do not rely on your broker to do it for you and do NOT let the broker talk you out of it unless, of course, he wants to guarantee in writing that it won't go any lower. And pigs can fly.

You cannot become complacent and believe the great Wall Street lie that the market always comes back. It may, but it might not be before you retire. Only you can protect your money.

VooDoo Training For the Stock Market

If you travel to Republic Of Haiti or other topographic points in the Caribbean you may run into the Juju tradition of magic. There are long and mostly noisy rites with the medical specialty adult male spouting words that convey great powerfulness and conjure up whatever it is the prayer desires. Great amounts of fume and mirrors.

Does this remind you of anything?

I hear the hypnotic words of my broker telling me about a fantastic stock. He bring forths multicolored charts and graphical records that dazzle my eyes. His chanting is “BUY, BUY, BUY”. I can’t resist. He have me under his spell. Thus the magic of Wall Street. Great amounts of fume and mirrors.

Brokerage houses and common finances only desire you to make one thing – bargain and HOLD. Never sell.

To get away the clasp of these prestidigitators you must begin to believe for yourself. I am certain you recognize that for the past 3 old age you have got been losing money. The recent mass meeting have returned some of your losings and Maul Street desires you to hang in there as the remainder of your money will be returning. Maybe. If the broker (magician) maintains doing what he have been doing you are going to get more than of the same results. If you have got lost 30 to 50% of your nest egg during the past 3 old age don’t you believe you could make as well without the “help” of a broker or financial planner?

OK. No more satin colored booklets (smoke and mirrors) about how fantastic a company is. If you cognize it then so makes everyone else. This type of ‘research’ is worthless. Leave that to the common monetary fund managers. It looks to be what they do best - or is it worst?

Wall Street preaches the prevarication that if you throw you will make money, but that is only half the story. You have got to be able to throw for 30 years. Oh, they forgot to state you that?

The most of import thing about the stock market is not buying – it is selling. Did you recognize that every 10 old age about 40% of the S&P500 index changes? Mr. Standard and Mr. Poor recognize you can’t clasp onto a also-ran so they drop out the weak 1s and replace with pillory that are going up.

You desire to be in the market when it is going up, not down. You have got to cognize when the market is going up and that is called market timing. It is not cheating by late trading; it is apprehension that the long term tendency is up (or down) and you desire to have finances at the clip (or be out of the market entirely). A broker or financial contriver will not assist you, but it is very easy to learn. Go to the search engine called www.Google.com and type in market timing. You will be flooded with information.

You must to get out from under the Juju enchantment of Buy and Hold as it is a guaranteed loser.

It's Snowing

The Winter Games for the Olympic Games are coming up soon and many volition desire to travel to see the giant slalom event. That's the 1 where the skier starts off from the small army hut at the top of a long slope, picks up rush and do his manner around poles on the manner down. Each bend about a pole is precarious and some autumn on the manner down and are wiped out.

Kinda reminds me of the current stock market. Starting off slowly down from the safety of the top and as it go steeper it picks up speed. Each bend on the manner down expressions like a topographic point to rally, but shortly thereafter it heads down again at even higher speed. And many are wiped out – financially.

If you are not an expert you should not be on the course. If you are a novice you better head for the "bunny" course of study where you won't get hurt. Safer, not as thrilling, but you will get to the underside all in one piece. The "bunny" course of study in the retirement race is all in CDs and T-Bills; however, everything is guaranteed. It takes a long clip to get there and you won't win any gold. You will have got got some silver.

Many have tried the steep title financial course of study and been wiped so they hired an teacher such as as a broker or financial planner. It is unfortunate that most of these teachers cannot do it to the gold at the underside of the hill. How make you make it safely to the underside with all your cash and yet do better than the cadmium people?

