Warren Buffett's Four Rules to Investing in Stocks

Although many view Buffett's stock investing methods as very complex and confusing, his approach can actually be boiled down to four key rules.

A Stock Must Be Stable and Understandable

Although this might go against the grain of common conception, Buffett heavily relies on stable companies because they allow him to accurately predict the future cash flows of the business. This is essential because without being able to estimate these numbers, he's unable to determine the true value of the business. Remember, at the end of the day, Buffett is buying companies that he believes are trading for less than what they are worth.

Buffett also doesn't like to purchase companies that are difficult for him to understand. His opinion is that 1 share is no different than owning the entire business. Understanding this mindset, it becomes obvious why he wouldn't like owning stock in a company that's a new technology start-up or other businesses in this arena.

A Stock Must Be Managed by Vigilant Leadership

This is a very important tenant for Buffett because he's of the opinion that vigilant leadership is managed by people that avoid excessive debt. Although it's difficult for novice investors to intimately understand the characteristics of a company's leadership, metrics can still be used. For example, if you look at a company's debt to equity ratio, you can get a quick glimpse of the corporation's history and whether they have over extending themselves. Buffett really likes to find businesses that are conservatively managed. Again this adds to stability and ultimately predictable future cash flows.

A Stock Must Have Long-Term Prospects

In an effort to avoid paying enormous capital gains, Buffett relentlessly seeks companies that have a durable competitive advantage. Although this might be difficult to find during reasonably priced market conditions, deals can always be found. The time for really capitalizing on businesses that meet this criteria is during recessions. There's a reason Buffett says to be fearful when others are greedy and greedy when others are fearful.

A Stock Must Be Undervalued

This may be the most difficult part for new investors to implement. Buffett is well known for using an intrinsic value formula to calculate the value of his stock picks. For novices this might be a little hard starting out. In short form, Buffett values businesses by estimating how much the company will continue to earn into the future. After this estimation is complete, he then discounts that future cash flow by a reasonable discount rate. This difficult task is practiced by few and attempted by many.

This article may make Buffett's rules look easy, but implementing this process over an extended period of time is difficult. Something else to consider is that all four of these rules must be met in order for Buffett to ultimately purchase stock.

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Stock Buying Tips For Beginners

3 Tips for Beginner Investors

Trying to learn the stock market on your own through trial and error is about as easy as tickling a grizzly bears paw and walking away unscathed. And unfortunately, if trial and error is your strategy, the end result won't be too different either. What you need to understand is that even the most successful stocks and options traders has had their lunch eaten for them at one point or another, but through the tips and tricks outlined here, they picked the pieces back up and went from beginners stock trading to investment pro.

Fortunes are made and lost everyday in the stock market. Whether you are trading penny stocks or blue chips, day trading or taking a more conservative long term approach, there are tactics that will earn you an incredible payout, and there are others that will have you financially flatlining in the tick of a NYSE minute.

This article will give you 3 tips on how to successfully navigate today's volatile market and come out on top. We'll go over how to judge which stock market shares to invest in and which ones you shouldn't, as well as a few pointers on how the market actually works at its core. I look forward to your comments and any further advice you can offer our readers.

3) Watch The News

It's no secret amongst the most successful investors that the stock market is ran by emotion. Excitement and fear are directly tied to the rise and fall of stock share prices and values. Take Apple (AAPL) for example; with the recent release of the iPhone 5 many shareholders were expecting a surge in value, as has been the norm with every other major release over the last decade or so. But due to a sub par maps app replacing the Google maps app and the subsequent poor reviews the stock dropped by nearly $50 a share. The performance of the new maps feature didn't seem to affect sales, but the market definitely lost certainty in the tech giant and the stock suffered for it.

Pay attention to recent press releases on the company you're interested in investing in and also the volume at which it is trading. Positive news and high trade volume often will equate positive returns, while negative press and high trade volume is usually a good indication that it is not one of the best stock shares to be investing in at that time.

2) Know When to Hold Them and When to Fold Them

In some respects, the stock market is a lot like a game of poker. There's a huge pot to be taken by the player with the right hand, or, the right approach to that hand. Stocks, like poker, is a zero sum game. In order for one player to win, another must lose and also like poker, statistically speaking the odds are not in your favor that you will win every hand that you play. With that being said, you need to know when to hold onto a stock and when to cut your losses and run for the hills. Setting clearly defined goals for your investments is a great way to mitigate your losses and maximize your returns. Where you set these goals is dependent upon your level of risk tolerance. A good rule of thumb is to set your sell line at 15-20%. If you see a 20% upswing in your stock then be happy with the money made and get out while the gettin' is still good. Chances are the stock will rise and fall for some time and by selling at a set percentage and rebuying at a lower percentage you leverage your investment and really start to compound those gains. This is the essence of day trading.

