Posts Tagged ‘stocks’

This is part three on our discussion about the basic principles of investing in the stock market. Previously, the first three principles of investment was discussed. The first principle given was that you must realize that the stock market is just another vehicle of investment. The second principle dealt with realizing that investing in the stock market is a roller coaster ride. The third principle talks about determining what type of investor you are. In this article the next 4 principles will be discussed. Please visit my blog should you wish to view the entire article.

4.) You must realize that investing in the stock market does not take a lot of money but if you really want to make an impact on your portfolio you have to place in a substantial amount. – You don’t need millions or hundreds of thousands of pesos to invest in the Philippine Stock market. You only need at least P 20,000.00 to somehow play it out. I started out with only this amount. In fact you can invest if you only have P 10,000.00 but for me that is too small an amount. For example Jollibee (JFC) shares cost only 51.50 per share as of today. The board lot (which is the minimum amount of stocks that you could invest in) is 100. 51.50 x 100 = P 5,150.00. This is the only amount you need to be a stock holder of Jollibee. Let’s say in 1 year time Jollibee stocks climbed to P 100.00 per share, you have gained P 5,000.00 more. But if you had invested 200 shares you could have gained more than just investing in 100 shares.

5.) You must be consistent in investing – If you start small make sure you do not stay that way. Discipline yourself to invest a certain amount of your income to the stock market in order to pump in more capital so that your portfolio may grow. For the past month now I have slowly added to my investment, I did not just stop at P 20,000.00. Make investing a habit.

6.) You must learn to minimize your losses and maximize your profits – If your stock goes down, remember that the loss is only on paper. There is no actual loss until you sell your stock at the “losing” price. Hence the best way is to never ever sell at a loss. That is why it is important that the money that you invest in the stock market is considered as really “extra money” and not your emergency fund. If you invest your emergency fund or your savings you will be forced to withdraw sell your stock at a loss. Similarly if you sell your stocks and you profited from the sales, or you received dividends, utilize the profit or the dividend to buy more shares of stocks.

7.) You must realize that the stock market is not a get rich quick scheme – Don’t ever expect to get rich overnight in the stock market. In all investment scheme always remember that money takes time to grow. Investments that give you unbelievable rates of return in a very short period of time are mere scams. The stock market, especially the Philippine stock market takes several months or even years in order for you to really profit. There may be times that it will just take weeks or days perhaps but these are rare occasions like when there is a consistent bull run that is going on or that there is an unusual drop or climb of prices in a short period of time.

Would you want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he blogs about several interesting topics such as investments, financial management, business, making financial online and Stock market investing

A lot of people have asked me on whether they should invest in the Philippine stock market. Most of those who asked also wanted to know how to start doing it. I do not know if they are really serious about investing or if they are merely curious about it since it has been given emphasis lately considering its very positive performance.

The Philippine stock market or the stock market in general is not a child’s play ground. If you are a true investor, you must have expectations as to how much you are going to earn for a certain type of investment. This is measured in terms of how much your money will grow at a certain period of time. (The most common measure being interest per annum) Since the Philippine Stock market is at its peak for months now, people think that they should join the party even they do not understand how it works. They are even naive with the basic principles involve. This is not to say that you should be an economist before you start investing.

The point I am making is that you should understand the basic principles first before you will be successful in the stock market. It is true that fortunes are made on the Stock market, however there are also stories of people loosing a large amount of their money. Other who just dive into the stock market without knowing the basic principles of investment quit after some time, telling themselves that the stock market does make any money for anybody.

Before discussing the details on how to invest in the Philippine stock market we must first have a good grasp on the basic principles of investment in order that we might possibly succeed and enjoy trading. There will be ten principles that will discussed. The first one will be discussed here. Other points will be discussed in the articles to come. Please visit my blog if you wish to see the article in its entirety.

1.) You must realize that the stock market is just another vehicle of investment – There are several investment vehicles where you could place your money. One is not more superior than the other. They have their advantages and disadvantages, but this will not be discussed in depth here.

The stock market belongs to a category called “Capital Markets.” In the Capital Market there are several vehicles wherein you could place your money in order for it to grow. You could place it in bonds, pension funds, insurance, real estate, different types of savings and time deposit accounts and of course the stock market. Why is it important to know this? Well, you should know the different types of investment vehicles under the Capital markets in order for you to determine whether or not you should invest in the Stock Market as there are other vehicles of investment.

As I said each of them has their own advantages and disadvantages. What I personally did is not to place all of my eggs in one basket. I have invested in most of the Capital Markets including the stock market, insurance, pension, deposits, and bonds through mutual funds.

Would you want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he blogs about several interesting topics such as investments, money management, business, making money online and Stock market investing

This is the last installment of the series on stock market investment principles. We discussed about the first seven principles in the past three articles. Now we will be discussing the last three principles. If you wish to view the article in its entirety please visit my blog.

