Credit Card ’s Talk

You don’t have to be a financial wizard to know that your money isn’t going to earn a very high return sitting nice and safely in your local bank or credit union. Of course, there’s a lot to be said for not having to worry about if your money will be waiting for you as banks are notoriously risk adverse. There is also the issue of the federal governments guarantee that you money will be waiting. This is also known as the Federal Deposit Insurance Corporation or FDIC.

Now the FDIC is NOT really insurance and the money it has available can cover about 1-3% maximum of the total monies it has guaranteed. No one except the federal government could get away with such low reserves and continue in business. That said, understand that the FDIC, for all intents and purposes IS the government.

If however you need to have your money grow, and who doesn’t, it’s necessary to increase your net worth. Whether it’s for retirement, a home, your children’s college education or a vacation, you should consider learning about stock market trading.

According to most estimates, you can expect to earn an average of 10 to 12 percent annually from stock market trading — even with a very conservative portfolio. When you compare those returns to the three or four percent interest that the typical savings account pays, you can easily see why stock market trading is the better option. So we’re talking about a solid return on investment several times what can be obtained at the local savings and load.

Getting involved in stock market trading is very straightforward and uncomplicated. All of the major brokerage firms maintain web sites that make it easy to compare rates and fees. You can just sign up with one of these firms, talk to a broker to discuss your financial goals, and then let the firm do all the work. If you want to be more hands-on, there are even do-it-yourself stock market trading web sites where you can make trades with just a few clicks of the mouse. Whichever route you choose, you should be able to start building your portfolio within a few days.

The key however is to practice first and THEN invest. Several web sites are available that for a small fee, you can trade an imaginary account that is linked to the actual action on the various stock markets. This was, you are able to hone the trading skills necessary to be successful. It also protects capital and keeps the losses just on paper and not real money.

By starting with a practice account, you can gain confidence in your ability and find out what style of investing is most comfortable. People just like you have been increasing their net worth through stock market trading for decades. If your money is currently languishing in your bank account, it might be time to put it to work for you. Get into stock market trading now, and start building up a portfolio that will be able to support you and your family well into the future.

Abigail Franks writes on a ariety of subjects that are relevent to todays families. For more information on buying stocks go to http://www.buystocks.supersavings.info

I often hear from people, ?I don?t trade. I invest. I buy a mutual fund and I hold it?. Mr. Investor, did you know you are trading on a regular basis? Are you aware that mutual fund managers are changing their positions by selling certain stocks and buying others?

Mutual funds must report quarterly what stocks they are holding. You can get those reports if you want them. I can?t see where it will do you any good if you are going to blindly hang on to the fund.

A few professional traders will request these breakdowns only if a fund is greatly outperforming the market. They will see what stocks the fund manager has that is making this fund do so well and may buy those stocks. Very clever.

Did you notice that the investor is only looking at the best funds and not at the underperformers or the average performers? Now check your portfolio. Is what you own in the top most profitable funds for the past 3 or 6 months?

I know your broker told you that you have to look at the returns for the past 5 or 10 years. What nonsense. Do you care what the fund has averaged for the past 5 or 10 years or do you want to own one that is making money now?

Fund managers are constantly trading trying to increase the return for their investors. It is a shame most of them have not done a better job. They are always comparing themselves to the S&P500 index. When they do that well they think it is wonderful and they never stop bragging.

The S&P500 index is an average of the market. Mr. Fund Manager gets excited doing an average job. Does your boss like it when you are average? He expects more from you. And you should expect more than average from any investment you make especially if it is recommended by an ?expert? broker or financial planner.

If anyone does an average job he will be employed until the boss finds someone who will do a better job and then Mr. Average can find the door. That should be the same way you examine the stocks and funds you own. The nonperformers should be sold and new ones found that will make money or go to cash. Don?t rely on your broker. His company never wants you to sell.

Investors who buy for ?the long haul? are long term traders. They are not knowledgeable enough to sell when the market is going down as it did in 2000. When there is nothing to invest in then cash is the best position you can have. Having your portfolio in cash in a one or two percent money market account will many times outperform owning stocks or mutual funds.

Everyone who invests is a trader. It is only the time period that is different.

Copyright 2005

Al Thomas’ best selling book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter to receive his market letter for 3 months at www.mutualfundmagic.com to discover why he’s the man that Wall Street does not want you to know.

