When To Buy And Sell

The mechanism of buying and selling is quite easy. It is as easy as pressing a button in front of your computer screen. The question of when investors should buy and sell warrant a more detailed analysis.

When to sell: Ideally, we should sell when a stock reaches its fair value. There are 9 other reasons to sell but I won't cover it here. So, what is a stock's fair value? I have covered this plenty of time. But, in general, a stock reaches its fair value when it is yielding 3% above the current free risk interest rate. I am using 10 year treasury bond as a proxy for free risk interest rate. Currently, the 10 year bond is yielding 4.46%. Fair value of a stock is therefore when it is yielding 7.46%. Inverting yield, we then got the widely used Price Earning Ratio. Yield of 7.46% corresponds to P/E ratio of 13.4

When to buy: This is an easier question to answer. We, of course, should buy stock lower than we sell. If we sell the stock at a P/E ratio of 13.4, then we should buy it when the P/E ratio is less than 13.4. How much lower ? It depends on how much return you aim for. If, say, you are aiming for 50% return, then your buying price is when the stock is trading at a P/E of 8.93. If you are aiming for a 34% return, then your buying price is at a P/E of 10.

In short, we should buy at a P/E of 8.93 and then sell at a P/E of 13.4, correct? Yes, but with a lot of caveats. I've covered those caveats in 5 common misuse of P/E ratio. To emphasize, the P/E ratio used here is not trailing P/E ratio, does not ignore the value of cash in the balance sheet, does not ignore one-time event and does not ignore the change in interest rate. At this point, I am ignoring earning growth simply because the fair value calculation is for a company with 0% growth.

You might be wondering where you might find stocks that are trading at a P/E of 13, let alone 8.93. Here is a few candidates to help you getting started. Seagate Technology (STX) has a forward P/E of 7.5 and $ 2.30 per share of net cash in the balance sheet. Western Digital Corporation (WDC) has a forward P/E of 9.75 with $ 2.65 per share of net cash. OmniVision Technologies Inc. (OVTI) is trading at a forward P/E of 10.3 with $ 5.30 per share of net cash. Magna International (MGA) is trading at a forward P/E of 9.72 with $ 4.58 per share of net cash.

Please note that this is not a buy/sell recommendation. You would do very well if you do your own homework.

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Read More..

What You Need To Know When Trading Derivatives And Futures

This ...

Keywords:

Derivatives Market Option and Future,Derivative Financial Market,What are Derivatives

Article Body:

Hello Fellow-Investor.

The Derivatives and Futures Market is the most potentially profitable market in the world. But it can be the most distructive one too!

Derivatives

A derivative is a financial term for a specific type of investment from which the price over a certain time is derived from the performance of the underlying asset such as commodities, shares or bonds, interest rates, exchange rates or indices like stock market index or consumer price index.

This performance can determine both the amount and the timing of the payoffs. The diverse range of potential underlying assets and payoff alternatives leads to a huge range of derivatives contracts available to be traded in the market. The main types of derivatives are Futures, Forwards, Options and Swaps.

Futures

A futures contract is a standardized contract, traded on a futures exchange

to buy or sell a certain underlying asset. at a certain date in the future, at a pre-set price.

The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. The futures price, normally, converges towards the settlement price on the delivery date.

A futures contract gives the holder the right and the obligation to buy or sell, which differs from an options contract, which gives the buyer the right, but not the obligation, and the option writer (seller) the obligation, but not the right.

In other words, the owner of an options contract can exercise (to buy or sell) on or prior to the pre-determined settlement/expiration date. Both parties of a "futures contract" must exercise the contract (buy or sell) on the settlement date.

To exit the commitment, the holder of a futures position has to sell his long position or buy back his short position

effectively closing out the futures position and its contract obligations.

Futures contracts, or simply futures, are exchange traded derivatives. The exchange acts as the counterparty on all contracts and sets margin requirement etc.

