when do you leave
Anyone who has flicked through the financial channels on their cable TV box without really stopping to listen to what is being said will probably be occasionally confused by references to “bulls” and “bears”. These terms are common parlance in trading situations, and can be heard or read in any market analysis if you stay tuned long enough. They are not references to sports teams, nor to a traveling zoo visiting a trading floor, but rather to styles of market.
A “bull” market is, in short, a market on the rise. It is characterised by a great deal of investor confidence, which can carry on for an indefinite period of time. When a currency breaks its resistance level, it is expected to continue rising, to move with a singularity of purpose. This is much like the way a bull is characterised. Additionally, it triggers herd behavior, as more and more investors will join in and invest more. The term “bull market” is therefore a good definition of a market behaving confidently.
“Bear” markets, on the other hand, are the exact opposite of bulls. Where prices fall and the investor mood is negative, the support level may be broken and the price will continue to fall. The most common explanation for the terminology here is that when a bear attacks its prey, it tends to do so by striking downwards. For a true bear market to be declared, a majority of currencies need to fall, however a single currency can be described as behaving “bearishly”.
Free stock quotes are valuable for looking at your investments and determining whether or not you want to trade in the stock market. There are several free stock quotes online and one of the most popular is Yahoo Finance. This site will allow you to search your stocks to see the growth or decline and determine if you want to buy or sell. Free stock quotes are ideal for the novice investor. They can practice their skills without investing any money until they are comfortable enough to actually invest. Once you decide to invest, though, you will need to get with a broker and there are additional fees associated with trading. However, there are many do it yourself places that only require a small fee and will often have valuable articles and free stock quotes so you can watch your portfolio continually to ensure you have made sound investments.
Before investing in the stock market, you should be aware of the basics of stock trading. This can be learned by doing some research online or by getting a book at your local library. Once you know the basics, you can start looking for individual investments. It is recommended that the novice investor start off with only the amount of money they can afford to lose. There are no guarantees you will earn money and sometimes you will lose it. So, it is important to carefully watch the stock market by looking at free stock quotes each day. You may want to buy or sell your stocks depending on how well the individual stock is doing and what forecasts are for the stock.
Free stock quotes are also great for classes in finance or the stock market. This is ideal for investor clubs, high school classes or college projects. You can either use mock money to track an investment from start to finish without actually putting in money or you can use pooled money to determine which investment you will watch and what you will do with it. This is a great way to have a bit of fun with a group while learning about investments and possibly making a bit of money.
Claud Cockburn, writing for the “Times of London” from New-York, described the irrational exuberance that gripped the nation just prior to the Great Depression. As Europe wallowed in post-war malaise, America seemed to have discovered a new economy, the secret of uninterrupted growth and prosperity, the fount of transforming technology:
“The atmosphere of the great boom was savagely exciting, but there were times when a person with my European background felt alarmingly lonely. He would have liked to believe, as these people believed, in the eternal upswing of the big bull market or else to meet just one person with whom he might discuss some general doubts without being regarded as an imbecile or a person of deliberately evil intent – some kind of anarchist, perhaps.”
The greatest analysts with the most impeccable credentials and track records failed to predict the forthcoming crash and the unprecedented economic depression that followed it. Irving Fisher, a preeminent economist, who, according to his biographer-son, Irving Norton Fisher, lost the equivalent of $140 million in today’s money in the crash, made a series of soothing predictions. On October 22 he uttered these avuncular statements: “Quotations have not caught up with real values as yet … (There is) no cause for a slump … The market has not been inflated but merely readjusted…”
Even as the market convulsed on Black Thursday, October 24, 1929 and on Black Tuesday, October 29 – the New York Times wrote: “Rally at close cheers brokers, bankers optimistic”.
In an editorial on October 26, it blasted rabid speculators and compliant analysts: “We shall hear considerably less in the future of those newly invented conceptions of finance which revised the principles of political economy with a view solely to fitting the stock market’s vagaries.” But it ended thus: “(The Federal Reserve has) insured the soundness of the business situation when the speculative markets went on the rocks.”
Compare this to Alan Greenspan Congressional testimony this summer: “While bubbles that burst are scarcely benign, the consequences need not be catastrophic for the economy … (The Depression was brought on by) ensuing failures of policy.”