When buying a stock, mutual fund or Exchange Traded Fund (ETF) investors want to know they are receiving a good value for the money. It seems there are many methods of judging value. Most of them are complicated and many are subjective to the writer?s opinion. What is the true value now?

We all remember that as the market fell from its dizzying heights in 2000 that so-called analysts told the investment public not to worry as the correction only made the stocks more valuable. Yeah, and pigs can fly.

Any investor who has been through a market ?correction? (some of which drop 25% to as much as 60% or more) will tell that it is at the top that everything could not be better. Consumer confidence is high. Unemployment is low. Companies are making money. Mergers are going gangbusters. All the talking heads on the radio and TV are cheerleaders for buying just about any stock certificate ever printed. Put you hand in your pocket and hold tightly to your wallet.

The story remains bullish as the market tumbles. The values are wonderful according to Wall Street. If the values are so great then who is selling?

Why does anyone want to know if a stock or fund is a ?good? value? The only reason is to find out if the equity will appreciate in price. The bottom line is will the investor make money if that issue is bought?

There are literally hundreds of methods and formulas to give that answer. Each uses the same statistics and each will come up with a different answer. Some methods will work well for a while and then fail miserably. Mr. Investor won?t know the means test is not working until money has been lost. A search in Wikipedia, the free Internet encyclopedia, will reveal scores of valuation formulas.

Suppose an investor had bought PMC Sierra (symbol PMCS) after valuation analysis at $14 per share. It soared to $254, dropped to $110, then back up to $245 and did a Niagara to $2.50. It now trades below $10.00. There is no valuation method that could have kept an investor on the right side of this stock. The Buy N Holder would be lucky to be even. Let?s not forget all those sleepless nights as the stock rampaged lower every day.

Understand what valuation is. It is like beauty. It is in the mind of the beholder. There is no single valuation method that is accepted by the investment community. The investor needs to know one thing and one thing only. If I buy it will it go up? If it does then the valuation at that time was ?good?. Valuations change and when they change for a particular equity and that equity loses price it is time to say goodbye. Sell.

True value for a stock, fund, bond, house, collectible, anything is the price someone will pay for it at that moment. That is true valuation. All else is speculation.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2006

Options are most commonly used by investors for either leverage and / or insurance (hedging). As leverage, options allow the investor to control an equity position without paying 100% of the share price. For example, rather than going on the open market and purchasing 100 shares of IBM for $8,257 ($82.57 per share), an investor could control the same amount of shares at a given strike price for a fraction of the cost such as the Jan 07 $80 strike with a total cost of $1,050. As insurance / hedge, options can assist in protecting against price fluctuations. For example, the same IBM investor can sell a call against his shares which will reduce the basis in the equity position by the premium received. In other words, he has hedged his position against any short term fluctuations his equity position may experience.

Selling options provides many benefits with the major reason being collecting premium from the sale of such an option. The premium collected goes into your account and can then be used to invest in other positions. The writer keeps the premium regardless of whether or not the option is exercised. Another important aspect with selling options is that of time value which now works for you rather than against you.

Selling options is not new and it isn’t as complicated as many make it out to be. It is a viable means of generating consistent income from your portfolio. If you are not selling options against your positions you are losing out on money you could be putting in your pocket each and every month. Keep in mind writing covered calls are not get rich quick strategies. They are a means of generating income for the individual investor regardless of their trading expertise.

Stock Market Cash Machine helps traders learn the advantages of writing covered calls. Covered Calls are often misunderstood but when used correctly can assist investors in generating monthly income as well as providing downside protection.

Covered Calls

We place consider buys on stocks for several reasons. If the chip sector is moving higher and we see a chip maker approaching a near term resistance, that gets our blood moving! Why? Because if it gets through that resistance, it can squeeze a bit and really break out. But when the market is nervous, and whippy, too many times a stock crosses above the resistance, they get cold feet and down it comes. At that point you have to make a decision. do you hold it under where you paid or do you bail out? It’s not an easy choice.

Many are the times you will bail out and the darned thing will reverse back up and blast higher. Then again there are the times it will simply keep falling. Is there any way to truly know the difference? No, unfortunately, we don’t care what you have read about systems, volumes, technical indicators, voodoo, or aliens, the fact is no one knows the future. So, naturally the best plan is to sell out when a breakout comes back to where you bought it. Jump out with little or no loss and live to fight again.

