Stock Market Books

Product Description
–… More >>

Stock market profit without forecasting;: A research report on investment by formula

One of the easiest traps to fall into when making decisions about buying or selling stocks is to make predictions about how well they will do in the future based on how they did in the past. As a matter of fact, it’s such a common error and such a human tendency that every stock prospectus warns against this behavior specifically: “Past performance is not a guarantee of future results”.

Why is there such a strong tendency to want to look at historical performance? There are at least two good reasons.

First, even though it’s appealing to think that market activity can be predicted using some kind of mathematical formula, the truth is that stock market activity is a result of human behavior. So far, no mathematical formula has been discovered that can accurately predict it.

But humans crave stability and predictability. Looking backward to the past gives us the false hope that the future will unfold in a similar manner. However, wishful thinking is not a good basis for sound business decisions. And successful long-term investing in the stock market requires decisions based on solid business principles, not emotions.

Second, there’s a lot of “selling” going on that is thinly disguised as “useful information”. Since investing in securities has become so popular since the end of the 20th century, a lot of “celebrity analysts” have been created in the media. Stock market pundits have their own television shows, radio shows, Internet blogs and newspaper columns.

Information about investing in the stock market has become mainstream entertainment. And a large part of the entertainment is showing charts, graphs and other kinds of “historical” visual proof of the pundit’s ability to predict the stock market’s performance.

One of the reasons this kind of historical visual proof is so tempting to believe is the human tendency to think that if a stock sold at a high price in the recent past, that price must be its “true value”. There is a tendency to think that if its price has fallen, it’s probably a bargain because it will be only a matter of time before the price increases to its “true value” again.

In reality, the history of the stock market is full of companies whose stocks once traded high, then fell never to rise again. Anyone who owned stock in Montgomery Wards or Krispy Kreme knows that all too well.

The inability of a stock’s past performance to predict its future performance is the reason that many smart investors don’t rely heavily on measurements like the P/E ratio, or other measurements that look to past quarters’ performance. As Warren Buffett has proven time and time again, buying stocks based on the strength of the company’s management is a much better strategy.

Pretty much every investor uses one of three general investment strategies. These are: fundamental analysis, technical analysis and buying and holding the market. A brief examination of each of these techniques will help an investor decide which best suits their personal profile.

Fundamental Analysis
The most straightforward approach of fundamental analysis is a basic examination of a stock versus the value of the company and its expected future earnings. Based on the company’s financial publications it should be relatively easy to determine weather a stock is undervalued, overvalued or somewhere in-between. The trader assumes that the market price will correct itself and the price per share will consequently go up or down, unless there are any unforeseen events or hidden value traps.

Technical Analysis
Using technical analysis, the investor makes an attempt to predict future share prices based on the direction of the market, trading volumes and past prices. This approach assumes that the market and individual stock prices loosely follow discernible patterns, or at least stay within a certain bandwidth of it. Once the beginning of a pattern is identified, the remainder of the pattern can theoretically be predicted, hopefully well enough to yield returns in excess of the general market. Research has shown that solely using technical analysis as your strategy, does not work well. Yet, there are some indicators such as pivot point resistance or support levels that can actually hold up, most likely due to the wide acceptance and adoption of the method under the professional traders.

Buying and Holding the Market
The approach of “buying and holding the market” is to have a portfolio that could hold it’s benchmark against the market performance. For this strategy the investor buys a basket of stock that resembles the stock market or the S&P 500 assuming that the overall direction of the market performance is upward. The investor buys a large number of diversified stocks and does not need to buy every single stock in the index, although that could be achieved by buying stocks of an S&P 500 Index mutual fund. This approach can be used as a benchmark performance tool, as no other investment approach is valid unless it’s able to outperform the stock market over the long run. In the event that investment approaches do perform above market performance with the same risk, the difference is called excess return, which represents the added value of the used investment approach.

The investment approach you decide to use depends on your conceptual view of the two principal stock market theories. In the light of the efficient market theory, the stock price reflects all publicly available information about the company in question, which results in the trading price coming very close to the true value of the share price. Meaning that on average the price reflects the fair value of the stock, but not all the time, as variations of this price can exist. On the other hand, there’s the school of thought that these prices are unpredictable and too random, and cannot be used to generate excess returns. In that case, there is no point in using the fundamental approach seeking stocks that are selling under their actual value. Alternatively, one could concentrate more on developing a more efficient portfolio, instead of selecting a certain kind of stock. This would be a portfolio that provides returns closest to the market’s return at a specified level of market risk. The investor simply determines the amount of risk that is acceptable and builds the portfolio based accordingly.

Investors believing that the market is not efficient for the reason that buyers receive, perceive and evaluate information differently, causing the prices to deviate from their true value can look for undervalued stocks through diligent analysis. Going forward, this would enable them to outperform the benchmark of buying and holding the market. As backed by many studies it’s safe to assume that the market is often inefficient and therefore there are numerous ways of outperforming the market with your portfolio. Your excess returns can generally be 2 -6 percent at a risk free rate. Anything higher is most likely an abnormal return, which is the out-performance over the risk-adjusted return. Just beware, as this can also be a negative abnormal return. Nevertheless a small consistent excess return can also lead to great wealth.