Investors, their equity leveraged with bank and broker loans, crowded into stocks of exciting “new technologies”, such as the radio and mass electrification. The bull market – especially in issues of public utilities – was fueled by “mergers, new groupings, combinations and good earnings” and by corporate purchasing for “employee stock funds”.
Cautionary voices – such as Paul Warburg, the influential banker, Roger Babson, the “Prophet of Loss” and Alexander Noyes, the eternal Cassandra from the New York Times – were derided. The number of brokerage accounts doubled between March 1927 and March 1929.
When the market corrected by 8 percent between March 18-27 – following a Fed induced credit crunch and a series of mysterious closed-door sessions of the Fed’s board – bankers rushed in. The New York Times reported: “Responsible bankers agree that stocks should now be supported, having reached a level that makes them attractive.” By August, the market was up 35 percent on its March lows. But it reached a peak on September 3 and it was downhill since then.
On October 19, five days before “Black Thursday”, Business Week published this sanguine prognosis:
“Now, of course, the crucial weaknesses of such periods – price inflation, heavy inventories, over-extension of commercial credit – are totally absent. The security market seems to be suffering only an attack of stock indigestion… There is additional reassurance in the fact that, should business show any further signs of fatigue, the banking system is in a good position now to administer any needed credit tonic from its excellent Reserve supply.”
The crash unfolded gradually. Black Thursday actually ended with an inspiring rally. Friday and Saturday – trading ceased only on Sundays – witnessed an upswing followed by mild profit taking. The market dropped 12.8 percent on Monday, with Winston Churchill watching from the visitors’ gallery – incurring a loss of $10-14 billion.
The Wall Street Journal warned naive investors:
“Many are looking for technical corrective reactions from time to time, but do not expect these to disturb the upward trend for any prolonged period.”
The market plummeted another 11.7 percent the next day – though trading ended with an impressive rally from the lows. October 31 was a good day with a “vigorous, buoyant rally from bell to bell”. Even Rockefeller joined the myriad buyers. Shares soared. It seemed that the worst was over.
The New York Times was optimistic:
“It is thought that stocks will become stabilized at their actual worth levels, some higher and some lower than the present ones, and that the selling prices will be guided in the immediate future by the worth of each particular security, based on its dividend record, earnings ability and prospects. Little is heard in Wall Street these days about ‘putting stocks up.”
But it was not long before irate customers began blaming their stupendous losses on advice they received from their brokers. Alec Wilder, a songwriter in New York in 1929, interviewed by Stud Terkel in “Hard Times” four decades later, described this typical exchange with his money manager:
“I knew something was terribly wrong because I heard bellboys, everybody, talking about the stock market. About six weeks before the Wall Street Crash, I persuaded my mother in Rochester to let me talk to our family adviser. I wanted to sell stock which had been left me by my father. He got very sentimental: ‘Oh your father wouldn’t have liked you to do that.’ He was so persuasive, I said O.K. I could have sold it for $160,000. Four years later, I sold it for $4,000.”
Exhausted and numb from days of hectic trading and back office operations, the brokerage houses pressured the stock exchange to declare a two day trading holiday. Exchanges around North America followed suit.
At first, the Fed refused to reduce the discount rate. “(There) was no change in financial conditions which the board thought called for its action.” – though it did inject liquidity into the money market by purchasing government bonds. Then, it partially succumbed and reduced the New York discount rate, which, curiously, was 1 percent above the other Fed districts – by 1 percent. This was too little and too late. The market never recovered after November 1. Despite further reductions in the discount rate to 4 percent, it shed a whopping 89 percent in nominal terms when it hit bottom three years later.
Everyone was duped. The rich were impoverished overnight. Small time margin traders – the forerunners of today’s day traders – lost their shirts and much else besides. The New York Times:
“Yesterday’s market crash was one which largely affected rich men, institutions, investment trusts and others who participate in the market on a broad and intelligent scale. It was not the margin traders who were caught in the rush to sell, but the rich men of the country who are able to swing blocks of 5,000, 10,000, up to 100,000 shares of high-priced stocks. They went overboard with no more consideration than the little trader who was swept out on the first day of the market’s upheaval, whose prices, even at their lowest of last Thursday, now look high by comparison … To most of those who have been in the market it is all the more awe-inspiring because their financial history is limited to bull markets.”
