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If you can’t rely on your own research, or if you don?t have time to do the research, you might as well make your investment decisions based on tips from that smart guy at work. No, no, I’m just kidding. Tips are for restaurants.

Important Rules to Follow When Buying a Stock

These suggestions are presented with the assumption that you intend to remain a casual investor. I strongly recommend mastering the art of technical analysis (reading charts, analyzing price and volume moves) if you intend to become more serious about the timing of your purchases.

With this said, you should still be able to buy good stocks if you follow these rules:

1.Don’t ever buy a stock without first examining its financial health. You are going to learn how to do this.

2. Don’t ever buy a stock without first learning about its business and who its competition is. You want to focus on the leaders in an industry.

3. Buy when market indexes are in an up-trend. Don’t try to bottom-guess, wait until the stock or the market has clearly turned around, with several days of price increases on larger than usual volume.

4. Buy the top companies of industries or market sectors with many stocks hitting new highs.

5. Buy companies with new products or services that are expanding (profitably), especially young companies.

6. Determine if large or small-cap stocks are favored in the current market.

7. Pick companies with high management ownership. With their personal stake, there will be a tendency to Read more…

There are 2 kinds of investments:

a) investments for the rich and

b) investments for everybody else.

If you want to make like the rich, you got to have you’re own business. Without a business you can’t afford the investments that rich people do.

The only reason for you to start a business is to accumulate lots and lots of values.

I want to underline the difference between an employee who makes investments and a business that makes investments.

The majority of the investments are too expensive if you want to do them as an employee. But they become accessible if you make them through you’re business.

The only thing that investors have to do is to learn how to make money work hard for them.

WHY THE IDEA OF INVESTMENTS SCARES US?

First of all, the term “investment” is a different notion for different people. The things that people call investments are not necessary investments.

They talk about totally different things, but they think they talk about the same thing.

Different people invest in different things.

a) A solid preparation, and job that offers financial security and other benefits, is what some people call investments.

b) Some people make extern investments.

Here is a list of some types of objects for investments?

a) Stocks, bonds, mutual funds, real estate, insurance, merchandise, savings, collectibles, precious metals, etc.

b) All this can be divided in different subgroups.

Stocks?

1) Usual stocks

2) Special stocks

3) Secure stocks

4) Stocks that sells at low price

5) Stocks that sells at high price

6) Read more…

No load mutual funds are mutual funds whose shares are sold without a commission or sales charge. The reason for this is that the shares are distributed directly by the investment company, instead of going through a secondary party. This is the opposite of a load fund, which charges a commission upon the initial purchase at the time of sale.

Since there is no cost for you to enter a no-load fund, all of your money is working for you. If you purchase $10,000 worth of a no-load mutual fund, all $10,000 will be invested into the fund. On the other hand, if you buy a load fund that charges a commission of 5% upon purchase, the amount actually invested in the fund is $9,500. If both funds return 10%, the no-load fund would have grown to $11,000 while the loaded fund only rose to $10,450.

The major idea behind a load fund is that you will make up what you paid in commissions with the solid returns that the managers will provide. However, most studies show that loads don’t outperform no-loads.

Most load mutual funds are sold through brokerage houses, financial planners, and people known as “Registered Representatives.” With very few exceptions, most of these people operate on the basis of selling as many fund shares as possible. Their commissions are collected up front, as a back end charge, or both. Whether you make money or lose it isn’t their primary concern. What matters most to these folks is how often you buy (and generate new commissions for them).

No load funds have traditionally been marketed directly by the mutual fund companies themselves. But today, more and more funds are being offered through discount houses like Fidelity, Schwab, and a host of others. The advantage to this is that you have an unlimited choice of mutual funds in one place. You don’t have to open a separate account for each mutual fund family that you purchase.

Most fee based investment advisors have independent relationships with the major discount firms. They’re able to offer clients just about any no load mutual fund that is available. They receive no commissions from the firm and only get paid by the client according to a pre-determined fee arrangement. Under this type of arrangement, there’s no hidden agenda to try to sell you a particular mutual fund in order to earn a larger commission.

It is best to stick with no-load or low-load funds, but they are becoming more difficult to distinguish from heavily loaded funds. The use of high front-end loads has declined, and funds are now turning to other kinds of charges. Some mutual funds sold by brokerage firms, for example, have lowered their front-end loads to 5%, and others have introduced back-end loads (deferred sales charges), which are sales commissions paid when exiting the fund. In both instances, the load is often accompanied by annual charges.

On the other hand, some no-load funds have found that to compete, they must market themselves much more aggressively. To do so, they have introduced charges Read more…

Mutual funds are taced at long term capital gains rate right? Wrong. There seems to be some confusion to how mutual funds are taxed. What you need to know is there are distributions on mutual funds that are taxable. These are called annual distributions and are made in late November and early December. These distributions, if the fund has any gains, are taxed at either ordinary income or long term capital gains tax.

