Identifying Bear Market Bottoms and New Bull Markets

A 20% return on investment is considered a very good return if it was consistent, however, a 100% return is possible and very realistic if you managed to buy at the bottom of a bear market.
At bear markets stocks are battered to the extent that they sell to very big discounts from their original value. If you managed to buy at the bottom, you will make very generous returns, and you may not need to do any further steps rather than watching your portfolio grow in value every day for years.
How to know it's the bottom
First of all you have to know that determining the exact bottom is not possible but instead you can know that you are close to the bottom (see my article determining the stock market bottom). Buying close to the bottom will bring you very generous returns; you just have to look for some signs that can tell you that the market is close to the bottom. The following are the signs that can help you know that stocks are trading near to the bottom:
* Bad news have no effect:The market always reacts to bad news by going down but when bad news are released and the market doesn't move or responds with very small reactions then know that stocks won't go down any further
* The market moves sideways: The market never reverses its direction before moving sideways for a few days or even weeks.
* All bad news are discounted in price: When all of the bad news are discounted in the stocks this means that the market is about to start its journey up. For example, if the market went down 20% in one week as a reaction to an announced recession, then what else can bring the market down? The recession which is the worst news has already been discounted in price. If however, new news are being released everyday then you might want to be patient before the news is over.
* Avoid the trap: Just like the sun rises from the east the market moves up after significant drops, if the market went down 20% it must go up 5% in the next two, tree days, or even the next week. Some people confuse this and think that it's the next bull market but few days later they lose the gains they made. In order not to fall in this trap make sure that the market moved side ways before it moved up

Remember Investing is About Profiting - Tip - Invest Not Restrict

People are always asking me which stock to buy, or which sector is hot right now for them to jump into. Questions like that usually make me laugh a little to myself, because even though investing is in part about what is "hot" (an investment must increase in value to benefit you), it is mainly value in relation to what people are paying for something now versus what they might pay for it later.
For the most part I put people on a safe path towards a desired yearly return with an acceptable risk level based on their comfort level and financial goals. However, I am constantly reminding people that investing is about profiting, so why are they limiting themselves to just one market.
Everyone knows something: a hobby, a trade, a skill, a way of life. However, not many people have the confidence to pursue this type of investment. Alternative as it might be, sometimes the best investment for people is not the stock market, but in a carefully laid out investment in themselves.
It's no secret that one of the most profitable investments is starting a business. There's an old saying "Those with wealth invest, those with knowledge create." People usually find themselves on either end of the spectrum, some even in the middle. The point is, why are you not investing in one of the best vehicles for your dollar?
The sad fact is that most people either do not have the drive to motivate themselves to start a business or lack the knowledge in the field of business they wish to enter. True, starting a business can be a daunting task, capable of sucking away most of your time. Estimates range that a new business owner's weekly workload can average around 50-70hrs, leaving little time for social events or anything else that is not properly time managed correctly. This leads to the fact that 80% of new businesses fail within their first year of operation.
If 80% of new businesses fail in their first year, then why is it a good investment? Simple, one net worth can grow tax deferred (or tax free in some cases) a multiple of times within a very short period of time. It's like picking a stock at $1, and having it go to $20, but you're in control of how high it can go. Most businesses fail due to poor planning, time constraints, or even a business owner trying to tackle everything on their own and not having enough time to effectively handle even one part of their business correctly. Stress, financial strain, legal matters, taxes, employees, are among other things that can bog down a business in the beginning.
With most investments, more reward means more risk, but with a business, the risk is usually limited because you control it. You decide each move, each play, and as such control the outcome of your investment return; the trade off is that you must make each decision not someone else. With a business, you are trading the ability to make more by correctly leveraging off of yourself and other people (employees), versus making a limited or lesser amount by "correctly" selecting the best company to "invest" in. Too often people have gotten burned in the market because even though they did the correct due diligence on a company and found a sound investment, the market "reacted" differently than what made fundamental sense. The end result is a loss when you should have had a win. With a business, you decide, because the health (net worth) of your business is directly related to the fundamental factors affecting it, not by the rapid selling of trust funds, or liquidating board's members with enormous option packages to cash in.
Just remember that if done correctly, starting a new business can become a well oiled-machine. Providing a continual net worth increase and making your every dream become a reality, being only limited by our drive and imagination. The wealth that can be ascertained with a business is comparable by few other investments making it a worthwhile venture to consider.

Online Trading Strategies - Be Logical and Careful

Online trading has become a norm rather than an exception. Now every trade is going online. Online trading requires sharp mind, information and action. Since, it is an online trading, you have to be really careful. Stock trading is now also done online. Since it involves huge investments by the already rich as well investments made by needy people who are seeking some additional income, there is a need for every one to devise some online trading strategies.
Stock trading is a process that involves buying and selling of stocks online with the help of stock brokers. The mercurial and volatile nature of stock markets warrants that you need to strategise every decision you make concerning stock buying and selling. Those who are novice in stock trading, it becomes even more essential to tread with caution and follow certain stock trading strategies.
One of the very important online trading strategies is to take position in an issue that is moving. Taking a position in an issue that is not progressing or moving in any direction is waste of money and time.
In traditional trading of stocks, generally a call is made to a broker, instructing him or her which stock you want to buy or sell. But now online trading strategies have changed. The Internet has made things simpler and you can trade in stocks using your own discretion. But a reliable broker is a must also. Then what trading strategies to follow to get hold of a trustworthy broker is the next question that comes to mind?
Though, there is no dearth of brokers that you can select from, you need to make sure that you find one who has sound financial backup and desired experience in this field. Be vigilant and look for a broker that possesses huge assets because you do not want your broker to file for bankruptcy.
Online trading strategies warrant that you should ask for information from leading brokerage agencies. You can ask them what minimum amount is needed to start trading and whether you will have to shell put some money for inactivity. You can also ask them what are their commission charges. One of the most logical online trading strategies is to trade in stocks with discipline and with a plan.