Overseas – mainly European – selling was an important factor. Some conspiracy theorists, such as Webster Tarpley in his “British Financial Warfare”, supported by contemporary reporting by the likes of “The Economist”, went as far as writing:
“When this Wall Street Bubble had reached gargantuan proportions in the autumn of 1929, (Lord) Montagu Norman (governor of the Bank of England 1920-1944) sharply (upped) the British bank rate, repatriating British hot money, and pulling the rug out from under the Wall Street speculators, thus deliberately and consciously imploding the US markets. This caused a violent depression in the United States and some other countries, with the collapse of financial markets and the contraction of production and employment. In 1929, Norman engineered a collapse by puncturing the bubble.”
The crash was, in large part, a reaction to a sharp reversal, starting in 1928, of the reflationary, “cheap money”, policies of the Fed intended, as Adolph Miller of the Fed’s Board of Governors told a Senate committee, “to bring down money rates, the call rate among them, because of the international importance the call rate had come to acquire. The purpose was to start an outflow of gold – to reverse the previous inflow of gold into this country (back to Britain).” But the Fed had already lost control of the speculative rush.
The crash of 1929 was not without its Enrons and World.com’s. Clarence Hatry and his associates admitted to forging the accounts of their investment group to show a fake net worth of $24 million British pounds – rather than the true picture of 19 billion in liabilities. This led to forced liquidation of Wall Street positions by harried British financiers.
The collapse of Middle West Utilities, run by the energy tycoon, Samuel Insull, exposed a web of offshore holding companies whose only purpose was to hide losses and disguise leverage. The former president of NYSE, Richard Whitney was arrested for larceny.
Analysts and commentators thought of the stock exchange as decoupled from the real economy. Only one tenth of the population was invested – compared to 40 percent today. “The World” wrote, with more than a bit of Schadenfreude: “The country has not suffered a catastrophe … The American people … has been gambling largely with the surplus of its astonishing prosperity.”
“The Daily News” concurred: “The sagging of the stocks has not destroyed a single factory, wiped out a single farm or city lot or real estate development, decreased the productive powers of a single workman or machine in the United States.” In Louisville, the “Herald Post” commented sagely: “While Wall Street was getting rid of its weak holder to their own most drastic punishment, grain was stronger. That will go to the credit side of the national prosperity and help replace that buying power which some fear has been gravely impaired.”
During the Coolidge presidency, according to the Encyclopedia Britannica, “stock dividends rose by 108 percent, corporate profits by 76 percent, and wages by 33 percent. In 1929, 4,455,100 passenger cars were sold by American factories, one for every 27 members of the population, a record that was not broken until 1950. Productivity was the key to America’s economic growth. Because of improvements in technology, overall labour costs declined by nearly 10 percent, even though the wages of individual workers rose.”
Jude Waninski adds in his tome “The Way the World Works” that “between 1921 and 1929, GNP grew to $103.1 billion from $69.6 billion. And because prices were falling, real output increased even faster.” Tax rates were sharply reduced.
John Kenneth Galbraith noted these data in his seminal “The Great Crash”:
“Between 1925 and 1929, the number of manufacturing establishments increased from 183,900 to 206,700; the value of their output rose from $60.8 billions to $68 billions. The Federal Reserve index of industrial production which had averaged only 67 in 1921 … had risen to 110 by July 1928, and it reached 126 in June 1929 … (but the American people) were also displaying an inordinate desire to get rich quickly with a minimum of physical effort.”
Personal borrowing for consumption peaked in 1928 – though the administration, unlike today, maintained twin fiscal and current account surpluses and the USA was a large net creditor. Charles Kettering, head of the research division of General Motors described consumeritis thus, just days before the crash: “The key to economic prosperity is the organized creation of dissatisfaction.”
Inequality skyrocketed. While output per man-hour shot up by 32 percent between 1923 and 1929, wages crept up only 8 percent. In 1929, the top 0.1 percent of the population earned as much as the bottom 42 percent. Business-friendly administrations reduced by 70 percent the exorbitant taxes paid by those with an income of more than $1 million. But in the summer of 1929, businesses reported sharp increases in inventories. It was the beginning of the end.
Were stocks overvalued prior to the crash? Did all stocks collapse indiscriminately? Not so. Even at the height of the panic, investors remained conscious of real values. On November 3, 1929 the shares of American Can, General Electric, Westinghouse and Anaconda Copper were still substantially higher than on March 3, 1928.