Over the past few weeks we have entered and then had to bail out of so many stocks we have lost count. But this is the important part and you have to remember it: We are up big on the win/lose column. Yes it takes work, yes it’s a royal pain in the butt, but the fact is that active management saves the day. Look at DISH back in late October of 2001. Pull up the chart. See that messy line right around the $28 level? Well if you draw a line across 28 from the high of the day on October 28th (at 27.99) you see 28 is like a fairly staunch resistance. So, we had a consider buy on it if it got back over 28, give or take a few cents.

Sure enough it opened at 28.01, stumbled a bit and pushed up to 28.53. Great right? It sure was, we were in it at 28.10. but then sure enough it reversed and down it came. When it got to 28.12, we had to make a decision. Do we hold it under where we pain or do we sell it flat? We held for about 10 cents and dumped it. Swell right? A 10 cent loss, after being up 40 cents. But, here is the really important part folks, it closed the day at 27.53. Now, if it came back up, then we looked stupid. If it fell more we were heroes.

Well let me tell you something. We will generally take the flat or a 10 cent loss rather than holding under where we bought it hoping’ it comes back. Sure we could have sold it at 28.50, or 28.40 or 28.30, but we didn’t. Maybe we should have, the thing is quite often we have to settle for the dimes, but it’s not what we are after.

Unless the day is totally in the toilet, we try and buy into the stocks we put on the consider buy list. More times than not they work out for us, but not without a bit of work. Yes we have often had to do the DISH thing, watching a small gain disappear and then bail out flat. But then we catch the right one. That’s what we are after! Unfortunately, when the market is whippy, unless you can seriously daytrade, you have to be prepared to be nimble enough to bail out when the stock you bought is falling back to where you bought it.

There are times when we do hang onto the stock even though it has violated our entry price intra day. Why do we do it? Well maybe we still had really high hopes and thought it would rebound. Maybe we felt the only reason it pulled back was because the overall market got scared over a news item or such. Well, we went back through hundreds of trades over the years and did the math. On the ones we held onto even though they failed our original entry price, 61% went on to become winning plays. That isn’t bad at all. Would we encourage it? Not at all, we encourage you to bail. But that said, we only put out plays we feel have a real shot at moving higher, and the numbers back that up. Even though they failed the initial buy in price, 61% still became winners down the road.

Why didn’t we hold onto DISH? The day was poor at best, there were big earnings after hours that could have put the market in a bad mood if they were poor and we saw them picking away at GE, IBM etc. When the leaders are getting plucked, there is always the chance of a big sell off. We bailed flat and moved on. When you are looking at a stock that has pulled back to where you entered it, please take all things into consideration.

How is the overall market acting? Is there a bad headline floating around? Is the mid East erupting? Has gold or oil shot higher? Did someone just warn? When you have the answers to these questions, then you can make a better judgment about whether you want to hold onto a falling stock, or bail out. More times than not its still best to bail, but occasionally you may decide the stock is falling and its not the stocks fault.

Suppose you see a high volume breakout and everything looks great. The resistance line was 50 and you get in at 50.15 and soon its at 50.60. Then it starts fading. You notice the DOW was up 80 and now its up 40, 30 20. Something happened. Maybe a program trade, maybe a profits warning, maybe a fight in the mid East. In a situation like that, especially if the breakout came with volume, we’d tend to hang onto it even if it failed 50.15, but we wouldn’t let it fail 50, the original breakout line. Why? Because the stock didn’t do anything wrong, some outside influence drove the market lower and took our stock with it. We would hold it under our buy in price, but not the breakout price. If the short sellers see it couldn’t hold the breakout, they might step up their shorting and drive it lower.

No, we’d probably bail at 49.95 or so if we could. So, as you see, there is no cut and dry answer, and the situation will determine your best course of events. We hope that helps you make good decisions in the future!

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Money management starts with protecting your capital, realizing profits and cutting losses. As I have stated in the past, without cash, you can’t invest. Cash is king and learning to manage your money is the most important aspect to investing in stocks. The game is won by lowering your risk by properly turning the numbers in your favor. Cutting losses is the best insurance to keeping your cash.

Emotions fuel the decisions of many investors; leading the pack is hope, fear and greed. In order to control these emotions, proper money management skills must be developed through a defined set of rules. How do you know if an investment is working and moving in the right direction? If it shows a profit, you are correct, if it shows a loss, something is wrong and it may be time to protect your capital.

Most investors develop the emotion of hope after a stock has declined from the initial purchase price. They hope that it will rebound and make promises to themselves that they will sell at breakeven. If and when the stock rebounds, they break the promise and become greedy and decide to hold on for a profit instead of selling. Typically, the stock will start to decline and the investor will start to accumulate losses. Investors are full of pride and will not admit that their judgment is wrong, so instead, they decide to hold on and accumulate additional losses.