The adjacent safest topographic point is in no-load common funds, but there is a catch. You have got to reexamine your common finances every month. And what make I intend by that? Review? You must maintain yourself from being wiped out on one of those steep downswings by merchandising any monetary fund that travels below its former 3-month terms level. It is really that simple. If your monetary fund went from $40 to $90 and was then trading at $80 with the former 3-month low of $70 you would sell it as soon as it closed below $70.

This is as simple as it gets, but it intends YOU must bash something and not sit down there and ticker your money vanish like the thaw snow.

The secret of success in the stock market is selling. Learn to protect your net income and also protect yourself from losings when you buy. It's your money.

What Are You Waiting For?

Do you own any mutual funds? In an IRA or 401K or wherever. Privately or at work.

Have you called your fund manager to find out what is going on with your fund? Are they under investigation for late trading, improper pricing, deviation from length of sales defined in the prospectus or stale trading? Are my questions too hard?

Please don’t be confused. It seems that most fund owners haven’t done anything. There is a serous bout of complacency going around. Forget the flu; this is going to affect your pocketbook. Oh well, it’s your money and if you don’t care if some crook in a suit with a manicure is handling it then that is your loss.

Now we find out that even those foreign funds have bandits for managers. The British mutual fund industry called unit investment trusts has been doing almost the same thing as our home-grown thieves. It seems the little investor has his wrists tied to his ankles all over the world. The regulatory agencies such as the SEC (Securities and Exchange Commission) have NOT been doing their job. If you have questions about your funds you can call them in Washington at 202-942-8088. They must tell you as this is public information.

The late trading scandal hit first and has been misnamed as market timing. Late trading is illegal whereas market timing is legitimate. Late trading allows order entry at today’s price as long as 3 hours after the market has closed. During that 3 hours news of financial importance regarding stocks in a particular fund could be affected by legal decisions, profit pronouncements, etc.,etc. That news could make the fund go up 2% to 5% the next day when the late trade is then offset taking a disproportionate amount of profits from the regular fund holders. That does not sound like much, but when you are dealing with big numbers it is plenty. What is nice for the crook is there is almost no risk.

In many funds there are classes such A, B, C and other strange letters. These have to do with how much and when the commission is charged. If you put in $25,000 or more you are supposed to get a better price, but many funds have been charging more.

In the prospectus it may say you are required to hold a fund for X numbers of days or pay an extra amount called a redemption fee. Their friends, the big money folks, have not been so charged.

Stale trading is the new one. It seems the buy or sell orders are not entered on the day they were placed, but done so at a more favorable time to allow for a better profit.

These practices and ones not yet reported and those I have not heard of are stealing money from your account. What are you waiting for?

10 Reasons for Selling

During your investment career, you will make these two transactions; purchasing and selling. Buying necessitates knowing the just value of a stock and then compare it with recent price. If recent stock terms is 10% below just value and an investor makes not mind getting a 10% return, then he should purchase the stock. If not, he can then travel on to other stocks.

Selling, however is not that simple. Sometimes, investing make not travel the manner you desire it to be. Your anticipation may not be accurate. Furthermore, your clip framework may be longer than you expected. Here are 10 different grounds investors might sell a common stock:

Need the money. This generally haps owed to improper planning. However, things happen. Even the most carefully planned strategy may not work. Catastrophic events such as as Hurricane Katrina or Rita may coerce investors to sell an investing if his household is affected by it.

The book is unclean. When management left their station abruptly or when the Securities of Exchange Committee (SEC) behavior a criminal probe on a company, it may be clip to sell. Your premise may be inaccurate as a batch of just value computation is based on the company's balance sheet, cash flow or other financial statement published by management.

Takeover news. When one of your stock retention is getting bought by other companies, it may be clip to sell. Sure, you might wish the acquiring company but you still need to calculate out the just value of the common stock of the acquiring company. If the acquiring company is overvalued, then it is best to sell. A good illustration would be the purchase of Time Charles Dudley Warner by American Online (AOL) in 2000. At the time, AOL share terms was manner overvalued with Price Earning ratio of 100.