This is where the anti-annuity crowd usually steps in and says mutual fund tax treatment is so much better than variable annuities, is this true? It is not. You have 3 taxes with mutual funds, the short term distributions (distributed usually every year), long term capital gains (distributed usually every year) and then when you sell the fund you will have another long term capital gain (I am assuming you made money with the fund). I did not mention dividend tax because not all funds have dividends, that would make 4 taxes on mutual funds.

With portfolio turnover rates at about 75% we are finding that the distributions are becoming more short term than long term. This means higher taxes on these distributions. These distributions can continue even if the mutual fund goes down. This happens because mutual funds tend to capture profits quickly in today?s market. They like to realize the gain rather than risk losing it. This is why the turnover rate in mutual funds are so high.

Mutual funds are a little more skittish because of the market losses in 2000 through 2002. Ever since those time periods we have seen the turnover rate climb, again because most funds want gains not loses. Also, when mutual fund investors sell their funds this generates activity and the fund manager may have to sell positions in the fund to cover the sale amount. This could generate more distributions.

When I examined how long mutual fund investors hold their funds for it is fairly interesting. The average no-load investor holds on to their fund for about 3 months. A loaded, or broker sold, mutual fund investor holds their funds for about 3 to 5 years. The longer the holding period the better it is for you. Lower turnover means, potentially, lower short term capital gains.

The disturbing part about mutual fund distributions is when the market plummeted in 2000 to 2002 short term distribution rates went way up. Basically, you lost money in the market and you had to pay taxes on it, how fun. I guess the anti-variable annuity crowd thinks this is ok.

My point to all of this is taxes on mutual fund are not 15% long term capital gains like everyone says it is. When we add up all the taxes you pay it can be as much as ordinary Read more…

April 8, 2006

The overall market choppiness since the beginning of 2006 has made it tough for investors to find trading opportunities. However, there are a handful of developing bullish and bearish sector trends that are worth a closer look. All of these trends are based on weekly – and even monthly – data, which weeds out the day-to-day noise that has been unusually loud over the last month. As such, a day or two worth of contra-movement can’t be taken to heart. These ideas are much ‘bigger picture’.

The Stealth Rally

Although the NASDAQ has lethargically trailed the S

Everyone knows the old joke about the
brokers having yachts, but the customers don?t.
There is more truth than fiction here. Why don?t
the customers have yachts too? There must be
something wrong.

The reason you gave your money to some
brokerage company was to have it grow and make
income for you ? but it hasn?t. Why? No, they
are not stealing at least overtly. Your broker
is doing the job he was taught to do ? have
you open an account and help (?) you buy a
stock or fund.

When a person becomes a broker he must
pass certain tests given by regulatory agencies.
Once passed his brokerage company gives him two
manuals. The first is a list of the
regulations. Never break those rules or he is
fired. The second manual is how to open
accounts and get customers to ?invest?. There
is no third manual (the most important) on how
to make money for customers and how to protect
customers money from loss.

The broker might think he knows how to invest
(he doesn?t), but he definitely is never taught
how to protect peoples portfolios when their
stock heads down. If the investor is ever going
to have his yacht he must learn the latter.

Brokers are taught the ten basic rules for
customers. They are the Ten Commandments. They
should be called the Ten Lies of Wall Street.
In a nut shell they are 1. Do Research, 2. Buy
and Hold, 3. Dollar Cost Average, 4. Diversify,
5. Buy A Good Stock and Put It Away, 6. You
Can?t Afford To Be Out Of The Market, 7. Never
Try To Time The Market, 8. Rearrange Your
Portfolio With Age, 9. Your Broker Read more…

The bond market always seems so confusing
to almost everyone. It does look to be upside down.
Why is it so?

When an investor buys a bond that matures
in 20 years he plunks down his cash, say $10,000,
and each quarter (or annually or as agreed) the
bond issuer sends him a check for the interest.
If it was 6% the bond holder will receive $600
annually until the twentieth year when the bond
issuer returns his $10,000. Very simple.

But suppose the bond owner suddenly has a
need for cash and must sell the bond. The bond
issuer is not required to take back the bond
until the 20th year. The investor must find
someone to buy that bond now. Of course, the
new owner will then receive the interest
checks. The bond is still worth $10,000 at
maturity so it should bring $10,000 on the open
market. Or will it?

Not necessarily.

If the interest rate market has fallen to
3% for this type of bond then it should sell for
an amount that will yield $600 on an amount of
money at 3%. Now that bond is worth $20,000
($600/.03X100). Conversely, if the interest
rates have increased to 9% the amount received
from the premature sale of the bond will fall
to $666 ($600/.09X100). The bond holder gets
less for the bond than the face amount, but the
new owner will receive the full amount at
maturity. The amount received from the sale is
directly related to the current yield for bonds
of the same quality.

