Factors Affecting or Influencing Share Prices

Share prices are dependent on many factors. So, it is quite hard to point out just one or two factors that affect or influence the shares prices. As you know, shares prices are extremely vulnerable to market volatility, coming off badly when the stock market dips.

There are so many factors that affect the prices of stocks like market news / rumours, company failed to repay hugh debts (usually in billions of US$ dollars as a guideline) when deadline is dued, broker's recommendations, market analyst's reports, listed companies / firms added or removed from MSCI Index, dual-listing, economy reports (GDP, Jobs data ...), company announcements (e.g. price-sensitive information), inflations (CPI), interest rates, election results, domestic political turmoils, riots, revolts, military coups, anti-government street protests, strikes, war, tensions and confrontation between countries, terrorism, crude oil or energy prices...Just too many to named it here.

Obviously, foreign investors or institution fund managers with big funds will dump their portfolios if negative news continues. Their action impact quite a lot to shares prices fall or rise.

Regardless of these factors, the price of stocks is quite liquid and it's determined by how much buyers are willing to buy and how much sellers are willing to sell for their shares.

Take note that an in-depth study into this subject is beyond the scope of this blog. Nevertheless, allow me to share with you although most of it are common sense.

Here are some factors (not in the order of importance) are my personal views.

- Market Sentiment
Many investors are taking one day at a time depends on current situation, they will make their investment decisions based on current market sentiment about the global economies, regional crisis, interest rate, recession, soaring inflation, crude oil prices, supply and demand...depends on what they hear, watch and read. Our feelings change frequently whenever latest news surfaced. So, investors are normally watch and see and try to sort things out daily. This impacts shares prices daily.

- Investors' Confidence of the Health of the Economy
Confidence here does not refers to blind faith about any data accuracy or completeness. I'm referring to the confidence in an economy. The stronger the economy, the stronger or more stable its currency. The higher the shares prices.

Strength about any economy can be estimated or projected from the leading economic indicators such as GDP(Gross Domestic Product) growth, Consumer Price Index (CPI), employment data, government policies changes, trade balance, current account balance, productivity...

Companies have good balance sheet, favorable financial ratios(assuming not window-dressed) like P/E, P/B, earning per share, impressive profit after tax..., budget surplus, consistently making profits despite bad economy...

Investors will likely to invest their money for listed-companies with histories of strong earnings track records like blue-chips and push up these companies shares prices.

However bear in mind that a company has made profits in the past not necessary mean it will continue to do so. Sometimes, the company may defending an upcoming big legal lawsuit, employees may threaten to go on strike or quit, profit margin has shrunken but generally the percentage of such things from happening are quite low. 5 per cents?

Judging from uncertainties ahead, risk-averse investors will most likely to put their investments to listed-companies with a steady cash flow and long history of earning track records.

- Local and World Economic Trends
An uptrend like anticipated business growth or economy recovery whilst a downtrend like a world recession. Generally, when US is in recession, this will impact global countries and push the shares prices down. Likewise, when US announced a better-than-expected growth or confirmation of out-of-recession, the global shares prices will likely follow-up with good news.

Therefore, investors will take their cue form key US economic data and acted on it.

- Regional Crisis
We have learned from sub-prime debacle, it started out just a domestic US mortgage problem but the effect spread so fast across the global like tsunami, this crisis triggered sell-offs in Asian equity market. Regional currency crisis back in July 1997 also caused similar problem in Asian equity markets.

- Inflation
Investors generally are concerns or worry about soaring inflation spurred by rising crude oil or high energy prices, combined with continues slowdown in the US economy will have a significant impact on regional economies and in turns the shares prices.

If government announced a harsher-than-expected tightening of monetary policy to fight inflation, this will further impact the shares market.

- Human Psychology
Human greed generally pushes up the shares price and fear of uncertainties and panic selling will generally pushes it down. Take note, greed can turns into grief if one do not take the opportunities to take profits when market is overheating. Bull run never last. Take the profits if the prices of the stocks are reasonably high within a short period. Likewise, reconsider accumulate good fundamentals stocks like blue-chips if prices fall unreasonable low within a short period. Consult your consultants when necessary.

- Market Rumours/Speculation
Generally it will drive the shares up or down depends on whether it is positive or negative news, novice investors or beginners should stay out of market rumours or speculations simply it is usually involves with a lot of uncertainties or risks.