Trading and Its New Form - Online Trading Comparison

Online trading communities carry out the functions of online trading comparison. Do you know that these comparison is helping many new investors and traders in all over the world? There is no exception, why you would not be aware of this. Hope you would be definitely aware of it. People can make use of these trading communities as well as their various online trading comparison to get a clear picture of the current stock market. This comparison helps in facing the most volatile status of the stock market. Get the membership of a good stock or online trading community and you will be knowing how online trading comparison helps in developing active trading skills.
The concept of online trading comparison has been very successful in the current world. Such kind of comparison is helping people to used their money for investing it in the global economy. The surveys on the global economy show that people these days do not like to keep their hard earned money in the banks. They are just moving towards the investment banks. How these people have come to know about these investment banks. This is only done by various online trading communities. Get into such kind of communities and make use of current online comparison.
Why people should take the help of various brokers, when there are many trading communities to help them out. These brokers only charge heavy fees. Why you should pay money to these guys, instead of it store these money for investing it in the future investment platforms. But there is something which you need to know. Never be in touch with an incompetent trading community. This will only waste your money and finally, you will be in a dire situation.
Let your money grow the way you want. Just do not hope to have a hefty amount of money. You need to put your efforts into these online trading communities, so that you can make best make use of online trading comparison. There is no other short cut to earn more money. Your dreams can come true only with online communities and comparison of issues.

Why the Fourth Quarter Won't Be Any Better For Stocks

In yesterday's essay I explained why I think the Fourth Quarter will offer plenty of more surprises-to the downside-for unsuspecting investors. My reasoning for this is simple: analyst estimates for the 4Q08 are still far too positive (the fact that they're positive at all says a lot about the quality of analysis).
However, there's another component to the ugliness that will be 4Q08: performance gaming.
If you're unfamiliar with the term, it describes a process in which fund managers and other institutional investors close out losing positions to mask their performance for the Quarter. By doing this, the manager avoids reporting his losing positions thereby "gaming" his performance.
I'll explain.
The SEC requires fund managers to publish their existing positions at the end of each quarter. According to SEC regulation, they have to publish the names of the companies they own, as well as the number of shares they own and the value (in dollars) of their position.
STIMULUS DIVIDENDS
An Obscure Tax Loophole That Pays 10, 20, even 50 times Bush's Stimulus Checks.
WELCOME to your FREE trial.
Because of this, it's fairly easy to gauge the profit or loss they've posted on any position that's been in the portfolio for more than a quarter. However, it's important to note that managers only have to post the positions they own at the end of the quarter... not the day before that... or any other day during the quarter for that matter.
So, if a given position is deep underwater, a fund manager can liquidate it and simply report a larger cash balance at the end of the quarter, thereby temporarily covering up the loss. Of course, this technique doesn't work in the long-term-all of the fund's moves can be pieced together via other SEC filings-but at that point bonuses have usually already been handed out, so who cares?
Now, on to 4Q08.
By any measure, October has been one of the worst months in financial history. Stocks posted their worst single day drop since the Crash of 1987. They also posted their worst week EVER. And if the year had ended on October 10, it would have been one of the worst years for US stocks in history. Despite a few up days, the S&P 500 is still down 38% as of yesterday's close.
Now, it's widely documented that most funds trail the stock market in terms of returns. So what are the odds that most, if not all, institutional investors are currently underwater on a sizable portion of their portfolios? And which is going to look better at the end of the fourth quarter: a portfolio full of losses or fewer losses and more cash?
The liquidations we've seen thus far from institutions have largely stemmed from redemptions-clients pulling their money from the fund, forcing the fund to liquidate its holdings to return the money. Between this-it's not like fund clients are suddenly going to become confident about the market again-and the wave of liquidations from performance gaming, the market is going to experience plenty of downward pressure come the end of 4Q08.
The only thing that could amend this would be a substantial rally. So if stocks don't break out of their trading range during the next six weeks, I'd be very wary about mid- to late-December.

Where is Your Company Hoarding Its Cash?