John Campbell and Robert Shiller, author of “Irrational Exuberance”, calculated, in a joint paper titled “Valuation Ratios and the Lon-Run Market Outlook: An Update” posted on Yale University’ s Web Site, that share prices divided by a moving average of 10 years worth of earnings reached 28 just prior to the crash. Contrast this with 45 on March 2000.
In an NBER working paper published December 2001 and tellingly titled “The Stock Market Crash of 1929 – Irving Fisher was Right”, Ellen McGrattan and Edward Prescott boldly claim: “We find that the stock market in 1929 did not crash because the market was overvalued. In fact, the evidence strongly suggests that stocks were undervalued, even at their 1929 peak.”
According to their detailed paper, stocks were trading at 19 times after-tax corporate earning at the peak in 1929, a fraction of today’s valuations even after the recent correction. A March 1999 “Economic Letter” published by the Federal Reserve Bank of San-Francisco wholeheartedly concurs. It notes that at the peak, prices stood at 30.5 times the dividend yield, only slightly above the long term average.
Contrast this with an article published in June 1990 issue of the “Journal of Economic History” by Robert Barsky and Bradford De Long and titled “Bull and Bear Markets in the Twentieth Century”:
“Major bull and bear markets were driven by shifts in assessments of fundamentals: investors had little knowledge of crucial factors, in particular the long run dividend growth rate, and their changing expectations of average dividend growth plausibly lie behind the major swings of this century.”
Jude Waninski attributes the crash to the disintegration of the pro-free-trade coalition in the Senate which later led to the notorious Smoot-Hawley Tariff Act of 1930. He traces all the important moves in the market between March 1929 and June 1930 to the intricate protectionist danse macabre in Congress.
This argument may never be decided. Is a similar crash on the cards? This cannot be ruled out. The 1990’s resembled the 1920’s in more than one way. Are we ready for a recurrence of 1929? About as we were prepared in 1928. Human nature – the prime mover behind market meltdowns – seemed not to have changed that much in these intervening seven decades.
Will a stock market crash, should it happen, be followed by another “Great Depression”? It depends which kind of crash. The short term puncturing of a temporary bubble – e.g., in 1962 and 1987 – is usually divorced from other economic fundamentals. But a major correction to a lasting bull market invariably leads to recession or worse.
As the economist Hernan Cortes Douglas reminds us in “The Collapse of Wall Street and the Lessons of History” published by the Friedberg Mercantile Group, this was the sequence in London in 1720 (the infamous “South Sea Bubble”), and in the USA in 1835-40 and 1929-32.
Under Armour, Inc. (UAI) debuted on November 18, 2005 at $31. The maker of branded performance clothing is growing its brand recognition via the use of hip brand promotion that is trying to wrestle away interest from the traditional buyers of Nike (NKE).
Under Armour has targeted the youth and athletic market where it competing with the established and strong Nike brand. Under Armour has a projected five-year annual earnings growth of 22.50% versus 14% for Nike. But on the valuation side, Under Armour is discounting in significant premium growth over that of Nike. Under Armour is trading at 46.19x its FY07 and a PEG of 2.75 versus 14.27x and a PEG of 1.06 for Nike. Clearly, Under Armour will need to perform to its lofty expectations going forward; otherwise, the stock will sell off. Nike is a superior value play.
Vonage Holdings Corp. (NYSE/VG) debuted on Wednesday at $17, the mid-point of its estimated IPO pricing range of $16-$18. The provider of Voice over Internet Protocol (VoIP) is an early entrant into the rapidly growing area of VoIP and presently has about 1.6 million subscribers but the company has yet to turn a profit. VoIP uses a broadband connection to make phone calls.
High advertising costs to acquire customers have hindered margins. Vonage is the current leader due to its early entry into the VoIP business but I see the company facing a difficult uphill climb as intense competition surfaces from major cable companies and the Skype service from eBay (EBAY).
The reality is Vonage has to spend extraordinary money on acquiring customers whereas for cable companies and eBay, there is already a significant customer base to market to. Vonage will soon realize this.
Hedge fund manager and the host of the hugely popular ‘Mad Money’ show on CNBC said Vonage is a “piece of junk,” which I have to concur with. And with Vonage currently trading down at $13, the market may also view Vonage as over hype and not enough substance.
Earning Season is always volatile to stock prices. Traders jerk in and out depending on the outcome of the report. For example, Texas Instrument (TXN) reported that its third quarter earning of 2005 rising 12% year over year. And yet, TXN fell after hour due to weak forecast. The game now is the expectation game. If the company beats, share price normally rise. If it doesn’t, share price plunge.