1) Diversify and Thrive, Consolidate and Die

One of the biggest mistakes beginning investors make is to consolidate all of their investment power into one so called "sure thing". First and fore most, there is no such thing as a sure fire bet in the stock market, only educated guesses at best. Second, putting all of your eggs in one basket is about as smart as betting it all on Black 17. Yes, the potential for huge earnings is there, but with it is the potential for a financially crushing blow. A smart investor will spread his bet across the market. Find a few stocks that have been performing well and watch them for a week or two, Acclimate yourself to their swing patterns and make knowledgeable investments in a variety of sectors. While it may be tempting to bet the farm on what you believe to be a barnburner, you may end up doing just that, burning your investment power away and driving yourself and your family to financial ruin.

The question you need to ask yourself at this point is, "How serious am I about becoming a successful stock trader?" If your answer is that you are serious and you want to truly up your game then the strongest suggestion I could make to you is to enlist the help of either a personal investment coach or invest in a program that can take a lot of the guess work out of the game for you. There are people out there far smarter than us who have made it their business to know as well as you can know what the stock market is set to do, and they have created powerful algorithms to help us make the smartest decisions possible when it come to investing our hard earned money.

With that being said, best of luck out there, and may the market always be a bull for you!

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70% Or 1.7 Billion Facebook Shares Unlock in October and November 2012 - Interesting

The Facebook rise and IPO will be studied by business students, stock analysts, regulators, and Wall Street for decades to come, not merely because it was the second largest ever, but more because of the fallout afterwards and the chaos which ensued the day of the offering. Apparently, in hindsight we see that the Facebook IPO was mispriced and that's perhaps what started the problems, as it never got the IPO first day boost that it really should have.

This coupled with the earnings per share at a multiple well above the average on the stock market meaning as things settled down so too did the stock. Then came the big kicker, in October and November of 2012 nearly 70% of the pre-IPO stock unlocked and those original investors, executives, employees could all sell their shares on the open market. This could be a real problem for the company's stock as it sends the stock lower temporarily, unless Facebook finds a way to generate huge sales growth and earnings it could lose its luster - which could very well affect its notoriety, brand name, and "coolness" and that means it may not be well "liked" as it once was by users, investors, and on the global stage of social networks.

What many people may not understand is that if Wall Street turns its back on Facebook, and the investors do as well, it will lose its luster, its image, and its future ability to brand itself as the leading social network. Therefore, whereas what happens on Wall Street may not be of concern long-term for the leadership at Facebook, at least not presently, it will very much impact the future viability of the company, and its credibility with all of its users. Am I suggesting that Facebook will someday implode?

No, not necessarily, and although it is possible, it may just end up fading away as MySpace had in the past. Some might say this is impossible, but if you consider how the Internet works, and how in any five-year period there will be large companies come and go, then you can understand that this is a distinct possibility.

Consider companies like Yahoo and Northern light in the search engine space. Yes, those companies are still going, but they are no longer the leaders that they once were. Another one might be AOL, and I think at this point you're beginning to see what I'm trying to say here. Indeed I hope you will please consider all this and think on it.

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Market Seasonality Revisited!

Twice a year, in April and October, I remind you of the market's remarkable seasonality, the popular version of which is known as 'Sell in May and Go Away'. It calls for getting out of the market on May 1st each year and back in on November 1st.

As with most investment strategies, most investors have only short-term thoughts regarding it. If it worked out the previous year or two, "Well just maybe I'll consider it for next year." And if it didn't work out the previous year then clearly it's either just a silly theory, or a strategy that may have worked in the past but the pattern has obviously come to an end.

And like all strategies, especially buy and hold, it doesn't work in every individual year. But it doesn't have to in order to produce remarkable outperformance over the long term. That's because in years when the market makes more gains in the unfavorable season when a seasonal investor is out, the seasonal investor doesn't have a loss, but merely misses out on additional gains. But when the market does have a correction in the unfavorable season, its losses can be well into double-digits, which the seasonal investor avoids.

It's a shame more investors don't take the time to obtain the facts.

The seasonal effect is so pronounced that investing based solely on those calendar dates succeeds in the difficult task (even for professionals) of outperforming the market. And it does so while taking only 60% of market risk, a very important consideration.

You don't have to take my word for it. Independent academic studies provide indisputable proof.

For instance, a 27 page academic study published in the American Economic Review in 2002 concluded, "Surprisingly we found this inherited wisdom of Sell in May to be true in 36 of 37 developed and emerging markets. Evidence shows that in the U.K. the seasonal effect has been noticeable since 1694... The risk-adjusted outperformance ranges between 1.5% and 8.9% annually depending on the country being considered. The effect is robust over time, economically significant, and unlikely to be caused by data-mining."

And a new 54-page study by Ben Jacobsen and Cherry Y. Zhang at Massey University in New Zealand, was just released a few days ago. It's titled The Halloween Effect: Everywhere And All The Time. It refers to the 'Sell In May' pattern as the 'Halloween Effect', selling May 1 and re-entering the day after Halloween, October 31.

It confirms and adds to the findings of previous studies. A few quotes from it: "Observations over 319 years show November through April returns are 4.5% higher than summer returns. The effect is increasing in strength. Over the last 50 years the difference between the two periods is 6.2%. It does not disappear after discovery, but continues to exist even though investors may have become aware of it... It is significant in 35 countries... stronger in Europe, North America, and Asia than in other areas... The odds of the strategy beating the market are 80% for horizons over 5-years, and 90% for horizons over 10-years, with returns on average of around three times higher than the market."