Forwards

A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time. Therefore, the trade date and delivery date are separated. It is used to control and hedge risk.

One party agrees to buy, the other to sell, for a forward price agreed in advance. In a forward transaction, no actual cash changes hands. If the transaction is collaterised, exchange of margin will take place according to a pre-agreed rule. Otherwise no asset of any kind actually changes hands, until the contract has matured.

The forward price of such a contract is commonly contrasted with the spot price which is the price at which the asset changes hands ( on the spot date, usually the next business day ). The difference between the spot and the forward price is the forward premium or forward discount.

A standardized forward contract that is traded on an exchange is called a futures contract.

Futures vs. Forwards

While futures and forward contracts are both a contract to trade on a future date, key differences include:

- Futures are always traded on an exchange, whereas forwards always trade over-the-counter.

- Futures are highly standardized, whereas each forward is unique

- The price at which the contract is finally settled is different:

Futures are settled at the settlement price fixed on the last trading date of the contract (i.e. at the end)

Forwards are settled at the forward price agreed on the trade date (i.e. at the start)

- The credit risk of futures is much lower than that of forwards:

Traders are not subject to credit risk due to the role played by the clearing house. The profit or loss on a futures position is exchanged in cash every day. After this the credit exposure is again zero.

The profit or loss on a forward contract is only realised at the time of settlement, so the credit exposure can keep increasing

- In case of physical delivery, the forward contract specifies to whom to make the delivery. The counterparty on a futures contract is chosen randomly by the exchange.

- In a forward there are no cash flows until delivery, whereas in futures there are margin requirements and periodic margin calls.

Options

An option is a contract whereby one party (the holder or buyer) has the right but not the obligation to exercise a feature of the option contract ( e.g. stocks ) on or before a future date called the exercise or expiry date.

Since the option gives the buyer a right and the seller an obligation, the buyer has received something of value. The amount the buyer pays the seller for the option is called the option premium.

Most often the term "option" refers to a type of derivative which gives the holder of the option the right but not the obligation to purchase (a "call option") or sell (a "put option") a specified amount of a security within a specified time span. (Specific features of options on securities differ by the type of the underlying financial instrument involved.)

Swaps

A swap is a derivative where two counterparties exchange one stream of cash flows against another stream. These streams are called the legs of the swap. The cash flows are calculated over a notional principal amount. Swaps are often used to hedge certain risks, for instance interest rate risk. Another use is speculation.

Swaps are over-the-counter (OTC) derivatives. This means that they are negotiated outside exchanges. They cannot be bought and sold like securities or future contracts, but are all unique. As each swap is a unique contract, the only way to get out of it is by either mutually agreeing to tear it up, or by reassigning the swap to a third party. This latter option is only possible with the consent of the counterparty.

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Read More..

WHY THE FINANCIAL NEWS MEDIA CAN COST YOU MONEY!

The communication innovations we have around us today like the internet, financial newspapers, and special interest television channels focused on investing like CNBC are a high speed pipeline of nonsensical chatter. All these sources of information mean that there is no shortage of media people trying to answer our questions about the stock market and specific stocks. You have to remember that the news media are constantly competing to survive against other stuff you can watch. If they don抰 always sound like they know exactly what is going on then you won抰 watch their presentations. If you don抰 tune into their show then their ratings go down. If their ratings go down they get fired and their show gets cancelled.