There are ways to beat the expectation game and reduce volatility to your portfolio. You do not have to wait for the press release and wait nervously whether your company beat or miss expectation. One way is to buy company with a modest expectation. The definition of modest varies among individuals but to me, modest expectation has a forward P/E ratio of less than 10. What happens when a company with modest expectation miss expectation? While, share price may get clobbered, I don’t think it will move much. Why? Because P/E of 10 already incorporates a 0% EPS growth. Even if EPS stays constant for the next ten years, company with P/E of 10 will return its shareholder roughly 10% a year.
Another way is to pick company that has predictable cash flow and dividend payment. Investors hate uncertainty. Companies that pay dividends eliminate some of that uncertainty. For example, a stock has a 4% dividend yield and it misses expectation for the quarter. The stock might tumble, pushing the dividend yield up to 4.2 or 4.5 %. By then, a lot of value investors will be interested in owning the stock and the drop in stock price will be less severe.
Finally, the last way to reduce volatility is to pick up companies with cash rich balance sheet. Some companies may have cash up to half of their market capitalization. For example, OmniVision Technologies Inc. (OVTI) has a market capitalization of $ 720 M. It has $ 300M in net cash, about 41.6% of market cap. With $ 300 M in cash cushion, it is hard to imagine the company to have market capitalization below $ 300 M. It is possible, but it is uncommon.
Currently focuses on: Cohen & Steers Select Utility Fund (nyse: UTF)
Its investment objective is to achieve a high level of after-tax total return through investment in utility securities. In pursuing total return, the Fund equally emphasizes both current incomes, consisting primarily of tax-advantaged dividend income, and capital appreciation. Under normal market conditions, the Fund will invest at least 80% of its managed assets in a portfolio of common stocks, preferred stocks and other equity securities issued by companies engaged in the utility industry.
The Utility and Electrical industry is forecasted to grow at 8.5% for then next 5 years.*
Currently the Cohen & Steers Select Utility Fund is at a 16.89% discount
That means for every $100,000 invested in principle you invest roughly only $83,000.
Using regression to the mean* theories believing that historical mean for US based closed end funds historically trade at a 5% discount we would forecast Cohen & Steers Select Utility Fund would increase in principle about 12 percent assuming no change in the market value.
** Regression to the mean is a technical term in probability and statistics. It means that, left to themselves, things tend to return to normal levels, whatever that is.
Cohen & Steers Select Utility Fund has a short but profitable history of growing principle
The current income from this fund is 6.14%
We believe due to the fact you could buy 100,000 dollars of income producing utilities that produce over 5% income or over $5,000 dollars per year for around an investment of $83,000. Those how invest with the much lower amount of $83,000 still has the same income of over $5,000 giving a much higher income of 6.14%
“If you’re patient, buying funds at a steep discount can be extremely lucrative? For example, suppose you divided the closed-end universe into fifths, starting with the most expensive. The priciest 20 percent gained 48 percent in the past five years. The 20 percent with the steepest discounts, however, soared 160 percent.” ***
To Reduce Risk
With an effort to reduce the risks associated with closed ended funds at deep discounts with high income we recommend diversification using many different asset classes and fund families utilizing asset allocation approach. In our growth and income model we use 7 different asset classes to provide a balanced portfolio. This structure was designed to minimize fluctuations. An event that might hurt one class of investments might benefit another. Two examples of this is after the 9/11 terrorist attack and the 2000 stock market crash. In both cases the stock market had a tremendous sell off, but the high grade bonds had very large rallies. During those two events the stock market and high grade bonds had no correlation. Many experts believe diversifying between non-correlated asset classes is the single best way to reduce volatility risk.
When building portfolio’s we use a selection criteria that focus on: unique asset classes, deep discount , high yield, consistency of payments, ongoing fee’s and other factors we incorporate into the selection are, past track record of the fund, and past track record of the management team, and of course the management team. We apply our selection criteria to over 600 closed ended funds with a goal to find only 1 or 2 in each asset class that fits our needs.
Simply don’t put all your eggs in one basket. If the assets classes are non-correlated this reduces the portfolio risk.
To summarize Cohen & Steers Select Utility Fund:
1) A conservative industry
2) Diversifies investments inside the utility industry
3) An industry forecasted to grow at 8.5%
4) Investing at a 16.89% discount
5) Receiving a 6.14% current income
6) Regression to the mean would indicate principle growth of about 12% with no market change.