Investors are all familiar with the day trading trend, which is the shortest term money making platform in the stock market. If you seek expert opinion about day trading, you will get more of negative comments rather than positive criticism. But the expert opinion does prove true in case of impulsive buying decisions. To enter into profitable day trading in the stock market of India, it is greatly necessary that you are equipped with the complete knowledge of the field besides getting updated with the up-to-the-minute market moves so that you choose only potential stocks. Only then can day trading prove lucrative. If you are employed elsewhere and are not able to look into the trading matter well, it is advisable that you should not opt day trading. There are other trading options as well in the share market in India, which need not require your full time observation.

The stock market of India may prove fortunate for few while for others it may not be the right platform. There are instances of many who have turned bankrupt. ‘A little knowledge is a dangerous thing’ goes the saying. And gaining little knowledge and venturing into the share market in India seeing others making big money may prove dangerous for you. You may end up losing your hard earned money and regular losses will just prompt you to exit from the stock market scene. Strategizing and gaining complete knowledge before investing will certainly turn the stock market in your favor – a money making platform.

Strategize your goals and experiment with the different investing options in the stock market in India. Initially go for little investments so that even if you gain or face losses, you will soon learn the intricacies of the trade. Once satisfied, you can go for bulk investments. You may opt for all the three trading options, viz. day trading, short term trading and long term investment. At the same time if your source of livelihood is solely the stock market, you can diversify your investment goals further, such as investment in mutual funds, currency futures, commodity futures, and other investment products. You can thus maintain a balance of your investments and losses if any will hardly bother you. Trying different investment options will also let you know which one suits you the best and you can then invest in bulk in the said option.

Here is a list of some financial vocabulary with very easy to interpret definitions. This list will include investing, common accounting and business terms. Hopefully this glossary will be really helpful for the aspiring entrepreneurs, students and those who entering in the business and who have never ever had a dignified business education. Purchasing a stock that means you own a part of an organization.

A stock is the lowest share that is accomplishable. A stock is brought out by the companies who bring up capital to deal a small portion of their company. Those people who hold the stock as well hold the suitable voice beliefs about how a company endures and share the profits. Even though stock proprietors have some rights, they do not confront responsibility if the company faces a cause or defaults. The worst thing that can happen to a capitalist is that their Stock will contain no value and they will suffer their investment.

If you are interested in the option stock trading, then you should be concerned in option stock trading schemes. To understand Stock options in a better way let’s see an easy dictionary definition. Strategy can be outlined as a skill in planning or managing, especially by using ploys. The words planning or managing using stratagems to accomplish a specific end or objective is rather useful in our hope to employ this definition to the investing market. Investing in the Stock Market is actually not something that all of you know about and for the common man it might look like a chilling place where people can release a lot of money.

Assuring the market break down in several places affrights a lot of people and discourages them from enduring into investing in the stock market. Even so, the stock market is not inevitably a place where you release money, on the opposite; you can gain a lot of profit if you can discover your way more or less the market. The stock market can be confusing and complicated for all experience levels.

Those people who are just getting their despoil into the stock market can discover it to be intense. In contrast, Full-fledged traders can still frequently become mixed up by a turn of events. The stock market is the market which is ever-unsteady and oftentimes misinterpreted. Novices as well as the highly experienced can be very well assisted by the free stock quotes that can help conduct the way through the market. The term Stock Market is really a very immense subject that addresses the bond market, trading, portfolios, stock market and even stock term jargon or slang. So, if you are curious about what precisely this article contains, let me give you an overview. This article named primarily comprises all the terms relevant to stock, from the entire categories world wide of stock market finance, and as well includes the jargon and Phrases that you would most know specifically, if you are entering in the stock markets.

If you are a long-term investor in stocks, there is a very exciting investment plan. It is most suitable plan both for the beginners and veterans in stock market investments. Most of the investors, whether new or old, are constantly haunted by just one fear: As soon as you start investing in the stock market, the price of your stock will tumble and it will spiral up the moment you sell out your shares most probably, at a loss.

Get Best Penny Stock Pick Program to help you to make profit!

This is not just a phobia, an imagined fear. It is a very real cause to worry especially if you are trying to catch moves or time of the markets. Not only the lay investors, even the professional traders and fund managers also have a hard time gauging the wayward, volatile and unpredictable market moves. Since you are a long-term investor, you do not want to play this type of guessing game with your hard earned money. You want to be on a surer footing. You, therefore, want a strategy that is proven, conservative and delivers good value on your investment over the long run. This strategy is called Dollar Cost Investing.

This type of investment works on the premise that if you buy the stocks of the same dollar amounts on regular basis, the unpredictable fluctuations in investment is squared off over a certain period of time. You basically buy more stock when the prices are low and buy less when the market is high since you are always investing the same dollar amount. You do not have to worry about buying the shares on higher costs and selling them on low. This happens because the risk of the timing is reduced. All you need to do is to consistently invest the same dollar amount on regular basis. If you purchase index funds, your investment will grow with the market. Obviously you are more in tune with the market over the long term.