In today's market, a transparent balance sheet is perhaps the most coveted asset a company can have. With everyone from mortgage lenders to commercial banks, investment funds, and even food processors losing money due to derivatives, mortgage backed-securities, currency hedges, and other items, a clean balance sheet that is flush with cash and no hidden issues is a rare and wonderful thing.
Indeed, this is precisely what made Wrigley's and Budweiser so attractive from a buy-out perspective. It's certainly what convinced the banks/ investors backing the deals to lend the necessary funds for the deals to go through-compare this to the Bank or America/ Countrywide deal in which it's still not clear precisely what Bank of America is buying and what it's not.
However, in today's financial crisis, it's not merely enough for a company to be sitting on mounds of cash. You need to know WHERE exactly that cash is sitting.
After all, it's not like Microsoft just goes and buries $20 billion in its backyard. Budweiser doesn't have a warehouse filled with mattresses stuffed with money. And Coke doesn't have a giant piggy bank the size of a football field just sitting somewhere-though personally I think this might be a good idea since they could turn it into a theme park (desperate financial conditions call for desperate measures to make a buck).
No, corporations with huge cash hoards have to put that money to work somewhere until they use it in a deal or stock buyback or what have you. And therein lies the problem. If you've got $20 or $30 billion, where can you store it safely?
Banks are going under, and the FDIC only insures deposits of up to $250K-they raised limits as part of the mega-bailout. Treasuries are looking less and less attractive with every intervention/ liability the Feds add to the US balance sheet. Agency securities are questionable at best-Taiwan began openly questioning the quality of Fannie and Freddie securities last week.
Again, where do you put all that money?
Honestly, I don't have an answer for this question. But I do know that in today's financial crisis, I'd much rather invest in a cash rich company that details where it's putting its cash, rather than a company that simply states its cash amount on the balance sheet without any specifics.
I'll give you an example.
On a superficial level, Apple (AAPL) and Microsoft's (MSFT) basic business are the same: selling software and hardware related to computers and personal electronics devices. And today, both companies are sitting on similar cash hoards: $20 billion in cash and short-term investments. However, that's where the similarities in balance sheets end.
AAPL provides a line-by-line breakdown of its short-term investments (taken from latest 10-Q):
Cash $294 million Treasury and Agency Securities $6.9 billion US Corporate Securities $9.5 billion Foreign Securities $3.8 billion
Microsoft, on the other hand, provides no specifics, but simply writes the following (taken from latest 10-Q):
Our investments consist primarily of fixed-income securities, diversified among industries and individual issuers. Our investments are generally liquid and investment grade. The portfolio is invested predominantly in U.S. dollar-denominated securities, but also includes foreign-denominated securities in order to diversify financial risk. We invest primarily in short-term securities to facilitate rapid deployment for immediate cash needs...
While we own certain mortgage- and asset-backed fixed-income securities, our portfolio as of September 30, 2008 does not contain direct exposure to subprime mortgages or structured vehicles that derive their value from subprime collateral. The majority of the mortgage-backed securities are collateralized by prime residential mortgages and carry a 100% principal and interest guarantee, primarily from Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Government National Mortgage Association. (emphasis added)
Now, I'm not saying one company's cash is necessarily safer than the other's. I'm also not trying to indicate anything about the quality of Microsoft's accounting or balance sheet.
All I'm saying is that of the two, AAPL provides individual shareholders with a much better understanding of where its cash is. Because of this, gauging the safety of that cash-as well as the potential for that cash to be eaten up by a bad bet-is much easier.
With the financial crisis running full force, and losses and write-downs showing up even in the oddest of places-Sadia, a Brazilian meat processor lost a bundle on currency speculation-the transparency of a business's balance sheet is paramount in gauging its market risk.
If you're looking to put your money to work in this environment, you're going to be stomaching a lot of volatility in the process. Knowing the details of the company's balance sheet and cash hoard provides you with just that much more conviction about the quality of its business and financial standing.
You'll need this conviction when the company's share price takes you for a roller coaster ride.

Tired of Stock Market Losses? 3 Tips to Know When to Get Out of the Market

Tired of seeing losses in your investments? Ever sell at the bottom? Do you wish you could've gotten out sooner? Let's face it. Most of us are terrible at timing the market. But that shouldn't be an excuse to head for the hills. Wouldn't it make more sense to know when not to be involved in the market, and more importantly, when you should get back in? Picking when to enter into the market can be just as important as what you pick.
Of course, it may seem easier to avoid the market altogether by just investing in bonds or real estate. But getting out of the market forever is not necessarily the best thing to do. After all, the stock market has outperformed the bond market and real estate over the long term. And the most likely way for us to fulfill our investment plans is by getting the highest possible returns necessary without too much risk.
Besides, unless another investment vehicle becomes a better reflection of economic growth like the stock market, I am afraid we are stuck in investing in the market in order to get better returns in good times and bad. Or are we?
Knowing when to get in
While I have earlier suggested what investments we should focus on, we didn't discuss when it's a good time to buy. And that's very important to know. Think about it. Do you just go out and buy a car any day? No, you wait for a sale or go at the end of the month when the dealers need to make their sales quota. How about clothes? Again, most wait for a sale. This is the same concept you should have with investing in mutual funds, ETFs or stocks. You wait for a sale. Here are 3 indicators I use that can help me determine when the market on "sale."
Indicator #1: The economy
Unfortunately, "red hot sales" in the market are more or less dependent on economic growth. For example if we expect an economic slowdown over the next 6 months or longer, the stock market will most likely sell off. Why? An economic slowdown means most companies will grow less. Would you pay more for a stock in a company that will grow less? Not me!
So, one indicator to let us know whether we may want stay in the market is to ask ourselves if the economy is going to grow, to slow or to maintain its current course. To figure this answer out, you could talk with your broker or read some monthly finance magazines. Magazines like Money, Forbes or Klinger's will have columnists dedicated to writing a one pager discussing the economic outlook. Remember, don't make this complicated. You are just looking for a couple of professional opinions, so you can make your informed decision.
Unfortunately, looking at the economy is not good enough, since this is a very slow and vague indicator of how to handle our money. I think we can do better...
Indicator #2: Market Volatility
There is an old Wall Street adage: Stocks tend to sell off 3 to 4 times faster than they climb. Why? There are many people who already own stocks who need to get out, and are looking for buyers. No one wants to be the first one to buy when a stock or the market seems to be in trouble. Would you? So stocks fall faster than they rise.
When stocks sell off faster, volatility (which is a fancy word for measuring how much a stock's price moves) increases. When the entire stock market sells off, the volatility across many stocks start to rise. To help see this increase in volatility across the board more clearly, volatility indicators, like the put/call ratio and the VIX, were created and can be tracked much like an index.
Here's how it works. If the market has sold off recently, I would see a rise in the VIX index. The more the market goes down, the higher the VIX indicator climbs, just like playing on a seesaw when you were a kid. When the VIX rises to a certain point, I exit the market. I make it that simple! In my guide, I go through an example using the VIX and show specific points and strategy I use to get in and get of the market. Obviously, my timing is not perfect, but I also miss long term corrections too!
While this is a good and clear indicator, it only works when the markets get more volatile. What if you want to get in the market when it is calm or starting to rise? There are shorter term indicators that can be used.
Indicator #3: Technical Analysis
Technical Analysis is just looking at your stock's price and volume movements on a graph, and then drawing a conclusion. It basically tries to predict future price movements from previous price movements. For example, let's say if the stock market had a big run up or just has experienced a big sell off, you can use a technical indicator to help you determine if or when the stock market may turn around.
Unfortunately, there are literally dozens of indicators to learn, none of them work perfectly and it takes time and commitment for you to master. But for me, I do my best to focus just on combining just a few long term indicators discussed in my guide. While there is no panacea to which technical indicators work best, I found that using a combination of few indicators proves to be better than the alternative of just simply guessing when to get in or out of my positions. Many discount brokers will also offer their clients free education to help them out.
Putting it altogether
By taking a look at the overall health of the economy, a few volatility indicators and some technical analysis, I am able to better determine when to get out of my positions. In fact, I use the combination of all three. It may not be perfect, but following each approach has really helped me determine when the market goes on sale or when it's time to get back in.
The next time you decide to get into an ETF or a stock, first ask yourself at what point should get in. If the answer is "because it feels right," think about better ways to make that decision. And as always, have a stop program to make sure small losses don't become catastrophes. The best investors in the world tend to be better because they not only know what to get into, but often when. Become a better investor!

