To rap up our Stepping Up Your Financial Swag: Understanding Stocks Tutorial, we will look at how to actually read a stock table/Quote, check it out:
Any financial paper has stock quotes that will look something like this:
Columns 1 & 2: 52-Week High and Low – These are the highest and lowest prices at which a stock has traded over the previous 52 weeks (one year). This typically does not include the previous day’s trading.
Column 3: Company Name & Type of Stock – This column lists the name of the company. If there are no special symbols or letters following the name, it is common stock. Different symbols imply different classes of shares. For example, “pf” means the shares are preferred stock.
Column 4: Ticker Symbol - This is the unique alphabetic name which identifies the stock. If you watch financial TV, you have seen the ticker tape move across the screen, quoting the latest prices alongside this symbol. If you are looking for stock quotes online, you always search for a company by the ticker symbol. If you don’t know what a particular company’s ticker is you can search for it at: http://finance.yahoo.com/l.
Column 5: Dividend Per Share – This indicates the annual dividend payment per share. If this space is blank, the company does not currently pay out dividends.
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Now that we have covered the different types of stocks, we will now define a few key stock related terms provided by Investopedia that will help you get a better overall understanding of stocks, trading on the stock market and reading stock tables/quotes, check it out:
First up is Ticker Tape, unless you’ve been living in a cave for the last 30yrs I know you have seen a ticker tape before; you might not have understood what you were looking at as it was flashing across the screen, but I know you have came across one before.
Ticker Tape:
What Does Ticker Tape Mean?
A ticker tape is computerized device that relays financial information to investors around the world, including the stock symbol, the latest price and the volume on securities as they are trade.
Explaining Ticker Tape: Often times when you are watching certain news channels or channels that have financial related content, at the bottom of the screen you will see a ticker tape scrolling information on different companies stock.
Dividend:
What Does Dividend Mean?
1. A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.
Also referred to as “Dividend Per Share (DPS).”
2. Mandatory distributions of income and realized capital gains made to mutual fund investors.
Explaining Dividend:
Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.
Dividend Yield:
What Does Dividend Yield Mean?
A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows:
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Being that 90+% of all wealthy individuals invest in the stock market, I think that its very important for those who aspire to be wealthy grasp a basic understanding of stocks and reading a stock table/quote.
The Basic Stocks are Common Stocks and Preferred Stocks:
What Does Common Stock Mean?
A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation (the selling of the company), common shareholders have rights to a company’s assets only after bondholders, preferred shareholders and other debt-holders have been paid in full.
Explaining Common Stock:
If the company goes bankrupt, the common stockholders will not receive their money until the creditors (those who the company owe) and preferred shareholders have received their respective share of the leftover assets. This makes common stock riskier than debt or preferred shares. The upside to common shares is that they usually outperform bonds and preferred shares in the long run.
What Does Preferred Stock Mean?
A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.
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During the financial crisis that started in 2008 we constantly heard and read about corruption and scandal on Wall Street. We became familiar with terms such as overleveraged, mortgage backed securities, recession and liquidity crisis. We also are reminded of the more recent scandals when we hear names such as Bernie Madoff. Madoff scammed billions from innocent investors by using fictitious financial transactions. There was without a doubt a strong dislike toward Wall Street during those days from Main Street. Many would-be first time investors in the stock market do not believe it is a fair playing field. Likewise, many market veterans have been burned once too many by the greedy few at the expense of the general population.
So investors rightfully wonder whether the stock market is rigged. Technically, the answer is of course, no, the stock market is not rigged but there are some real disadvantages that you will need to overcome to be a successful small investors. Let’s examine some of them here which in turn may help you navigate thru future market turmoil.
Information: Despite the seemingly endless financial and stock data found online, as an individual investor you do not have access to in-house technical experts or research analysts. Most investors also do not have sophisticated automated trading programs to provide trading suggestions. Nor are most average investors skilled in technical analysis. Perhaps an overlooked nuance in this informational imbalance is the actual timing or dissemination of information that is crucial. Yes, the internet is somewhat of an equalizing factor, but the reality is that many institutional clients know the outcome of information before the investing public does. Brokerage firms typically have a research department as well as a team of traders.