Get Best Penny Stock Pick Program to help you to make profit!

This plan can be illustrated by an example. Suppose you are not investing on the principle of dollar cost averaging. Instead, you are buying the same amounts of shares every month. You buy, say, 100 shares on the 15th of every month and you continue to buy stock at different prices for six months.

Suppose you buy 100 shares in the first month @ $30, second month@ $40, third month @ $50, fourth month @ $90, fifth month @ $ 60 and in sixth month @ $30.

Suppose your total investment over six months comes to be $ 30,000 and you buy 600 shares. Your average cost price per share would be $50.

Now suppose you buy your stock on the basis of dollar cost averaging. According to it, you spend the same amount that is, $ 30,000 spread over a period of six months so that you spend $5000 every month. Let us say you invest the same amount every month and buy 166.66 shares@ $30 in the first month, 125 shares @ $ 40 in the second month, 100 shares @ $50 in the third month, 55.55 shares @$90 in the fourth month, 83.33 shares @ $60 in the fifth month and 166.66 shares @ $ 30 in the sixth month. You buy a total of 697.2 shares for $30,000. If you divide $30,000 by 697.2, your average cost per shares comes to $43.02.

It is obvious that you have invested in fractional shares in the second investment plan. Your saving per share is huge although you are investing the same dollar amounts but buying shares fractionally. You actually buy more shares when the price is low and less shares when the price is high. You not only wind up with more shares, almost 700, at much less average price of $43 as against $50 in the first instance.

It must, however, be noted that it is much easier to make such purchases in a rising market when your investment appreciates. You have to be pretty much disciplined and stick to your strategy when the market is falling. You must also be aware of that each dollar buys more in a falling market, which potentially leads to higher gains in the future as the market recovers.

Although it is impossible to predict the market trends in the future, but historically, the market has risen over the long term and it takes the conservative investors right along with it.

Get Best Penny Stock Pick Program to help you to make profit!

What is Stock?

You can gain ownership rights of a company by investing in its stock. A stock/share is a unit of your partnership in the company. The value of each share of the company is determined by dividing the total capital investment of the company by the number of shares. For example, if the total value of a company is $100 and the number of shares is five, the value of each share shall be $20. If you own one share, you have 1/5th ownership of the company. If you want to increase/decrease your ownership of its stock, you need to buy/sell its shares. The words ’stock’,’ share’, or ‘equity’ are generally used to convey the same meaning.

Get Best Penny Stock Pick Program to help you to make profit!

Stock Trading

Stock trading, therefore, means buying or selling the shares of the stock of a company. Stock trading takes place within certain parameters of a system. For example, you cannot directly buy the stock of any company from the company itself. You have to buy and sell its shares through a broker who is registered with the stock exchange where the company is listed. The shares are sold and bought at the market prices prevailing at a given point of time. Again, the price of the stock cannot be determined arbitrarily by the seller or the buyer. It is determined by a combination of certain market forces comprised primarily of supply and demand, which in turn, is linked with performance of the company and so on.

Stock Trading System

As a general practice, it is practically impossible for a person or a group of people to raise the huge amount of capital, which is required to finance a venture. In order to do so, the sponsors of the company make a public announcement of their intent to start a company and invite the general public to buy its shares. The company decides upon the overall capital required to finance the venture, the number of shares or units and the price of each share. It then appoints brokers to receive subscriptions from the public. This first step is called the initial public offer-IPO.

If you cannot buy the company’s stock at the time of its initial offer, you can buy it later on as well, but the price of the share of the company will depend upon its performance and the supply and demand of its shares.

Stocks of various companies are traded at stock exchanges like the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotation (NASDAQ) and American Stock Exchange (AMEX).

There are two main types of exchanges, physical and virtual.

Physical Exchange

The NYSE is an example of a physical exchange system where stock trading takes place face to face. In other words, there is a concrete building where the trading actually occurs. Most people may be familiar with the chaotic images of the stock exchanges on TV or in movies. Watch the CNBC television and you will be able to see the ‘crazy guys with the blue jackets frantically wave about the pieces of paper and yell out prices’.

Virtual Exchange

The second type of stock trading exchange system is the virtual exchange. The word ‘virtual’ refers to a computer image of a real situation. The virtual exchanges are like computer networks as they are linked to each other through the Internet. The entire trading in stocks and shares takes place electronically. The NASDAQ, also known as the OTC — over the counter market, is an example of the virtual exchange. Since it is virtual, there is no trading floor like the one at the NYSE. All trading takes place through a computerized network of dealers. The brokers charge commissions both on the sale and the purchase of the shares. The stock of each company is identified by a shorthand code called symbol or a ticker symbol. The symbol usually consists of letters. Sometimes it may be numbers or a combination of letters and numbers, for example, MSFT is Microsoft, C is Citigroup, and GOOG is Google.

Get Best Penny Stock Pick Program to help you to make profit!