Most of the time, rumour-mongers are up to something to achieve their motives, unfortunately this are true. When market rumours become too hot, these stocks become hot-stocks and people get burnt especially it has already passes down to many levels and it finally becomes distorted. Beware, blindly chasing the last passed-out rumours is as risky as playing with Russian's roulette. Amateur investor should minimize the market risks by not following the crowds.

Do your own research and understand companies fundamentals. Better relies on reliable information than rumours.

- Dividends Payout/Dividend Policy
When combined with low fixed/saving interest rate and inflation, shrinking dollars will likely to cause investors to park their money on high-paying dividends stocks or bonds to enjoy better return of their investments. Although the yield may not be high enough to shout about but it does provides a credible return under the current quiet market conditions. So, as long as the dividend return or yield is much higher than current bank interest or inflation rate, investor looking for regular returns will likely to invest these companies' shares and in turn pushes up these shares prices.

- Crude Oil Pricing.
By now, we probably heard enough of this, soaring crude oil prices had already pushed up inflation higher and cause essential household items to rise. When inflation level reaches to a critical stage, this will trigger trickle-down effect on goods and services, the opposition and ordinary people will vent their frustrations to their government, anti-government street protests will cause country to go chaotic and affect the sentiment of investors and affect shares prices.

Skyrocketing fuel prices will hurt almost all companies especially so to transport-related companies like airlines businesses because of higher operating costs, fuel accounts for more than 30 per cent of an airline's operating costs, which means most low-cost budget carriers already operating without much fat, so there is little left for them to trim. They will likely announce a significant drop of bottom-line figures, may even turn into big loses. Without doubt, this will affect their shares prices. Not surprisingly, most investors already dump these listed-companies' shares.

- Syndicates
Although it's pretty hard to pin-point who are they. They generally push penny stocks to astronomic heights and make it a 'hot-stock' with 'news' like company receiving big contracts, bonus issue, stock split, take-over or acquisition news but only to sell down later to make profits from unwary investors and finally the shares prices collapsed when the fact is out and small investors get caught with holding this high P/E penny stocks they purchased.

Beware of stocks suddenly traded record high volumes of activities without valid and satisfactory explanation. Don't follow the crowds.

- Interest Rates
Interest rates changes generally will impact sectors that are price-sensitive to their kind of business like banks and real estates, this in turn will affect their shares prices.

A big rise in interest rate will generally cause a sell-off/plunge of shares prices if all things are equal. The reverse is also true.

- Substantial Shareholders Transaction
When you see heavy 'insiders' buying/selling through price-sensitive announcements or 'intelligence' information, this is a strong buy/sell signal. Likely, the shares prices will go up/down even if the information is not acted on for a couple of months. Success investment is about how 'intelligence' is put to use. Some people are privileged to know what is about to happen. They make use of this 'intelligence' legally or illegally to their advantage. This is what happen in the stock market when the market 'insiders' get to know ahead of the public that certain company ‘will soon come to the primary market’ to raise money. In a bid to take full advantage of the discounts of the public offers, they will push the market price appreciably before technical suspension is imposed on the shares price.

- Buying/Selling Patterns of Institutional Investors
Institutional investors backed by big investment companies generally have big funds to change the course of action on a particular shares. Be it foreign funds, pension funds, mutual funds, unit trusts... Their buying/selling patterns in particular stocks are generally make stock prices rise or fall. Therefore, the amount of stocks they owned or dumped are generally a key factor investors should never overlook.

- Cutting-Edge Technology
One example is Apple's iPhone, Apple's shares price has gone up quite a bit when they announced this latest technological products last year.

- Holiday Sentiment
People do needs money to celebrate special festive seasons like Christmas, New Year celebration, long vacation holiday... So, in order to raise money to celebrate with this occasions, investors may sell some of their stocks into the market for sale. If majority of holiday makers do the same things, this may cause the shares prices to drop a bit, simply there are more sellers than buyers. This might explain why market tends to drop when long holiday is near.

Whatever the outcomes, be psychological prepared, a big rise in shares prices during the bull run may be a good time to unload especially penny stocks and turn paper gains to real profits, a dip in shares prices during bear run may be a good opportunity to pick-up bargains stocks like blue-chips left by those who have panicked.