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Here is a little bit of information that can help you step your finances up; I’m talking about the investment tool known as “Options.” This is one of the many investment tools that the big boys use to build their wealth, so take a minute and digest this piece of information:
According to Ivestopedia an option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security. It is also a binding contract with strictly defined terms and properties.
Still confused? The idea behind an option is present in many everyday situations. Say, for example, that you discover a house that you’d love to purchase. Unfortunately, you won’t have the cash to buy it for another three months. You talk to the owner and negotiate a deal that gives you an option to buy the house in three months for a price of $200,000. The owner agrees, but for this option, you pay a price of $3,000.
Now, consider two theoretical situations that might arise:
1. It’s discovered that the house is actually the true birthplace of Elvis! As a result, the market value of the house skyrockets to $1 million. Because the owner sold you the option, he is obligated to sell you the house for $200,000. In the end, you stand to make a profit of $797,000 ($1 million - $200,000 – $3,000).
2. While touring the house, you discover not only that the walls are chock-full of asbestos, but also that the ghost of Henry VII haunts the master bedroom; furthermore, a family of super-intelligent rats have built a fortress in the basement. Though you originally thought you had found the house of your dreams, you now consider it worthless. On the upside, because you bought an option, you are under no obligation to go through with the sale. Of course, you still lose the $3,000 price of the option.
This example demonstrates two very important points. First, when you buy an option, you have a right but not an obligation to do something. You can always let the expiration date go by, at which point the option becomes worthless. If this happens, you lose 100% of your investment, which is the money you used to pay for the option. Second, an option is merely a contract that deals with an underlying asset. For this reason, options are called derivatives, which means an option derives its value from something else. In our example, the house is the underlying asset. Most of the time, the underlying asset is a stock or an index.
Too often, traders jump into the options game with little or no understanding of how many options strategies are available to limit their risk and maximize return. With a little bit of effort, however, traders can learn how to take advantage of the flexibility and full power of options as a trading vehicle. With this in mind, we’ve put together this slide show, which we hope will shorten the learning curve and point you in the right direction.
1. Covered Call: Aside from purchasing a naked call option, you can also engage in a basic covered call or buy-write strategy. In this strategy, you would purchase the assets outright, and simultaneously write (or sell) a call option on those same assets. Your volume of assets owned should be equivalent to the number of assets underlying the call option. Investors will often use this position when they have a short-term position and a neutral opinion on the assets, and are looking to generate additional profits (through receipt of the call premium), or protect against a potential decline in the underlying asset’s value
2. Married Put: In a married put strategy, an investor who purchases (or currently owns) a particular asset (such as shares), simultaneously purchases a put option for an equivalent number of shares. Investors will use this strategy when they are bullish on the asset’s price and wish to protect themselves against potential short-term losses. This strategy essentially functions like an insurance policy, and establishes a floor should the asset’s price plunge dramatically. Click Here For More
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This is an interesting concept; Hollywood will be soon applying “Futures” stock market investment strategies to protect against failure of block buster films. I had no clue this concept was even on the radar of being implemented, but it seems the idea has been tossed around for the past ten year and has finally received the green light. Below you can check out how the concept will work:
How Futures Work
Futures involve a standardized contract that occurs between two parties. These parties commit to buying or selling – delivering or receiving – a specific asset of a certain quantity and quality at a future date and at agreed upon price. These markets address the risks associated with the production of goods and services that have always been present.
Think about the farmer using futures to protect his or her corn crop from failure. Some in Hollywood believe the futures market would provide the same benefit but instead of a crop, the market would mitigate the risk against a box office flop. It works quite simply; a projection is made on a box office film. For example, an investor projects a film could make $200 million. The investor buys future contracts which value the film’s expected box-office at $100 million. If the film ends up grossing $200 million, the “long” investor will have doubled his position.
The development of film futures exchanges has been at least 10 years in the making but its greatest challenge has been the government’s involvement. Some members in Congress weren’t too keen on the idea; as the idea was getting approved in April of 2010 some congressional members and film industry organizations tried to put a stop to it by imposing a ban in the final version of the Wall Street reform legislation.