We forecast Cohen & Steers Select Utility Fund to achieve industry growth rates plus regress to a more historic means these two combined events would indicate a total return of 10.9% percent per year over the next 3 to 5 years.
Randy Durig manages several Portfolios’ including the Growth & Income Portfolio to see the full list go to www.durig.com or www.money-manager.us
Randy Durig owns Cohen & Steers Select Utility Fund in his discretionary client’s portfolios and in his personal account. Past performance is not a guarantee for future returns. All information we believe to be correct but make no guarantee to accuracy.
Durig’s Monopoly Blue Chip Portfolio National Performance Rankings: 3rd In the United States, Ranked by 3 year annual return, for Large Capitalization Blend, 4th Quarter 2005, By Money Manager Review.
Durig Capital is a registered investment advisor. If you know someone that would like to receive our research call toll free 877-359-5319.
For those looking for articles on closed and mutual funds Randy recommends www.investment-investment.us there are about 75 articles focused on mutual funds and Exchange trade funds.
*Zacks Utility industry forecast
** Source http://www.visi.com
***Source USA Today newspaper
Self-Confidence is an essential starting point for any business venture. This is true even more if the business is trading in the stock market because psychology plays such a major role. Keep reading, this might change your life!
About 10 years ago, I received a copy of the book “Think and Grow Rich!” written by Napoleon Hill. Today, I credit most of my success in business (including trading) to this book.
At first applying some of the principles described in this book appears a bit crazy – for example reading a Self-Confidence formula and a Definite Plan aloud every day. But you really have to look at it with an opened mind and believe me (and many peoples who have made millions) this stuff works:
Here is a brief overview (you really need to get the book):
– First – you must have a burning desire – for a trader this desire should be “to become a consistent winner in the stock market”.
– Second – you have to have a definite goal including the amount you want to make and the date by which you want this money to be in your account.
– Third – You need a definite plan, or what you will do in exchange for this money.
Here is an example of a plan – it is generic enough to be applied to most trading styles. Items specific to your style should be added. Your plan should be read aloud first thing in the morning and right before going to bed.
By December 31st 2006, I will make $200,000 dollars with my trading. In return for this money I will do the following:
– I will follow a trading plan to guide my trading – therefore my job will be one of patience and discipline
– I will plan each trade carefully – I will not jump into trades by fear of missing out
– I will monitor the market’s current picture
– I will monitor the current picture for each industry
– I will manage my trades to protect my capital and my profits
– I will protect my capital through good money management
– I will take responsibility for all my actions.
– I will trade to trade well and for the love of trading, not to trade often and not for the money. The money will come as a result of trading well.
– I will not be influenced by the opinions of others. I will reach my own decisions and follow them.
– I will build the self-trust necessary to operate in an unlimited environment which has no rules.
– I will be rigid in my rules and flexible in my expectations.
-I will never think that taking money from the market is easy and I will never assume that I know enough.
-I will have no particular expectation when I place a trade because I know that anything can happen.
-I will treat trading as a probability game in which I don’t need to know what is going to happen next in order to make money. All I need to know
is that the odds are in my favor before I put a trade
– I believe that I deserve this money. I believe that I will have this money in my possession. My faith is so strong that I can now see this money before my eyes. I can touch it with my hands. It is now awaiting transfer into my account. I am awaiting a plan by which to accumulate this money, and I will follow that plan when it is received.
Read (and reread) this book and apply its principles to your life – and notice the difference in your Self-Confidence.
Convertible bonds are bonds issued by corporations that are backed by the corporations’ assets. In case of default, the bondholders have a legal claim on those assets. Convertible bonds are unique from other bonds or debt instruments because they give the holder of the bond the right, but not the obligation, to convert the bond into a predetermined number of shares of the issuing company. Therefore, the bonds combine the features of a bond with an “equity kicker” – if the stock price of the firm goes up the bondholder makes a lot of money (more than a traditional bondholder). If the stock price stays the same or declines, they receive interest payments and their principal payment, unlike the stock investor who lost money.
Why are convertible bonds worth considering? Convertible bonds have the potential for higher rates while providing investors with income on a regular basis. Consider the following: 1. Convertible bonds offer regular interest payments, like regular bonds.