Do analyze the market when investing. The market is your best teacher for shares investment, it is an instant feedback mechanism. If you make a mistake in shares investment and lose money, ask yourself "Where did my analysis go wrong? If each time you use 1 per cent of your investment money, you can afford to make 100 mistakes, instead of being wiped out by the first mistake. You should nibble in small amounts instead of committing large reserves.

Remember higher returns are accompanied by higher risks. Be prudence about your investments!

By the way, stock markets up/down are cyclical. No one can accurately 'predict' the market. If anyone who claims to is either a charlatan or naive. Although the market is quite cautious at the moment, I think one still can make money in the stock market during this periods, but one may have to climb a wall of worries and uncertainties to do so. Be a contrarian but cautiously beware the risks involved.

All the best with your investments!

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The Ten Biggest Stock Market Crashes of All Time

Some investors might think they have had a rough ride on the stock market over the past three or four months. But the recent share price gyrations pale into insignificance when compared with the biggest stock market falls of all time.

10) Wall Street 1901-03 -46% The market was spooked by the assassination of President McKinley in 1901, coupled with a severe drought later the same year.

9) Wall Street 1919-21 -46% There were fears that the new automobile sector was becoming overheated and that car ownership had reached saturation point.

8) Wall Street 1906-07 -48% Markets took fright after President Theodore Roosevelt had threatened to rein in the monopolies that flourished in various industrial sectors, notably railways.

7) Wall Street 1937-38 -49% This share price fall was triggerd by an economic recession and doubts about the effectiveness of Franklin D Roosevelt’s New Deal policy.

6) London 2000-2003 -52% The UK took sixth place in the table with a 52 per cent market fall between 2000 and 2003 as investors suffered the consequences of the collapse of the technology bubble

5) Hong Kong 1997-98 -64% The Hong Kong stock market’s heavy fall in 1997-1998 came as investors deserted emerging Asian shares, including a very overheated Hong Kong stock market

4) London 1973-74 -73% Next came the UK stock market’s 73 per cent drop in 1973 and 1974. set against the backdrop of a dramatic rise in oil prices, the miners’ strike and the downfall of the Heath government.

3) Japan 1990-2003 -79% In third place, with a 79 per cent decline, was the Japanese stock market, which suffered a protracted slide in price from 1990 to 2003 as a share and property price bubble burst and turned into a deflationary nightmare.

2) US Nasdaq 2000-2002 -82% The second biggest collapse came from the technology-rich US Nasdaq index, which fell by 82 per cent following the bursting of the dot.com bubble in 2000

1) Wall Street 1929-32 -89% The Wall Street Crash heads the list, with the US stock market falling by 89 per cent between 1929 and 1932. The bursting of the speculative bubble led to further selling as people who had borrowed money to buy shares had to cash them in in a hurry when their loans were called in.

David Shwartz, the stock market historian, says: “The very big stock market crashes are invariably triggered by a series of different events which unfold one after the other. For example the biggest UK stock market slump in 1973-74 was started by the fear of stagflation, but was then fuelled by the dramatic rise in oil prices of late 1973, followed by the Miners’ strike and the downfall of the Heath government.”One heavy blow is not enough to produce a market crash. It requires several different blows to bring a market to its knees.”

Source: www.investment-blogs.org

Signs of market overheating and impending stock market crash

When you hear the following signs in stock market, you know the market is overheating and the major correction or market crash is not far away.

1. Stock market soars to record high levels. Most stock analysts are very positive to forecast another record high level in the headline news. You hear every other days analysts forecast another new record high level. Rarely the warning of risk of investment are mentioned in their articles. They are overly-optimistic.

2. Majority of investors even common folks are very optimistic about stock market.

3. Media covers with many positive news about stock market. Stock market becomes the headline news. You see most stock market news are interpreted as positive, even occasionally negative news do not seem to affect the stock prices at all because the market is really 'hot'.

4. A lot of people talk about making 'fast and hugh' profit within a few days or even a single day. They are generally very optimistic about stock market than anything else. Stock market seem to be their first priority now.

5. Almost all stocks are over-valued and set another new record high, majority of investors are very positive even for high P/E penny stocks and expect a further rise in the stock prices. They are afraid of missing the 'bull ride'.

6. Many companies went IPO, almost all newly-listed IPO over-subscribed unprecedented.

7. Almost all newly listed IPOs stock surge in first day of trading. Some IPOs stocks even surge more than 50% within a day. Unbelievable but true.