Advantages and Disadvantages
Backers of the film futures markets have explained that the main benefit is the ability for Hollywood to have more leverage in avoiding the risk of a box office flop. Producers, for instance, have more protection and less reliance on recruiting financial partners. Investment from private equity businesses dissipated over the previous years because the returns were either lower than anticipated or quite simply uneven. An additional perk of the movie futures markets, the backers disclosed, was the creation of more jobs.
Despite the positive advantages, some film industry labor unions and professional groups recruited the support from members of Congress, such as Rep. Henry Waxman of California and Senator Blanche Lincoln of Arkansas. The lawmakers were uncomfortable with the possibility that the futures market would create an online platform for gambling. The Motion Picture Association of America wanted further approval from the Commission halted because of the possibility of “unbridled gambling”. Its executives expressed concerns that this image could tarnish the industry’s reputation. Manipulation by entertainment executives, cinema chain owners and dirty speculators was another concern. The fear was that these insiders could give the public a leg up based upon the results of test screenings, timing of the movie’s showing, knowledge of money spent on marketing and changes to the numbers of screens showing the movie.
Some other possible hurdles have been the rate of film production, the tendency for Hollywood to provide limited film details regarding film projects and announcements of Hollywood deals that have often not been signed.
The Bottom Line
Meanwhile, firms such as Cantor Fitzgerald are alleviating worries and securing transparency. The brokerage firm is reassuring its experience in capital markets to the public. It has also laid out a set of solutions in congressional committee meetings to counter concerns about gambling and manipulation. The firm claimed before a congressional meeting that it could detect inaccuracies of studio data by comparing it to electronically captured sales records. The film futures market may be a new concept, but it will have to go through some trial and error to better determine whether it will be the right choice for you.
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It’s never too early to began planning for your later years in life, Investopedia outline a pretty cool investment option for the future; check it out:
These days, the notion of running out of retirement income before your time runs out is a real threat. According to financial planners, a 4% rate of withdrawal on retirement assets is most likely to ensure that your income will outlast you. It sounds simple, but this also means that in order to collect $40,000 per year, you’ll need to have $1 million in the bank. Laddering annuities is an approach that alleviates the worries of relying on Social Security, pension plans and running out of money during retirement because this investment strategy can create income that’s guaranteed for life.
According to the Uran Institute, an economic and social research organization, retirement accounts lost 32% of their value between September 2007 and December 2008 – the heart of the economic crisis in the U.S. But while economic downturns can impede retirement goals, research has found laddering annuities can be an effective strategy in many market conditions.
What Is it?
An annuity is a contract between you and an insurance company. An individual provides money to the business and the cash accumulates through capital gains. Taxes are deferred. The tax is paid when you start making withdrawals, but that’s after the age of 59.5. In certain situations, an IRS tax penalty is imposed to discourage people from taking money out of an annuity product, such as a deferred annuity, too soon.
In addition, the insurance company that you set up your annuity with is likely to apply surrender charges to recoup costs of the annuity they sold. This is particularly likely if the amount taken exceeds a stipulated free withdrawal amount of 10% of the annuity that the insurer may have allowed. When it is time for you to receive payouts, you can either take the money out all at once or have the insurance company provide systematic payouts, such as each month, quarter or year. How the annuity payout is calculated is determined by interest rates and your age. Insurance companies tend to pay more with age because you are nearing your life expectancy.
How It’s Done
An annuity ladder involves the purchase of annuities in phases and can involve multiple annuity products. For example, an individual at age 65 may want cash to help with bills. The individual may divide some of the money set aside for an investment in annuities to purchase a fixed immediate annuity product now. Meanwhile, their remaining assets in stocks and bonds continue to grow and build wealth. Five years later, the retiree will help supplement the income from the fixed immediate annuity with the purchase of another annuity from a different company using a portion of their savings. A couple of years after that, the retiree may purchase another annuity from a different company and so on and on.
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Damn only if I would have known…
As the old saying goes, “hindsight is 20/20.” So, although there was no sure-fire way of knowing what would have had the highest yields in 2009, let’s take a look at the investments that would have given your pockets some padding.