I've always given credit for the discovery and coining of the phrase 'Sell in May and Go Away' to researchers in the 1970's. But this new study reports "a mention of the market wisdom "Sell in May" in the May 10, 1935 issue of the Financial Times, and the suggestion that at that time it was already an old market saying."

But the market obviously does not roll over into a correction exactly on May 1 each year, or begin a new favorable season rally on November 1 each year.

So the Street Smart Report seasonal strategy, developed in 1998, incorporates the MACD technical indicator (Moving Average Convergence/Divergence) to more closely identify the seasonal exits and re-entries.

It is a significant improvement over the basic Halloween Indicator. Under its rules an exit signal can come as early as April 16, but will be delayed if MACD remains on a buy signal at the time. In the fall, the re-entry can take place as early as October 20, but will be delayed if MACD is on a sell signal at the time. Of interest as we enter October, its re-entry signals have been as early as October 20, but also as late as November or even early December.

Mark Hulbert, of Hulbert Financial fame, has been tracking various versions of seasonal timing strategies since mid-2002. In an update in a current article on MarketWatch, he reports that the Street Smart Report version of seasonal timing has gained an average of 8.5% annually since mid-2002, compared to the Halloween Indicator's average annual gain of 6.9%, and the market's average gain of 5.7%, and while taking only 60% of market risk.

This year, seasonality seemed to be working out right on the button when the Dow topped out on May 2 and by June 4th the S&P 500 was down 9.1%. But the big rally off the June low has the Dow now recovered and 2% above its May 1 peak. So this might be one of those years when seasonality does not work out.

And yet, with at least the Street Smart Report's seasonal signals out of the unfavorable season sometimes coming as late as late November, there's still plenty of time for a correction first, before a favorable season rally to new market highs by next spring.

Either way, investors would do themselves a big favor by checking out the facts about seasonality. Click here to read the latest independent academic study http://www.ssrn.com/abstract=2154873

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Are Rescue Efforts Too Late To Prevent A Global Recession?

Economic growth continues to slow at an accelerated pace globally, not just in Greece and Spain, and other euro-zone countries in the headlines, but in the world's ten largest economies of the U.S., China, Japan, Germany, France, the United Kingdom, Brazil, Italy, India, and Canada. The 17-nation eurozone as a whole is already in a recession. Many other nations are just barely keeping their heads above water.

A number of global stock markets saw the problems coming and are already in bear markets. The market of China, the world's second largest economy, is down 32% over the last 24 months on concern that its economy is coming in for a hard landing. Japan's market, the world's third largest economy, has lost 19% of its value over the last 18 months, and in spite of the June rally is down 14% just since May. Brazil's stock market is down 20% over the last 18 months as its previously booming economy slows significantly.

In the U.S., even though its stock market is at multi-year highs that might have one think its economy must be booming, the economy is just scraping along and slowing further, with GDP growing at just a 1.7% pace in the 2nd quarter, and corporations warning of still slower conditions ahead.

The problem, another stall in the recovery from the Great Recession of 2008, has been obvious all year. But those who could at least try to come to the rescue have been reluctant to do so again, perhaps because their previous rescue attempts were not lasting and they're running out of ammunition.

Panicked by the market correction of April to June, in which even Europe's strongest economy, Germany, saw its market plunge 16%, European Central Bank President Draghi issued his now famous promise that "The ECB will do whatever it takes to save the euro".

Markets waited for six weeks, but the ECB finally revealed yesterday what those efforts will be - unlimited buying of the bonds of troubled euro-zone governments that request bail-outs.

It's the ECB's third bond-buying program in recent years. This one is more aggressive than the previous two and is given better odds of working to solve the euro-zone's debt crisis.

But I was surprised the ECB's "whatever it takes to save the euro" effort did not include cutting interest rates to also stimulate the eurozone economy.

Meanwhile, concerns are already rising that its announced program of unlimited bond-buying may even worsen the euro-zone's recession, since the program requires governments that request the debt bailout to adopt and adhere to strict austerity measures in order to qualify for the bond-buying, including reducing government spending, and cutting wages, pensions, and services even further.

Meanwhile, in China, the hoped for aggressive economic rescue has not been forthcoming, with analysts expecting any major stimulus to be put off until after the new Chinese leadership takes over later in the year and gets a chance to act, probably not until early next year.

In the U.S., the Federal Reserve has already cut interest rates close to zero, and provided several rounds of aggressive bond-buying in the form of QE1, QE2, and last year's 'operation twist'. It has seemed reluctant to act again, saying only that it's monitoring the situation and will take action if needed, while successfully fueling a stock market rally on that assurance.

As revealed in the minutes of its last FOMC meeting and Fed Chairman Bernanke's recent speech from Jackson Hole, the Federal Reserve's biggest worry is employment.

Over the last few weeks it looked like the Fed might get by with putting off action again. The employment picture seemed to improve dramatically since its last FOMC meeting. It was subsequently reported that 163,000 new jobs were created in July, much better than expectations, and this week's ADP jobs report showing 201,000 new jobs created in August indicated the improving trend continued.