Stock Traders - Limit Risk by Scaling in to Positions

One of the simplest and most effective way to improve your trading system's expectancy (the amount of money you earn per dollar of risk) is to 'scale' in as price starts to move in the desired direction of your system's trading signal. Why is this effective? Well, let's look at an example trade. Suppose your wonderful new Metastock system (and Metastock comes pre-loaded with dozens of effective trading systems) is firing a 'buy' signal on UNG, the Natural Gas ETF. Let's also suppose you have a $25,000 trading account and don't want to risk more than 1% of the account on this trade. Assume the entry price is a buy-stop at or above $31.00 and your stop-loss (you do use stop losses, don't you?)is set at $29.50. Should you enter the entire position at $31.00 or should you use a technique that Jesse Livermore regularly implemented, one that helped make him a millionaire, even as it helped him to limit losses?

Make the market move in your direction:

Jesse liked to scale-in to his positions, especially if he expected a major trend-following move to develop. So, if Jesse were bullish on UNG, he'd probably put on a third of his position at $31.00, and then consider adding the next third near $32.20 and the final third near $33.75.

While at first glance it appears that this is flawed logic due to the higher average entry price, in reality it is one of the smartest and easiest ways to minimize the impact of trades that immediately turn against you and stop out, particularly if you trade a trend-following method. Look at this comparison:

A.) Jesse puts on one-third of his position (55 shares) of UNG at $31 and is stopped out two days later at $29.50. He loses $83, which is much less than 1% of his trading account equity of $25,000.

B.) Jesse decides to put on the entire position (165 shares) at $31.00, afraid of 'missing out' on a big move. He gets stopped out two days later at $29.50, losing $250, or 1% of his account equity.

Same trade signal, same entry price, different position sizes - and a radically different outcome!

OK, makes sense, but how much potential profit does 'ol Jesse give up if the trade turns into a big winner? The answer is 'not much!' Take a look:

UNG rises steadily, eventually stopping out at $47.23. If Jesse had scaled in by thirds at $31.00, $32.20 and $33.75, his profit would be $2,461.

If he had gone 'all-in' at $31.00 his profit would be $2678, a difference of only $217. I don't know about you, but it's a lot easier for me to take several $83 losses in a row than it is to endure a string of $250 losses, and the fact that my winning 'scale-in' trades will perform nearly as well as those who go 'all-in' make scaling in to trend-following setups a very easy decision to make!

So - consider scaling in to positions, especially if the technicals and fundamentals suggest a higher probability of a sustained move in the stocks, ETF's and commodities that you follow.

Always consult with your trusted financial advisor before placing any trades!

How to Invest Into Stock - Stock Investment For Smarties

How to invest into stock? Smartly and with all cylinders in positive mode. Investing in stock isn't a day at the baccarat casino tables. It requires willingness to research stocks you choose to invest your money into. Stock investments needn't be complex games of chance. Know your stock like you know your name. Anything less is gambling. Some of the best investors in the world know when you put your money into specific stocks, you're in it for the long haul. Not the short-term. Building a stock portfolio is like building your own home from scratch. Add stock only when you are certain it's right for you.

To know how to invest into stock, you first need to know which stocks are available. The resources are found in numerous places. Too many, perhaps, which results in mind-boggling confusion and misleading information. There is a single word all good investors understand with regard to stock investments: reliability. During the IT boom of the 90's, many people invested in any publicly offered stock involved in Information Technology without researching the companies. Bad, bad, move---unless, fast cash is a consistent continuum of market reliability long-term. Those who took this avenue, lost huge sums of money. The IT "Boom" became "Bust".

Those who provide free seminars on how to invest into stock are generally commercialized enterprises more involved with earning brokerage fees and commissions. Formerly, anyone interested in purchasing stock could easily do so by contacting a company directly. In turn, potential stock holders received direct information on company profits and an annual report of the company's potential earnings. When brokerage houses began assisting investors with buying and selling stock, a gradual empowerment of certain of these brokers' management became an inevitable road to present investment scandals.

Being sadder but wiser investors, we recognize the importance of financial research of potential brokers. Loss in small percentages is a normal and mostly palatable trend in any company's history if the company has a long history of business enterprise. When you buy stock in a company, it's imperative you know this history. It's only in company reliability that any investor determines a solid investment relationship and future stock growth. This is how to invest into stock sensibly, reliably and confidently.

The danger in the current market is a commentary on how "NOT" to invest...complex investment schemes that pay out more to brokerages than investors, an obscene legacy to set forth for the investment community. Venture capitalism has made a serious impact on investment longevity. Men like Warren Buffet don't invest in short term interests as an overall part of their portfolios. They know when to buy and when to sell. It isn't rocket science. No college degree is required on how to invest into stock wisely. Intense research into your chosen stock investment is crucial. It's your money. If you care enough about it to make discerning choices in stocks, then you'll take the time and trouble to learn how to invest into stocks.