Taking Net Income Off the Table. Your stock have risen 40% from your purchase price. Your just value computation bespeaks that the stock can lift 10% more. Should you sell? Sure. After all, the end of every investor is to do money. If you experience that you need to get something off the table, then by all agency make it. I am not going to be naif and presume that you should wait for the stock terms to lift 10% more. Remember that stock terms travels up and down and that just value computation have some grade of uncertainty. Would you put on the line your 40% addition for an further 10% return? I probably wouldn't.

Other Investing Opportunity. Let's say you bought stock A and it have risen to 10% below its just value. Meanwhile, you had watched stock Type B fallen to below 50% of your deliberate just value. This is an easy decision. Go Ahead! Sell your stock A and purchase stock B. Our end as an investor is to maximise our investing return. Sacrificing a 10% of tax tax return in order to earn a 50% return is a reasonable manner to make that.

Inaccurate Carnival Value Calculation. Let's human face it. People do mistakes. As investors, we sometimes made mistakes in our just value calculation. There are factors that we might not take into accounts when researching a peculiar company. For example, Merck & Carbon Dioxide Inc. volition have got a higher just value if we disregard the possible Rofecoxib liability that some say to be as high as $ 50 Billion. But doing additional research, we cognize that Rofecoxib liability makes exist.

New Competitors with Better Products. When new rivals sprung up, the company that you throw might have got to pass more than money in order to fend off competition. Recent illustration include the emergence of pay-per chink advertisement by Google. If you are in the advertisement business such as as newspapers or cablegram network, this new merchandise by Google might ache your net income borders and eventually the just value of the stock.

Exodus of Talented Employees. Endowment is an asset. Yet, it makes not look on the company's balance sheet. Companies that trust heavily on intellectual merchandises need to maintain their employees happy. They are prized assets. When employees defect, it will impact the company's hereafter earnings. Lower hereafter earnings intends lower just value for the common stock. A recent illustration include respective Microsoft key employees defecting to Google.

Not having a valid ground to Buy. When you don't cognize why you bought a peculiar stock, you won't cognize how much your possible tax return is or when you should sell it. This is the easiest manner of losing money. When you have got no valid ground to buy, you should sell immediately.

Stock Reaches Carnival Value. This is the easiest portion of the problem. Yes. We should sell when a stock attains its just value. It is the chief ground why we chose to purchase it on the first place.

A Penny for Your Stocks

According to Investopedia Inc. the penny stock market have seen phenomenal growing this past decade. From ’94 to ’03, the Over-the-Counter Bulletin Board trading volume increased an dumbfounding 8900%, equaling a sum of 63% of the NASDAQ and 78& of the New York Stock Exchange share volumes. Many an investor have succumbed to their Siren song.

It isn’t hard to see why. Penny pillory are usually traded in tons of 1,000 and, as the name suggests, are bought (and sold) at incredibly low prices. There is no functionary terms cut-off, and differences of sentiment range from shares trading under $1.00 all the manner up to $5.00. Others separate according to the market that they are traded on (the OTCBB, OTC or “Pink Sheets” for example). Yet others designate pillory as penny pillory based upon their market capitalization, or the value of each stock multiplied by the sum number of outstanding shares. Regardless of the specifics, a general regulation uses to all penny pillory – they are a very high hazard investment. Inversely, there’s also the possible for staggering rewards.

But for every pot of gold at the end of the rainbow, there are thousands of drops and pitfalls along the way. The hazards and dangers of penny pillory are many. In the stock exchange, there is a “best price” precedence given to orders of a higher terms than yours if you’re purchasing or a lower terms if you’re selling. Combining this precedence with what is very often low volume trading intends there will be modern times when you happen that your orders cannot be filled. In addition, there will be cases where you will have got to settle down for partial order fulfillment. And these are just dangers faced when your stock is performing well.

