Stock Market Advice

2009-08-15T22:41:00.000-07:00

Stock market analysis can be a tricky expertise that is only developed by the hearty financial broker or savvy investor who have spent a good deal of time studying the business of trading in corporate shares. Good analysis leads to helpful stock market advice. Mastering the ability to predict trends may take years of experience, dedication and intuitive instincts. If a person is interested in finding good advice based on reliable analysis of the trends, he may want to find a professional stockbroker for his investment needs. Unless a person is capable of predicting the typical trends of the market, choosing a good stockbroker could be the single factor in investment success. Education is the key, no matter which direction an investor chooses. Either the investor educates himself through classes, reading, and experience, or he finds someone who has that knowledge already to take care of his investment portfolio.

Choosing the right stockbroker that can give the right advice that is based on accurate stock market analysis is very important. One will need to determine what type of broker that will fit the required needs. A stockbroker is a professional that is authorized to trade on the market in our behalf. The investor must tell the stockbroker how much he wants to invest, and over how long a time. He should also have some idea of the kind of return that is expected. Not only can stockbrokers buy and sale shares, but they can also provide analysis and advice that can influence what the client decides to buy.

Up until the last few years, most investors went through full service brokers who provided advice based on expert stock market analysis. Many times full service brokers charged a large fee for their complete services and made it difficult for the average person to invest in corporate shares with moderate financial investments. Times have changed and there are many options available for the average investor who needs the services of a stockbroker. Today, there are more services available through different types of professional stockbrokers for the many Americans who buy and sell stock daily.

The full service broker is just that: a broker who is expertise in stock market analysis, who can provide stock market advice and who can provide a broader range of services from investment purchases, stock sales, tax help and retirement planning. Another type of stockbroker whose services have become quite popular because of the savings as well as speed of investing is the direct-access broker. A direct-access broker does not provide stock market advice to investors but allows day traders the opportunity to trade through the electronic communications network. This gives those who want to make their own investments the opportunity to buy and sale as quickly as they see an opportunity.

A discount broker is another type of broker that is quite popular with typical investors who want to save money by not hiring a full service broker. A discount broker does not offer the services of analysis or advice, but allows you to buy and sale stocks at a lower rate. Not only do you save money by not paying a full service broker for advice, but also you also save money by purchasing discounted stocks. There are many other variations of stockbrokers from which to choose as well, but these are the typical brokers that most investors look to for investment services. It is important for the investor to assess what his investment needs are, what he can afford as far as broker fees, and whether or not those investments can be made on the basis of his own knowledge and ability to analyze the state of the market.

Many times choosing the services of a reputable stockbroker can actually save clients money in the long run and provide good investments for the future. Cutting corners with advice or analysis can sometimes backfire on the investor who loses money on poorly targeted purchases. Of course, there is a multitude of information that can provide stock market advice for the layperson that is interested in beefing up his or her investing skills. As with any other area of finances, an investor should compare before making a final decision about what type of broker is needed.

There can be differences in fees and charges when total up the many features that a good stockbroker can offer for investing. Based on good analysis, accurate advice can be found by the investor who shops around for the best competitive brokerage firms who provide stockbrokers who know their business and can point the investor in the right direction to earn dividends. There are many online sources that can help an investordetermine what his needs are as well as what he will be charged for the right stockbroker. "But my God shall supply all your need according to his riches in glory by Christ Jesus." (Philippians 4:19)

2009-08-15T22:27:00.000-07:00

Speculation

Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.^[16] Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.^[17]

Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors ^[18].

Currency speculation is considered a highly suspect activity in many countries.^[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.^[19] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.

Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.^[20]

In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators allegedly made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.

2009-08-15T22:24:00.002-07:00

Algorithmic trading in foreign exchange

Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.^{[citation needed]}

An algorithmic trader needs to be mindful of potential fraud by the broker. Part of the weekly algorithm should include a check to see if the amount of transaction errors when the trader is losing money occurs in the same proportion as when the trader would have made money.

2009-08-15T22:24:00.001-07:00

Political conditions

Internal, regional, and international political conditions and events can have a profound effect on currency markets.

All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in India, Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

[edit]Market psychology

Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:

Flights to quality: Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven." There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The Swiss franc has been a traditional safe haven during times of political or economic uncertainty.^[12]
Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cyclesdo make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends. ^[13]
"Buy the rumor, sell the fact": This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".^[14] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.^[15]

2009-08-15T22:23:00.000-07:00

Economic factors

These include: (a)economic policy, disseminated by government agencies and central banks, (b)economic conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Economic conditions include:
Government budget deficits or surpluses
The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends
The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends
Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising [. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health
Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
Productivity of an economy
Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector [3].

