Archive for July, 2008
July 29th, 2008 | 
Author: eHow asked:
Buying stocks online requires a lot of attention to detail, and each trade or buy online costs a set amount. Pay attention to the rules and details of online trading accounts as well as other details for buying stocks discussed in this free instructional video from an experienced stockbroker.
Wayne Autobee
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You know you **** me asked:
Such as Washington Mutual stocks, a few days ago it was at .03 cents a share. I think about 12-15 months ago it was at $45 a share, prior to the fall of the market. Is it wise to buy these stocks now, and let them sit to earn money. I know the market will eventually rise. However, with Obama desiring to nationalize some banks, is it worth it to buy bank stock?
Steven Richardson
Such as Washington Mutual stocks, a few days ago it was at .03 cents a share. I think about 12-15 months ago it was at $45 a share, prior to the fall of the market. Is it wise to buy these stocks now, and let them sit to earn money. I know the market will eventually rise. However, with Obama desiring to nationalize some banks, is it worth it to buy bank stock?
Steven Richardson
eHow asked:
One way to buy stocks is by contacting and purchasing them directly from a company itself. Figure out which companies sell stock directly to the public, and cannot be advertised by the business, with tips from a futures and options floor trader in this free video on personal finance.
Nathanael Clauson
Dear Fellow-Investor.
Whenever the stock markets have consolidated and broken down significantly, thousands of bargain hunters are on their way to try and find the one dirt cheap stock in the hope of cashing in large profits once it goes up again!
But when exactly is a stock cheap? For many investors a stock is only cheap when the price-earnings ratio (P/E ratio) is low. So the lower the price-earnings ratio the better it is for them on speculations that it will go to where it was before the stock dropped, if it goes up again.
To recap. A price-earnings ratio shows the multiple of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). A higher multiple means investors have higher expectations for future growth, and have bid up the stock’s price.
The thing about P/E ratios is that conservative investors should avoid stocks with a high P/E ratio because if these corporations disappoint with their earnings and don’t meet market expectations, the stock will drop dramatically like Whole Foods did dropping more than $20 at the beginning of November 2006.
If a stock has a low P/E ratio, where expectations aren’t that high, the reaction is far less dramatic if earnings and performance expectations aren’t met.
But if trading and investing in the stock market was that easy, everybody would just buy stocks with a low P/E ratio. To bad so sad that no one would have then had Starbucks in their portfoilo. A stock that shot up sky high in the past. A low P/E ratio doesn’t exist in Starbucks vocabulary!
If you disregard individual stocks that have dropped sharply and take a look at the broad market, you’ll surprisingly notice that a P/E ratio tells you absolutely nothing about whether a stock is going to go up or down in the future! Not only stocks with a high P/E ratio can drop, but also stocks with a lower one can.
A good example of the above is the following:
Within the last 4 years the Dutch financial company ING, having a low P/E ratio, climbed to the skies from $10 to over $40. That’s over 300% profits, whereas AIG (American International Group), also having a low P/E ratio, was virtually dead in comparison.
On the other hand, Starbucks and the German cosmetic company Beiersdorf kept on going up although both companies had a high P/E ratio whereas Whole Foods, also having a high P/E ratio, dropped from $80 all the way down to $40 in 2006, and EMC² is still hovering around $15 and hasn’t recovered yet since 2000 where the stock was trading at just over $100.
So as you can see, there are no rules whether a stock with a high or low P/E ratio is good or bad!
Why doesn’t this strategy work?
The problems already start at the very beginning. Which earnings should one take into account? The reported earnings from the previous year; the expected ones for the current year or even the forecasted earnings for the next year?
Because the stock market mainly looks at future performance and earnings, the future P/E ratio plays a more important role. But even the expected earnings of the current year can only be estimated let alone the one for next year. It all boils down to estimation and speculation which is quite common in the stock market. But if these estimates are wrong and market expectations aren’t met, investors are then commonly very disappointed and the stock or even the whole market goes down. And this happens every year somewhere along the line.
And this is not the only reason why a P/E ratio is not a good formula for success. The furure performance of a corporation depends on so many factors. A future stock price doesn’t only depend on earnings from the current year or the next. It also depends largely on how well the management does it’s job, whether the company has a strong product line or which possible problems the company may face.