So the Fed may have been shocked when the Labor Department's report on Friday showed only 96,000 new jobs were created in August, and the previous report of 163,000 new jobs in July was revised down to 141,000.

So now the pressure is back on the Fed to act at its meeting next week.

But does all the previous reluctance of central bankers to act have them so far behind the curve of a potential global recession that by the time the actions are announced, implemented and begin to have an effect, it will be too late? The ECB estimates it will be a month before it gets all the approvals it needs and can begin to implement its new bond-buying program. China's central bank and the U.S. Fed have yet to even announce a new program.

It's still a time to be cautious about investing in equities. Economic slowdowns worsened even as markets spiked-up in a rally since June fueled entirely by hope, a rally that already factored in much of what can be hoped for from the belated and in some cases still absent rescue efforts, a rally that has the market at multi-year highs, a feat usually accomplished only in times of booming economic conditions.

So, it's not just that central banks are behind the curve, but that markets may be well ahead of not only the central banks, but economic prospects.

On the positive side, I like gold on which our indicators triggered a new buy signal (after being on a sell signal since February 29). And in the interest of full disclosure, I and my subscribers have a 20% position in the gold etf GLD.

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The Three Important Parts of Adam Smith's "The Wealth of Nations"

Adam Smith's book "The Wealth of Nations" is considered to be a timeless piece writing in the economic field as this book is able to provide wealth of knowledge regarding the economic system and its workings. The entire book is based on hard core research that is supported by graphs and other diagrams.

The initial part of the book develops the idea of division of labor and how this mechanism results in benefits across the society. The book emphasizes how the basic concept of division of labor and specialization is likely to lead to an increase in productivity and efficiency. The increase in productivity is likely to create economic surpluses and these could ultimately lead to an increase in the gross domestic product of the economy. Smith emphasizes that the division of labor is likely to improve with the period of time as technologies improve and provide further means of increasing efficiency. Through the division of labor, countries must specialize in the goods where they have a competitive advantage and exchange these goods with other countries through the mechanism of free trade of goods. Here, Smith introduced the concept reinvestment that must focus on bringing about improvements in productivity. Investment in capital goods would bring about a constant or increasing growth level that would in turn improve the GDP of the economy.

The second part of the book focuses on Great Britain and how the society evolved with the period of time. The different stages of the society are highlighted from the time period of hunting to the modern day era of commerce. Here, Smith emphasizes that the Roman era and feudalism resulted in a decrease in efficiency throughout the Great Britain. The book also criticized the mercantile system that was adopted by the Europeans. It stated that this system was responsible for consumption of wealth in terms of metals. Here, Smith introduced the concept of gross domestic product which is a central theme of the book. The concept is now widely applied within the economic system. The book highlighted that the actual wealth of the nation is measured by the goods and services produced by the economy rather than the amount of metals hoarded. Within this part, Adam Smith, stated that the role of the government should be largely restricted and any interventions within the economic system must be avoided.

Another important part that is explored within the book is the market forces that are labeled as the invisible hand. This is once again an important concept that has been investigated; Smith highlighted the forces of demand and supply at work and how the economic system is actually self regulated. The book states that without any intervention, the country would be able to achieve maximum efficiency. However, the intervention of monopolies and the existence of tax world mean that the economy is unable to maximize efficiency and productive capacity. The role of various groups within the society is emphasized and how they can hamper the ability of the economy to achieve the potential level of output.

It's simply amazing to consider that this amazing book was written in the 1700's. Nearly 300 years later, Smiths' ideas and opinions are more relevant than ever before. Although this article only describes a few of the important pieces of Smith's thesis, countless more are found throughout the entire text.

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What Is the Most Profitable Options Strategy?

Out of all the many option trading strategies available, how do you decide which one is the most profitable? When you read through investing forums, you will find so many different opinions that it is pretty hard to sort out the facts from all noise. Some writers take a rigid academic approach and analyse risk and profitability from that point of view, while other hands-on traders take a more flexible view. However, one fact remains - the main reason investors consider using options is because they want to achieve better returns than can be achieved through any ordinary stock trading strategy. With the wild gyrations of the stock market in the last few years, most investors have started to realise the folly of strategies such as 'buy-and-hold' or 'dollar-cost-averaging', and have been looking for more sustainable, reliably profitable trading tactics.

Is Options Trading Profitable?

Some forum contributors will have you believe that options trading is dangerous and highly risky. The truth is that for sheer magnitude of profit, options trading cannot be beaten. The potential for gain provided by the leverage employed in options is enormous. For relatively small amounts of money, you can control large blocks of stock, and can reap the profits from a move in the right direction. The flipside is that this same leverage also has the ability to wipe out your portfolio, if you are using a trading plan that does not address the risk issues of the particular strategy that you are using. So, the simple answer to the question is: yes, options trading can be profitable, but it can also be very risky in some circumstances.

Is there a consistently profitable options trading strategy?

Most new derivatives traders are introduced to the simple concepts of buying calls or puts. While these are easy to understand and all too easy to implement, the reality is that to be successful in this strategy, you must have exceptional technical analysis skills which allow you to predict both the magnitude and direction of any market moves. This strategy certainly offers the greatest potential for profit, but the reality is that this potential is not often achieved. It often takes several good trades to recover from one single large loss. So while the 'buying calls and puts' method has the largest potential for profit, it is quite hard to achieve that potential on a consistent basis.