8. Extreme high volumes traded almost on all stocks, historical low-volume stocks also see significant rise in volume traded.

9. Even ordinary folks who have very little knowledge about stock market suddenly just queue and buy stocks. They just buy stocks blindly based on rumors. They 'tasted' quick gain and most of the times they just have strong hope their stocks are likely to hit another record high, they will usually hold it instead of taking profit because greed already set in.

10. Suddenly a lot of new accounts are open with stockbroking companies so as to trade in the stock market. You hear, read and watch news about family took their life savings and put almost all in stocks investment and suddenly they give 'advices' to ordinary folks about getting rich with their money.

11. Most market experts will think market crash will falls to others but not them. They will say the bull market now is different from last time. The markets never change but they do. Despite their knowledge, they are still 'blinded' by the fact of risk of investment.

12. Maniacs and excessive irrational in stock market. People spends more times talking about making quick money from stock market than making decent living from their jobs.

13. When a lot of stock investors suddenly become 'rich' overnight. Making money appears to be so easy in stock market.

14. ....

When the above warning signs exist, you know the end of a bull market is very near and the start of a bear market will begin soon. Hopefully by learning these common warning signs, you can liquidate your stocks investment fast and take your profits early before the market heading for major correction or crash. Although you may not get out the best/peak time but you will be rest assured the money already cashed out to your banks. You don't want to get caught of still holding the over-valued stocks. When market crash, blue-chips stocks are not spared either.

There are always some warning/tell-tale signs before bull stock market heading to major correction or crashes. If you are astute enough to recognize these signs, likely you are already cashed out your profits and out for good.

When dealing with human psychology, greed pushes up the stock prices but fears pushed it down. Be cautious with your hard-earned money or life saving. Bull markets are not long-lasting. The reverse is also true.

All the best!


Attached video shows one of the investors invest all of her life saving in stock market. She voiced how she felt the pain of the markets recent tumble. Look like another painful lesson of not knowing the risks of investment when market is overheating. Unfortunately, this kind of thing happens every times when market is overly-optimistic. Someones will always get caught. Be cautious!

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SIP versus active investing

By Vinod K Sharma

Systematic investment plan (SIP) is a popular investment strategy employed by a large mass of investors. Instead of making one lumpsum investment, investors put in a fixed sum of money each month, over a period of time. This system does away with the need to time the market.

Mutual fund managers find the strategy easy to sell because they harp on the age-old truth that nobody can time the market. Secondly, it addresses a large spectrum of clients ranging from anybody who can spare Rs 500 each month to the richest person in the world.

But there is a way of earning better returns than the SIP. We will come to that part later, but first, let’s understand the major features of the system.

SIP is only a methodology of investing. Investors must remember that merely investing through SIPs will not deliver the results. You need to choose the right scheme first. Money invested through a SIP will lose value if invested in the wrong scheme. So selection of the right scheme is the first job.

By opting to invest every month, you invest in a disciplined manner. This results in forced savings. As this is a monthly exercise, you tend to plan your expenditure and do not indulge in impulsive shopping.

Given an option, everyone would like to exit at the highest level and enter at the lowest. Unfortunately, no one has a crystal ball. So one can’t really time the market. But it is possible to give better returns than through SIP or investing in a lumpsum. Here’s how.

We turn the clock back and replay the current rally. It is May 1, 2003, the beginning of the rally. We give the SIP investor the benefit of hindsight and let him invest on May 1, 2003. Our SIP investor invests Rs 10,000 on the first of every month subsequently.

We save Rs 10,000 each month in our savings bank account. But we invest only 50 per cent of the amount saved if the Nifty falls 10 per cent from its high. If it falls another 10 per cent, we invest the rest. If, during the same month, the Nifty falls another 10 per cent, you have no money to invest and you have to let the opportunity pass as would happen to us in June 2006. You exit your positions only if you gain 50 per cent from the investment levels.

Here, our first opportunity to invest would have come only on January 22, 2004, when the Nifty finished 10 per cent lower from its January 9 high of 2,014. Bythen, we’d have accumulated Rs 90,000 in our savings bank account and invested 50 per cent of the money, that is, Rs 45,000 on January 23 in the Nifty. Though the low of Nifty on that day was 1,771, the actual closing was 1,847. And we have taken our investment at 1,847.