Stocks: From coffee makers to commercial vehicle manufacturers, the stock market provided investors with some of the largest returns of the year.
* Diedrich Coffee –YTD Return: 9,700%
Who would have thought a coffee company could deliver such astronomical returns? Since going public in 1996, shares of Diedrich Coffee has spent most of their time trading under $5 per share. Shares reached an all-time low of 21 cents per share in March of this year before skyrocketing to over $35.
* Yongye International–YTD Return: 399%
Yongye International manufactures nutrient compounds for plant and animal feed used in China’s agricultural industry. Shares on Yongye began the year trading under $2 each and reached a high of $12 in October. Although off their high, shares began December around $8 each.
* Auto China Limited–YTD Return: 300%
This four year old automobile firm saw the bulk of its gains arrive over the course of one week in October. From September to October, the price of shares more than tripled. Shares have since reverted, but the year-to-date return still sits above 300%.
Funds
Fund investing can be used to reduce risk, which often comes with reduced returns. These funds held on to the returns, and then some.
* ProFunds UltraLatin America–YTD Return:244%
This young Latin American fund recently celebrated its second anniversary. The past year has been extremely kind to UBPIX shareholders; the fund returned over 200 percent. Nine of the fund’s top 10 holdings hail from Brazil. The largest investments are in Petroleo Brasileiro and Vale (ADR). (Learn more in Go International With Foreign Index Funds.)
* Direxion Monthly Latin America Bull 2X–YTD Return:190%
Our second Latin American fund keeps its assets allocated around an 80/20 mix of stocks and cash. DXZLX is over three years old, and while the fund’s initial investors remain in the red, anyone who invested in late 2008 or early 2009 is enjoying a hefty return on their investment.
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It’s never too early to train yourself on becoming a savvy investor. When watching or reading financial news reports there are a lot of language used that to the average person sounds like something from another planet. Below I grabbed this article from Investopedia that will knock down some of those language barriers for the young investor; check it out:
Options belong to the broad class of financial instruments known as derivatives, described by Warren Buffett as, “financial weapons of mass destruction.” While it is certainly not advisable for a young investor to dabble in complex over-the-counter derivatives, exchange-traded or listed options such as equity and index options have many benefits if used prudently. Here are five reasons why every young investor should explore trading options.
1. Investment Opportunities with Limited Capital
The average young investor has limited capital to invest, as he or she is quite likely burdened with student loans, a car loan and rent payments while working at one or more entry-level jobs. For such cash-strapped young investors, options are a great way to get into the markets while plunking little money down - something that also limits their potential loss or exposure.
Consider a savvy young investor who is bullish on General Electric, which is trading at $19, and expects it to rise to $23 over the next year. While a minimum market lot of 100 shares would cost $1,900 plus commissions, the investor could instead buy long-term options known as Long Term Equity Anticipation Securities (LEAPS) on GE for a fraction of the full cost of the shares, while retaining all the upside if the stock does move higher.
For example, the LEAPS expiring in January 2012 with a strike price of $17.50 are priced at $3.35, so one option contract of 100 shares would cost $335 plus commission, or less than 20% of the price of buying 100 shares. If GE does reach the investor’s $23 target by January 2012, the LEAPS would be worth at least $5.50 by that time, for a return on investment (excluding commissions) of 64%. A similar stock investment strategy would provide a 21% return. The downside is that if GE does not perform as expected and falls below the $17.50 strike price by January 2012, the LEAPS would expire worthless. In this case, the investor could use the capital loss on this option transaction to offset capital gains on other trading activity for tax purposes.
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There has been a lot of talk floating in the new about the huge Wall Street firm Goldman Sachs being charged with securities fraud by the SEC. Form what see in this video there was definitely something shady going down on Goldman Sachs part; investors lost billions in investing in these securities Goldman promoted. Charlie Rose arranged a round table including Gretchen Morgenson of ‘The New York Times,’ John Coffee of Columbia Law School, Larry Ingrassia of ‘The New York Times’ and Roben Farzad of Bloomberg Business Week to discuss these charges to hopefully bring some clarity to the average person, check it out:
Charlie Rose: SEC Accusations of Goldman Sachs
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