Good Safe Investments - Finding The Best Investment For You

If you are looking for good safe investments, you are not alone because everyone is looking too. Many people work hard to earn money to provide for their families' well being and security and for the future too. There are many safe investment options from which you can select.

The stock market is full of possibilities. Any money you put into an account or stocks is likely to be safe. Although it is not always easy to know which of these stocks good investments are and which are not, you can observe the general rule: stocks with fixed and low percentage return on your money are likely secure. High risk stocks and shares yield better returns but have a higher risk.

The Federal Government investment schemes are also good safe investments. The three types of treasuries are similar and only differ in the length of term. Treasury Bills term range from one year to less. This is how it works: You are offered Notes from one to ten years and Bonds for ten years and longer. Usually, the government uses the money you paid for these treasuries for investment and guarantee you a fixed interest rate in return. This interest rate is not high, but you have the full faith backing of the US Government.

Another option for good safe investments is the Government Agency Bonds. They are a bit more risky but offer a higher interest rate. You are not guaranteed with the 'full faith and credit' backing of the US Government, but with the Government Agency Bonds, you are sure investing in some of the best safe investments. One good thing about treasuries and bond is that they are exempt from state and local taxes. There are other safe investments that come with the government backing but you can make a good start with the two stated above.

Real estate is also a safe and good form of investment. The truth about it is that the market is never going to disappear. Investing in real estate involves knowing what it's all about what it takes to get the house or property that has a commercial and thriving value. With this, you can be sure to get the best return for your investment.

Certificates of Deposit can also rank high as a good place to invest money. It's like giving a loan to a bank. With your money in a stable banking system, you can be sure of getting some returns continually with some ROI percentages. CDs are insured, and that is what makes it a good place to invest.

There are several other good safe investments options. It is always good to get some professional advice, in deciding your best option. No one wants to risk losing all his/her hard earned money because of some guess work or a bad recommendation. Or do you?

Which Sectors Should You Invest in During the Credit Crunch?

The global financial crisis has so far decimated the stock market with even quality companies with no debts being hammered. However what this means is that there are currently some excellent bargains to be had if you are investing with a long term view.

Of course it's recommended that you should have a well diversified portfolio, but I've always felt that there's nothing wrong with weighting your portfolio towards companies in those hot sectors that you think will do well in the next few years. So with most sectors having been hit by the global financial crisis, which sectors should you be looking to invest in that are likely to do well in the next 2-5 years?

Well this does not constitute professional financial advice and should not be seen as a recommendation, but my own view is that with commodity prices falling and oil prices having dropped substantially, this has now presented an excellent opportunity to snap up some bargains in the mining and oil sectors.

A lot of companies within these sectors are now trading on ridiculously low PE ratios and have been completely oversold by the market. Yes the drop in commodity and oil prices will inevitably hit their bottom line, but the fact is that a lot of the larger companies in these sectors are extremely well run, have little or no debts and are in a great position to snap up the smaller mining and oil companies who are not so well equipped to deal with falling commodity and oil prices.

There is also the fact that in the next few years these prices should eventually rise back up again, which will boost these companies' profits. For example, as I write this article the oil price is currently trading at $64, but in my view oil will rise back up again and should be trading above $100 in the next few years because it is after all a finite resource and there is still massive demand from rapidly expanding countries such as China and India.

Of course share prices in these companies could fall even further which is why I personally am drip-feeding money back into the markets at these levels. There will come a time in a few years time when the economy will be in better shape and the banks will have sorted themselves out. As a result share prices in general should be a lot higher, but for me the best bargains are in the mining and oil sectors. These companies should be trading a lot higher at some point in the next few years, and in the meantime you can always collect the nice dividends that are paid out by the larger more profitable companies in these sectors.

Best Stock Investments 101

With all of the current turmoil in the financial markets, most investors no longer know where to put their hard-earned savings. Many Americans have watched their retirement savings drop as much as 30% in the past year, and even experienced investors are at a loss as to what to do next. When making decisions about how to best invest your savings, it is important to consider your tolerance for risk. If you are willing to deal with the ups and downs the stock market will surely bring in the next few years, then the stock market is still a great place for investing. Buying at the bottom of the market can bring greater returns, especially if the investor finds the best stock investments available.

There is no such thing as a perfect investment. The best stock investments are those that meet the needs of an individual investor. Investors who dont mind taking risks with their money are different from highly conservative investors. The best investments for each will be different.

The best stock investments for very conservative investors are stocks that have a history of stability and slow growth. The old favorites, blue chip stocks, are still good bets. Established companies normally have the financial reserves to make it through a long period of economic downturn. Buying stock in these companies while the market it down can give the buyer a bargain price on a top quality stock. Continuing to contribute on a regular basis, no matter where the market is, will provide a long-term benefit. Investors will have the benefit of continuing to increase their market share as the market grows in years to come.

Another alternative to blue chip individual stocks is to purchase Exchange Traded Funds, (Lefts). Look for funds with long-term growth in mind. Several companies offer target date retirement funds, which will balance themselves as the end date nears. Whole market funds are another way for conservative investors to mitigate their exposure to the downturns of individual stocks.

More aggressive investors will find that their best stock investments are different. For this investor, small-cap aggressive growth funds are a good choice. These funds invest in small companies with a potential for earnings growth. The fund managers are constantly investigating new market trends, and balance these funds accordingly. If picking individual stocks, an investor should look for expected earnings per share to be higher than current earnings. This is a good indicator of a business worth investing in.

There is no perfect investment, and all investments have risk. The biggest mistake any investor can make is failure to invest at all. With proper research, any investor can find stocks that will complement their existing portfolio and create long-term wealth.

Basic Stock Investment Terms

Basic Investment Terms are words you should understand before you attempt to buy into any investment. Starting at the beginning, what is an investment? Here are some basic investment terms to understand before you invest in the stock market:

Investment - This occurs when you contribute either money, time, knowledge, or skills to a company, an idea, a building, or a group in exchange for hope of getting more money back later, as value in the investment increases.