SIP V/S ACTIVE STRATEGY : How they compare
STRATEGY	Ann. Return over Period
	SIP	Nifty
SIP since May ’03	28%	39%
Invest at every 10% fall — from January 2004	33%	24%
Invest at 10% falls and book profit on 50% rise — from January 2004	48%	24%

Over all, during this period, we would have been rewarded with 12 such opportunities of investing and nine opportunities of disinvesting.

How do the returns compare? We find that the SIP has resulted in 28 per cent annualised return against 39 per cent of the Nifty. The annualised returns through an active investment plan were 48 per cent. You invested Rs 10,000 every month in an SIP, that is, Rs 5,10,000 and made a profit of Rs 4,16,000 as on Thursday, April 3, 2008.

In our theoretical active scheme, you had to invest only Rs 1,30,000 and would have still made Rs 3,88,000. Not a bad deal, I think. Source: business-standard.com

Key factors to consider when evaluating IPO stock prospects

It's important to factor in risk exposure before investing in stocks.

By OH BOON PING

OKAY, so you've come across an IPO that promises a potential yield of 10 per cent next year. As good as that sounds, as a long-term investor, how can you tell if the stock is a real gem and not just a lot of window dressing?

After all, many initial public offerings start out well on the stock market, only to fizzle a few months down the road. To help you suss out companies with real fundamentals from those window-dressed to sell, here are some key factors to look at.

Earnings track record: This is central to any investment decision, as dividends are paid out of net income. The earnings record is also indicative of management's strength. A weak earnings record may reflect the management's inability to grow the business, while a strong track record is always welcome.

However, investors should be aware that financial numbers can be dressed up for an IPO.

The next thing to note is the company's dividend policy since that is key for an investor looking for regular returns.

But a company that doesn't pay generous dividends may have other attractions. If it uses its spare cash to invest in its business for growth, that could enhance the company's value, and stock holders can gain from future share price appreciation.

Growth strategy: It's also important to look at the company's growth strategy since that is indicative of its business direction and earnings prospects. This not only aids in forecasting earnings, but also has an impact on its stock price.

For example, China Milk, which made its debut in 2006, surged by 57 per cent on the first day of trading. Last Friday, it closed at 98 cents - up from its issue price of 62 cents, despite the recent market turmoil.

Obviously, the company's plans to expand its herd of dairy cows, acquire new production facilities and purchase equipment and machinery had received a strong vote of confidence from the market.

Of course, much also depends on the industry the company operates in and its outlook, which brings us to the third factor.

Industry structure and macroeconomic outlook: Here, the things to look for include barriers to entry and market structure.

A dominant presence in the market is an advantage since it gives the company pricing power. Also, high barriers to entry means that there's less chance of its margins being squeezed because of price competition.

One example of an industry leader is Apple, which dominates the MP3 market. Because of the iconic status of Apple's iPod, the firm enjoys greater pricing power compared with rivals like Creative Technology.

Besides the above factors, attention must also be paid to the growth prospects of the overall industry. A company in a sunset industry would post slower earnings growth in the years ahead compared with one that is in a sunrise industry.

Also, a projected economic slowdown may mean sluggish business for the company going forward. This would hit consumer stocks in particular when consumers rein in spending. When that happens, the company's fair value may have to adjust.

Relative valuation: An alternative approach to determine if a stock is cheap or expensive is to compare its price multiple with the median or average of its comparable group of stocks.

This can take the form of price-earnings (P/E), price-book (P/B) or price-cash flow (P/CF) ratios, even though PE is probably the most widely used measure here.

For example, United Test & Assembly Center (Utac) was once trading at a P/B of 1.4 times for 14 per cent return on equity (ROE) compared with Stats ChipPAC's P/B of two times for 6 per cent ROE.

This was also lower than P/B of 2.7 for the semicon assembly and test sector as a whole. Little wonder then that Utac was deemed to be cheap and has since been bought over a private equity group.

Risk factors: Not to be forgotten are the business risks that the company faces. Finance 101 teaches us that higher returns are accompanied by higher risks. And prudence dictates that an investor factors in the risk exposure before deciding if a stock is a good buy.

For a biomedical firm, for example, risks include the high failure rate in its research efforts, while a structured finance fund is exposed to default risk in its underlying debts.