When a stock is purchased and starts to decline, especially on heavy volume, it is time to admit that you may be wrong and sell before the loss is too steep. If the stock rebounds after you sell, you can always re-enter your position. Cutting losses is the best insurance an investor can have in their portfolio. By developing rules and eliminating emotion, investors can start selecting high quality stocks and buying them at their proper purchase points. This will lower your risk and help prevent you from using insurance. In my previous post, I explained how to develop a watch list of high quality stocks using fundamental and technical analysis.

About the Author

Chris Perruna

http://www.marketstockwatch.com

Chris is the founder and CEO of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don?t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.

As I said in Part I everyone in the insane asylum looks normal, but at least the doctors are sane. Unfortunately, in the insane asylum known as the stock market all the doctors (brokers) are also insane.

The doctors in the insane asylum went to medical school to learn how to treat the patients so the could get well. On Wall Street you go to the doctor (broker) who is supposed to help you become financially well, maybe wealthy. Almost none of these Wall Street experts ever learned their profession. They have all been taught the three great prescriptions that make no sense at all: Do Your Research, Buy and Hold and Dollar Cost Averaging. This is what the brokerage houses teach.

As I said previously research is worthless, as it will not tell you if a stock is going to go up. Buy and Hold is taught the wrong way. It is OK to Buy and Hold as long as the stock is going up, but not when it goes down. No broker is taught how to protect a customer’s money.

When I was a floor trader I learned in a hurry not to hold on to something that was losing money. The very simple prescription for this is called a Stop Loss Order. Brokers hate them and will discourage you from entering them. Why? Because it means he will have to watch your account because if a stop order is not properly and timely executed he must pay it out of his pocket.

Brokerage houses do not teach brokers how to use this simple method to protect capital. The house does not want to become known that it will sell a company’s stock when it turns weak. The brokerage company makes more in good will from the poor performing company than they do in commissions from you because if they ever encourage selling it means they will not get a chance to handle an Initial Public Offering (IPO) for that company. Suppose they did have a stop protection policy for customers and they then had an IPO that came out at $30 per share, but instead of going up it went down. The customers would not lose more than $3 or $4 per share because of their protective stops, but the house would then be stuck with all the unsold stock. It is OK for you to have this money-losing dog, but they sure don’t want it in their inventory. You can see how logical this is, but you won’t hear it from a broker. Stop orders are not insane.

The insane conventional wisdom that both brokers and customers have been taught cannot remain once it is exposed to truth.

You must take the initiative with the stocks you own to protect yourself from loss of capital. If your broker argues with you there is one solution - fire him and find a good broker who will protect your money. Just because he has learned an insane system doesn’t mean you have to be nuts too.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

al@mutualfundstrategy.com; 1-888-345-7870

Having lived aboard a sailboat for 2 years I was stricken when I saw the movie ?PERFECT STORM?. I know these are things you want to avoid at all costs. Even little storms can play havoc with your life style on a boat.

From a world view it looks like we are headed into a perfect storm of world macroeconomics. That means every one in the world is going to be impacted economically by the developing global economics. The more economically developed the country the worse they will be affected. Those third-world countries just working their way to becoming second-world countries can easily be set back 30 to 50 years.

What am I talking about?

People need food and shelter and after they have the basic necessities they will buy nonessentials such as entertainment and toys (boats, cars, jewelry, bigger houses, second homes, etc.). These are all purchased because the person has extra units of credit called money with which to buy the extras. In order the get that extra money he has to have a steady job. World wide there is excess productive capacity. Approximately 25% of productive machinery is idle; we are working at about 75% of capacity where the normal rate of production is between 87% and 92%. That means that many who were at those machines are now sitting at home wondering not about a new toy to buy, but how to make the next mortgage payment.

Everything looks smooth. The waters are calm and the breeze is at our back. When that perfect storm was forming in the Atlantic Ocean there did not seem to be any danger, but the meteorologists watching their satellites and computers could see that all was not well and a terrible storm was forming. They realized when it hit that ships would be at high risk.

There are meteorologists of the stock market. They are a combination of technical and fundamental analysts and it is their job to predict the stock market weather. Like weathermen the job of prediction is not easy nor is it an exact science, Many get it wrong, Today the news of the stock market and the economy is dominated by the fundamentalists who see excellent weather and tranquil seas. Many technicians see it otherwise. They are predicting that there are formations that could produce a perfect storm that will wipe out many portfolios.