Risk - This is the fact that you may not reap a benefit or increased value (money) from your investment.

Appreciation - The increase in value of money or property invested in.

Depreciation - The decrease in value of money or property invested in. For example, usually as equipment ages, it is worth less, until such a time as it is deemed to be worthless or have zero value.

Asset - An item of value, such as cash on hand or equipment.

Liability - An item of debt, such as a credit card balance, or lien on equipment.

Stock Market - An organized venue for exchange of investments, such as NYSE (New York Stock Exchange) or ASE (American Stock Exchange).

Broker - A person who conducts transactions of investments, as in stock broker who transacts orders of buy and sell stock in companies and corporations. (Also Trader)

Discount Brokerage - A company who conducts investment transactions at reduced commission. They usually offer less service.

Buy - The act of purchasing.

Sell - The act of selling.

Trade - The acts of buying and selling, especially stocks.

Stockholder - A person who owns a share or shares of stock in a company or corporation.

Stock - A share of stock is a segment of ownership in the company or corporation. Can be common or preferred stock. Preferred gets paid first, and has set dividend rates.

Bond - Investment in a debt that pays set interest and has an end date.

Mutual Fund - A fund of stocks operated by a company that buys and sells shares in their pool of stocks.

CD - Bank Certificate of Deposit, shows ownership of investment of cash in a bank or credit union.

IRA - Individual Retirement Account. Similar to a savings account, tax on interest may be delayed until withdrawals, which are restricted until holder reaches a certain age limit.

Dividend - A distribution of profit to shareholders, per share.

Earnings - Profits or losses per share.

Interest - Payment for using your money investment.

Growth Stock - Stock in a company that grows, and is not subject to economical ups and downs.

Income Stock - Stocks that generally have higher than average dividends paid. Good when you need to draw off income over time on a regular basis.

These are some basic investment terms, things you should understand before attempting any stock market investments. For additional information, please consult a licensed stock broker or firm to ensure your best return on your investment.

Is Your Money Safe?

The volatile markets and economies around the world, with large banks collapsing on a regular basis, have many people wondering how safe their money is.

Banks and the FDIC
Most Americans are familiar with FDIC-insured banks. The Federal Deposit Insurance Corporation is a U.S. government corporation which guarantees the safety of most account types in banks that are members. Currently, accounts are protected up to $250,000 per depositor per bank for CDs, checking, savings, retirement, money market, and a few other account types. Some things that are not guaranteed at your FDIC bank include stocks, safety deposit boxes, stocks, and several others. Believe it or not, FDIC does not insure your money if it gets stolen from the bank! Don't worry though - the bank's private insurance should cover that.

Here is a comforting quote from the FDIC:
"Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure."

When Banks Fail
The FDIC responds immediately when a bank or institution fails. They usually close the institution right away and sell their deposits and loans to another institution. The customers of the failed institution automatically become members of the buying institution. The largest and most dramatic example of this is when Washington Mutual was closed by the government in 2008. Their assets were sold to JPMorgan Chase & Co because they lacked sufficient liquidity to meet their obligations. All of the customers and their insured accounts remained safe and protected.

Credit Unions and the NCUA
Credit unions appear to operate the same as banks from the outside but inside they are a little different. They are actually owned by the members of the credit union, not shareholders like banks are. Therefore, the FDIC does not insure credit unions. Instead, the National Credit Union Administration takes care of that. The NCUA is an independent federal agency that supervises, charters, and insures federal and most state-chartered credit unions around the United States.

Much like the FDIC, the NCUA insures most "share" accounts of member credit unions up to $250,000, at least through 2009. However, if you have multiple accounts they are usually added together to see if you are below the $250,000 limit. Certain retirement accounts are insured separately, also to $250,000. There may be other account types or benefits offered by the credit unions which may not be covered by the NCUA.

When Credit Unions Fail
Failure rates among credit unions are low, with maybe a dozen failures per year, and the NCUA maintains a healthy surplus of funding to rescue failed credit unions. However, when one does fail, the NCUA will supervise the sale of the failed institution to a healthy one in much the same way the FDIC handles failed banks. Your accounts are still insured and taken care of through this process.

Investment Accounts and the SIPC
Most investment companies in the United States are members of the Securities Investor Protection Corporation. All SIPC accounts are protected up to $500,000 but only $100,000 of that can be in cash. Some companies also purchase additional insurance to give you more protection. If one of these companies fails, your account should be just fine. Keep in mind, though, the SIPC does not cover against market losses.

401k Retirement Accounts
If the company that holds your 401k retirement account goes under, will your money be safe? For example, if Fidelity or T. Rowe Price goes bankrupt, what would happen to your money? It depends on what type of insurance they carry. Perhaps it is FDIC, NCUA, or SIPC. Perhaps they carry some sort of private insurance. In most cases, though, there should be plenty of insurance to cover your account in case that company fails. Please check with your institution to be sure.

Conclusion
In conclusion, as long as your money is kept in a federally-insured account then you should have nothing to worry about. Of course, if any of your accounts are based on the market, such as stocks or mutual funds, they could fluctuate up or down or even go down to zero. But what this article is concerned about is when the financial institution itself fails.

The Stock Market Drop - How to Make Money in a Tough Economy

Imagine your friends laughing when you say you made a lot of money as the stock market dropped. Then imagine their faces when you show them your incredible gains. They won't laugh any more. They'll beg for help.

Everybody loves it when the stock market goes up. Many people panic when it falls. But they don't need to. An American market exists that allows traders to make money regardless of whether stocks are going up or down.

Professional investors know how to hedge their bet. They take precautions because they know the economy will move through various cycles. What goes up will eventually come down.