An example is the Babcock & Brown Structured Finance Fund, which promised a yield of 9 per cent at IPO in 2006. At that time, roughly a third of its portfolio was allocated to assets like loan portfolio and securitisation such as collateralised debt obligations (CDOs).

It is difficult to assess the risk characteristics of CDOs since much depends on the seniority of the tranche. Complicating the picture further is the fact that the default of one underlying party may result, to different degrees, in the default of other parties in the portfolio.

In short, it is important to understand the types and amount of risk exposure in a stock before making your investment decision.

Source: BT Online

The psychology of successful investing

In this article I'd like to focus on some of the psychological facets of investing and inquire into what it takes for somebody to be a successful long-term investor.

I think there's an interesting analogy between the way people drive and the way they invest money. Good driving schools teach "defensive driving" techniques. If you know what to look out for on the highway, you greatly improve your chances for reaching your destination in one piece. Likewise, I think a good investment newsletter ought to educate its readers about some techniques of defensive investing. If you know the pitfalls, you can guard against some of the roadblocks that sabotage most investors.

Impatient drivers in traffic jams often pay lots of attention to what lane they are in and how the other traffic lanes are doing compared to theirs. If the other lane looks like it is moving faster, they often will swerve over to cut in front of somebody else. Some people do this repeatedly, taking every opening they can find to get any slight advantage for themselves. Those drivers may indeed gain a few seconds. But in the process, they escalate the levels of danger and annoyance to them and everybody around them. In investment terms, they take on much more risk in return for uncertain (and possibly elusive) gains.

I think one of the greatest roadblocks to successful long-term investing is impatience, and this applies equally to buy-and-hold investors as well as those who use market timing.

Impatient investors watch the market from day to day like a hawk. But except for market timing purposes, their time would be much better spent studying what's happening in society and the world, looking for investment opportunities over the next five to 10 years. Impatient investors are easy prey. They can be lured to change lanes, and change lanes again. In their zeal to always be "on top," these people rarely give any investment or strategy enough time to perform adequately. And they end up as road kill, often retreating to the sidelines with money market funds and Treasury bills while their more patient counterparts build their wealth in the slower lanes.

Patient investors who make investments and stick with them for years or decades, with or without market timing, aren't likely to have exciting anecdotes to share at parties. But they are more likely to retire comfortably. And they are more likely to sleep well along the way and be able to devote their attention to other things in life. These people may seem unexciting, but I think they can be dubbed "Road Warriors Along The Investment Superhighway."

WHAT'S YOUR STYLE?

Whether you realize it or not, whenever you take the wheel of your car, you have a driving style that's all your own. There's a certain amount of risk you are willing to tolerate and a certain amount of frustration you are willing to tolerate. You may or may not have much patience for other drivers who don't behave as you think they should. These are all emotional factors. They have nothing to do with how you choose your destination and your route to get there. They are all descriptions of how you respond and react to external conditions, most of which you cannot control.

Likewise, you have your own style of investing. You can tolerate some level of risk, but you probably get quite nervous once you get past the boundaries of your personal comfort zone. How do you handle mistakes? Do you welcome them as an opportunity to learn more about yourself and about investing? Or, do you feel compelled to find somebody or something else to blame when something goes wrong? How quickly will you abandon the route you have chosen in search of something better? Some drivers will leave a clogged freeway in the hope they can find any alternative with less frustration, even if they can't actually see such an alternative route. Likewise, you may be quick to abandon an investment if it isn't performing up to snuff after a few years or even a few months or weeks. Perhaps you'll throw your money elsewhere purely to relieve your frustration. (This is what we call the "I Can't Stand It Anymore" method of market timing.)

INVESTING LOOKS CUT AND DRIED

On one level, investing is a rational, mechanical process that starts with some basic decisions like:

How much time do I have before retirement (or some other investment goal)?

What is my savings rate and my level of commitment to it?

How much money do I have now, and how much will I need to have at retirement?

What assumptions do I make about the rate of inflation before and after I retire?

From these, I can figure out the rate of return I will need to get from where I am to where I'm going. Then I can determine what type of asset will produce the return I need. All of this is pretty cut and dried. The calculations could be made by a computer.

BUT IT'S REALLY EMOTIONAL

But the next logical question is psychological: Can I tolerate the risks involved in the asset class that will take me where I am going? If the only way to achieve your goals is to speculate on commodities or "bet the farm" on your ability to sell stocks short just before the market goes down, you'd better have an awfully strong stomach and a Plan B for your retirement.