Historically the timing of fundamentalist (those who follow the reports of company profits and government statistics) usually lags while the prediction of technical analysts (those who follow chart patterns and historical data) has been much more accurate.

The key to the stock market is timing. The investor wants to own stocks and mutual funds while the market is advancing and to be in cash while the market is declining.

Today the fundamentalist weathermen say buy while many technician weathermen are recommending cash. In the next few months we will see if the weather is calm or stormy.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

When investing in a stock it is easy to become distracted and lose focus. Maybe your stock has been going down recently and you are afraid of losing any more money. Maybe you have found another stock you are interested in buying, but you need to sell your other stock first. Maybe you don’t like the ups and downs associated with investing in an individual stock. While all of these scenarios are natural feelings, you need to go back to the reason you first invested in a stock and ask yourself these 5 questions.

1. Is the money I invested "extra" money that I can afford to lose or at least hold on to through the rough times?

2. Do I have additional money to invest if another opportunity arises or am I locked into one stock?

3. Would I still buy the stock today?

4. Am I able to tolerate the volatile nature of individual stocks or should I consider investing in something that has less volatile price movements?

5. What do I hope to accomplish through investing?

If you are investing money you are going to need soon, you should not be buying stock. Stocks can be very volatile, especially in the short term, so only risk money you can live without. Secondly, make sure you do not overextend yourself in one stock. It may be a great stock, but unforeseen events happen all the time and it is bummer when it happens to your stock. If you see an opportunity to purchase another stock, there is no need to rush. If you think a stock is a good buy today, chances are it will still be a good buy a few weeks or a few months later.

If your stock has been declining recently, then you need to determine whether something has changed fundamentally in your stock. It may just be a short term price fluctuation rather than the financial condition of the stock. If you bought the stock before it went down and nothing fundamentally has changed, then why would you sell the stock now? Some individuals may not be well suited for investing in individual stocks. At some point, one of your stocks will go down significantly. How will you respond to that? If you can’t handle the volatility, consider investing in mutual funds or something with less daily price movements.

Finally, if you are investing for retirement or for a college education, don’t worry about checking your stocks every day. Over time, stocks tend to reflect the financial strength of the company. However, many factors can influence the day to day stock price. Stay focused and remember why you are investing.

Alan Reisch has a degree in finance and has worked as a licensed broker for two large investment firms. He recently started http://www.1stock1.com a free investment information website.

Stock options are an excellent way to reduce risk in trading or to leverage your capital. While advanced stock option strategies are for experienced investors only, the basic option strategies can also be used by novice traders.

Basically an stock option is nothing complicated. There are just a few things to consider. There are two basic option types which are the call option and the put option.

The call (put) option gives you the right to buy (sell) a stock at a fixed price before a certain date, the expiration date. The option expires at this date and does no longer trade. Until this date your strategy should have worked out, otherwise your stock option expires worthless.

Buying the stock option is nothing else then buying the stock itself. Just that you need much less money to buy the option instead of the shares and that the option expires one day. But the rest is almost the same. When the stock moves, the option moves as well.

The difference and the big advantage of options is the leverage involved. To buy the option you need about 10% of the capital which would have been needed to buy the shares directly but with the same profit potential. There lies the risk as well.

One option contract equals 100 shares. If you want to own 1000 shares of Microsoft then you either can buy the 1000 shares at the stock exchange or you buy 10 Microsoft option contracts at the options exchange. You will figure out that there are many options for one stock. The reason is that options have different expiration dates and strike prices. The strike price is the price where you could buy the stock if you want.

In the praxis you don’t want to buy the shares through the options so this remains a theory. Most options are not exercised but sold before expiration with a profit or expire worthless otherwise. So the option is just a bet with limited investment. You can never loose more than your option purchase price with the basic option strategies.

There are various combinations of covered and uncovered call and put options. Different strike prices and expiration dates have different option prices, leverage and risks. To learn the basic option trading strategies you must first explore the possibilities of simple call and put options.

Instead of a short sale you could buy a put option. Instead of going long in shares you buy a number of call contracts. Following the option prices for several days will show you that the option price decreases slowly although the stock price hasn’t changed at all. This is the price you pay for the leverage.

David A. Sorenger is a stock market expert and provides detailed information on stock options trading at his web site http://www.StockTradingABC.com