Options Selling Strategies

Two academic studies (in 2006 and 2012) have shown that the most profitable options strategy on a consistent basis involve not buying options, but selling them. Selling puts, or for those with lower margin limits, selling credit spreads, was shown to be more profitable over the long term than any other approach. The absolute magnitude of the profit is less than that from other strategies, but the consistency of this profit makes it the best method available. The huge advantage is that the technical analysis requirements for selling puts or credit spreads is not nearly as stringent as that required for other strategies, and the risk profile is significantly lower at every level. In fact, with sturdy trading plan, which includes a well tested exit strategy, selling options can be more profitable and less risky that almost any stock trading strategy.

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What Makes a Great CEO?

As an avid stock and bond investor, one of the key things that I consider when purchasing a new business is the aptitude of the CEO. In my humble opinion, a successful CEO is a manager that balances three important aspects of a business: Customers, Employees, and Owners.

Customers At the heart of any successful business is a customer demand that's unmatched by any competitors. Although a CEO has a lot to contend with in his day-to-day operations, creating a product or service that ultimately serves his customer should be an enormous priority. It might sound obvious, but many businesses lose sight of this primary objective after numerous years of successful earnings. Of the three aspects highlighted in this article, lack of customer focus is probably most commonly abused by CEOs of large and cumbersome organizations. The practice of losing customer focus is understandable (big bulky staffs that require enormous amounts of time), but falling victim to this deprivation is not understandable. Any great CEO will always possess customer focus for any product and service their company produces. Without this vital requirement, a business will always fail.

Employees A great CEO knows how to motivate his employees. As a member of the military, I've seen great leaders and poor leaders. Here's the difference between the two:

Great Leaders -Always place the interest of their subordinates before their own interest -Motivate their subordinates to complete tasks instead of demanding execution -Always work as a team -Always listen before talking -Always accomplish their missions (and not at the expense of their subordinates) -Promote efficiency and productivity

Poor Leaders -Only care about their own self-interest -Lack fortitude to disagree or highlight problems -Talk and rarely listen -Accomplish missions on the backs of their subordinates and claim the accomplishments as their own

A great CEO always leads by example and knows how to motivate his employees. This type of leadership ultimately produces a better product and service.

Owners Everyone must realize that the CEO is nothing more than a manager that's been hired by the shareholders to run their business. If the CEO doesn't listen or account for the goals of the owners, he has already failed. Where many CEO's get in trouble is that they actually listen to the board of directors (the representatives for the shareholders) too much. You see, it's the job of the CEO to accurately depict the position of the business they lead. Often times, the board of directors put so much stress on a CEO that it causes inflated earnings reports, or dividends that shouldn't be paid, all in an effort to appease the shareholders. This may be one of the most difficult aspects of being a CEO, but their fortitude to accurately report information and provide guidance for future growth is dependent on their credibility and ethics.

The Balancing Act A CEO's job is very complex. At the root of his responsibilities are these three aspects: Customers, Employees, and Owners. Each of these aspects tug at a CEO like a three-way tug-a-war. When a CEO only manages one or two of these aspects well, his business will eventually become off-centered, and may eventually fail. For the CEO that ethically manages the balance of all three, he'll find his efforts are rewarded and the business will ultimately experience long term growth. When purchasing stock, I always look for managers that possess talents in all three areas. The intangible value is something you'll never find on a balance sheet or income statement.

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Taking a Shorter Term View of Investing

Most people have some of their money invested in financial markets - even if they don't have their own personal trading accounts they may well have pension schemes (personal or company) or other investments. The chances are that this money is invested in financial instruments like stocks and bonds and is managed by a professional money manager, somewhere down the line.

Generally this money is invested over long periods and remains invested - regardless of the market and economic conditions in play.

Money invested for long periods is susceptible to market crash and its value can vary greatly from market peak to trough. Stock markets are currently trading some way below the levels they were trading 12 years ago at the height of the tech. boom. The S&P 500 peaked in the year 2000 near the 1500 level. This is has high as the market has ever been, especially when we take into account inflation. As I write (June 2012) the S&P 500 is trading near 1250, still some way below the peak. However, in the last 12 years the US dollar, due to inflation has lost around 33% of its purchasing power. If we take this into account the market is trading at, inflation adjusted, level of 825. So the market has actually lost almost half of its value in 12 years.

Inflation and market fluctuations create enormous obstacles for the long term investor - even if their investments attract additional income from interest or dividends.

There is an alternative way to trade. We can take short-term positions in the market trading in and out taking advantage of short-term movements in price. This avoids holding positions during market crashes, which not only reduce the value of our investments but also have tremendous psychological impact on some investors - particularly those planning retirement before the market crash. In addition we can trade short - making profits from price declines.

