Shares are going down, what should I do next?

Recently in the stock market, we heard more bad news than good news. The market is falling more than rising. By now, most investors already familiar with high inflation rate, price of crude oil problem, Citigroup problem, sub-prime mortgage problem or credit fears, likely US recession... I'm sure most investors by now are aware with the current situation and are wondering what to do next? When market is heading south, all fundamental and technical analysis fall apart even countries who have fore-casted with impressive economy reports. The 'knives' are falling, most investors will avoid the 'damage' by cutting-losses, simply we are dealing with fear, panic and market uncertainties ahead. This 'panic-selling' of course aggravate the falls. One can see share prices keep falling faster than when market is in the bull run, all previous gain during the bull run can wipe off significantly, isn't that true?

Ironically, if you are rushing in to sell stocks that are on the way down but rebound later and you most surely regret about it but if you hang on and hope your shares will rebound but it never and you will surely regret also about not cutting early losses and you feel like a fool still hanging on to the stocks that just keeps on dropping. This is especially true when the country is in recession. So, It's a tough decision to make. Beware that not all heavily sold-down stocks are always poised for a rebound. Unfortunately for some troubled-stocks, one the damaged are done are done. It may takes them months or even years to recover to last peak. It can be quite frustrating. Sadly, but it's true.

So, what should I do now as a investor?

Frankly, I don't think anybody can really tell you accurately what is best to react now. Nobody can accurately predict the stock market; there is no such thing of looking at the crystal ball and predict the future of stock market, if anyone who claims to is either a charlatan or naive. Sorry to say that.

I think one still can make money on the stock market, but one may have to climb a wall of worry and uncertainties to do so.

At today's prices, most stocks would probably be a 'bargain' by now. But nobody know exactly when the market will hit the bottom until the full extent of loan losses are known.

Below are some other alternative investment strategies one might want to reconsider until the 'dark cloud' is getting clearer. This is just my personal opinion. Don't take it a sure bet. Always consult your brokers or consultants when invest your money.

1. Cut-loss especially those high P/E penny stocks with weak fundamental or troubled-stocks (in the black or red) . Question, when is the best time to sell or cut loss? Frankly, nobody know until the result is known. Market is full of surprises. If I tell you I know, I must be quite naive. In fact, your guess is as good as mine. But, personally, if you do see beginning of 'bear' run, I think is quite obvious to cut losses than see more losses later on.

2. What others investment is still consider a "remarkable bargain"? e.g. Gold, Silver, Copper, others precious metals ...
Generally speaking, when market is in the turmoils, personally, gold seem to be a better bet at that moment but don't expect to hold it for long when market do stabilized later on.

3. Park your money to banks who are still giving good interest rate like time deposit and "play safe" for the time being until the "dark cloud" is getting clearer or the dusts are settled? But don't park your money too long because your may have cash flow problems because your monies get stucked when investment opportunities do arises.

4. Stay on with government bonds with good coupon or dividend payouts but stay away with risky equity-linked products that claimed 'higher return' than fixed deposit in term of 'guaranteed' return of your investment. Nothing is 'guaranteed' as far as investment is concerned. Don't bet on your life saving! Be cautious with your hard-earned monies especially for retirees. Better earn less but safe like fixed deposit. Never let 'high return' tempt you to buy something you might regret later on. If some things are too good to be true, question yourself? The higher the return, the higher the risks. 'Greed' can turns to grief sometimes. So, please be prudent with your investments.

5. Accumulate strong fundamental blue-chips with a good bargain in terms of value versus price per shares (do research on the financial ratios and current development...), take into consideration of these stocks are still earnings good return despite bad economy and wait for technical rebound to make 'quick profit' from these 'bargained stocks'? But when is the best time to buy and maximize the profit? Frankly, I don't know. But if you do see the recession is at hand, hopefully not global recession, then better wait to buy at a 'lower' price to accumulate. Do bear in mind, recession has no mercy to all stocks, defensive or blue-chips. So please be prudent with your investment! Watch the current trends and latest news.

6. Invest through an index fund or an Exchange Traded Fund (ETF)? Any comments from readers?

7. Take advantage of any weakness over the next few months to scoop up bargains or improve the balance of your stock portfolio? Do your own research to pick the 'right' blue-chips.

All the above assumption and guessing can be devastated if the market is turning against one's decision. So, be prudent with your investments!

Personally, based on current situation, I'll see more downsides than upsides for months ahead.

My personal investment style is when majority of people (more than 90%) are very pessimistic about the stock market, I usually buy or start to accumulate good fundamental stocks like blue-chips with very low debts ratio. Likewise, when majority of people are overly optimistic about the stock market, I usually sell into strength or unload most of my shares holding. From my past experience, it does really help me to some extents. I guess I'm really lucky because I got out and made some good profits by selling most of my shares holding before July last year(2007). Now, I just sit and wait for the next opportunity arises.

Well, whatever investment styles you choose, I hope the market is not against you. Just be prudent with your investments! Consult your consultants if necessary.

Thanks you for spending your times to read this. All the best with your investments!

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Quotes from successful people

Analysts have always been overly optimistic.
- David Dreman

"I buy when other people are selling.”
– J. Paul Getty

"There are no secrets to success. It is the result of preparation, hard work, learning from failure.”
- General Colin Powell

We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction.
- Bill Gates

The more flexible an economy, the greater its ability to self-correct in response to inevitable, often unanticipated, disturbances and thus to contain the size and consequences of cyclical imbalances.
- Alan Greenspan

When people are frightened, they cut their time horizon dramatically, even advisors will say to sell because they see portfolios crumble and they fear people will have nothing left. It's really not rational, but it does happen.
- David Dreman

The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.
- Rupert Murdoch

The individual investor should act consistently as an investor and not as a speculator. This means.. that (s)he should be able to justify every purchase (s)he makes and each price (s)he pays by impersonal, objective reasoning that satisfies him/her that (s)he is getting more than his/her money's worth for his/her purchase.
- Benjamin Graham

Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.
- Benjamin Graham

If you buy all the stocks selling at or below two times earnings, you will lose money on half of them because instead of making profits they will actually lose money, but you will only lose a dollar or so a share at most. Then others will be mediocre performers. But the remaining big winners will go up and produce fabulous results and also ensure a good overall result.
- John Templeton

I've learned that mistakes can often be as good a teacher as success.
- Jack Welch

Before you can really start setting financial goals, you need to determine where you stand financially.
- David Bach

Vision is perhaps our greatest strength.. it has kept us alive to the power and continuity of thought through the centuries, it makes us peer into the future and lends shape to the unknown.
- Li Ka Shing

“When one door closes, another door opens: but we so often look so long and so regretfully upon the closed door that we do not see the ones which open for us”
- Alexander Graham Bell

"A window of opportunity won't open itself.”
- Dave Weinbaum

“Do not think of knocking out another person’s brains because he differs in opinion from you. It would be as rational to knock yourself on the head because you differ from yourself 10 years ago.”
- Horace Mann, educator

"Time is more valuable than money. You can get more money, but you cannot get more time."
– Jim Rohn

"Time is our most valuable asset, yet we tend to waste it, kill it, and spend it rather than invest it."
-Jim Rohn

"He who wishes to be rich in a day will be hanged in a year"
- Leonardo da Vinci

“An Entrepreneur's income generation is different than someone that worked at a job. Income generation for a person working was LINEAR. Entrepreneur income generation is EXPONENTIAL. Basically, very, very slow to begin, then as time progresses, explosive.”
- Michael John

“A person is limited only to his or her reality of what is possible financially. Nothing changes until that person’s reality changes. And a person’s financial reality will not change until he or she is willing to go beyond the fears and doubts of her own self-imposed limits.”
– Robert T. Kiyosaki

- Making good decisions is a crucial skill at every level.
- Peter Drucker

- Checking the results of a decision against its expectations shows executives what their strengths are, where they need to improve, and where they lack knowledge or information.
- Peter Drucker

- Suppliers and especially manufacturers have market power because they have information about a product or a service that the customer does not and cannot have, and does not need if he can trust the brand. This explains the profitability of brands.
- Peter Drucker

"What the mind of man can Conceive and Believe, it can Achieve." - Napoleon Hill

Beyond the realm of stocks & bonds

Alternative investments like private equity, hedge funds and real estate are now significant portfolio components, writes SALMAN HAIDER

ALTERNATIVE investments, particularly hedge funds, are attracting growing interest from global institutional funds to high net worth and retail investors. Considering the volatility investors have seen this year, it is little wonder they are seeking alternative investments - not only for new avenues of return opportunities, but also as a way of controlling risk. The promise of positive returns certainly plays a part. Ever-rising gold and property prices come to mind as well as the increasing resilience to risk as investors invest heavily into emerging markets. Increasingly, however, astute investors are also realising that allocating across stock and bond markets alone may not be the most effective way to manage their portfolios.