Another emotional question that frequently arises: Can you tolerate seeing somebody else's portfolio doing better than yours? You may recall early last year we laid out a careful plan for what we call a Worldwide Balanced Portfolio by splitting your investment assets into four equal categories: domestic equities, domestic bonds, international equities and international bonds. I recall a client for whom we set up such a portfolio last year after much discussion. Although the client is a very smart guy and understood completely what we were doing with the Worldwide Balanced Portfolio, he called me a few months ago, quite upset that his investments were under-performing the Dow Jones 30. I bit my tongue, but I couldn't help wondering what he expected. With only 25 percent of his assets invested in domestic equities, he could not rationally expect that portfolio to mirror the Dow. And in fact one reason we set up his account the way we did was to make sure that it did not match the Dow. On a purely emotional level, his anxiety is easy to understand. This has been a wonderful year for domestic equities (just as 1993 was an excellent year for international ones), and the media is heavily focused, as usual, on the Dow.

To this client, it felt as if he was missing out on the action. His reaction was akin to turning on your car radio when you're stopped cold on a freeway, and getting angry when you hear that several other freeways are wide open. It's an understandable reaction, but not very rational and not very useful.

OTHER INVESTING ROADBLOCKS

Here are some other emotional and psychological roadblocks to being a successful investor:

Focusing on hope (and sometimes hype) while ignoring risks. While managing risks is at the heart of successful investing, you'll almost never find an investment salesman who wants you to focus on risks or emotional problems you may encounter. They have learned that when people confront the emotions associated with losing money, most people will flee before a salesman can make a dime in commissions. The industry doesn't want to talk in terms of preparing for the bad times. The industry just wants to make money while there's money to be made. Unfortunately, emotional problems and pressures in a significant bear market can wash out investors just as easily as it washes out their portfolios.

Making emotional decisions instead of disciplined decisions. If you don't have a discipline, your moves are likely to be made randomly, on the basis of a whim or a conversation you had with somebody on an airplane, or emotionally, depending on whatever internal and external pressures you feel at any given moment. Either way, you will almost certainly be working against your own best interests. The key to successful investing is to have a discipline, even if it's as simple as dollar-cost-averaging, and to stick to it.

Being unclear about what you believe and how you intend to invest in the face of uncertainty. For any financial topic you can think of, I could find at least two learned and qualified experts who would take opposite positions on the meaning of any particular situation. The media like to find such experts and quote their views as if they were facts instead of just interpretations. Investors are often led astray. Is the market too high? I can find plenty of experts who can make a good case that it is. Likewise I can find experts who will tell you just as convincingly that the market is relatively low and now is a great time to buy. If you don't have a strategy, you're likely to pick one of these experts to believe and follow. You'll be likely to pick an investment strategy based on somebody's personality or charm or the emotional content of a point of view. Know what your strategy is. Know what you believe. Know what is important to you. Then you'll know how to listen to the experts and evaluate what they have to say.

Focusing excessively on individual components of your portfolio instead of the whole. Recall for a moment my client who was upset because his Worldwide Balanced Portfolio under-performed the Dow Jones Average. He was looking at immediate results instead of his real goals, which are long-term. We know from decades of experience that combining U.S. and international securities lowers investment risk and raises investment returns over long periods of time. But like many people who talk about their long-term focus, my client found himself being very judgmental about short-term performance. A tradition for many investors is looking up their stocks and funds every single day. Some supposedly long-term investors even call their brokers or look up stock prices electronically several times each trading day! This added information really does long-term investors no good and it makes it much harder to stick to a long-term focus.

Either being an active trader or being paralyzed in the face of an overwhelming variety of choices. As investors we can choose every day from thousands of mutual funds, thousands of managers, thousands of individual stocks and thousands of other products and plans. The industry makes it easy to be an instant, frequent trader. Wake up in the middle of the night with an investment idea or fear, and you can find a broker to execute a trade for you immediately on the Tokyo or London exchanges. The industry wants you to be a trader. Every single security salesperson wants you to change something. That's how they make a living. And everyone wants your business. If you have a stockbroker, even the other brokers in that office would be happy to have your broker move to another brokerage firm so they could legally solicit your business away from your present broker! All this adds stress to investors' lives. Some people handle the stress by becoming active traders, usually at the expense of their own portfolios. Others give in to paralysis, doing nothing for fear of doing the wrong thing. Often, standing pat is the right thing to do. But when you do it for an emotional reason, you are likely to go astray.