The common man and woman are different. They assume investing is difficult so they don't take time to learn simple methods that might benefit their lifelong effort to get ahead. They throw their money into mutual funds or a 401-K account and hope for the best. This may work when things are going well in the financial markets. In a crisis, this method will be the cause of many a sleepless night.

Every family could use some extra money each month. And it's not a pipe dream, if you are capable of taking simple direction and absorbing new information.

Here's how you to make money when the stock market falls: hedge your bet by trading the mini-sized Dow Jones futures market. I know what you're thinking. Futures?! Isn't that a great way to lose money? My answer: Have you ever lost money in the stock market?

Today's economic conditions should be a reminder that our money is always at risk. Yesterday's victories may be tomorrow's defeats. All the more reason to hedge - always - your most important investments.

The mini-sized Dow Jones electronic market is global and stays open for business throughout the night and into the next day. It closes briefly at the end of each business day, all day Saturday, then opens again late Sunday afternoon. Plenty of time to access and manage your online account.

One significant reason for learning this market is its simplicity. You can learn to trade the market up and down - and it's all legal. For people who have only traded stocks, it is sometimes difficult to understand how a futures trader can make money when a market drops. But it's true, it can be done, without breaking any laws.

This is not true of some "short selling" that takes place in the stock market. Some rogue brokerages break Securities and Exchange Commission rules and in the process rob good, honest investors. That is not what I'm suggesting. But that illegal practice is precisely why you would be wise to learn how to hedge your stock portfolio with the mini-sized Dow Jones futures market.

There are many tutorials to help you understand how to trade this market. Google "mini-sized Dow Jones" or "the mini-Dow" and you'll have plenty to choose from.

But don't fall for offers that ask you to pay big bucks for software and platforms you won't need. I'm not suggesting you day trade - not at first anyway. So choose a guidebook that is modestly priced and then learn as much as you can from it before buying your next book.

The Chicago Board of Trade and the CME Group Exchange websites offer good, free information to help you understand the basics of trading futures. Take full advantage.

Finally, be a specialist. Master the one market that can do you the most good. The mini-sized Dow Jones stock index will be enormously beneficial if you have long-term or short-term stock investments. You'll soon realize that by concentrating on one market you don't have to be Warren Buffet to make smart moves.

Making Money in the Stock Market Crash - How I Am Doing It

You do not have to look very far to see news about the turbulence on the stock markets over the last few weeks and months. Few people will have escaped the recent falls in stock prices without some losses in their stock portfolios. In this article I will explain the investing strategy I have used to navigate my portfolio through the crisis and still return a profit of over 10% over the last two months.

If you are thinking about investing in the sock market or want to know where to invest your portfolio or savings in these turbulent times then this will hopefully be the most important article you have read for a long time. In it I will share the exact methods I have been using to make money during the credit crisis.

The recent crash in the worlds stock markets have manly been due to the faltering banking sector. The cause of the problem is that the banks in recent years had invested huge sums of money in sub prime mortgages. Once house prices started falling in the US people started defaulting on their mortgages making these investments turn heavy losses.

The above sub prime mortgage crisis was the start of the problems. As time progressed in the latter half of 2007 various banks started announcing huge losses as a result of their investments in the sub prime mortgage market. As more announcements were made banks suddenly became very wary of lending money to each other because they did not know how big the potential losses were on each others sub prime investments. Banks rely on borrowing off each other to fund their activities (such as giving us mortgages) so suddenly banks were unable to borrow money to fund their activities and as we are seeing now many filed for insolvency.

So how does all of this relate to my stock investments? Well the above credit crisis has manly affected the major indexes such as the Dow Jones and FTSE. What has not really been publicized is that the impact on smaller companies has been minimal because they rely far less on funding their activities from the large banks.

Finding information about these small cap companies can be a challenge. I am subscribed to a service that sends me a short list of companies that are undervalued. The list is produced by a computer that analyzes company data of thousands of firms looking for signs that they are undervalued. This saves me a huge amount of time that I would have otherwise wasted investigating stock I ended up not investing in.

Of the stocks in this shortlist I then conduct my own analysis on each company, filtering out any stocks related to banking or financial sectors. I do basic research such as look at their websites, gauge professionalism by clang their HQ and requesting a copy of their annual reports. Google can tell you may things about a company in just a short period of time. Use this tool to your advantage.

In addition as investors sell their stocks in major indexes some of the funds is being invested in these small cap companies, pushing the prices up, making me more money.

Don't Get Rich Quick!

A good example of long term astute trading is Warren Buffet who is now 78 years young. He is currently worth an estimated cool $52 billion give or take a million. And he has achieved that by essentially looking for quality, well-managed companies that are undervalued by the market. And he is prepared to wait for the right moment as we have seen recently.

Probably one of his most ignored mantras is: "Don't get rich quick."Hence the name of this article. What lessons can we learn from this Master Trader? A classic move which resulted in his latest spending spree which was only last September when during the current credit crisis, Buffet purchased options to invest US5 billion in the bank holding company Goldman Sachs.

Buffet has been quoted as saying, "We have done business with them for years, with Goldman, and the price was right, the terms were right, the people were right. I decided to write a check."

Only this week Warren Buffet has invested a further $3bn in General Electric plus He announced only yesterday that Berkshire Hathaway had bought a stake in Hong Kong listed BYB Company, its shares have already jumped 42%.

Obviously Buffet had researched each Company minutely, firstly examining their value, then the risk factors involved and no doubt checking their future profit potential as well.

Buffet plainly has a set criteria in place before he invests into anything. Some of this criteria is important and worth remembering, writing down and putting it into practice.

Buffet says it best: "The first rule of investing is don't lose money; the second rule is don't forget Rule No. 1."

Buffet understood this math foible: If you start with a dollar and lose 50 percent of your money, you'll be left with 50 cents. But then it takes a 100 percent return just to get back to your original dollar. So it's best not to lose your money in the first place.