In fact, private equity, hedge funds and real estate are evolving to become significant components of many investors' portfolios. A recent Asia-Pacific Wealth Report published by Capgemini and Merrill Lynch found that Singapore's high net worth individuals had the highest allocation to alternative investments in the region, at 37 per cent. No longer confined to the universe of traditional long-only investments, investors today are bravely exploring the 'alternative' space beyond. Simply put, alternative investments include strategies other than just buying stocks and bonds. Though limited only by the creativity of the investment managers themselves, common examples of alternative investments include hedge funds, which can take both long and short positions); commodities and real estate (the 'traditional' alternatives), and private equity funds, which can also invest in non-public companies (see table).

The universe of alternative investments is greater for high net worth investors, but even retail investors are spoilt for choice these days. What is interesting from a portfolio perspective is that alternative investments have historically shown low-to-moderate correlation to traditional assets and to each other. In other words, they do not always move up or down in lockstep. While this may not seem particularly exciting when markets are moving in one direction (ie, up), diversification becomes highly valued in times of volatility, and over longer time horizons as market leadership shifts from one asset class/market to another.

Of course, these benefits cannot be guaranteed and investing in alternatives carries varying degrees of risk. But for a typical investor, incorporating some alternative investments to a portfolio of stocks and bonds could help improve the portfolio's return for each level of risk (see chart). This helps to reduce overall volatility which, in turn, leads to faster compounding of returns over time.

At the same time, alternative investments provide qualified investors with exposure to less efficient private and public markets and investment strategies that cannot be accessed through traditional fixed income and equity markets, for example, having sufficient ownership through a private equity fund, to influence the management of a company. It is important to realise that the world of alternatives is diverse, comprising a wide range of options with different risk-return characteristics. At Citibank, our model portfolios factor in some allocation to alternative investments, depending on a client's risk profile and suitability. But as with all investments, there are key areas and risks that investors need to consider before deciding to invest.

Besides the usual risks that apply to traditional assets - such as market risk, where the value of securities, commodities and currencies may fluctuate reflecting a variety of factors, including changes in outlook, and political and economic environments - there may be other specific risks that apply to alternative investments.

It may not be feasible to observe market prices for investments such as private equity or private real estate. This challenge makes it difficult to compare the risk-return profiles. Moreover, some managers may receive additional performance compensation for the value of their expertise and exclusive access to markets or other managers. Despite the rising popularity of alternative investments in recent years, investors should first look at their own overall risk appetite and suitability, time horizon and liquidity needs before investing. Speak to your financial adviser about how the investment would fit into your investment objectives and existing portfolio.

Although alternatives may reduce overall portfolio volatility, some have risks other than those associated with traditional stocks and bonds, including:

Lack of liquidity: Alternative investments are generally not readily marketable, sometimes not redeemable and are transferable only in limited circumstances.

Specialised trading: Special investment techniques such as leveraging, short selling and investing in derivatives may result in significant losses, including the loss of principal.

Strategy risk: Investment strategies may at times be out of market favour for considerable periods, with adverse effects on the investment. Because of these risks, and the largely unregulated nature of the alternative investment industry, laws restrict those eligible to invest in alternatives. Criteria generally include income and net worth thresholds, as well as investment expertise and the ability to understand and tolerate risk.

Valuation: Valuation procedures may be subjective in nature, may not conform to any industry standard or reflect the values that are ultimately realised. However, the valuations of these positions may affect asset-based management fees and performance-based fees.

Salman Haider is head of investments, Citibank Singapore Ltd

Source: Business Times Online

Five virtues of a successful investor

IN THE current market, the old adage 'what goes up must come down' could probably be updated. These days, what goes up not only comes down, but goes back up and then down again. It's called volatility and for better or worse, it's an integral part of stock market investing.

In volatile market conditions, investors get jumpy and try and predict where the market is going, selling off equities or becoming too nervous to invest at all.

Investing doesn't have to be like this. Despite what market 'experts' say, investing is not a game or a contest, it is a continuous process that lasts a lifetime. Whether you are winning or losing at any given moment is beside the point. As such, volatility is not the long-term investor's concern. The only thing that matters is whether you prevail in the end. And the factors that determine long-term victory are probably the exact opposite of the ones that create short-term success.

In the short run, the investors who can't let go - who track every market move - can occasionally come out on top. But the longer they keep at it, the more likely it is that these same people will lose. That's because obsessing over the market leads you to think you can foretell the financial future. You then make increasingly aggressive bets. Sooner or later you'll experience either heartburn or heartache. Fortunately, you can break this destructive pattern with a secret weapon based on self-control. At Russell, we call it 'virtuous investing'.

When it comes to investing many of us apply principles such as risk and reward and fall prey to greed although we may not admit it. When we check how the markets are doing, we don't think about the admirable qualities we need to be investors. We just want to know how much we have made or lost. But the qualities we need in our daily lives also apply to investing.

'Virtue does not come from wealth, but wealth, and every other good thing which men have, comes from virtue.' - Socrates

Have courage: Investing in shares is risky but it is a calculated risk. Think about recent market gyrations as the outcome of a dice, but one with more than six sides. And the good thing about this 'super die' is that it has more positive sides than negative ones. Each time market forces roll this dice, you take a chance on the outcome. In the 12 months to June 2007, there was an amazing run of the die: The Singapore stock market (STI) saw positive returns in the past four quarters. Risks appeared to have disappeared. But don't forget the die does have negative sides - we just haven't seen them in a while. So July and August brought us negative results. As the die is rolled in the next month, quarter or year, we take the risk that it could again land with a negative side facing up. But our chances of seeing a positive number next time are greater than the chance of a negative. The stock market's positive numbers have outweighed the negative numbers over long periods of time. There is no reason to believe that they will not continue to do so in the future.

Be honest: Be honest with yourself about how much you really know. Be honest about - and constantly test - what you don't know. Decades of research by the world's leading psychologists have shown that over-confidence - thinking you know more than you do or that you are more skilful than you actually are - is one of the most fundamental aspects of human nature.

Back in 1999, when you could dump all your money into just about any tech stock and watch it triple in two days, it was easy for an investor to feel like a genius. In fact, anyone who made money trading shares without first studying the underlying companies had a lot of dumb luck but not an ounce of genius!

Successful investors accept not just the possibility - but the certainty - that they will be wrong a lot of the time. You need to protect yourself against being wrong in two dimensions: space (picking the wrong investments) and time (buying when you should sell or vice versa). Over-confident investors are convinced they're right in both dimensions - just when they are most likely to be wrong. Fortunately, powerful protection tools are available and putting all these protective tools to work at once will provide you with the closest thing to real peace of mind as an investor. These are the ways to get 'power protection':

Diversify in space by investing some of your money in local investments and some internationally, in shares, bonds and cash. Draw up an asset allocation plan by deciding what percentage you want in various asset classes - for example, 60 per cent in shares, 10 per cent in property, 20 per cent in bonds and 10 per cent in cash. Knowing that the gain or loss in any one individual investment is just a small piece of your investment pie should help you keep your cool.