Taking too much risk. People with relatively small amounts of money tend to take too much risk, while those with large amounts take too little risk. At one extreme, people who have few assets feel they have little to lose and often spend their money on lottery tickets, thinking that is their only ticket to financial success. Some of them think they are "investing," while they are in fact gambling against overwhelming odds. A 20-year-old playing only $3 a week on the Lotto until age 65 will most likely wind up with nothing to show for the approximately $7,000 he will spend. That same $3 a week, invested for 45 years at 9 percent, could grow to almost $100,000.

Taking too little risk. On the other hand, many investors are too risk averse, especially those with 20 or more years before retirement. The majority of money in 401(k) retirement plans is invested in guaranteed interest contracts, bonds, money market funds and similar low-risk, low-return securities. The owners of those funds are likely to realize, probably too late, that they have shortchanged themselves, forfeiting the retirement they could have in order to gain illusive short-term security. And they will have squandered their greatest asset-time. If you are investing in an IRA or a 401(k) plan, it may seem quite important to avoid having your portfolio take a beating in the market in any given year. But that risk is tiny compared with the gains you are likely to give up by avoiding the equities markets.

Being unwilling to take a loss. If you want to avoid big market losses you must sometimes sell your holdings, even when that means you have to take a loss. This is one of the hardest things for investors to do. Many people think that if they don't sell at a loss, they don't really have the loss. And they think that taking a loss, even for strategic reasons, means they are failures. As a result, people hang on to sinking securities, often with the attitude that they will wait until they can break even, then sell and be done with it. Many early investors in Fidelity's Magellan Fund never got the benefits of that fund's impressive long-term track record because a couple of losing years in the 1970s convinced them that Magellan was a dog. Yet many of them stuck with Magellan over a period of years, just waiting for their investments to reach the break-even point. When that happened, they sold with relief, probably watching with bitterness as Magellan went on to rack up its huge subsequent gains.

Failing to manage your expectations. One of the best things you can do in investing is spend some time taming your expectations. Of course you'd like a piece of the action when things are going well, and if you follow a sound investment plan you will get some of that action. But you won't get it all the time and you probably won't get it right away. If you're not careful, your emotions can distort your perception, which can lead you to unwarranted conclusions and make it easier for a fast-talking salesman to reinvest your money to suit his purposes, but not necessarily your own.

Do you expect to never have a down quarter or a down year? Do you expect you'll never have to suffer a loss? Think you'll always like what the numbers tell you at any given moment? In every case, you're setting yourself up for an upset. Some people are so competitive by nature that they can't stand to see others doing better than they do. Other people are rarely satisfied with anything, always looking over their shoulder, asking why they couldn't be doing better. These people are bound to be disappointed. And if they don't have a disciplined approach to investing, their emotional reactions will start dictating their investment moves. That's almost a surefire recipe for disaster and more disappointment.

WRAPPING IT UP

You can bet the professionals in the investment business understand these psychological hurdles, and many of them are willing and eager to take advantage of investors who don't. When it's your money at stake, you should be the one in the driver's seat, even if you take directions from someone else. The best way to keep your hands on the wheel is to have a plan that will work for you, then stick to it. Do that by understanding the difference between your financial needs and your emotional needs. A good investment plan will help you achieve the total return you need to meet your own financial goals and timetable. It will help you preserve your capital. And it will greatly improve your chances of being a "Road Warrior Along The Investment Superhighway."

Source: http://mutualfunds.about.com

11 Steps To Weather A Recession

What do you do to protect yourself from the ravages of a self-reinforcing downturn that could--if history is any guide (and it usually is)--last 10 months or longer? There are, in fact, many steps you can take--and you can start now.

1. Fools Rush In

2. Take Your Profits And Run

3. Avoid Those Capital Gains

4. What To Buy?

5. Don't Fear Low Yields

6. Lock In Lower Mortgage Rates

7. Go Defensive

8. Lower Your Overhead

9. Pay Off Credit Balances

10. Go Cheap On The Internet

11. This Too Shall Pass--But Maybe Not Soon

For fuller detail, please click here to view

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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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.

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

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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.

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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.

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