8.) Take time to study- Investing in the stock market requires that you should take time to study what it’s all about. You can’t expect to succeed if think that you can just place in your money and hope that it will somehow grow by itself. Studying a lot of books and materials on the stock market will certainly help. When I first started investing I searched for materials in the internet regarding the stock market especially the Philippine stock market. I bought the “investor’s primer” from the Philippine stock exchange. This is a great material for those who are new to the Philippine stock market.

You can also attend seminars on how to trade in the stock market. Several brokerage firms have conducted free seminars for those who are new to the stock market. I attended a 2 day seminar by CITISEC Online last year. CITISEC online is one of the most innovative, well managed and most active brokerage firms in the country. The information that you could learn is astounding. Studying the stock market requires continual study. You should not stop learning.

Read all the materials you can and attend all the seminars you can in order to learn. Don’t be discouraged when there are terms you could not understand. For example just reading this post alone, you would probably raise your hands and tell yourself not to invest anymore since there are some terms you could not understand. You don’t even know what “points” are when I was talking about them in point number 2. You don’t even know what the heck is the Philippine Stock Exchange Index (PSEi) or what does “Blue Chips” or “Bull run” mean. Worse you don’t even understand what a stock is and how it basically works. But so what? I started out not knowing what some of these things are.

Most of these things were never taught in school. But I learned slowly by reading and experiencing it myself. You should watch the movie “Pursuit of Happyness” You will be inspired on how one man’s struggle to learn the stock market has led him to make millions through stock market trading.

9.) News Clues – Know today’s news and use them to your advantage. There are a thousand factors that are in the news that will definitely have an effect as to which direction the market will take. The most important page that an investor should read is the business page. This will give you an idea as to which stock should be bought or sold. My preferred daily news reading is the Philippine Daily Inquirer. I get ideas here on the possible directions the market will take.

10.) You must start now – The best way to learn is to experience it yourself. Start small if you wish but start now. Don’t procrastinate. However don’t rush immediately without studying how to go about it. After you have at least learned the basics of investments then you can start buying your first stock. There’s nothing more exciting when you have made your first sale at a profit.

Want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he writes about several interesting topics such as investments, financial management, business, making financial online and Stock market investing

Trading options has several advantages over trading in ordinary shares (stocks). This method of trading can also be high risk if you do not know what you are doing. We will briefly look at the different scenarios.[youtube:uOtTXa1WUak;Steps to Success with [link:Option Trades];http://www.youtube.com/watch?v=uOtTXa1WUak&feature=related]

The popular advantage of options is that you can make a lot bigger profits than if you should invest a similar amount of money in normal shares. The reason for this is what is called leverage in trading circles. Let us say you’ve got only $100 to invest and the price of your favorite stock is $100. So you can only buy a single share. Not a big deal.

Let’s see how it works. If you have $10,000 to invest and the price of a particular share is $100, you can buy 100 of those shares. If the call option on that share sells for $2, you can buy 1 option and spend only $200. For this $200 you can control 100 shares of the stock also, similar to buying 100 shares of stock. Unfortunately, as we said, leverage is a double-sided sword. If the underlying goes up, you make be a very prosperous option trader, but if not, you could lose your shirt.

Buying just calls and puts can be a very risky business. We find that it is much safer to trade option spreads. To learn more about option trading, there are many free videos on Youtube. Some of the best will be by sjoptions. They focus on safety and low risk trades.

The traditional function of trading options used to be to hedge an existing investment. If you, for example, had shares in a certain company of which the share price recently went up quite a lot, you can hedge your position by buying put options on that stock. Should the price go down, you will lose money on the shares themselves, but make money on the put options. This is a basic way to protect your investment. The downside is that if the share price should rise, you will in turn make a profit on the shares themselves but lose money on the put options, which will cut into your profits. There are many other ways to hedge with options than this type of option trade.

Find out more about option trading and how can work for you. With the right option trading system in place you can make lots of money. Set up your future today with a great way to earn cash!

Brought to you by trend trading systems.

Probably you know by now that the big boys don’t play nice. In the stock market, institutional and other investors with large sums have much more influence on events than the average trader. One way they do that is through the use of something called ‘program trading’, the purchase (or sale) of a group of shares, usually by automated buy/sell orders.

Originally the term had little to do with ‘computer program’. Program Trading got its name when index funds and other institutional investors embarked on large-scale trading to replicate a stock index. Before long, clever statistical analysts joined hands with even more clever arbitrageurs to try to ‘beat’ the market through the use of sophisticated trading algorithms, assisted by (then) new, high-speed computer programs.