Bet only on the side. If you're sure a security, fund or industry sector is a good bet, put only a small piece of your total assets there, say, 5-10 per cent at most. And never add more, no matter what.

Dollar cost average. Diversify the risk of time by investing the same amount every month through a dollar cost averaging programme. That way, you'll never put all your money in the market right before a crash or have nothing invested right before the market soars.

Re-balance. Finally, once or twice a year, adjust your assets so that they match the target percentages you picked earlier. That will force you to sell a bit of whatever has gone up and buy a bit of whatever has gone down. This reverses the tragic buy-high, sell-low pattern that plagues most investors.

Be detached. Armed with a balanced portfolio, you will never be afraid to read the headlines. There is a tendency for the mass media to excite its audience about short-term fluctuations in the market and get investors hot and bothered about the fortunes of individual securities, countries and sectors.

You don't have to look far to find examples of financial shock therapy in the daily news. The stock market plummets and the headlines warn of economic Armageddon. Oil prices soar and another investment 'expert' touts the need to buy shares in energy companies. Investors are far better served by being detached from the constant noise coming from the media.

In the long-term ride to wealth accumulation or preservation, an honest confrontation with risk and reward - implemented via a carefully selected asset allocation plan - is the only way to prepare for unpredictable volatility. Accept that the value of your investments will rise and fall in the short term based on market behaviour. And remember that what matters most is the size of your account on retirement day.

Be disciplined. Don't let emotions rule your investment strategy. It's easy to let short-term market movements affect and even dictate your investment decisions. Which is why it's important to understand the role that investor sentiment and emotion plays in the cyclical nature of equity markets. How often have you seen an investor who, during a strong market upswing, rushes to buy so as 'not to be left out of the gains'. Conversely, during a strong downturn investors will feel compelled to sell so as 'not to be left bearing the losses'.

Be committed. Keep your eye on the prize and ignore short-term market events. History shows that moving in and out of the market may reduce returns, so don't bail out. Consider a 'holder', a hypothetical investor who invested $100,000 in a diversified portfolio** comprising 20 per cent Singapore shares, 30 per cent international shares, 5 per cent Singapore bonds, 15 per cent international bonds, 30 per cent property in January 1996 and stuck with it through to December 2006. His average annual return would have been 10.65 per cent and his investment would have been worth $304,332 at the end of that period.

Now consider a 'bailer' or 'chaser' - a hypothetical investor also starting with $100,000 in 1996 - who chases the top performing asset sector each year and switches on Jan 1 every year. During the same period, this investor would have changed his asset allocation 11 times. By the end of 2006, his average return would have been 8.74 per cent and his investment worth $251,463. Our 'holder' fared much better.

Hopefully, you've chosen your investment strategy based on your risk tolerance, age, how long you plan to work, financial circumstances, retirement goals, and attitude to investing. Stay committed to your strategy and don't alter it unless your life changes.

The point? These simple virtues may not make you wealthy but they will help you handle your investments with the same grace we strive for in other aspects of life. So keep these five virtues in mind the next time the market dives or you're tempted to act on a 'hot tip' from a friend.

As Socrates said: 'Virtue does not come from wealth, but wealth, and every other good thing which men have, comes from virtue.'

**Hypothetical performance calculated by using the following index returns. Singapore Shares: STI, Singapore Bonds: UOB Govt Bond Index (SIBID prior to January 1999), International Shares: MSCI AC World, International Bonds: LB Global Agg, Property: FTNAR EQ Reit.

Lim Meng Tat is director, Russell Investment Group

Source: Business Times Online

8 Ways to Spot The Next Super Stock

HANS was another stock that went up over 1,000 between 2004 and 2006. These are amazing stocks that if timed right can make you a fortune. But how do you spot them?

1) These stocks are doing something new, exciting or dramatically changing an old industry. It has to be exciting. The potential for future growth has to be massive. Expectation has to be enormous for the future.

2) NEW: These companies are usually fairly new. Forget yesterday's "blue chip" stocks these are today's high growth new stocks.

3) Watch the volume. Institutions are not stupid. They have teams of well paid analysts who know these stocks before we do. Watch for huge increases in volume indicating big money is flowing in. Without this even the best stocks will not move.

4) Overall Market. The best stock in history will be flat if the overall market is going down as well. It takes a bull market to create super stocks. So be aware of the what the averages are doing as well.

5) Return on Equity. R.O.E. is the measurement of how much the company can grow without borrowing cash. ALL the best super stocks have R.O.E's greater than 20%. It basically means this company is cash rich and is making a load of profit. Just the kind of stock you want to be looking at.

6) Be aware of fundamentals. Great stocks usually have great fundamentals that carry on for years. Earnings and revenues growth are way above 25% per quarter.

7) You have to chart these stocks. Even the very best stocks can go through periods of overextension. Where the stock is pushed up in price too far in the short term and will correct. You have to be aware of this so you do not buy in at the wrong time.

8) Watch the insiders. The insiders know there company more than anyone and if they are dumping shares on mass you have to wonder why. More often than not it's because they know the game is almost over.

You have to be very selective. The fact is these kind of stocks do not show up too often. There are so many variables involved. It is not some "black box method" to pinpoint huge super stocks.

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

Stocks with good dividend yield

What type of stocks should I buy given the present uncertainty on the stock market’s future direction?

It is always very difficult to determine whether we’ve seen the worst or if it is still in a situation pending a major market correction. Although there are a lot of uncertainties over the market’s future, we can still invest if we are able to find stocks paying good dividend yields.

According to Benjamin Graham and David Dodd in their book, Security Analysis, the price paid for a stock would be determined chiefly by the amount of the dividend paid. A good company should pay dividends. This is one of the best ways to reward shareholders. Besides, we always believe a bird in hand is worth two in the bush.

Stocks paying good dividends will provide us with a “floor” if the market is undergoing a correction.

For example, Company A has a stable business and is paying a relatively fixed dividend of 32 sen a year. Its dividend yield (DY) will be equivalent to 5.3% based on the market price of RM6. This is quite attractive if we compare it with the current 12-month fixed deposit (FD) rate of 3.7%.

Assuming, as a result of a big market correction, its stock price tumbles to RM5, then its DY will surge to 6.4%. This will make Company A even more attractive compared with FD rates.

Certain investors may be worried whether Company A’s business will be affected by the slowdown in the overall economy. If its business is consumer-based with relatively stable demand, its sales and profits will be less affected by the economic slowdown.

Besides, as most companies are trying to maintain a fixed dividend payment, investors can still enjoy good dividend returns. Sometimes, the over-reaction to a market crash may be much greater than the drop in profits. This will give investors another great opportunity to buy the stock at a lower entry price. If investors are prepared to hold on to the stock over the next five to 10 years, a lower entry price will give us greater capital gain.

Certainty of DY versus potential earnings growth

Unfortunately, there are some companies that are not so willing to share their cash reserves with minority shareholders. The most common excuse used is that they want to retain the cash for working capital or for future expansion.

By announcing several positive corporate proposals, the company may mislead the investing public on the potential of its future growth.

They may not be aware that the actual return to the investors could be very much different from what they had anticipated from the company’s growth.

That explains why a stock with potential earnings growth of 15% plus a 1% DY could be sold at a much higher price than a stock with 11% growth and a 5% DY - a scenario that kept John Neff, a well-known investment guru and fund manager for Windsor Fund, puzzled.