As the interest (yield) goes up the principal
amount the bond holder can realize from the
sale of the bond goes down. As the yield drops
the bond can be sold for more than the face
amount, but will still bring the face amount at
maturity. The amount of time to maturity is not
being considered; however, the closer to
maturity the more value the Read more…

There are a variety of different methods available to invest in the stock market. However, what most people believe are a safe investment can actually be a LOSING investment over the long run.

So, before you invest another dollar in the stock market, it is best to know the various investment vehicles available.

1. Government Bonds, Certificates of Deposit, and Money Market Accounts

I lump all of these into one group because they are the least risky of all investments. Unfortunately, they are almost the worst performing investment as well. Why? Because these 3 investment vehicles pay a lower rate of return than most other investment vehicles. In February of 2006, a very good money market account or CD account may get 3.5% – 4.5% a year return on the investment, which is barely above the annual inflation rate of approx. 1.7%. But if you are primarily concerned with preserving your investment capital, these 3 traditionally do very well.

2. Corporate bonds

Corporate bonds can offer a better rate of return than government bonds, but of course, they are a bit more risky. For example, GE 14 year bonds are currently offering a 5.65% rate of return. The risk here is that GM could become financially unstable, and not be able to pay back the loan that the bond represents. However, a highly rated corporate bond is generally a safe investment.

3. Mutual Funds

Mutual funds, are in my opinion, the worst possible investment. Now, I know some mutual funds have a 30% – 40% return per year, and some even more. However, the fees involved are usually very high, and MOST mutual funds actually performs WORSE then the market indexes do. The reason for this is in part, because of the management fees involved, as well as the restrictive trading as dictated by each mutual funds prospectus.

Mutual funds are not free to buy and sell any stock at any time that they choose. It must correlate to their investment strategy, even when they strategy is doomed to lose money!
For this reason, I steer clear of mutual funds these days.

4. Stocks

Ah, stocks. Now this is where the fun starts. Stock trading is where you can start getting consistent returns of 20% – 100% or more a year. Sounds great?so Read more…

If you are under 50 years of age and have
not lost money in the stock market I don?t think
you will find this article interesting. Why?
Because you still think you can make a killing
in the market. Until you have lost a lot more
this method of investment will not interest
you.

Dad and Mom can try to get the kids to pay
attention, but it is doubtful that they will.
Each will have to learn on his own, but maybe a
few will see the wisdom of slow but sure.

Every professional trader I know (I was an
exchange member and floor trader for 17 years)
will tell that you must have a plan for both
buying and selling. Any plan must minimize risk
for the professional and for the
nonprofessional it must be so simple that even
a retired widow with no market knowledge can
execute.

Wall Street prefers to keep investors
confused with financial terms so they will have
to go to a broker or financial planner for ?advice?.
Advice from a broker is a eulogy for your
money. They have been taught by the big
brokerage companies and they have been taught
wrong. They do not make you rich; they get rich
off of you.

Now let?s go through the steps to make money
and protect your investments. This very simple
method is as foolproof as any I have ever seen.
It is one you can do by yourself with no help
from any broker. In fact, most of them will not
want you to do this as there is no commission
and very little trading.

Turn on your computer; make the connection
to the Internet. In the address box type in
www.bigcharts.com . In the white box type in
JAVLX. That is the symbol for a mutual fund.
Click on the red box. On the left is a blue
column. Under Time frame select the down arrow
and click on ?1 decade?. Scroll down. Click Read more…

#10 – Soft Dollar Expenses

The reason a mutual fund exists is so small investors can pool their money, hire professional management, and attain diversity that would be nearly impossible for the small investor by himself or herself. It would stand to reason then that funds with hundreds of millions, or even billions, would have economies of scale to demand from the street the most competitive rates for trading their shares. Yet, as you will see, not only are fund firms NOT getting the most competitive rates, they are paying well more than any individual can get through their discount broker.

What are Soft Dollar Expenses?

Hard dollars are expenses that come out of a fund manager’s management fee. These expenses include salaries for the fund managers, analysts, and customer service people (yep, you get dinged when you call that 800 line), the costs of printing all those statements and other required literature, and all other office expenses associated with running a fund. Oddly, very real expenses such as spreads and trading commissions are not included in the hard dollar tally, and show up only as a slightly decreased, barely perceptible decrease in annual performance. High friction in these areas can amount to substantial costs over the course of a year when you consider that a multi-billion dollar mutual fund trades billions and billions of shares.

Recognizing that decreasing a dollar of hard expenses for a fund manager increases profit to their bottom line by a dollar, sell side firms make arrangents with the fund managers to provide everyday items in exchange for order flow at above-market costs. For example, a sell side brokerage firm provides investment research (the value of which is itself in doubt), Bloomberg terminals, office space, even a junior analyst or two, in exchange for the fund’s order flow at, say, 5 cents a share versus the normal 2 cents a share. The sell-side brokers get fat commissions, the fund manager gets “stuff” that would otherwise be paid out of his management fee. Everybody is happy…except for the shareholders who are footing the bill, and for the most part, have no idea, that this is going on unless they read Read more…