Penny pillory come up from companies that are often less than credible, and unlike some of their more than expensive cousins, can happen themselves swayed by the powerfulness of rumors. Press releases, intelligence stories, widespread whisperings and even online forums and chat-rooms can be responsible for dramatically influencing their performance. This volatility makes two considerable challenges: 1) a high potentiality for strategies and cozenage artists; and 2) the inability to utilize traditional stock charting methods with any existent effectiveness. It travels without saying that this isn’t A market for the faint of heart.

Making a Stock Watch List

I am taking the clip to assist others learn the rudiments in evaluating pillory for investing using both cardinal and technical analysis. Both tools are equally of import in making serious determinations with your hard earned CASH!

If you wish to put in stocks, dainty it like a business, NOT Type A HOBBY. (ex: a retail outfit can't do money if it doesn't have got commodity to sell; the same travels for investors, without cash, you can't invest). You need regulations and you need to follow these regulations or money WILL be LOST. Once proven regulations have got been established, they cannot be bust or you will lose money. Everyone loses money in investment but we must learn to cut losings quick and allow additions to develop. Small losings are acceptable because they learn us lessons that allow us to win big!

Start your search by looking for pillory with superior fundamentals. After basics are established, expression to see if this peculiar stock is in good company, by this Iodine mean value a strong industry grouping - similar stocks, historically travel in the same direction (this is fact not opinion). This is not to state every stock in the industry grouping will travel higher or lower because a sister stock is going in that direction (this is a generalization rule). After the industry grouping have been confirmed strong, determine if overall market is in a specific tendency (up, down or sideways).

If you are long a stock, the market must be in a confirmed up-trend, if you are short a stock, confirm a down trend. Note that 75% of all pillory will follow in the direction of the overall market. Don't struggle the trend, the market is always RIGHT.

Let the market and the stock order how long you will be in a position. Don't worry about clip frames; terms and volume will state you when to go out the place as long as you follow rules.

After cardinal have got been established, you must analyze the technical side of each individual stock, the specific industry grouping and the general market trends. Record if the stock is forming a proper base, if it's about to interrupt out of a base, if it's extended or if it's pulling back to a cardinal support line.

At this point, add any qualifying stock to your ticker listing or purchase the stock according to the technical entry signalings (remember the basics have got been established earlier).

Key numbers to utilize in fundamentals:
Earnings (current, past: quarterly, annual and future estimates)
Sales (current, past: quarterly, annual and future estimates)
Tax Return on Equity (ROE)
Price/Earnings Growth (PEG)
Price/Earnings Ratio (rise over clip of base)
Debt/Equity
Assets, Liabilities
Accumulation/Distribution ratio
Up/Down Volume over past respective calendar months
Number of Institutional Holders (is this increasing or decreasing recently)

Key things to utilize for technical analysis:
Look at the 1 twelvemonth day-to-day chart
The 1 twelvemonth weekly chart
Check volume action when alkalis are formed
Look at Point & Figure charts for support and opposition lines
Look for new 52-week highs

Real Estate Syndicates

Contrary to the belief of some, a existent estate mob have nil at all to make with Don Corleone. Take it from me – Oregon my name is not Luigi.

The existent estate investing market is becoming more than than and more composite and, as a result, the traditional bounds between different investing activities are changing. If person is interested in purchasing or merchandising an interest in land, he generally seeks aid from a existent estate expert. If person desires to purchase or sell a common stock, he seeks the services of a securities expert. During the past decennary there have been a growing of new word forms of investing vehicles, the most common of which are known as ‘syndicates’. Syndicates are used in conjunction with many types of assets including existent estate, Roentgen & D, purchase and management of hotels and motels, oil and gas exploration, farm animal and agricultural development to call a few. Specifically as it mentions to existent estate syndicates, in its simplest definition this term is applied to any word form of organisation which allows two or more than than investors to take part in the ownership of an interest in existent estate.