A company usually tries its best to maintain its dividend payout policy. Thus, the certainty of DY should command more value compared with the uncertainty of future earnings growth, although the latter may translate to higher future dividend payout.

However, there are companies that have high turnover but incur losses every year. We may wonder why these companies’ owners are willing to be involved in a loss-making business. Most of the time, they make small losses but on the back of a couple of hundred million in turnover.

This may be attributed to the genuinely tough business environment, or sometimes, tax avoidance purposes. These companies will normally not declare any dividends. Thus, the investors will not receive any income returns. Also, as a result of small losses every year, the depleting reserves will further weaken the stock’s market price. Apart from receiving zero income returns, investors will also incur capital losses over the longer period.

Ooi Kok Hwa is a licensed investment adviser and managing partner of MRR Consulting.

Quotes from Jesse Livermore

- When I'm bearish and I sell a stock, each sale must be at a lower level than the previous sale. When I am buying, the reverse is true. I must buy on a rising scale. I don't buy long stocks on a scale down, I buy on a scale up.

- The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements.

- I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up.

- The average man does no€™t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He does no€™t even wish to have to think.

- The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.

Quotes from Peter Lynch

- You can make a lot of money from the stock market, but then again you can also lose money, as we proved.

- You can lose money in a very short time but it takes a long time to make money.

- The key to making money in stocks is not to get scared out of them.

- You shouldn't just pick a stock - you should do your homework.

- You have to research the company before you put your money into it.

- Hold no more stocks than you can remained informed on.

- You should not buy a stock because it's cheap but because you know a lot about it.

- The best stock to buy may be the one you already own.

- Once you've bought a stock, presumably you've learned something about the industry and the company's place within it, how it behaves in recessions, what factors affect the earnings, etc. Inevitably, some gloomy scenario will cause a general retreat in the stock market, your old favorites will once again become bargains, and you can add to your investment.

- If you like the store, chance are you'll like the stock.

- As long as the same-store sales are on the increase, the company is not crippled by excessive debt, and it is following its expansion plans as described in its reports, it usually pays to stick with the stock.

- I always ended these discussions by asking: which of your competitors do you respect the most?

- You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets.

- I think you have to learn that there's a company behind every stock, and that there's only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.

- In this business if you're good, you're right six times out of ten. You're never going to be right nine times out of ten.

- A good company usually increases its dividend every year.

- Buying stocks in utility company is good because it gives you a higher dividend, but you'll make money in growth stocks.

- The dividend is such an important factor in the success of many stocks that you could hardly go wrong by making an entire portfolio of companies that have raised their dividends for 10 or 20 years in a row.

- When yields on long-term government bonds exceed the dividend yield of the S&P 500 by 6 percent or more, sell your stocks and buy bonds.

- Buy or do not buy the stock on the basis of whether or not growth meets your objectives and whether the price is reasonable.

- Over the last seventy years the market has declined forty times, so an investor has to be willing to be in the market for the long term.

- You want to see, first, that sales and earnings per share are moving forward at an acceptable rate and, second, that you can buy the stock at a reasonable price.

- The stock market really isn't a gamble, as long as you pick good companies that you think will do well, and not just because of the stock price.

- When you invest in the stock market you should always diversify.

- Never fall in love with a stock; always have an open mind.

- Just because a stock goes down doesn't mean it can't go lower.

- Over the long term, it's better to buy stocks in small companies.

- It is well to consider the financial strength and debt structure to see if a few bad years would hinder the company's long-term progress.

- I always look for banks that have a strong local deposit base, and are efficient and careful commercial lenders.

- You've got to go into places where other investors and especially fund managers fear to tread, or, more to the point, to invest. As 1991 came to a close, the most fearsome places were all connected to housing and real estate.

- The extravagance of any corporate office is directly proportional to management's reluctance to reward the shareholders.

- I was attracted to fast-food restaurants because they were so easy to understand. A restaurant chain that succeeded in one region had an excellent chance of duplicating its success in another.

- 90 seconds is plenty of time to tell the story of a stock. If you're prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so that fifth grader won't get bored.

- It's important to get out of a cyclical at the right time. Chrysler is an example of how quickly things can go from good to worse. The company earned $4.66 a share in 1988 and people were looking for another $4 in 1989. Instead, Chrysler earned $1 and change in 1989, 30 cents in 1990, and in 1991 it lost a bundle and fell into the red.

-It seemed to me that we were far into the economic recovery and that people who were going to buy new cars had done so, and the analysts who followed the autos were making optimistic earnings projections that my research told me were unsupportable.

- The bond market is dominated by conservative investors who keep rather close tabs on a company's ability to repay the principal. Since bonds come before stocks in the lineup of claimants on the company's assets, you can be sure that when bonds sell for next to nothing, the stock will be worth even less. Here's a tip from experience: before you invest in a low-priced stock in a shaky company, look at what's been happening to the price of the bonds.

- The very homogeneity of taste in food and fashion that makes for a dull culture also makes fortunes for owners of retail companies and of restaurant companies as well. What sells in one town is almost guaranteed to sell in another.

- In double-decker malls, the most popular retailers are usually found upstairs.

- The price of the median house is only one of the many quiet facts that can be a great source of strength and consolation for investors willing to explore the scariest areas of the market. Other useful quiet facts are the "affordability index" from the National Association of Home Builders and the percentage of mortgage loans in default.

- A technique that works repeatedly is to wait until the prevailing opinion about a certain industry is that things have gone from bad to worse, and then buy shares in the strongest companies in the group. (This technique isn't foolproof. In the oil and gas drilling industries, people were saying things couldn't get any worse in 1984, and they've been getting worse ever since. It's senseless to invest in a downtrodden enterprise unless the quiet facts tell you that conditions will improve.)

- You can imagine my excitement at finding a company with very little debt and enough new orders to keep it busy for two years, its competitors dropping by the wayside, and its stock selling for one fifth its 1991 high.

Quotes from George Soros

- Financial markets are supposed to swing like a pendulum: They may fluctuate wildly in response to exogenous shocks, but eventually they are supposed to come to rest at an equilibrium point.

- The financial markets generally are unpredictable. So that one has to have different scenarios.. The idea that you can actually predict what's going to happen contradicts my way of looking at the market.

- Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.

- Well, you know, I was a human being before I became a businessman.

Quotes from Warren Buffet

- In the business world, the rear view mirror is always clearer than the windshield.

- Look at market fluctuations as your friend rather than your enemy.. profit from folly rather than participate in it.

- Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be mis-appraised.

- Our favourite holding period is forever.

- Wide diversification is only required when investors do not understand what they are doing.

- Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.

- We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

- Why not invest your assets in the companies you really like? As Mae West said, "Too much of a good thing can be wonderful"

What Makes a Successful Stock Trading System

You should know certain attributes about a high-end trading system, so you can develop your own personal one or purchase a trading system.

With no knowledge of stock market, and the all-important planning that typically goes into a successful stock trading system, you might do better aiming at a target in the dark A stock trading system simplifies your efforts, puts your efforts in order, and gives you the ability to watch let your profits run, while giving you the freedom to cut your losses when they start to take place.

You need a stock trading system. They're extremely important toward a person's stock trading career, and without a good system, making a profit could be extremely hard, and you might not ever see the money you would like to make.

Some could say that the stock market is to big of a risk. The fact is that it is risky, but only if you don't have, and do not follow, a stock trading system. A trading system organizes your work, and does not allow the market changes to get out of hand. A stock trading system equally simplifies your efforts, which can reduce stress to allow you to calmly achieve your goals. A good trading system brings forth the subtle shifts in the market, which gives you the ability to take proper action. Your stock trading system could be the difference between hundreds of dollars. With no trading system, you are setting yourself up for losses.