Fundamental analysis met technical analysis and introduced themselves to software. The rest is rather bumpy history. In one famous case, though some studies deny this, it may have contributed heavily to the well-known Black Monday of October 1987 when the market dropped by over 20% in one day.

While not the largest drop in history (a larger percent decline occurred in 1914 and later a larger point drop, in 2001), nevertheless within one day, 500 billion dollars evaporated from the Dow Jones index. And, the event continued in markets around the world. Hong Kong shares fell over 45% (some say this happened before the U.S. decline – accounts differ) and London over 26%.

Out of favor for, oh say maybe a day, program trading continued – albeit after a few software tweaks. New SEC rules were devised and major market players altered thresholds to slow or halt trading when certain percentage declines are reached.

While the NYSE defines a program trade as a basket of 15 stocks or having a total value of $1M (or more), trades can be executed in small lots (100-300 shares, for example). In theory, this allows orders to be completed before other investors get wise, and helps avoid large price movements before positions are solidified or liquidated.

As finance professors and large-firm specialists develop ever more sophisticated methods of taking advantage of small price discrepancies across global markets, program trading becomes ever more complex. In many cases, the individuals involved don’t themselves understand well the consequences of implementing a particular strategy.

Program trading now comprises over 50% of NYSE volume on average and it can introduce large swings in a few stocks or large portions of the market. Clearly, the big boys wouldn’t bother unless they believed – backed now by decades of studies – that there was an advantage in using the technique.

But whether villain or savior, it’s here to stay. Over 50% of the volume on one exchange that trades over 1.6 billion shares a day is a huge amount of arbitrage activity. That effect can work against the average investor or for him, but only if included in a trading strategy that pays attention to where those trades are going.

For more please see ETFtrendtrading.com and What Are the Largest ETF Companies?.

Brought to you by make a living trend trading.

‘SOFT’ FACTORS

The first thing to consider about investing isn’t technical at all. EPS, P/E, P/S, MA and EMA, RSI and dozens of other indicators are all important. But start at the beginning by looking not outside, but in.

What kind of investor are you? Young with a little capital to risk but a large earnings potential over several decades? Retired, or near it, with a healthy savings but living on limited income?

And, more psychologically, what’s your temperament for research and your tolerance for risk? Are you comfortable with statistics or intuitive? Are you detail oriented, or tend to look at the big picture? Not mutually exclusive categories, to be sure.

All these factors will influence your investment strategy. You do have a strategy, right? If not, go back to square one and develop that first.

‘HARD’ FACTORS

PEG – Projected Earnings Growth

Traditionally, Price to Earnings (P/E) ratio was a helpful indicator of value. Low price, relative to large earnings (per share) suggested a company’s share price would likely rise in the future. But that was before thousands of new companies entered the public markets and when investing meant buying Coca-Cola stock.

But P/E isn’t entirely useless, even today. Just supplement it with a little more information to calculate the PEG – Projected Earnings Growth.

Calculate PEG by taking the P/E and dividing it by the projected growth in earnings. For example, a stock with a P/E of 20 and projected earning growth next year of 10% would have a PEG of 2 (20/10 = 2). The lower the number the less you’re paying for a unit of future earnings growth. Therefore, a company with a high P/E may still be a value if it has a high projected earnings.

Of course, the key is getting accurate projections. While no one can predict with certainty, many Internet sites provide those numbers and over time, with diligence, you can find one you trust.

Just as deciding to buy is, in small part, finding a large PEG stock, electing a time to sell means estimating when PEG is likely to take a turn downward. So, tracking PEG over time in the form of a simple chart should be a weekly (or more often) task on your research list.

ROE – Return On Equity

Some companies can make silk purses out of pigs ears, others couldn’t make a profit if they were given Apple’s engineering and marketing teams for free. Return on Equity is one measure of how well a company uses its assets to produce earnings. (By the way, silk comes from worms, not pigs.)

Easy to calculate, simply divide Net Income by Book Value (assets minus liabilities). Both numbers needed are easy to obtain from Internet sites. Three percent is low, 15% is healthy – but be sure to compare to other companies in the same economic sector, and track the number over the long term.

Obviously, when projected ROE is high (based on historical trend) you want to buy. Timing the sell is a matter of estimating when ROE is trending downward.

Some factors to consider for the latter involve major mergers which look to be unwise (HP acquiring Compaq is one example), major technology or management changes (this can be positive or negative), lawsuits initiated or settled, and general economic factors influencing that company more than others.

Continually add to your database and your toolkit. Track the numbers and add new numbers to track. MA – moving averages and RSI – Relative Strength Indicator are two of the more common technical indicators used, for example. After you’re comfortable with those, seek out some of the methods of quantifying risk.

And don’t forget to develop that strategy. Tools are useless if you don’t know what you want to do with them.

For more please see trend trading system review and trend trading.