2009-08-15T22:22:00.000-07:00

Determinants of FX Rates

Trading characteristics

There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of theChicago Mercantile Exchange and Reuters, called Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism.

The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session, excluding weekends.

Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXXYYY or YYY/XXX, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX is expressed (called base currency). For instance, EURUSD or USD/EUR is the price of the euro expressed in US dollars, as in 1 euro = 1.5465 dollar. Out of convention, the first currency in the pair, the "base" currency, was the stronger currency at the creation of the pair. The second currency, counter currency or "term" currency, was the weaker currency at the creation of the pair. Currencies are occasionally incorrectly quoted with the pairs inverted e.g. EUR/USD but this is incorrect. The "/" acts the same as the divide mathematical operator and derives the actual exchange rate. e.g. an amount of $140,000 equates to €100,000. $140,000/€100,000 = $/€ = USD/EUR = a rate of 1.4 hence EURUSD or USD/EUR. See Exchange_rate

The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ.

On the spot market, according to the BIS study, the most heavily traded products were:

EURUSD: 27%
USDJPY: 13%
GBPUSD (also called sterling or cable): 12%

and the US currency was involved in 86.3% of transactions, followed by the euro (37.0%), the yen (17.0%), and sterling (15.0%) (see table). Note that volume percentages should add up to 200%: 100% for all the sellers and 100% for all the buyers.

Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.

2009-08-15T22:20:00.002-07:00

**Most traded currencies**^[2]
Currency distribution of reported FX market turnover
Rank	Currency	ISO 4217 code (Symbol)	% daily share (April 2007)
1	United States dollar	USD ($)	86.3%
2	Euro	EUR (€)	37.0%
3	Japanese yen	JPY (¥)	17.0%
4	Pound sterling	GBP (£)	15.0%
5	Swiss franc	CHF (Fr)	6.8%
6	Australian dollar	AUD ($)	6.7%
7	Canadian dollar	CAD ($)	4.2%
8-9	Swedish krona	SEK (kr)	2.8%
8-9	Hong Kong dollar	HKD ($)	2.8%
10	Norwegian krone	NOK (kr)	2.2%
11	New Zealand dollar	NZD ($)	1.9%
12	Mexican peso	MXN ($)	1.3%
13	Singapore dollar	SGD ($)	1.2%
14	South Korean won	KRW (₩)	1.1%
Other			14.5%
Total			200%

2009-08-15T22:20:00.001-07:00

Money Transfer/Remittance Companies

Money transfer companies/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, theAite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and thePhilippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally.

2009-08-15T22:19:00.001-07:00

Non-bank Foreign Exchange Companies

Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but currency exchange with payments. I.e., there is usually a physical delivery of currency to a bank account.

It is estimated that in the UK, 14% of currency transfers/payments^[10] are made via Foreign Exchange Companies.^[11] These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.

2009-08-15T22:18:00.004-07:00

Retail foreign exchange brokers

There are two types of retail brokers offering the opportunity for speculative trading: retail foreign exchange brokers and market makers. Retail traders (individuals) are a small fraction of this market and may only participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated by the CFTC andNFA might be subject to foreign exchange scams.^[8]^[9] At present, the NFA and CFTC are imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone. It is not widely understood that retail brokers and market makers typically trade against their clients and frequently take the other side of their trades. This can often create a potential conflict of interest and give rise to some of the unpleasant experiences some traders have had. A move toward NDD (No Dealing Desk) and STP (Straight Through Processing) has helped to resolve some of these concerns and restore trader confidence, but caution is still advised in ensuring that all is as it is presented.

2009-08-15T22:18:00.003-07:00

Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.

Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

2009-08-15T22:18:00.001-07:00

Hedge funds as speculators

About 70% to 90%^{[citation needed]} of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

2009-08-15T22:17:00.001-07:00

Central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high—that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.^[7] Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

2009-08-15T22:16:00.000-07:00

Banks

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

2009-08-15T22:15:00.002-07:00

Market participants

Financial markets

Bond market
Fixed income Corporate bond Government bond Municipal bond Bond valuation High-yield debt
Stock market
Stock Preferred stock Common stock Registered share Voting share Stock exchange
Foreign exchange market
Derivatives market
Credit derivative Hybrid security Options Futures Forwards Swaps
Other Markets
Commodity market Money market OTC market Real estate market Spot market
Finance series Financial market Financial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation
v • d • e

Unlike a stock market, where all participants have access to the same prices, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. The difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX-metal market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size” Central banks also participate in the foreign exchange market to align currencies to their economic needs.