An example of this is Apple (AAPL). When CEO Steve Jobs introduced the iPhone in Jan. 07, AAPL shot up by over $10 in two days. But then Cisco Systems (CSCO) claimed that they had the rights to the name iPhone and were contemplating to sue AAPL if they were to continue using the name iPhone. Well. Guess what happened? AAPL went down the following days losing it’s entire $10 gain.
So once again you can see that a P/E ratio, whether high or low, says way too little to base an investment decision on!
Conclusion
At the end of the day, P/E ratios or any other ratios are absolutely irrelevant. What matters most importantly in the long run are earnings and the overall performance and future outlook of a company! Short-term factors like oil prices, political turmoil etc. can influence the markets and they will more often than not! But in the end these factors are secondary and negledgible for long-term investments.
Yours In Successful Trading!
Ricky Schmidt
By: Ricky Schmidt
About the Author:
Whenever the stock markets have consolidated and broken down significantly, thousands of bargain hunters are on their way to try and find the one dirt cheap stock in the hope of cashing in large profits once it goes up again!
But when exactly is a stock cheap? For many investors a stock is only cheap when the price-earnings ratio (P/E ratio) is low. So the lower the price-earnings ratio the better it is for them on speculations that it will go to where it was before the stock dropped, if it goes up again.
To recap. A price-earnings ratio shows the multiple of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). A higher multiple means investors have higher expectations for future growth, and have bid up the stock’s price.
The thing about P/E ratios is that conservative investors should avoid stocks with a high P/E ratio because if these corporations disappoint with their earnings and don’t meet market expectations, the stock will drop dramatically like Whole Foods did dropping more than $20 at the beginning of November 2006.
If a stock has a low P/E ratio, where expectations aren’t that high, the reaction is far less dramatic if earnings and performance expectations aren’t met.
But if trading and investing in the stock market was that easy, everybody would just buy stocks with a low P/E ratio. To bad so sad that no one would have then had Starbucks in their portfoilo. A stock that shot up sky high in the past. A low P/E ratio doesn’t exist in Starbucks vocabulary!
If you disregard individual stocks that have dropped sharply and take a look at the broad market, you’ll surprisingly notice that a P/E ratio tells you absolutely nothing about whether a stock is going to go up or down in the future! Not only stocks with a high P/E ratio can drop, but also stocks with a lower one can.
A good example of the above is the following:
Within the last 4 years the Dutch financial company ING, having a low P/E ratio, climbed to the skies from $10 to over $40. That’s over 300% profits, whereas AIG (American International Group), also having a low P/E ratio, was virtually dead in comparison.
On the other hand, Starbucks and the German cosmetic company Beiersdorf kept on going up although both companies had a high P/E ratio whereas Whole Foods, also having a high P/E ratio, dropped from $80 all the way down to $40 in 2006, and EMC² is still hovering around $15 and hasn’t recovered yet since 2000 where the stock was trading at just over $100.
So as you can see, there are no rules whether a stock with a high or low P/E ratio is good or bad!
Why doesn’t this strategy work?
The problems already start at the very beginning. Which earnings should one take into account? The reported earnings from the previous year; the expected ones for the current year or even the forecasted earnings for the next year?
Because the stock market mainly looks at future performance and earnings, the future P/E ratio plays a more important role. But even the expected earnings of the current year can only be estimated let alone the one for next year. It all boils down to estimation and speculation which is quite common in the stock market. But if these estimates are wrong and market expectations aren’t met, investors are then commonly very disappointed and the stock or even the whole market goes down. And this happens every year somewhere along the line.
And this is not the only reason why a P/E ratio is not a good formula for success. The furure performance of a corporation depends on so many factors. A future stock price doesn’t only depend on earnings from the current year or the next. It also depends largely on how well the management does it’s job, whether the company has a strong product line or which possible problems the company may face.
An example of this is Apple (AAPL). When CEO Steve Jobs introduced the iPhone in Jan. 07, AAPL shot up by over $10 in two days. But then Cisco Systems (CSCO) claimed that they had the rights to the name iPhone and were contemplating to sue AAPL if they were to continue using the name iPhone. Well. Guess what happened? AAPL went down the following days losing it’s entire $10 gain.