This means that financial journalists are in the business of finding great stories and sounding like authorities no matter what. The stock market is a great place for them to dig up news 憇coops?to feed to the public. They don抰 really check their facts very well and sometimes not at all. This means that if some insider wants to feed you a line of bull manure then all they have to do is maintain good connections with financial journalists, sponsor an investment show, or outright buy an investing TV channel like Jack Welch the CEO of GE did when he set up CNBC. What a great way for inside executives to control the flow of news information to the public then to actually own one of the only financial news channels卋ut not so great for you!
These journalists also kick up the fire by bringing in so-called 慹xperts?to talk about each side of some topic that real experts would not consider important.
This just makes it all the more confusing for the public to understand what is important when buying or selling a stock. Shows on CNBC like 慍losing Bell? 慘udlow & Company? and 慚ad Money?do nothing but confuse and misdirect the attention of most individual investors in the public. Even worse this means that the financial news media allows overpriced stocks to be recommended through analysts in the inside web that inside executives are dumping on the public because they are trying to get out. This actually happened at the top of the bull market in 1999. For a great historical description of what happened read Maggie Mahar抯 book entitled 揃ull.?

The famous Yale University Economist, Prof. Bob Shiller, Ph.D. is particularly harsh on the media in his book 揑rrational Exuberance.?Dr. Shiller is one the economists that Alan Greenspan respects most and where he got the term 揑rrational Exuberance.?He portrays the media as sound-bite-driven where superficial opinions are preferred over in-depth analyses. I agree whole heartedly with him and contend that it is also done just because the industry would rather have the retail investor confused and emotionally pliable to get you to buy and sell when they want with total disregard for your best interests!

People who had invested their life savings in the stock market were ripped off in the stock market because the financial news media and analysts were hyping up what a great buy stocks were at the very top of the market in 1999 and 2000. At the same time inside corporate executives were selling out everything they had. What is amazing is that our federal government in the form of the Security Exchange Commission never did a thing about it. There was never a blanket case taken or an outcry that almost all of the inside executives had somehow magically sold out of the market six months before the market crashed.

Here is the valuable tip I want you to consider: when you are a beginner investor it is important that you DO NOT WATCH THE FINANCIAL NEWS OR READ THE FINANCIAL NEWSPAPERS! Don抰 let the stock market industry lead you around by the nose like livestock to the slaughter house. Don抰 listen to what they want you to listen to. You should focus on learning what is important in the stock market and the mass media will only confuse you until you have educated yourself.
Recommended reading:
1. Mahar, M. Bull! A History of the Boom, 1929-1999 (New York, HarperBusiness , 2003)
2. Shiller, R., Irrational Exhuberance, (New York, Broadway Books, 2000)

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Read More..

縋or Qu?Los Medios De Noticias Financieras Le Pueden Costar Dinero?

El adelanto en las comunicaciones que tenemos hoy en d韆, como el Internet, peri骴icos financieros y canales de la televisi髇 enfocados a la inversi髇, como CNBC, son medios de informaci髇 de alta velocidad llenos de habladur韆s absurdas. Todas estas fuentes de informaci髇 son indicadores de que no hay escasez de personas en los medios que intentan contestar nuestras preguntas acerca del mercado de valores y en especial sobre acciones. Usted tiene que recordar que los medios de noticias compiten constantemente para sobrevivir contra otros canales, el cual usted puede o no ver. Si ellos no se escuchan como si supieran exactamente lo que sucede o de lo que esta en moda, entonces usted deja de ver sus presentaciones. Si usted no sintoniza sus exposiciones entonces sus 韓dices de programaci髇 bajan. Si sus 韓dices bajan ellos son despedidos y su presentaci髇 es cancelada.

Esto significa que los periodistas financieros est醤 en el negocio en b鷖queda de noticias o grandes historias para as?proyectarse como la autoridad en la materia, no importa que se hable. El mercado de valores es un gran lugar para ellos buscar noticias sensacionalistas que alimenten al p鷅lico. No verifican muy bien los hechos y algunas veces ni lo hacen. Esto significa que alg鷑 ejecutivo con informaci髇 privilegiada (搃nsider? que quiera provocar una expectaci髇 falsa todo lo que tiene que hacer es mantener buenas conexiones con los periodistas financieros, patrocinadores y programas de inversi髇, o abiertamente comprar un canal de televisi髇 como hizo Jack Welsh, director general de GE cuando 閘 creo CNBC. ue gran manera para los ejecutivos manipuladores de controlar el flujo de informaci髇 que el p鷅lico recibe a trav閟 de poseer uno de los pocos canales de televisi髇 de noticias financieras!?pero esto no es tan bueno para usted. Estos periodistas tambi閚 avivan el fuego al traer a grandes 揺xpertos?para hablar de los diferentes puntos de vista de un tema que los verdaderos expertos no consideran importante.