You may be concerning yourself with what a good trading system looks like. What attributes does it have? A quality of a worth-while stock trading system is it has been tested to bring in profits, and it does so every time. A good trading system keeps an eye on the important parts of your stocks, which will allow you to make wise choices to increase your profit. Also, good stock trading systems hand you control of investing, and leave nothing to chance. This is in part given by the ability to keep a close eye on the market efficiently. And finally, a nice trading system tracks your progression, and gives insight to what works and what doesn't. This is a key element, since it gives you the ability to duplicate the process, and this ultimately ends with even more profit.

You will want to make your trading system. You can't just buy any system, and expect it to work instantly. There are some things that must be done on your end. You need to be educated in the stock market for your stock trading system to pull in a profit. Learning the stock market may take time, so it's encouraged that you look for a mentoring program. One other element to your stock trading system, is it should be technical when it is necessary, and it will need to be basic when it is necessary. What that means is that for simple computing that would consume more time than needed, you may want to use technology such as software, and yet for differing information, pen and paper would do. Don't over complicate it! And lastly, when you find a stock trading system that works, keep up with it, and do not deviate. If a system works, then you have yourself a business.

Get your Momentum Stock Trading System and sign up for my free weekly online trading system newsletter here at: http://www.stressfreetrading.com

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

Tips On How To Maximize Stock Profits

When the stock market marches into record territory like it has been, it's tempting to take some shares off the table. The prudent investor, it's been said, will sell his losers and keep his winners. To maximize stock profits, the goal is to keep profits from the winners. Holding onto losing positions, or worse, adding to them, can put a dent in those profits.

Some stocks will buck the trends of their sector or the general market. If there are no buyers for a stock it is probably a good idea to get out of that stock and put your money somewhere else. This means that you need to keep winners, and cut laggards and losing stocks.

Knowing when to buy and sell is probably the most challenging aspect of investing. It's been said that timing is everything, and that's certainly true for small investors who want to maximize stock profits. While there are many systems and methods dedicated to market timing, certain observations can help one make an informed decision.

Investors seek every clue and advantage to know when it is best to buy or sell, and many canny stock traders watch volume. Volume is a simple matter of the total shares traded during a single market day. Modern technology tracks trading volume minute by minute in real time and some use this routinely. An investor can seize an opportunity by using signals like volume because they telegraph changes, and increasing volume is linked to price volatility and the greater the volume, the more likely the prices will also be extremely increased or decreased.

Scaling in and out of positions is an additional way to maximize stock profits. Rather than completely buying in or selling out of a position it is conventionally considered prudent to purchase part of a position as a stock rises, and selling part of it when getting out. In this process the investor knows that they are buying a winner heading up, while not being overly greedy by holding their position for too long when selling time has come.

In today's bull market, there are plenty of high performing stocks to chose from, and getting in at the right time can mean difference between making a little and making a lot.

Maximize stock profits by selling loser stocks and keeping winners. Gut laggards that fail to grow in the sector or the whole market. Timing is everything. Watch for certain key signs when investing, like watch volume. Increasing volume usually mirrors increasing volatility in price. Huge volume days can signal a near term high or low in price. Carefully watch volume signals and daily trading activity to make the best profit possible. Another way to maximize stock profits is by scaling in and out of positions. Buy a winning stock on the way up but do not be too greedy and hold the stock too long.

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

Two of the Best Strategies for Online Stock Market Trading

Two of the Best Strategies for On Line Stock Market Trading

You will not find a lot of fluff in this article. My aim is to provide you, the trader with two of the best strategies for on line stock market trading. These strategies have been tried and true, it is my recommendation that you first paper trade before entering any positions with money. The main purpose in paper trading is to build confidence and as a result shield your trading from the two great enemies of all traders: Fear and Greed. Follow these strategies and you stand a very good chance at being profitable with on line stock market trading.

Upgrades/downgrades

Upgrades

The upgrade and downgrade play is almost always available and is very profitable if traded properly. You can get a free report of the day's upgrades/downgrades by going to Yahoo Finance but I would recommend the cost of accessing it directly through Briefing.com.. The reason is that they have the previous months data archived and it gives you an opportunity to back test your strategy.

If you play the upgrade then it cannot be done nakedly. First, look at what has preceded the upgrade. Is this stock just coming off of earnings release? That is usually a very good sign and most times this move will make you nice returns. In fact, buying the positive release is largely profitable because so often it leads to a positive upgrade the day after and the gap up is substantial.

When buying the upgraded stock it is important to look at which broker gave the upgrade. The "big boys" carry the weight. An upgrade by Lazard Capital does not usually carry the same weight as Bear Stearns. Some of the bigger names to look for are: Wachovia, Bear Stearns, JP Morgan, Robert W. Baird, and Citigroup just to name a few. Again, do that research - it pays off!

Downgrades

There are those who hold to a certain theory that goes something like this: The analysts are working with some of the larger institutions and the downgrade that the financial institution gives provides an opportunity for the large institution to buy low. As a result of their mass purchase the stock of course goes much higher. Do I personally hold to this? No comment. Other than to say: I really don't care! The bottom line is that it provides an excellent opportunity to make money. I don't have time to get into the conspiracy theories, and other minutia. I do have time to capitalize on whatever the market will give me and this is often one of those opportunities. Follow the basic idea laid out in the upgrade section. Do your research and remember that in a bull market a downgrade (like the negative guidance) most often goes back up.

This site goes so far as to offer traders $1,001 if they do not make money. They are one of the very few companies registered with the BBB. They even have a FREE professional Trading Coach Session available now. Check them out at: http://www.stocksoars.com

Bob Ebling is a professional day and swing trader. He has served as the head of a stock investing company in the Mid-West.

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

Stock Investment Errors You Don't Want To Make

Don't lose money. Billionaire investor Warren Buffett himself has coined this popular mantra of the investment world. That's easier said than done of course, considering the amount of risks involved when trading in the stock market. Even seasoned investors have sustained losses at one time or another. However, by avoiding the following common investing pitfalls, you can minimize your losses and gain profits from your investments.

1. Putting your money on something you don't understand. So you've heard that your neighbor just had his house remodeled with the profits he made from the stock market. You want your own share of the pie too so you hastily purchase stocks of the first company you saw on the gainers list. It would have been funny if you were Homer Simpson but in reality, you have just made a very unwise decision. Before buying stocks in a company, you should first have a clear understanding of its business model and financial history. The stability of the sector it belongs to should also be taken into consideration. Even good companies with solid businesses could suffer from a nasty devaluation if its sector is in trouble.

2. Becoming emotionally attached to your stocks. It's tempting to hold on to your stocks even when sound financial reasoning tells you to sell them. After all, you've already spent so much time and effort poring over pages of market reports and corporate information until you finally found the ideal company you want to invest on. You also want to prove that you made the right decision in choosing that company. However, holding on too long to your stocks because of sheer emotional attachment could lead to huge losses. If your stocks have been on a consistent low and there are signs of trouble in the company, then be willing to sell even if it hurts. Remember: you buy stocks to make money; you're not supposed to marry them.

3. Putting all your eggs in one basket. You are not afraid of taking risks but you also don't want to end up penniless. Then your favorite word should be diversification. In building up your stock portfolio, be sure to acquire stocks from all major sectors such as property, industry, financial, oil, and services. That way, you prevent your entire investment from going down the drain in case one sector takes a nosedive. A good rule is to limit an investment to 10 percent of your portfolio.

4. Aiming for a turnover overload. The stock market is no place for impulsive buying (and selling). If you're into the habit of buying stocks and selling them after a short period of time with little or no gains to show for it, then your broker must be filthy rich with commissions by now. Keep in mind that each trade comes with transaction costs and taxes. If you're not careful, then what profits you have could be easily wiped out by the accompanying costs of your high turnover. You could also miss out on the possible gains of your investment in the long run.