There are many styles of trading other than buy and hold. The term trader is a generic term and is akin to referring to a football player as a sportsman. Some of the common trading styles are as follows:

Position Trader A trader who analyses price charts and makes entry and exit decisions based on this analysis. This type of trader may also trade using fundamental information to support their thinking - for example they may consider the company's overall market prospects. They will plan their trades and have strict exit conditions if the trade does not workout as planned. They may hold their positions for months or years but they do not simply buy and hold.

Swing Trader A swing trader will use similar technical charts to plan trades and make entry and exit decisions. The swing trader will hold positions for much shorter periods - days or weeks. Because the trading span is short the swing trader will pay less attention to the fundamentals of the market to be traded and will rely almost 100% on the use of price charts.

Day Trader A day trader will open and close all of their positions within the course of one trading day. The day trader is risk averse and will be unlikely to take positions overnight due to the possibility of market condition changes. The day trader will use technical charts to trade but will use short time frame charts (intra day charts) to make buy & sell decisions. The day trader must be experienced since they have little or no time to make trading decisions due to the time frame of their trades.

Scalper A scalper will make trades that last minutes or even seconds. The scalper looks to shave off profits from minor changes in price that last for very short periods of time. The length of trade makes this type of trading almost impossible for manual trading. Therefore, scalpers will generally rely on trading computer programmes to open and close trades based on some pre-tested logic.

Shorter term trading is based on price charts; this is sometimes referred to as technical trading. Most professional money managers take a different approach looking at the fundamentals of an asset. For example, the assessment of a stock might include an analysis of future prospective earnings, dividend yields, price to earnings ratios, etc. The manager will look to balance growth prospects with other income from the asset (like dividends) to control risk while bringing asset growth. The problem with this approach is not only the inflation head wind but the risk that market shocks will sink all boats - also referred to as systematic risk. The movement of stock prices are not necessarily linked to the fortunes of the underlying company. Often events that have no relationship to a company's market or earnings potential will result in the stock price falling.

Technical trading styles generally put little emphasis on the fundamentals of a market. Technical trading focuses on the actual prices movement and what is likely to happen next. The markets are a psychological battle ground of competing traders. Trader emotions move from feelings of elation to waves of sheer panic. These moves can prove to be profitable for the skilled trader.

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Important Market Indicators in Share Dealing

Stock prices fluctuate all the time. Hence, monitoring the market is an essential component of investing in stocks as well as share dealing. It is in this regard that people should watch out for the following key market indicators when it comes to this financial transaction.

Stock Quote

This is what people usually see in the screens of their television. This tells people the economics of a certain stock unit of a company. For instance, the quote is usually in the following sequence or formula:

Example:

"COMPANY TICKER" "Current Trading Price" "Unit Change" "Percentage Share"

JPM 37.1 +0.11 (0.30%)

What the example above tells is that the current price of a unit of JP Morgan Chase & Co (JPM) is at $37.10, which is higher by $0.11 or 0.30% from its previous close in the previous trading day.

Historical stock information

There are at least four (4) indicators pertaining to the historical information of a stock. These are the following:

A. Daily high and low - this refers to the highest and lowest selling price of a certain stock in the course of the current trading day. B. 52 week high and low - this indicator refers as well to the highest and lowest selling price a specific stock in the past 52 weeks. C. Previous close - this refers to the price of a stock at the close of the previous trading day. D. Opening price - this refers to the price of the first units of shares of a certain stock during the current trading day.

Total outstanding shares, capitalization and ownership

Total outstanding shares refer to the aggregate number of shares that a certain company has already issued to the market place. On the other hand, market capitalization refers to the current value of the aggregate shares issued by a company. The total number of outstanding shares is multiplied by its current price to get this. Further, the concept of institutional ownership refers to the amount of the outstanding shares that institutions like banks, funds and insurance companies currently own.

Stock beta

This measures the sensitivity of a stock or share to the overall situation of the market or index. For instance, this can be compared to the S&P 500 index as well as other indices. This can usually be found as well in the main chart of the company's quote.

There are two (2) measurements of this indicator that are relevant in share dealing, which are either of the two.

On the one hand, if the stock's beta is over 1.0, this shows high volatility of the stock to the overall market. On the other hand, if the stock's beta is lower than 1.0, this means that the volatility of the price of the company's stock is lower than the overall market. For example, JPM has a current beta rating of 1.31, which means that it is highly volatile.

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How To Buy and Hold The Right Stocks

I am a big proponent of passive, buy and hold investing. One of the best quotes that sums up my approach to passive investing is from Warren Buffett, "Wall Street makes money on activity; you make your money off of inactivity." It makes sense - Wall Street wouldn't want people to stop trading, they would lose out on their fees and commissions. The investor that makes 20 orders a year is essentially worthless to a broker, as opposed to the trader who makes over 1000 orders a year. No wonder these online brokers always advertise 'open your 'trading' account', it's never 'open your long term passive investing account.' They make loads of money off of retail investor in this way.

Passive, long term investing is the most rational approach to buying stocks for the retail investor because you save so much on fees. You also benefit mentally from a low maintenance portfolio management style that doesn't require a lot of time inputting orders every day. As a long term investor, most of your time should be spent hunting around index listings for more phenomenal companies and researching company documents. You can accomplish this buy visiting the companies website or whatever your government run site is for information on publicly traded companies.