2009-08-15T22:15:00.001-07:00

Market size and liquidity

Presently, the foreign exchange market is one of the largest and most liquid financial markets in the world. Traders include large banks, central banks, currencyspeculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. ^[2] Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.^[3]

Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%.^[4] In addition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts.

Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India—[1]; [2]) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account.

FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).

2009-08-15T22:14:00.002-07:00

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation bycentral banks. According to the Bank for International Settlements,^[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

$1.005 trillion in spot transactions
$362 billion in outright forwards
$1.714 trillion in foreign exchange swaps
$129 billion estimated gaps in reporting

2009-08-15T22:14:00.001-07:00

The foreign exchange market is unique because of

its trading volumes,
the extreme liquidity of the market,
its geographical dispersion,
its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
the variety of factors that affect exchange rates.
the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
the use of leverage

2009-08-15T22:10:00.000-07:00

he foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies.

The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars.

In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange ratesfrom the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

2009-08-15T22:09:00.001-07:00

Why the stock market gets out of whack with reality.

Over the long term, the stock market is driven by underlying economic, financial and global growth. But in the short run, the market is driven by simple greed and fear, which are dictated by human emotions. During periods of prosperity, the stock market often rises faster than underlying earnings. During tough economic times, political uncertainty, and low consumer confidence, the stock market often performs worse than the underlying fundamentals predict.

2009-08-15T22:08:00.001-07:00

How stocks are valued.

Stocks have two types of valuations. One is a value created using some type of cash flow, sales or fundamental earnings analysis. The other value is dictated by how much an investor is willing to pay for a particular share of stock and by how much other investors are willing to sell a stock for (in other words, by supply and demand). Both of these values change over time as investors change the way they analyze stocks and as they become more or less confident in the future of stocks. Let me discuss both types of valuations.

First, the fundamental valuation. This is the valuation that people use to justify stock prices. The most common example of this type of valuation methodology is P/E ratio, which stands for Price to Earnings Ratio. This form of valuation is based on historic ratios and statistics and aims to assign value to a stock based on measurable attributes. This form of valuation is typically what drives long-term stock prices.

The other way stocks are valued is based on supply and demand. The more people that want to buy the stock, the higher its price will be. And conversely, the more people that want to sell the stock, the lower the price will be. This form of valuation is very hard to understand or predict, and is often drives the short-term stock market trends.

2009-08-15T22:06:00.000-07:00

How stocks are valued.
Stocks have two types of valuations. One is a value created using some type of cash flow, sales or fundamental earnings analysis. The other value is dictated by how much an investor is willing to pay for a particular share of stock and by how much other investors are willing to sell a stock for (in other words, by supply and demand). Both of these values change over time as investors change the way they analyze stocks and as they become more or less confident in the future of stocks. Let me discuss both types of valuations.
First, the fundamental valuation. This is the valuation that people use to justify stock prices. The most common example of this type of valuation methodology is P/E ratio, which stands for Price to Earnings Ratio. This form of valuation is based on historic ratios and statistics and aims to assign value to a stock based on measurable attributes. This form of valuation is typically what drives long-term stock prices.
The other way stocks are valued is based on supply and demand. The more people that want to buy the stock, the higher its price will be. And conversely, the more people that want to sell the stock, the lower the price will be. This form of valuation is very hard to understand or predict, and is often drives the short-term stock market trends.

2009-08-15T22:05:00.001-07:00

How the stock market works.

The stock market is driven by supply and demand. The number of shares of stock dictates the supply and the number of shares that investors want to buy dictates the demand. It's important to understand the for every share that is purchased, there is someone on the other end selling that share (or vice versa). The stock market is really just a big, automated superstore where everyone goes to buy and sell their stock. The main players in the stock market are the exchanges. Exchanges are where the sellers are matched with buyers to both facilitate trading and to help set the price of the shares. The primary exchanges are the Nasdaq, the New York Stock Exchange (NYSE), all of the ECNs (electronic communication networks) and a few other regional exchanges like the American Stock Exchange and the Pacific Stock Exchange. Years ago, all of the trading was done through the traditional exchanges (like the NYSE, American and Pacific Exchanges) but now almost all of the trading is done through the Nasdaq, which uses ECNs and thousands of other firms with access to the Nasdaq to facilitate trading.