Knowing the possible errors in stock investment is already a step ahead for you. There are still a thousand and one pitfalls out there that you may stumble upon but the important thing is to learn as you go along. After all, even billionaire investors make mistakes too.

Kristien Wilkinson is an online writer and contributor to http://www.tradingstocks.com

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

Malaysia indices replace KLSI, Second Board and Mesdaq indices

by Lee Yu Tang

KUALA LUMPUR: Bursa Malaysia Bhd would retire the Kuala Lumpur Syariah Index (KLSI), Second Board and Mesdaq indices today and replace them with the FTSE Bursa Malaysia EMAS Syariah, FTSE Bursa Malaysia Second Board and FTSE Bursa Malaysia Mesdaq Indices respectively.

With the retirement of the KLSI, the stock exchange said the FTSE Bursa Syariah Index would become the primary index for Malaysian Syariah-compliant investments.

It said the new FTSE Bursa indices would run parallel with the existing indices until tomorrow, and the existing indices will no longer be calculated effective Saturday.

“The transition to FTSE Bursa indices provides a more globally relevant trading foundation for both domestic and foreign investors to base their investment analyses and decisions, increasing its appeal to international investors,” said Bursa’s chief executive officer Datuk Yusli Mohamed Yusoff.

Yusli said the FTSE methodology would enhance the overall quality of public listed companies (PLCs) on the local bourse through its stringent reviews.

The cutover of the existing indices to the FTSE Bursa indices will provide investors with market measures that are investable, liquid and transparently managed.

The series adopts FTSE’s globally recognised methodology standards such as free float adjustment and liquidity screens, managed according to a clear, transparent and publicly available set of ground rules, according to Bursa.

Managing director of FTSE Asia Pacific Paul Hoff said the use of FTSE’s internationally accepted methodology demonstrates Bursa’s commitment to bring their domestic benchmarks in line with the needs of international investors.

Source: theedgedaily.com

More info. on KLSI(Kuala Lumpur Syariah Index) , Second Board Index and MESDAQ Index

Factors Affecting Share Prices

Like any other commodity, in the stock market, share prices are also dependent on so many factors. So, it is hard to point out just one or two factors that affect the price of the stocks. There are still some factors that are that directly influence the share prices.

Demand and Supply – This fundamental rule of economics holds good for the equity market as well. The price is directly affected by the trend of stock market trading. When more people are buying a certain stock, the price of that stock increases and when more people are selling he stock, the price of that particular stock falls. Now it is difficult to predict the trend of the market but your stock broker can give you fair idea of the ongoing trend of the market but be careful before you blindly follow the advice.

News – News is undoubtedly a huge factor when it comes to stock price. Positive news about a company can increase buying interest in the market while a negative press release can ruin the prospect of a stock. Having said that, you must always remember that often times, despite amazingly good news, a stock can show least movement. It is the overall performance of the company that matters more than news. It is always wise to take a wait and watch policy in a volatile market or when there is mixed reaction about a particular stock.

Market Cap – If you are trying to guess the worth of a company from the price of the stock, you are making a huge mistake. It is the market capitalization of the company, rather than the stock, that is more important when it comes to determining the worth of the company. You need to multiply the stock price with the total number of outstanding stocks in the market to get the market cap of a company and that is the worth of the company.

Earning Per Share – Earning per share is the profit that the company made per share on the last quarter. It is mandatory for every public company to publish the quarterly report that states the earning per share of the company. This is perhaps the most important factor for deciding the health of any company and they influence the buying tendency in the market resulting in the increase in the price of that particular stock. So, if you want to make a profitable investment, you need to keep watch on the quarterly reports that the companies and scrutinize the possibilities before buying stocks of particular stock.

Price/Earning Ratio - Price/Earning ratio or the P/E ratio gives you fair idea of how a company’s share price compares to its earnings. If the price of the share is too much lower than the earning of the company, the stock is undervalued and it has the potential to rise in the near future. On the other hand, if the price is way too much higher than the actual earning of the company and then the stock is said to overvalued and the price can fall at any point.

Before we conclude this discussion on share prices, let me remind you that there are so many other reasons behind the fall or rise of the share price. Especially there are stock specific factors that also play its part in the price of the stock. So, it is always important that you do your research well and stock trading on the basis of your research and information that you get from your broker. To get benefit from the effective consultancy service it is therefore always better from professional stock trading companies rather than getting lured by discount brokerage advertisements that you must be coming across everyday.

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

Tips for stock market investing

“Hot Tips” can burn

Is stock market investing a game to you? Is it mainly a source of fun and stimulation? Or is investing serious business -- an important way for you to build the size of your net worth over time ... for the benefit of your family, in order to retire earlier, or to pay for college expenses?

• If you haven’t figured this out yet, you should.

Many people think stock market investing is all about getting good tips. But this is a fool’s game—better for fun and stimulation than for producing meaningful long term growth in your stock market portfolio.

It is easy to get sucked into the game of chasing stock market tips. The sources of hot tips are plentiful ... your brother-in-law, a colleague at work, even the taxi driver may have stock market tips. During the tech stock investing craze several years ago, everyone seemed to have great stock market buying tips.

The financial media is full of stock market investing tips. Go to any newsstand and you can find magazines full of interesting company profiles and interviews with investment advisors offering their latest hot stock market tips.

If your investing orientation is pursuing hot tips, most stock market brokers will happily play your game. It’s their business to push certain stocks that their firms want to sell; and it’s easy to justify their commissions when you think you’re investing in a hot stock that could soar in value.

Stock market investing is about discipline ... not tips

Here’s the problem with chasing stock market tips: When you get caught up in the game and the excitement of the hunt, you can easily bypass the fundamentals of good stock market investing. Chasing tips, you can forget to maintain good diversification and you may not apply the important investing principals of asset allocation. Another extremely important stock market investing fundamental is the avoidance of large losses ... and when you’re chasing hot tips, what kind of disciplined approach do you have to know when to cut losses or lock in profits and get out?

• Perhaps you have experienced watching temporary gains in a stock disappear and then turn into deep losses.

Our tips for stock market investing

• Pursue a Disciplined Approach: This is a key to successful stock market investing.

• Diversify: Diversify among your stock market investments as well as among various asset classes (such as bonds, real estate, international stocks and bonds, etc.). Use a disciplined asset allocation approach.

• Avoid Large Losses: Protecting your principal from significant investing losses is fundamental to generating an attractive average return over the long haul. Use asset allocation and find a disciplined approach to monitoring your investments and knowing when to cut your losses or sell out to lock in profits.

• Avoid Chasing Stock Market Tips: Unless you have a solid discipline for knowing when to exit these investments on a timely basis, don’t do it. Don’t get caught in the trap of allowing a large loss on the investment and then rationalizing it to yourself that you are a long term “buy and hold” investor. That kind of investing in stock market tips is just an exercise in denial.

Source: http://www.confidentstrategies.com

Selling Stocks To Cut Losses

Success in the stock market is as much about limiting losses as it is about riding winning stocks. A rule-based selling strategy can help you avoid heavy losses and preserve your portfolio. This lesson explains how to sell when a stock selection doesn't pan out.

Assess Your Knowledge On This Topic

Know When To Fold 'Em

Nobody's right all the time in the market, not even veteran market professionals. But as the famous investor Bernard Baruch once said, "Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly."

Being a successful investor is just as much about limiting losses as it is about riding a winning stock. Downturns are a part of life in the market, and you must act decisively to shield yourself from excessive losses. If your stock selection doesn't work out and you're faced with a loss, don't let your pride stop you from admitting you've made a mistake and acting quickly. Cut your losses early and move on. You must make rational decisions, instead of trying to rationalize your way out of a costly mistake.