Esto solo hace m醩 confuso para el p鷅lico poder entender que es importante a la hora de comprar o vender valores. Los programas en CNBC como 揅losing Bell? 揔udlow & Company?y 揗ad Money?no hacen m醩 que confundir y dar una direcci髇 err髇ea a la mayor韆 de los inversiones que est醤 en el p鷅lico. Peor aun, esto significa que las noticias financieras que salen a la luz p鷅lica permiten a las acciones sobrevaluadas ser recomendadas v韆 an醠isis en el Intenet, cuando los ejecutivos manipuladores tratan de salirse del mercado. Esto hecho ocurri?en el tope del alza del mercado del a駉 1999. Para una gran descripci髇 hist髍ica de lo que ocurri?lea el libro de Maggie Mahar titulado 揃ull?

El famoso economista de la Universidad de Yale, el Prof. Bob Shiller , Ph.D. es particularmente duro con los medios en su libro 揑rrational Exuberance?(Exhuberancia Iraccional). El Dr. Shiller es uno de los economistas m醩 respetados por Alan Greenspan (presidente ejecutivo de la Reserva Federal de Estados Unidos) y de quien obtuvo el t閞mino Exuberancia Irracional. El Dr. Shiller describe a los medios como un lugar en donde las opiniones superficiales son preferidas sobre el an醠isis profundo. Estoy completamente de acuerdo con 閘 y entiendo que tambi閚 se hace solo porque la industria prefiere tener al inversionista individual confundido y emocionalmente vulnerable para que venda o compre cuando ellos quieran con total indiferencia de los mejores intereses del inversionista.

Las personas que hab韆n invertido los ahorros de sus vidas en el mercado de valores fueron saqueadas porque las noticias financieras en los medios y los analistas exageraban lo que era una gran compra de acciones en el mismo tope del alza del mercado en 1999 y el 2000. Al mismo tiempo los ejecutivos corporativos manipuladores vend韆n todo lo que ellos ten韆n. Lo que es asombroso es que nuestro Gobierno Federal en la forma del 揝ecurity Exchange Commission?nunca hizo nada al respecto. Nunca hubo ning鷑 caso o protesta en contra de estos ejecutivos, los cuales de alguna manera m醙ica, vendieron todas sus acciones seis meses antes de que el mercado colapsara.

He aqu?un valioso consejo a considerar por parte suya: Si usted es un inversionista principiante es importante que O VEA LAS NOTICIAS O LEA LOS PERIODICOS FINACIEROS! No permita que el mercado de acciones lo lleve a la bancarrota. No escuche lo que ellos quieren que usted escuche. Debe enfocarse en aprender lo que es importante del mercado de acciones antes de actuar. La prensa solo le va a confundir hasta que se haya educado.

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Read More..

What's Really Driving Your Portfolio Performance?

Many investors tend to focus on selecting the right stock to buy and choosing the perfect time to buy and sell. But some experts say these factors are a sure-fire way to damage portfolio performance.

According to Roger Ibbotson, chairman and founder of Ibbotson Associates and a professor in the practice of finance at the Yale School of Management, what really drives performance over the long term is asset allocation - the assignment of money to different categories of assets, such as large- and small-cap funds, international funds, bonds and cash.

"Over the long run, what drives performance is not whether you've picked the hot mutual fund, but which asset classes you hold in your portfolio and in what proportion," said Ibbotson.

To develop a long-term investment strategy, investors should evaluate their goals, time horizon and risk tolerance to determine an appropriate asset allocation and then select mutual funds to fill it.