So once again you can see that a P/E ratio, whether high or low, says way too little to base an investment decision on!
Conclusion
At the end of the day, P/E ratios or any other ratios are absolutely irrelevant. What matters most importantly in the long run are earnings and the overall performance and future outlook of a company! Short-term factors like oil prices, political turmoil etc. can influence the markets and they will more often than not! But in the end these factors are secondary and negledgible for long-term investments.
Yours In Successful Trading!
Ricky Schmidt
By: Ricky Schmidt
About the Author:
Ricky Schmidt’s website http://www.stockbreakthroughs.com was created out of frustration in trying to decode books, magazines and newsletters on the subject, which are supposed to be for beginners but are not because they’re too difficult to understand. Too many “Big Words” and too much intelligent sounding grammar is used which is not very useful.
Gabriella Forsythe
T.D asked:
If I want to buy stock in a company, how do I go about doing it?
Ted
If I want to buy stock in a company, how do I go about doing it?
Ted
athomewithkyle asked:
I’m looking to get into the stock market soon with this big drop in the stock market. What are some stocks to do research on if you want to buy low and sell high. Also should one wait to buy stocks for a few more weeks or even months to see if the stock market continues to go down?
Chung Fanelle
I’m looking to get into the stock market soon with this big drop in the stock market. What are some stocks to do research on if you want to buy low and sell high. Also should one wait to buy stocks for a few more weeks or even months to see if the stock market continues to go down?
Chung Fanelle
#125 asked:
I’ve been hearing about right now being the best time to buy stocks because prices are so low. What would be the best way to buy? Which industry seems to have potential growth in the next 10yrs?
Pilar Grochmal
I’ve been hearing about right now being the best time to buy stocks because prices are so low. What would be the best way to buy? Which industry seems to have potential growth in the next 10yrs?
Pilar Grochmal
There is quite a difference between buying stocks outright and purchasing stock options. When you purchase an option, you are betting on the direction of the market. However, option trading has very different characteristics than purchasing shares and there is a lot of terminology and tricks of the trade that a new trader should learn in order to successfully trade options.
There are two types of options – calls and puts. Purchasing a call option means that you have the right (however, not the obligation) to purchase the stock at the strike price at any time before your option expires. When you purchase put option, you have the right (however, again not the obligation) to sell the stock at the strike price any time before the expiry date of the option. A call option is purchased when you expect the price of the stock to inflate, a put option when you expect the price to deflate.
The main difference between buying stocks compared to options is that when you purchase a stock, you own a piece of the company whereas when you purchase a stock option, you simply have a contract that allows you to buy and sell the stock at a specific price before the option expires. There are always two sides for every option transaction – a buyer and a seller so for each option, either call or put that you purchase, there is someone selling it.
Stock option trading can be compared to betting on the racetrack where you are betting against other people. Buying stocks is compared to gambling in the casino, where you bet against the house. Trading options is a ‘zero-sum game’, which means that the option buyers gain equals the sellers loss and vice versa – they are mirror images of each other so there is no positive or negative cost involved.
Stock option trading can be a very lucrative game and many traders use options as part of their larger strategy based on a selection of stocks. It’s important that if you want to begin stock option trading that you understand the ins and outs of the market, the stocks and stock option trading before leaping in head first. There’s a lot to do with option trading and you can be quite successful if you take the time to learn these skills as well as research the company and stock history of the stock and company that you are looking to purchase stock option in.
By: Sam Perdue
About the Author:
There are two types of options – calls and puts. Purchasing a call option means that you have the right (however, not the obligation) to purchase the stock at the strike price at any time before your option expires. When you purchase put option, you have the right (however, again not the obligation) to sell the stock at the strike price any time before the expiry date of the option. A call option is purchased when you expect the price of the stock to inflate, a put option when you expect the price to deflate.
The main difference between buying stocks compared to options is that when you purchase a stock, you own a piece of the company whereas when you purchase a stock option, you simply have a contract that allows you to buy and sell the stock at a specific price before the option expires. There are always two sides for every option transaction – a buyer and a seller so for each option, either call or put that you purchase, there is someone selling it.
Stock option trading can be compared to betting on the racetrack where you are betting against other people. Buying stocks is compared to gambling in the casino, where you bet against the house. Trading options is a ‘zero-sum game’, which means that the option buyers gain equals the sellers loss and vice versa – they are mirror images of each other so there is no positive or negative cost involved.