In the syndicate, the existent estate plus is divided into two or more ‘investment units’ which are acquired by the individual investors. It is of import to recognize that the investing unit of measurement mentions to the peculiar plus that is acquired by the investors, and not the implicit in existent property itself. The precise nature of the investing unit of measurement will depend on the word form of the syndicate. In essence, investing units of measurement stand for a fractionalized ownership of one or more than interests in existent property rather than direct ownership of an full interest. While existent estate mobs are formed for a assortment of reasons, the typical ground is to make a tax shelter. At the alkali of the mob is the human relationship among investors. In all existent estate mobs there is some word form of contract specifying the human relationship intercurring between the individual investors and the implicit in interest in existent property.

Despite the battalion of forms, the construction of a existent estate mob is invariably based upon one of the following six legal relationships: co-ownership, divided ownership, corporation, trust, general partnership and limited partnership. In addition, there are three cardinal participants, or sets of participants, as follows:

[ ] the syndicator or promoter who makes the mob in the first place;

[ ] the syndicate manager who manages the syndication and who, often times, is the booster as well;

[ ] the investors who purchase the investing units.

Moreover, a number of other experts are used that are unrelated to the syndication, such as as managers, appraisers, builders, leasing agents and mortgage lenders. In some cases the syndicator may purchase the property before creating the mob organization. In other cases, the mob investing units of measurement may be marketed before the existent property is acquired.

The allotment of net income and disbursals is typical of the existent estate industry. For instance, there are ‘front-end’ fees to cover initial disbursals for the formation of the mob such as as as:

[ ] mark-up net income on lands sold to the mob by the syndicator, if he advanced the initial capital to purchase existent estate.

[ ] Real Number estate committees on sales to the mob by the syndicator.

[ ] Percentage of the initial finances raised by the syndicator.

[ ] Fees for services rendered.

[ ] Fees for guarantees, such as cash-flow warrants or building guarantees.

As to the tax return and liquidity, each investor is entitled to the proportionate share of all leases, rents, resale of the mob interests in land and, of course, each investor will have got to see different tax shelter possibilities offered by the six different legal organisations of syndicates. Last but not least, liquidness is an indispensable factor from an investors perspective, in that investors may desire to transfer investing units of measurement of measurement or part thereof to person else at a future date.

There are at modern times states of affairs wherein a direct ownership in land is neither good nor convenient, and an indirect ownership by manner of investing units may be more than appropriate. Likewise, as it is the lawsuit more than and more with large hotel consortiums, original capitalization is done by merchandising ‘interest shares’ – the equivalent of investing units of measurement – to private investors, with the balance of the initial support obtained by institutional lenders and secured by the existent property. Nowadays syndicators have got gone as far as raising money in the stock market by merchandising hereafters pillory of sophistications to come, typically large high-rise and residential towers that bunch the business district core of practically every city in North America.

Luigi Frascati

The Myth of the Earnings Yield

Abstract

A very slender minority of firms administer dividends. This truism have radical implications. In the absence of dividends, the foundation of most - if not all - of the financial theories we use in order to determine the value of shares, is falsified. These theories trust on a few inexplicit and expressed assumptions:

That the (fundamental) "value" of a share is closely correlated (or even equal to) its market (stock exchange or transaction) price;

That terms motions (and volatility) are mostly random, though correlated to the (fundamental) "value" of the share (will always converge to that "value" in the long term);

That this cardinal "value" reacts to and reflects new information efficiently (old information is fully incorporated in it).

Investors are supposed to price reduction the watercourse of all hereafter income from the share (using one of a countless of possible rates - all hotly disputed). Only dividends represent meaningful income and since few companies engage in the statistical distribution of dividends, theorists were forced to deal with "expected" dividends rather than "paid out" ones. The best gauge of expected dividends is earnings. The higher the earnings - the more than likely and the higher the dividends. Even retained earnings can be regarded as postponed dividends. Retained earnings are re-invested, the investings generate earnings and, again, the likeliness and expected size of the dividends increase. Thus, earnings - though not yet distributed - were misleadingly translated to a rate of return, a output - using the earnings output and other measures. It is as though these earnings WERE distributed and created a tax return - in other words, an income - to the investor.