The best buy and hold stocks have 3 fundamental characteristics that make them ideal for the long term investor.

1. Consistency of Earnings- When purchasing stocks to buy and hold for long periods of time, consistency of profits is an important thing to consider. If the business is making money one quarter and losing money the next, there should be no attempt to buy and hold. Consistency of earnings is a sign of stability and quality in the business. Usually these companies pay and grow their dividend over time. A good way to measure consistency of earnings is look at the income statement during the last few recessions. Did net income tumble dramatically from pre-recession levels? If net income was the same or kept growing during the recession, you may have found a good buy and hold stock candidate.

2. Room for Growth- Companies must have a clear plan for growth and operate in a big enough market to execute that growth over the long term. Pay close attention to market capitalization; a fantastic 300 million dollar corporation is probably more likely to outperform over the long term then a fantastic 50 billion dollar corporation. That's not to say that a large company can't be a terrific investment. Paying close attention to market capitalization helps you to know what to expect from a stock. For example, I don't buy Colgate Palmolive expecting it to be a 5-bagger over the next 10 years. Because it's size and mature markets, you expect Colgate to give you slow and steady performance in good and bad markets, not explosive growth.

3. Special Intrinsic Characteristics- Intrinsic value is a well-known idea among value investors but it's hard to identify and define. There is not one simple formula that defines intrinsic value; it is instead a combination of several special characteristics that ultimately produces intrinsic value within a business. These characteristics include a monopoly, a niche market, a unique business model, pricing power, brand power, reoccurring revenues, special management. Many times a company will have 2 or 3 of these characteristics making them more special than your average stock and usually worth a buy. These characteristics are all part of the 'financial moat' that all fantastic businesses have. Searching for intrinsic value in names that are relatively underfollowed can be very rewarding for the long term investor. Getting in before the big institutional money is why I am a fan of underappreciated and under followed small cap stocks.

If you can find special stocks with an intrinsic value, that have steady earnings and room for growth, then these are the best stocks to buy and hold for an indefinite period. This is summed up by Buffett in another of his quotes, "Time is the friend of the wonderful business, but time is the enemy of a terrible business." When you buy wonderful businesses with a financial moat and room for growth, time is on your side.

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Why You Should Use Monthly Statistics When Investing

Stock prices do not go up with equal chance in each month - it is enough to think of "Santa Claus Rally" and "Sell in May and go away".

There may be multiple reasons in the background of such "periodicity", such as:

local customs (eg.: many people go on vacation in the summer) many employees receive premium in the same month (eg.: in December, before Christmas or in Spring) that is (partially) invested in the stock market fund managers are evaluated at the end of year or at the end of quarter and they must show good results

What is its impact on your investments?

If there's a month when a stock's price falls much more often than going up it is better to avoid buying that stock in that month. This may apply to stock mutual funds an stock indexes as well since their values depend on stock prices.

Many people have already heard about "Sell in May and go away" and "Santa Claus Rally". Significantly less people have seen accurate statistics about these yet the following questions are absolutely just:

Do these apply to my specific investment? Are they true for each sector from oil companies to software companies? Are they true from the US to Japan? Is there any other month for my specific investment that performs extremely well or badly? Or only May and December are the ones that are special?

What is a monthly statistics chart good for?

Questions above are easy to answer if we prepare exact statistics for the given stock that contains the following for each month:

Relative frequency of how often the month yielded positive return. (More precisely: how many times did the price change between the starting day and closing days of a month exceed zero?) This may be expressed as a percentage of the total number of occurrence of the month. Average return: average of returns between the starting and closing days of months.

For example: if we have data for three years, and the increase between the first and last days of January in the three years was -1%, 1% and 3%, and the threshold value is 0%, then

the relative frequency of positive return will be 2/3 = 66%, as 1% and 3% are greater, than 0%, and January has passed 3 times. Average increase will be (-1% + 1% + 3%) / 3 = 1%

How to use it?

One may observe on this example chart, that December and October months have often yielded decent returns, while during February the shorting of the equity seemed more deserving.*

It must be noted, that relative frequency values around 50% are of the least importance. (50% relative frequency of increase means that the chance for going up and falling is equal - none of them are more likely than the other.) Months, where the frequency of increase approaches 100% or 0% are more interesting. Forecasting either falling or rising stock prices with a great degree of certainty can be made into money at the stock exchange, in case of either increase, or decrease. (Long position is better in case of 100% and short position in case of 0%.) This can also be utilized for short-term strategies. In case of a longer-term investment, the time of opening a position can be optimized with the help of the chart (e.g.: it is advisable to avoid opening a long-term position in the beginning of a month that most often yields decrease).

Note that an increase near 0% cannot yield positive returns on the stock market, as with the transaction charges, the result would be loss.

There are certain softwares that can eliminate this problem by using a treshold value (eg.: 0.5%) for making statistics. (In these cases increases below 0.5% are not taken as "positive return" when calculating statistics). Chances are better if numbers also look good despite the transactional fees!

*It must be noted however, that past behavior does not represent any guarantee in terms of future performance!