Stock option trading can be a very lucrative game and many traders use options as part of their larger strategy based on a selection of stocks. It’s important that if you want to begin stock option trading that you understand the ins and outs of the market, the stocks and stock option trading before leaping in head first. There’s a lot to do with option trading and you can be quite successful if you take the time to learn these skills as well as research the company and stock history of the stock and company that you are looking to purchase stock option in.
By: Sam Perdue
About the Author:
Sam Perdue has been actively trading the markets for over 13 years. He has written a computer program that helps traders analyze the stock, Forex, commodities and options markets using Fibonacci ratios, Elliott Wave, option pricing and nonlinear programming algorithms. For more information, please see our option trading software.
Rosario Olevera
Everybody wants to know if it is time to buy stocks and financial advisors, brokers and analyst are quick to say Yes because stock prices are cheap. If you are one of those investors asking if it is a good idea to buy stocks right now, then please take into consideration the following points before investing any money:
1. – The stock price is not a reason to buy. Most people see a share price going from $50 to $10 and they jump in thinking that it is cheap and it is going back to $50. Stock prices don’t have an obligation to repeat themselves. Most of the times, when you see a price going lower it is because of a reason; it could be related to the company, its industry, or the World economy. Before jumping into that stock make sure you understand the reason for its current price and also have a good reason or argument of why it should go back up. Always remember that a $2 stock does not mean the stock is cheap, it could go to zero.
2. – There is no direct relationship between time and stock profits. Investors and analyst believe that you should buy stocks and whatever happens with the price of the stock does not matter because you as an investors are “for the long run”. The Buy and Hold technique does not guarantee a better return on your investments, and even can become a very risky proposition. First of all, if you want to really be successful with a “buy and hold” strategy you really need to make some market timing. If you follow investor’s psychology, you will realize that small investors are usually the last one to buy into a bull market and also the last ones to sell into a bear market. This means that usually small investors will tend to buy stocks at higher prices only to see them turn into a loss during down markets. Also, it is safe to assume that if you are one of those investors that put money into a 401K or stock mutual fund every month, then the longer the markets go higher, the more money you are going to be willing to put into those type of products every month. So if you really want to be successful on a Buy and Hold strategy, you need to buy stocks during down markets when everybody else is selling. In order to do that, you need to accept the risks involved in playing against the crowd.
As mentioned before, stock prices don’t have an obligation to go higher over time, and eventually the market goes South and people start to see their investment going lower and lower everyday. If you are one of those investors that purchased shares years ago thinking on keeping them for the “long term” you might see your portfolio down 40% or more and worst of all you have a very good chance that you own stocks that will probably never recover. Think about Yahoo trading over $150 during 1999, or GM trading at $50. Those stocks will probably never recover to those prices; there is more probability for those companies to disappear.
Buy and Hold is not the answer because it leaves out the most important part of the investment process, selling the stock. You will never make money on stocks if you don’t sell them. It is so absurd, that people sometimes prefer to get a loan from their bank using their stocks as collateral instead of just selling their shares. I know what you thinking, what about taxes? You tell me what is best for you: paying taxes on your gains, or risking all your net worth to a down market only in order to avoid paying taxes?
So, if you want to know if it is a good time to buy stocks, my advise to you is to look for companies in well establish industries, and start investing little by little over time, but always have in mind an exit plan in order to take your profits. Look for the best-positioned companies in industries that will perform during the next administration and stay away from broken industries such as automobiles and airlines.
By: Jorge Malo
About the Author:
1. – The stock price is not a reason to buy. Most people see a share price going from $50 to $10 and they jump in thinking that it is cheap and it is going back to $50. Stock prices don’t have an obligation to repeat themselves. Most of the times, when you see a price going lower it is because of a reason; it could be related to the company, its industry, or the World economy. Before jumping into that stock make sure you understand the reason for its current price and also have a good reason or argument of why it should go back up. Always remember that a $2 stock does not mean the stock is cheap, it could go to zero.