2. Downturns in this investment category have not been as dramatic as in other investment categories.
3. If the bond’s underlying stock does decline in value, the minimum value of your investment will be equal to the value of a high yield bond. In short, the downside risk is a lot less than investing in the common stock directly. However, investors who purchase after a significant price appreciation should realize that the bond is “trading-off-the-common” which means they are no longer valued like a bond but rather like a stock. Therefore, the price could fluctuate significantly. The value of the bond is derived from the value of the underlying stock, and thus a decline in the value of the stock will also cause the bond to decline in value until it hits a floor that is the value of a traditional bond without the conversion.
4. If the value of the underlying stock increases, bond investors can convert their bond holdings into stock and participate in the growth of the company.
During the past five years, convertible bonds have generated superior returns compared to more conservative bonds. Convertible bonds have generated higher returns because many companies have improved their financial performance and have their stocks appreciate in value.
Convertible bonds can play an important role in a well-diversified investment portfolio for both conservative and aggressive investors. Many mutual funds will invest a portion of their investments in convertible bonds, but no fund invests solely in convertible bonds. Investors who want to invest directly could consider a convertible bond from some of the largest companies in the world.
Watching the numbers roll by on the bottom of your screen during a news cast might seem like nonsense to you. Those numbers are very important to many people because they make their fortune with stocks. They steadfastly watch the stock markets wanting to see how their investment is doing.
To understand the stock market you first need to understand what stocks are. Stocks are the capital raised by a company when they sell shares. Shares are offered through the stock market and the money taken in from those becomes the company’s stocks.
There are several major stock exchanges in the world where shares are traded. Company’s stocks are increased and decreased each day.
One of these stock markets is the NASDAQ. NASDAQ stands for National Association of Securities Dealers Automated Quotations. The NASDAQ is a United States based stock market. It’s the world’s first electronic based stock market. It also trades more shares each day than any other stock market which means it has the most impact on stocks.
Another large stock market that is United States based is the Dow Jones Industrial Average. You might hear someone say that the Dow is up or down this is what they are referring to. Many stocks are introduced on the Dow.
Many other countries also have a great impact on stocks. In Europe almost each country has their own stock market this includes Portugal, Germany and Lisbon. The people living and working there follow invest in the stock market there and just like in North America the stocks rise and fall.
The people who handle the buying and trading are called stock brokers. Their job is to sell and trade the shares that their clients request. It’s a demanding and rewarding job being involved directly in stocks this way. Stock brokers can make a lucrative income and the ones that study the markets and understand all the ups and downs have a definite advantage.
For the everyday person to get involved in stocks they need to do a bit of research. It might be wise if a large amount of money is involved to talk to a stock broker. Their job is related to stocks and no one is better qualified to assist you.
Stock brokers are paid on commission and therefore their drive is to invest in shares that will ultimately turn a profit. Often a stock broker has extensive knowledge with just a few stocks and he concentrates on those. If you decide to invest in a share that a certain stock broker is very well versed in, it might be prudent to have him or her handle your dealings. They can offer the best advice as to when to buy and when to sell.
There are other avenues available for people interested in stocks and that’s the online stock trading companies. Many of these companies allow anyone to sign up and buy and trade their own shares. This can be a great way for someone to be introduced to the world of stocks and with some research and practice they can make themselves a profit.
Option trading is one method of trading that you can partake in. But, in order to take advantage of it, you need to find out just what it is and how it works. This will help you to make decisions that will affect you throughout your trading experience. Here is some basic information about option trading to help you.
What Is An Option?
Your basic question of what an option is can be answered like this. It is a contract that allows two parties to come to an agreement that the buyer will have the right to buy or sell a parcel of the shares. It is set at a predetermined price and at a predetermined date. The buyer does not have to take the option though. He has the right but not the obligation to do so. To get this right, the buyer will provide a premium to the seller.
There are two types of option trading that you need to know about. In a call option, the buyer has the right to buy underlying shares of a stock. It is set at a predetermined price and also a predetermined date. Again, the buyer has the right but not the obligation to do this.
The second type of option is the put option in option trading. In this type of option, the taker has the same fundamentals but is selling underlying shares. He has the same set up of having the right to do so but not the obligation to do it. Also, the same standards of the predetermined price and date also apply. The buyer of a put option is required to deliver the underlying shares only if they exercise the option.
If you would like to learn more about option trading, you simply need to contact your financial advisor and find out how it can serve your needs.