An individual's investment goals, such as funding retirement, college or a vacation home, tend to guide the time horizon of the investment. If the investment horizon is fairly short, it is recommended that the investor maintain a conservative portfolio - one that has returns that don't fluctuate too much. If the investment time horizon is longer, an investor can be more aggressive in the early stages and move to a more conservative asset allocation as the goal nears.

Since everyone has a different emotional reaction to sudden changes in their portfolio value, it's important for investors to know their risk tolerance. This will determine an investor's ability to handle declines in the value of investments.

"Investors have a tendency to let emotions drive their investment decisions," Ibbotson said. "Chasing highflying funds that may have already peaked and selling on downturns can greatly depreciate the value of your portfolio."

Experts also suggest that investors evaluate their portfolio performance as a whole rather than look at how each individual investment is doing. Investors reduce their risk by investing in a variety of asset classes with the hope that when one is doing poorly, others will do well. - NU

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Read More..

When IRAs, 401(k)s, and Other Tax-sheltered Investments Don抰 Make Sense

Every year about this time, people start talking about and considering things like IRA contributions. Most of the time, tax-sheltered investments make great sense. The federal and state governments have designed their tax laws to encourage such savings. However, that said, there are three situations in which it may be a poor idea to use tax-sheltered investments:

You know you抣l need the money early

In this case, it may not be a good idea to lock away money you may need before retirement because there is usually a 10 percent early-withdrawal penalty paid on money retrieved from a retirement account before age 59 1/2. But you will also need money after you retire, so the 揥hat if I need the money??argument is more than a little weak. Yes, you may need the money before you retire, but you will absolutely need money after you retire.

You don抰 need to save any more for retirement

Using retirement planning vehicles, such as IRAs, may be a reasonable way to accumulate wealth. And the deferred taxes on your investment income do make your savings grow much more quickly. Nevertheless, if you抳e already saved enough money for retirement, it抯 possible that you should consider other investment options as well as estate planning issues. This special case is beyond the scope of this book, but if it applies to you, I encourage you to consult a good personal financial planner梡referably one who charges you an hourly fee, not one who earns a commission by selling you financial products you may not need.

Your tax rate will rise in retirement

The calculations get tricky, but if you抮e only a few years away from retirement and you believe income tax rates will be going up (perhaps to deal with the huge federal-budget deficit or because you抣l be paying a new state income tax), it may not make sense for you to save, say, 15 percent now but pay 45 percent later.

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Read More..

Where Do I Invest $100,000 And Up For X-Amount Of Time?

Having six figures to play with means you are doing something right, so pat yourself on the back.

Picking your strategy for this size of investment will involve choosing an aggressive strategy over one of steady growth; and that decision depends on how badly you would feel if you lost all of that money over night.

Any of the other strategies provided on my website will be sure to give you a good return as well, so here are a couple of general tips:

First, make sure you divide your money among different investments. You need to remember that FDIC insurance only protects each account up to $100,000, so never have more than that amount in any one bank.

Second, you need to diversify your investments. This amount of money is easily split-up and diversified into many different investments, and you should certainly do this. Check out my explanation of diversification to familiarize yourself with what aspects to look at.

Third, consider employing a professional money manager if you don抰 have time to manage it yourself. The worst thing you can do is make investments and not keep track of them. In theory, if you have made this kind of money, you are better off doing what ever it is you do to make money, and letting someone else help manage your money. This doesn抰 mean you don抰 stay involved, if anything you should be speaking with your manager weekly, if not daily to discuss strategy and performance. Think of them as your employee, not your guru.

Fourth and finally, have a lawyer review any contract for any kind of investment. Make sure they sign off that everything is normal and there are no special cases that could get you in trouble. This is another situation where you should stick to your skills in making and saving money, and let a professionally trained person handle specific areas of protection and management.

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Read More..