It's not just your own personal opinions that can be wrong। Analysts or market commentators can be just as erroneous, and basing your decisions on their opinions can often lead to disastrous results. Investors often buy loser stocks, justifying their decision with remarks like, "All these Wall Street analysts are saying great things about this company," or "This technology is the greatest thing since sliced bread. The market doesn't realize it yet, but it's bound to become a household item." Famous last words.

Cut Your Losses Early

The first rule is sell any stock that falls 8% below your purchase price. Why 8%? Because research shows stocks showing all the right fundamental and technical factors in place and bought at precisely the proper buy point (which is explained fully in the "Using Stock Charts To Round Out Stock Selection" lesson of the stock buying course) rarely will retreat 8%. If they do, there's something wrong with them.

You may think a stock is due to rebound. But the market could send the stock to lower depths regardless of your views or what analysts and commentators say on TV. No excuses, no alibis. You may want to sell even before an 8% loss if you see other signs of weakness in a stock (we'll explain these throughout this course).

This rule emphasizes the importance of buying at the right time. If you don't and you buy a stock that is overextended (that's reaching the end of its climb), chances are it will hit the 8% sell level as it goes through a normal pullback. Make no exceptions to the rule. The best stocks will always give you other opportunities to buy. Here's another way to look at it: Once a stock falls 8% below your cost, does it still look attractive? Is it still among the best stocks? Probably not. There's no guarantee that it will go back up, and you need to protect yourself.

The bigger the fall, the harder it is to recover. Say you bought a stock at $100 a share. It falls 20%, to $80. To get back to $100, the stock has to make a 25% gain. Another example: The stock plummets 50%, to $50 a share. It would take a 100% jump to get it back to $100 — and how often do you buy a stock that doubles? And if it does, how many weeks, months or even years does it take to get there? Wouldn't you rather cut your loss early, and free up money to purchase another stock with better chances of doubling?

Of course, it could happen that you sell a stock that falls 8%, and then watch it go up afterward. But you have to think of the 8% sell rule as your insurance policy against catastrophic losses. The rule will in effect limit any losses on your portfolio to no worse than 8%.

Nevertheless, if you've bought a fundamentally sound stock at the right point, (explained in the stock buying lessons) it will rarely plunge 8% immediately। Buying exactly right will solve half your selling questions।

How Cutting Losses Helps You

Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio.

As you can see, even if you had made these seven trades over a period of time — and taken losses on five of them — you would still come out ahead by more than $3,700. That's because the two stocks that worked out resulted in a combined profit of $5,500. And the five losses — all capped at 8%, except for one that was cut early at 7% — added up to $1,569.

You see the point? It would take several 8% losses to wipe out the profit from just one or two good stocks.

Stock	Shares	Cost/Share	Sell Price	Profit/Loss	%Profit/Loss
A	100	$50	$46	-$400	-8%
B	100	$43	$40	-$300	-7%
C	100	$57	$98	$4,100	+72%
D	50	$24	$22	-$100	-8%
E	30	$110	$101	-$279	-8%
F	70	$85	$78	-$490	-8%
G	100	$65	$79	$1,400	+22%
			Total	$3,731

The 8% Rule Applies Only To Losses From The Purchase Price

The 8% sell rule, however, applies only to drops below your purchase price and does not apply to situations where you've already made gains on a stock। A part of being a stock investor is weathering temporary sell-offs that may be 8%, 10% or even larger. The next two lessons will teach you how to, in most cases, tell the difference between one such dip and a real problem.

Dealing With Hyperactive Stocks

About 40% of stocks pull back close to their buy point for one or two days. This is not the time to panic and sell, especially if the stock was purchased as it came out of a sound basing area at the right buy point. (For more on this, check the chart-reading lesson of the stock buying course) As long as the price doesn't drop 8% below the point at which you bought, you should, in most cases, hang on through the first pullback.

Watch how the stock performs relative to the general market and its industry group peers. Often, a stock pulls back close to the buy point for one or two days because the general market has temporarily pulled back. This is normal. On the other hand, if the market has been rallying over several days and your stock hasn't come to life, then this might be a warning sign, even if the stock hasn't dropped 8% below your purchase price.

Another thing to ponder: Stocks with 98 or 99 Relative Price Strength Ratings are usually more volatile, increasing the chance of slipping 8%, particularly if you buy them extended in price beyond the exact buy point।

Stop-Loss Orders And Other Considerations

Some investors like to use stop-loss orders, which are instructions to brokers to sell a stock at a predetermined price. This might be useful for those who can't watch their stocks closely or for those of us who may be less decisive.

Also, tax considerations and brokers' commissions should rarely enter into your sell decisions। You shouldn't always hold a stock for more than a year just because you'd pay a lower tax rate on the profit. And with lower commissions today, they should not be the most important factor. Your main goal should be to obtain and nail down gains.

Holding Losers In Your Portfolio?

You may be looking at your portfolio and seeing there's some stocks already 8% below your purchase price — or worse। Should you sell them? Probably, unless a stock is showing strong signs of recovery, such as a rising stock price on solid trading volume and improving earnings. Even then, there is no guarantee it will rebound, and the chances are it could go even lower. The greater the loss, the greater the chance of it developing into a really serious loss.

Key Points To Remember

• The first sell rule is to get rid of any stock that falls 8% below your purchase price.
  
  
• It's critical to follow this loss-cutting rule regardless of how highly you value a stock. Personal opinions get in the way of smart selling decisions.
  
  
• The larger the loss, the higher the recovery you need to get back to the break-even level. (A 50% loss on a $100 stock, for example, requires a 100% gain to get back to $100.)
  
  
• Strong stocks sometimes initially retreat close to their buy point (as determined by the stock's chart pattern). This doesn't necessarily mean you have to sell, unless the stock goes 8% below the purchase price.
  
  
• Avoid making sell decisions based on tax concerns or commission rates ।

Source: http://www.investors.com

The discipline to cut your losses when a stock drops 7-10%

If there is a golden rule of investing, it should be the discipline to cut your losses when a stock drops 7-10%. The usual protest to this idea is "what if the stock goes right back up, as I know it's going to do? I've lost 10% of my money for no good reason."

Let's take a logical look at this argument. If a company's stock price drops 8%, it can then do three things. It can go right back up (but then why did it take a big drop in the first place? Hmmm), stay right where it is, or most likely drop even further. Sorry, but dropping to even a lower price is what’s most likely to happen.

For example, you buy a stock at $25.00, it drops to $23 where you sell and take a $2 loss. Over several weeks or months, you watch it drop down and hold at a "support level" of $17 to $19. The price begins to move up so you buy back in at $20. A month later it is back to $25.00.

If you had simply held on to the shares, you are now back to a break-even point. But by getting out early then buying back in as it began to come back, you made $5, minus the $2 loss, for a gain of $3 per share. Not only that, you protected your investment from greater loses if the stock continued falling and not regaining its old price level. This happens all the time!

I know so many investors that have stocks in their portfolios of good companies, and the stock seemed fairly priced and had great potential when they purchased it. They bought IBM at $125, then watched it drop to $65.00. They bought AT&T at $60, then watched it drop to $9.00. They bought Enron at $70.00, then watched it drop to $0.00.

And what were they saying while the stock was tanking? “This is a good, solid company. The price will go right back up. I can’t sell it now, at a loss!” Then they would say something like “I’m going to hang on to it until I just get even.” Do you want stocks in your portfolio that the best that you are hoping for, is to break even?

I know this sounds silly that a person would hold on to losers, but believe me, most people do. Don't let yourself become trapped by a stock that's costing you money. The only good stock is one that's making money for you.

It is also likely that if most of your stocks are dropping in price (assuming you have selected them based on their growth and solid earnings performance), then the whole market may be in a downturn. The Nasdaq lost 75% of its value from March 8, 2000 to July 20, 2002. The S&P 500, from January 1973 to September 1974, lost 43%.