Monthly statistics is not a new idea yet it is extremely useful. You can also prepare it in MS Excel but it takes a lot of effort. It's better to use some specific software.

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Are Buying Penny Stocks Online Worth The Risk?

I'm sure we've all seen an ad at some point relating to someone making huge profits when buying penny stocks online. But what they aren't telling you is the risks involved with investing in these types of stocks. Penny stocks are basically any stock that is worth below five dollars. The businesses that own stocks in this micro cap category are either on the verge of bankruptcy or they are a startup company.

Because the stock price is so low there is potential for people who purchase high quantities of the stock to manipulate the price. How does this manipulation work? This usually starts with a penny stock guru. You can find them all over the web when searching for penny stocks. These gurus are usually trying to start a pump and dump.

How does a pump and dump work?

When a stock guru decides to do a pump and dump the first thing they look for is a low value stock that they can easily manipulate. When they find the ideal stock the next thing they do is buy a high quantity of this stock at a cheap price. They convince everyone following their trades to invest in this stock and promote it as their number one pick. After enough people have invested in this stock the guru then sells all of their stock for a nice profit and everyone else is left with worthless stock.

One of the easiest ways to spot a site that is looking to manipulate the price of a stock is to find one that offers free advice. I'm not saying every site that offers free advice is looking to do this but we have to ask ourselves. If that isn't the case then why is the advice free? Instead of looking at these guru's websites to buy penny stocks online I like to do my own research.

I like to look for companies that are showing some good news for genuine potential growth. If a company has been talking about how they have a product coming out soon and the product sounds promising then that's a good indication that the stock could potentially move up. If they have released products in the past it wouldn't hurt to look at stock trends. If the last product they had with a similar amount of buzz caused the stock to move up then there's a good chance of this happening again. But always remember in the land of penny stocks nothing is guaranteed.

Make sure these types of companies have a decent amount of buzz otherwise you could end up with worthless stock that you're unable to sell. The bottom line with penny stocks is to never trade with money that you can't afford to lose. A pump and dump is just one example of the risky behavior involved with penny stocks so do your research before investing in them.

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Boat Insurance - Peace of Mind for Your Marine Adventures

As with all vehicles a boat is legible for an insurance policy, under the Marine Insurance Act. While some small boats kept on your premises can be covered by home insurance, Marine insurance can cover not just a seafaring boat but also the goods, as throughout marine history ships have been lost with very expensive cargoes aboard, due to the dangerous nature of sea voyages.

Boat insurance is often cheaper than car insurance especially for a small boat. A comprehensive plan will cover damage to the hull, the machinery and the parts. It is also worth checking if the plan covers theft, injury and any specialist equipment on board like fishing tackle.

Insurance varies a lot depending on the boat. Narrow boats, speedboats, dinghies, yachts, rowing boats and motorboats all have different systems for working out a quote. A fibreglass boat (usually GRP, glass reinforced plastic), like most speedboats, is in a higher insurance band than a wooden or steel boat such as a narrow boat. This is because fibreglass hulls can be damaged or dented very easily while steel hulls for example are very hard to cause any significant damage to. You can get cheaper insurance for diesel powered boats, as they are less likely to explode, and also for using coast guard approved fire extinguishers. A certification in a boat safety course may also reduce insurance.

It also depends on where you intend to sail the boat. The boat will be in a different insurance category depending on whether you intend to sail it in canals (least expensive), rivers, lakes and tidal waters (more expensive) and the ocean.

There are also insurance policies for special circumstances. You can have a boat insured for damage while it is being built, or for a vessel sailing into a war zone or terrorist associated waters, or for specific cargoes such as highly perishable goods that may fail due to delays.

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Boat Insurance Coverage

All the boats are of different types and they have their own story. You should have a boat insurance, which suits your personality and your boat perfectly.

How We Cover You: There is no other way, when your are out in the water, there are always possibilities of an accident so you should be very careful and you should carry medicine pills so that u can heal yourself if you might get hurted.

Medical Payments Coverage: If you or your relatives are injured in the boats which are included in the insurance policy, they are provided help and medical facilities afterwards. You and other passenger who are traveling in your boat include water skier are covered and if any one gets injured by another boat swimming near boat.

How We Cover Your Boat: When something goes wrong, good boat insurance coverage could mean the difference between sinking and swimming.

Physical Damage Coverage:This policy includes repair and maintenance of your boats and its parts etc and if it's stolen, vandalized, or damaged 0by wind, hail, lightning, fire, or explosion, this insurance policy can help. It also provides emergency service (up to $100), wreck removal, and other boat parts.

In your boat insurance policy, a different amount of Physical Damage is to be chosen for each boat. A deductible is also to be chosen for the same. Before the coverage kicks in, you will have to pay the amount in order to file a claim. A different amount of deductible can be selected for each boat.

How We Cover the Rest: If you're in an accident, there's a good chance someone else was involved. And if you're at fault, you'll want strong liability coverage.

Watercraft Liability Coverage: Sometimes safest boat operators have bad luck and this insurance policy helps the most at this situation. If you or someone else in your household has a boating or jet ski accident that:

1.Damages a dock,

2.Damages another boat, or

3.Injures someone else (including a swimmer or water skier).

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