2009-08-15T22:03:00.000-07:00

Personal taxation - Important notes

Tax slabs
-Upto Rs 1 Lakh - Nil
-From Rs 1 Lakh - Rs 1.5 Lakh - 10%
-From Rs 1.5 Lakh - Rs 2.5 Lakh - 20%
-From Rs 2.5 Lakh and above - 30%
Surcharge of 10% for income above Rs 10 Lakh
No surcharge for income below Rs 10 Lakh
2% Cess on total tax
Women tax payers have basic slab at Rs 1.35 Lakhs
Senior citizen tax payers have basic slab at Rs 1.85 Lakhs
No standard deduction

2009-08-15T22:02:00.000-07:00

Investment Do's and Dont's

As markets crash, I notice more and more people making these mistakes.

1. Invest a fixed sum regularly. It is called SIP, (Systematic Investment Plan). It may be weekly/monthly or yearly or any fixed number of days.

2. Pick fundamentally strong counters.

3. Book profits when the stock rises above your expectations. That is you purchased a stock at Rs. 100 with a target of Rs. 150 over next one year. You see the stock rise by 15-20% within a month. Sell at least a part of your holdings. This will reduce your holding cost. Even if you sell 25% of the shares at Rs. 120, your cost for 75% holdings gets reduced to Rs. 93.33.

4. Never panic in corrections/crashes (doesn't hold good if you have companies with poor or zero fundamentals)

5. Keep updating yourself on companies’ fundamentals. At lest look whether sales and net profits are on the rising line. Do not hesitate to get out of a company when the results are poor.

6. Always keep at least 15% cash. Invest this in fundamentally strong companies which become available at cheap rates during crashes.

7. If you are an earning member, keep investing a fixed portion of your earnings in same stocks (again SIP)

8. If you are a retired person, do not invest more than 50% of your long term money.

9. If you do not understand what a company is doing in actual day to day business, never invest in it.

10. Never ignore fundamentals.

11. People look at losses from latest purchases. They miss out that we purchased this stock partly from profits of earlier purchases. Even after the recent fall, my folio is up almost 50% in last 1 year. But most of my current holdings are in red that too by 10-15%. Learn to keep a correct track of what your original investment was and what is its value as on date. Use good portfolio software on net. (Just have a look at our 25k model portfolio)

I taught the following points from me will help you save your money at least next time around.

Will continue this later. Hope these points will help you a bit.

Good Luck!!
Anand

2009-08-15T21:59:00.000-07:00

How to Invest in Stocks?

Stocks are an asset class. The basic property of an asset class is to grow. Then why investors loose money?

May be a wrong time to ask the question as Indian stock markets are in for a never seen before Bull Run. Still I found this topic the most relevant today. The SENSEX has crossed 8000 points. In my articles athttp://www.mumbaibull.com/nifty_trends.asp I had discussed why Indian stocks are so attractive and why NIFTY has all chance to make it to 4000 in few years.

http://www.mumbaibull.com/willthemarketsfallfurther.php , I suggested the investors to buy without panic.

What should you do when markets run like today's scenario? Should one book profits? Or should they add on to their holdings? Or should they come out of the markets completely? What should a new investor who is starting to know about stocks do now? (I get whole lot of enquiries from these kinds of guys)

The answer is simple. Forget about market conditions. Forget about index values. Look at stocks as buying business.

Say if you are buying a pharma stock. Instead of thinking whether to buy 100 shares of RANBAXT / CIPLA / PFIZER or not, think if you had cash and if the company Ranbaxy was for sale would have considered acquiring it?

What you would have done?

You would have looked at sales
You would have looked at Profits
You would have seen the growth in sales and profits
You would have seen how long would it take to get back your money from profits. (How many years)
You would have seen the problems that may come future.
You would have seen what is the real worth of assets and how much you are paying against it.
Many small aspects are very important but most of it is reflected in the above points.

I think all of you agree that you will look into all these aspects instead of looking for tips to buy a business or taking decisions based on rumors.

Apply the similar rules when buying a stock. Just change the facts from gross to per share basis.

Instead of total sales, look at per share sales, instead of net profits look at earnings per share. Instead of net worth look at Book Value of a stock. Look at the past history of growth in sales and EPS. So on.

You should know that SENSEX has come from 1000 levels to 8000 levels today. Each time it made new highs, analysts cautioned investors. Although SENSEX rose from 1000 to 8000 in 15 years or so, many brokers/investors/analyst/trader/speculators lost huge money and vanished from markets.