A smart investor, rather than trying to beat a bear market, will keep his cash on the side, ready to jump in when the next bull market takes off. That is the time to shop for bargains in discounted, solid companies.

So I’ll repeat this golden rule of investing: cut your losses when a stock drops 7-10%. All big losses start out as small ones.

Investing should not be ”buy, hold, and keep your fingers crossed”. Invest the right way and you won’t have to worry about your investments. You want to sleep at night।

Source: http://www.atozinvestments.com

Admit your failings and cut your losses

By Nick Louth, MSN Money special correspondent

If there is one simple thing every investor should know, and will unfailingly boost returns, it is how to cut losses।

Cutting losses quickly is probably the single most important tactic in getting market-beating investment returns। It is also without doubt the hardest technique to follow relentlessly because it usually means admitting to yourself that an original purchase was a mistake.

Trends last longer than we think

Many investors held on for years, thinking; “They just can’t fall any further.” Oh, yes they could.

• See Marconi three year chart

Instead, by having an iron rule which says sell when any stock falls, say, 20 per cent, it is possible to save thousands.

• See ‘how to take a graceful profit’

The theoretical effect on your portfolio is pretty simple। In effect, by running with profits and cutting losses you are keeping as much of your capital as possible in investments that are increasing in value.

How to set stop loss limits

The first stage in cutting losses is to formulate a policy, which you should write in bold across your investment diary, and have on a note stuck near your computer screen.

When deciding your limit, you certainly need to make room for day-to-day fluctuations in share prices, so that sales are not triggered too easily, but you must not set the limit so low that you have already lost a fortune by the time it is triggered. It will also mean some fairly regular checking, so that you are aware when your investments are adrift.

Here are a few types of stop-loss:

• An absolute fall: e.g. sell on any fall of 15/20 per cent in a week/month. This has the advantage of simplicity, but may have you selling more often towards the bottom of a bear market, even when value is apparent, than towards the top of a bull market, when it isn’t.

• See article on researching shares for more details on P/E ratios

• A relative limit: e.g. Sell if the stock underperforms the FTSE 100 by 10 per cent in any month. Though more complex, it gives you the right background against which to judge a price movement.

• • Sell at a specified price: If your broker allows you to set limit prices, you can set conditional trades, which are always expressed in absolute pence. As these instructions can be set for months ahead, you must update them regularly to reflect the right stop-loss gap underneath the current price. To do this for every stock in your portfolio would be very time consuming, but there are likely to be those which you are most concerned about. If you are going away on holiday, however, it can give great peace of mind.

What about those that recover?

Let’s not make any bones about it, if you sell loss-makers early you will not yet know for sure whether this is the start of a short period of downbeat trading in that particular stock, or the start of a calamitous decline. However, while you may miss out on those stocks which manage to reverse a 20 per cent fall, you will never be caught napping by those miserable firms which are on their way to bankruptcy and intent on destroying your wealth on the way.

• See when bad news is good news

Removing emotion from the decision

Ultimately, the success of cutting losses rests on your ability to remove emotion from your investment decisions. That is done easily if you act quickly, but once you wait until you have lost say half of a £10,000 investment in a company, it is harder by far to convince yourself to turn a paper loss into a real one. If it was a few hundred, then you can shrug your shoulders and move on. (If not, you probably should not be trying to invest in individual shares).

However, it is when you are already thousands down that the real devil may occur to you। This is the temptation to buy more shares in a losing company. This appears to have the advantage of lowering your average purchase price and therefore your breakeven level, but should be resisted at all costs.

As poet Robert Frost said: “Sell your horse before he dies. The art of life is passing losses on।”

Source: MSN Money

When bad news is good news

By Nick Louth, MSN Money special correspondent

Many new investors are confused by the apparently illogical movements of share prices।
Why does bad news often cause a share to rise, while good news makes it fall?

Here’s a guide to cutting your way through the jungle of market psychology।

Here’s a mystery. The newspapers are awash with bad news about electronic controls group Invensys – and rightly so, it would seem. The company made losses of £858 million last year, it has debts of £1.6 billion, and a pension fund shortfall of £931 million.

And it gets worse: Invensys relies for most of its sales on the US, but the recent fall in that country’s currency means each dollar it earns will look smaller when turned into pounds in its accounts।

It stopped paying dividends some time ago, and most investors expect it to be broken up and sold. The average analyst rating on the company is, understandably enough, “sell”.

Yet if you had bought Invensys shares at 10p on April’s Fool’s day, you could have more than doubled your money in ten weeks। By June 17th the shares had risen to 23p.

A sure-fire winner?

Now consider this second conundrum. On Monday computing group Autonomy announced the launch of fiendishly clever software which instantly scans all the e-mails, instant messages and telephone calls made within an organisation to check whether they comply with standards for corporate accountability laid out under various pieces of legislation both here and abroad.

So what? Well, compliance is a huge bureaucratic cost to large companies, particularly in financial services and so far has been laboriously tackled almost by hand। Yet, Autonomy’s entry into this potentially multi-billion dollar market went down like a damp squib. You might have expected a surge in its share price but it fell 10p on the day to 315p, and for the past week has lost three per cent.

What is going on?

Look to the future

Share prices are all about the constant comparison of expectations and reality. For every share traded in any market there are a series of assumptions on profits, dividend and sales which underlie the price that professional investors are willing to pay.

In the case of Invensys, the market has spent three years cutting its estimates for what the company is worth, but now some feel it has gone too far, and many feel the firm is unlikely to end up being worth nothing at all.

• See Invensys share price chart

A research note from broker Merrill Lynch put its finger on the button early this month। It read: “The bad news is probably now all on the table and, more importantly, in the share price. Although there are significant risks, we believe the risk/reward is attractive.”

Buy on the rumour, sell on the fact

For Autonomy, the news of its entry into the compliance market had been quietly leaking out for weeks. Certainly, the shares had risen by 45 per cent from 155p to over 225p since the middle of May on rumours that a major new product launch was planned.

By the time it was confirmed on Monday, the upward price movement had taken place, and some of those who had bought early had made a healthy profit and sold, hence the lower price in the last week।

This is a well known trading process, called “Buy on the rumour, sell on the fact”. It drives a great many short-term market movements.

Sell on the rumour, buy on the fact

The reverse “Sell on the rumour, buy on the fact” works just as well, except it is used where bad news rather than good is expected. That is often why a company can come out with absolutely terrible results, yet the share price rises on the day.

Almost always, the nimblest of the professional investors have been selling for weeks (or ‘going short’, which is the process of selling something you don’t own in order to buy it back again more cheaply later) in anticipation of bad news, and then buying back in when it is incorporated into the price.

It is this process of digesting news and building it ‘into the price’ which underlies the short-term movement of stock market prices. That is why brokers are always comparing prices and expected earnings for various companies, and have distilled them into a price earnings ratio (P/E) which is the standard yardstick for comparing one share to another.

Its function is just like those ‘price per 100g’ comparisons we see on supermarket shelves which tell us whether the large £3 jar of coffee is in fact cheaper than the small £1.25 one.

• See article on researching shares for more details on P/E ratios

Each sector in the market, whether it be banks or telecom firms has an average P/E ratio, just like we know roughly what we should pay for a 100g jar of coffee. If a member company of that sector gets out of line with the average there is either a special reason which merits further investigation, or it is out of line in which case a trading opportunity has arisen.

• See Autonomy financial highlights

Every day that market examines profit warnings, better-than expected results and every other kind of corporate news. These get built into the earnings side of the P/E ratio, and the price adjusts accordingly. Above all, it is the future that matters. Once a fact is incorporated into a share price it becomes history, and you are unlikely to be able to make money from it.

• See Invensys company Report
  

Source: MSN Money