The ground for the prolongation of this misnomer is that, according to all current theories of finance, in the absence of dividends - shares are worthless. If an investor is never likely to have income from his retentions - then his retentions are worthless. Capital additions - the other word word form of income from shareholding - is also driven by earnings but it makes not have in financial equations.

Yet, these theories and equations stand up in blunt direct contrast to market realities.

People make not purchase shares because they anticipate to have a watercourse of future income in the form of dividends. Everyone cognizes that dividends are fast becoming a thing of the past. Rather, investors purchase shares because they trust to sell them to other investors later at a higher price. In other words, investors make anticipate to recognize income from their shareholdings but in the word form of capital gains. The terms of a share reflects its discounted expected capital additions (the price reduction rate being its volatility) - NOT its discounted hereafter watercourse of income. The volatility of a share (and the statistical distribution of its prices), in turn, are a measurement of outlooks regarding the handiness of willing and able buyers (investors). Thus, the expected capital additions are comprised of a cardinal component (the expected discounted earnings) adjusted for volatility (the latter beingness a measurement of outlooks regarding the statistical distribution of handiness of willing and able buyers per given terms range). Earnings come up into the image merely as a yardstick, a calibrator, a benchmark figure. Capital additions are created when the value of the firm whose shares are traded increases. Such an addition is more than often than not correlated with the hereafter watercourse of income to the FIRM (NOT to the shareholder!!!). This strong correlativity is what binds earnings and capital additions together. It is a correlativity - which might bespeak causation and yet might not. But, in any case, that earnings are a good placeholder to capital additions is not disputable.

And this is why investors are obsessed by earnings figures. Not because higher earnings intend higher dividends now or at any point in the future. But because earnings are an first-class forecaster of the hereafter value of the firm and, thus, of expected capital gains. Put more than plainly: the higher the earnings, the higher the market evaluation of the firm, the bigger the willingness of investors to purchase the shares at a higher price, the higher the capital gains. Again, this may not be a causal concatenation but the correlativity is strong.

This is a philosophical displacement from "rational" measurements (such as cardinal analysis of hereafter income) to "irrational" 1s (the future value of share-ownership to assorted types of investors). It is a transition from an efficient market (all new information is immediately available to all rational investors and is incorporated in the terms of the share instantaneously) to an inefficient 1 (the most of import information is forever lacking or lacking altogether: how many investors wish to purchase the share at a given terms at a given moment).

An income driven market is "open" in the sense that it depends on newly acquired information and responds to it efficiently (it is highly liquid). But it is also "closed" because it is a nothing sum of money game, even in the absence of chemical mechanisms for merchandising it short. One investor's addition is another's loss and all investors are always hunting for deals (because what is a deal can be evaluated "objectively" and independent of the state of head of the players). The statistical distribution of additions and losings is pretty even. The general terms degree amplitudes around an anchor.

A capital additions driven market is "open" in the sense that it depends on new watercourses of capital (on new investors). As long as new money maintains pouring in, capital additions outlooks will be maintained and realized. But the amount of such as money is finite and, in this sense, the market is "closed". Upon the exhaustion of available beginnings of funding, the bubble be givens to explosion and the general terms degree implodes, without a floor. This is more than than commonly described as a "pyramid scheme" or, more politely, an "asset bubble". This is why portfolio theoretical accounts (CAPM and others) are improbable to work. Diversification is useless when shares and markets travel in bicycle-built-for-two (contagion) and they move in bicycle-built-for-two because they are all influenced by one critical factor - and only by one factor - the handiness of future buyers at given prices.