2. – There is no direct relationship between time and stock profits. Investors and analyst believe that you should buy stocks and whatever happens with the price of the stock does not matter because you as an investors are “for the long run”. The Buy and Hold technique does not guarantee a better return on your investments, and even can become a very risky proposition. First of all, if you want to really be successful with a “buy and hold” strategy you really need to make some market timing. If you follow investor’s psychology, you will realize that small investors are usually the last one to buy into a bull market and also the last ones to sell into a bear market. This means that usually small investors will tend to buy stocks at higher prices only to see them turn into a loss during down markets. Also, it is safe to assume that if you are one of those investors that put money into a 401K or stock mutual fund every month, then the longer the markets go higher, the more money you are going to be willing to put into those type of products every month. So if you really want to be successful on a Buy and Hold strategy, you need to buy stocks during down markets when everybody else is selling. In order to do that, you need to accept the risks involved in playing against the crowd.
As mentioned before, stock prices don’t have an obligation to go higher over time, and eventually the market goes South and people start to see their investment going lower and lower everyday. If you are one of those investors that purchased shares years ago thinking on keeping them for the “long term” you might see your portfolio down 40% or more and worst of all you have a very good chance that you own stocks that will probably never recover. Think about Yahoo trading over $150 during 1999, or GM trading at $50. Those stocks will probably never recover to those prices; there is more probability for those companies to disappear.
Buy and Hold is not the answer because it leaves out the most important part of the investment process, selling the stock. You will never make money on stocks if you don’t sell them. It is so absurd, that people sometimes prefer to get a loan from their bank using their stocks as collateral instead of just selling their shares. I know what you thinking, what about taxes? You tell me what is best for you: paying taxes on your gains, or risking all your net worth to a down market only in order to avoid paying taxes?
So, if you want to know if it is a good time to buy stocks, my advise to you is to look for companies in well establish industries, and start investing little by little over time, but always have in mind an exit plan in order to take your profits. Look for the best-positioned companies in industries that will perform during the next administration and stay away from broken industries such as automobiles and airlines.
By: Jorge Malo
About the Author:
Before asking yourself the question, Is this the right time to buy stocks? you must first ask yourself, when is the right time to buy stocks?
Suppose you found a car similar to your 6,000 dollar worth car selling for 200 dollars? Isn’t this the right time to buy it? yes of course, you are buying something way less than its fair value. The same goes for stocks, the right time to buy one is when it’s selling far below its fair value.
The market direction
Technical analysis depends on many principles and one of them is that the market has a trend and the trend should be your friend. Thus at times when the market is heading down you should be shorting selling and at times when the market is heading up you should be buying. However technical analysts forgot that at down-trends some stocks go up and at up-trends some stocks go down.
Determining the market timing is almost impossible, no one can guess what news will be released the next day and no one can anticipate the unexpected problems a company might face, so in order to make money from stocks you have to buy the present and not the future expectations.
Search for companies that are selling below their fair values and buy them with disregard to the market direction and you will end up with good profits.
Value traps
When companies face financial distress investors start dumping their shares at low prices thus making the companies appear to be undervalued. This are called value traps, when shares are down because of expected problems then this is not the bargain you are looking for, instead, you should be looking for companies that went down in value without having a strong reason to justify this price drop.
By: M.Farouk Radwan
About the Author:
Suppose you found a car similar to your 6,000 dollar worth car selling for 200 dollars? Isn’t this the right time to buy it? yes of course, you are buying something way less than its fair value. The same goes for stocks, the right time to buy one is when it’s selling far below its fair value.
The market direction
Technical analysis depends on many principles and one of them is that the market has a trend and the trend should be your friend. Thus at times when the market is heading down you should be shorting selling and at times when the market is heading up you should be buying. However technical analysts forgot that at down-trends some stocks go up and at up-trends some stocks go down.
Determining the market timing is almost impossible, no one can guess what news will be released the next day and no one can anticipate the unexpected problems a company might face, so in order to make money from stocks you have to buy the present and not the future expectations.
Search for companies that are selling below their fair values and buy them with disregard to the market direction and you will end up with good profits.
Value traps
When companies face financial distress investors start dumping their shares at low prices thus making the companies appear to be undervalued. This are called value traps, when shares are down because of expected problems then this is not the bargain you are looking for, instead, you should be looking for companies that went down in value without having a strong reason to justify this price drop.
By: M.Farouk Radwan
About the Author:
Carol