I am sure that SENSEX will reach new tops. You will only see SENSEX reaching 10000, 12000, and 15000 sometime down the line. Mind it stocks are asset class. It is not a zero sum game like a lottery where someone has to loose for someone to win. It is not a gambling den.

To make money in asset class, you need to invest. Invest wisely. Invest in sound assets. Invest in undervalued assets.

In this way, when SENSEX makes a next journey from 8000 to 10000 (a 25% return), your wise pickings should give you a return of 50 - 100%. Learn to leave speculative bets, which may rise from Rs 10 to Rs 50 in few months, which has the potential to become a penny stock that will trade at Rs 0.50 after few years for safe bets, which can rise from Rs 100 to Rs 150 in 1 year and has very little downside. (May be 10-15%)

Plan your investment. Decide on what strategy you invest. Believe in your strategy. Make lots of paper work.
Do not over divers if your holdings too many stocks and industries.
Be slow and steady. There is always a tomorrow. It is never too late to make a start.
Never start investing in stocks without understanding. Be sure what you are doing. Know about potential risks. I see too many people jumping in to markets when there is Bull Run and getting out of it in bear markets. Usually I see people enter a stock when it is almost at its top value and exit in fear at the near very low quote of it. All the best.

2009-08-15T21:58:00.001-07:00

Tips for Indian stock investor

Indian Stocks market is showing strength from strength and is making steady gains over last few years. SENSEX and NIFTY are less than 5% below the all time highs.

Advice on buying and selling of Indian stocks and indices. Indian stock market investing made easy. Expert recommendations, mature tips, share market information at one place. Portfolio advice for Indian stock markets.

Making money from Indian stock market was never so easy. But although markets are in the upswing we find more and more people exiting citing losses in stocks. A close analysis shows non understanding of financial markets as the main reason for this.

Stock price movement is just more than a simple graph. Fundamental analysis helps you to identify potential winners which can be multibaggers. Technical analysis helps you time the markets. If you are a long term investor, Fundamentals play a more important tool. If you are a short term trader, Technical analysis, news, rumors play a more important role.

Indian corporate earnings are showing strong growth in last 4-5 years which is well reflected in Indian stock market.

Stock market trading without proper research is bound to make you loose all your finance. We recommend studying charts, avoid keeping a close eye on quotes / prices, day trading, penny stocks. Finding a good stockbroker, Stock Market Guide , stock exchange like New York stock exchange, Toronto exchange, NSE etc. Stock picks should be purely based on research on fundamentals and technical analysis. Consider future trading and options. Mumbaibull.com presents a set of stocks to buy based on these principles. Emphasising more on fundamental and a bit on technicals.

2009-08-15T21:57:00.001-07:00

Can SENSEX Cross 20k again?

When I wrote the below article few months back, many were saying Indian markets expensive. The SENSEX was at 15000 levels. Now SENSEX did 30% from those levels and crossed 20000 for a short while and now trading around 8% lower from the peak at 18750 levels.

The PE for the SENSEX should be now around 23 times now ( I have not calculated the exact value). The SENSEX stocks are bound to grow at least 25-30% cumulative for next 3 years (I here advance tax collection up by 40%). This will take the SENSEX EPS to 1600 – 1800 range.

Taking a low PE of 20, SENSEX should at least see 32000 mark. Taking a higher PE of 23 times on a higher growth and higher EPS target, SENSEX should see 41000 mark. This target is for next 3 years.
Investors are recommended to stay invested.

Author: Ananda Kumar. Join www.winfromus.com , the premium stock advice service.

2009-08-15T21:54:00.000-07:00

Is correction in Indian Stock Market over?

After making a high of 21000, the sensex has almost eroded most of the gains it made during last year. Now the Indian stock markets are slowely recovering. But is it a sure bull market again or is it just a pullback?

The approach of an investor in Indian stock market should be more stock specific than a market wide approach..

The stocks which are giving good growth over years and which were available at low valuations in terms of PE multiples, yield etc. have give substancial returns over last 1 year..
I recommend you to follow a similar approach this year and pick good stocks trading at low valuations. An example for this may be a stock by name Shilp Gravures which is available at Rs. 63 ( 16th May 2008). This is trading at a PE of less than 7 times. The company is giving a good dividend of 21%. The company is growing nicely. Observe this stock.

Author: Ananda Kumar. For more stocks like this Joinwww.winfromus.com, the premium stock advice service.