Some of the other things that He is well known to check out are as follows:-

Buffet checks out the ROE (Returns on Equity) of the possible future investment. ROE is calculated by taking a company's net income and dividing it by shareholders' equity. By this He knows that it measures profits as a percentage of what the investors actually own, and it also reveals how efficiently a company's profits are growing.

He has been known to look for companies with around a return on equity of at least 15 percent on average but this is open to debate as there are no hard and fast rules on this one.

He also looks at the future activities of the Company and tries to calculate the future value of a company's expected future cash flows. It's his way of assessing a company's intrinsic value. Then Buffet looks for companies selling at a deep discount to that value.

If you just take a good look in today's market you will see good Blue Chip stocks going for a premium discount.

He is also looking for companies with long-term competitive advantages that make this future forecasting safer and less risky.

Buffet therefore obviously is an ardent advocate of "Buy in Gloom" and then hangs onto them for the long term.

If you had invested only $1,000 that's $7,760 in today's dollars with Warren Buffet back in 1956 and never cashed them in. They would be worth a tidy $30.6 million at the end of 2007.That is what you call long term investing.

Buffet is very patient prepared to wait till the right investment comes along. He is in no hurry; this is plainly obvious from the size of his portfolio. Judge this by the size of average manager of the value stock fund who spreads his or her investments among on average 146 different stocks.

He also advocates keeping Cash on hand just in case it is needed, for you never know when the next bargain investment is going to come along.

He understands something that a lot of people don't appreciate. Having large amounts of cash doesn't have to hurt your performance. Cash can be a strategic asset." Cash currently represents more than 18 percent of Berkshire Hathaway's investment allocation.

It goes without saying that Buffet is a great believer in Diversification.

So in a nutshell is it definitely worth following in the footsteps of Warren Buffet? Even following just some of his rules could increase your chances of share trading success.

What Makes One a Good and Dependable Stock Broker?

Stock broking is a matter of trust and financial responsibility. An investor approaches the broker with a hope. The internet revolution has opened the channels for ample business opportunities for the stock broker and the common investor. Every new entrant in this area wishes to become a successful stock broker. For the right individual online stock market provides immense possibilities. To start the business of online trading no huge investment on office premises is required. A license, a computer and an internet connection-these are the requisites. The would-be broker needs to pass two licensing examinations.

The qualities and credentials of the broker needs to be investigated properly as the investor would be handing over his hard earned money at the hands of the broker. A successful broker must have the website. It must be informative and thoroughly professional. It should provide complete details about the highlights of the firm and what special benefits the broker will provide.

An ideal stockbroker should provide a clear schedule of investment and the know-how to the investor to build an investment portfolio gradually. He should desist from giving tall promises and paint a rosy picture about the future gains for the investor.

When some success stories are narrated on the website, with catchy phrases, a new investor, who is novice to trading in stocks, thinks that he is at the threshold of a money-spinning venture. Stock market trading is the easiest channel to lose money and it produces shocking results, if one does not proceed with extreme caution.

A winning stock broker has a definite plan and does his homework carefully. He intelligently estimates the trend of the market. After understanding the mood of the market he tries to identify the strongest stocks in that sector. He is not influenced by stories that appear in the newspapers or TV channels with regard to stocks and he goes by what really happens in the market.

A successful stockbroker does not indulge in overtrading. He is not an impulsive trader and is willing to bid for the correct opportunity. He knows when to build and when to stop the ascent.

To take appropriate decisions about stock market investing is not for the chicken- hearted.(odd phrase) An ideal trader does not feel nervous about the losses. He is the master in money-management techniques. He has framed the functional rules for himself and follows them accordingly. He knows how to convert defeats and losses into victories.

A successful stock broker always carries the financial scale in his hand. He avoids the awkward swings and is not quick to book profits in the hope of short-term gains. He is always willing to learn and places himself in a correct position to advise his investors and put before them the correct perspectives. He keeps a watchful eye on the new research as for online stock market trading and adopts the new techniques. He has the will to grow and win consistently.

A successful stock broker is ever on the look out to make money but his strategies are risk-free. Futures trading hold lots of promise to book huge profits, but the most intelligent traders sometimes fail. The market trends are such, that the best in the line is side-tracked

Finally, what counts is the positive and confident attitude. A good and brave human being will only turnout to be a successful stock broker and commands the consistent trust of the investor. Good and bad periods in the market need to be accepted with grace. A successful stock trader possesses qualities of head and heart and is not unnerved by temporary setbacks.

On Selloffs, Bailouts, and Bottoms - A Stock Trader's Perspective

Looking back, you wish you'd invested right after the 1987 crash or at the bottom of the 2000 - 2002 bear market. Why didn't you? You were scared, right? The world as we knew it was ending, and the prudent thing was to stay on the sidelines for the foreseeable future. But by now you've learned the lesson: next time something like this happens, you will be a buyer, right? Well, how about now? Why aren't you buying? Why are you looking instead to move your 401(k) into cash to protect whatever is left of it?

Human nature. The theory is simple: buy low, sell high; the time to buy is when blood is running in the streets. The reality is a bit more complicated. Market declines are caused by selling. Since people act in their self-interest, the reasons that cause them to sell must be substantial. Otherwise they won't act.

Suppose you were told that next week stocks are going to dip 10% but will come right back up because things are just fine. Would you take advantage of the buying opportunity? The problem is that stocks won't dip if "things are just fine." For stocks to dip 10%, enough people have to be motivated to sell - i.e. they must perceive a potential problem down the road that warrants their action now. The problem must be REAL - or people won't believe it. And won't act.

Professional traders thrive on volatility. So a lot of "problems" in the market are created daily just to motivate people to trade: opinions, ratings changes, warnings, predictions, new ideas, etc. There is a word for it - manipulation. But that's daily fluctuation. For a 10% correction, enough people must be thinking and looking in the same direction. In other words, the problem must be big enough for enough people to be motivated to act on it.

So a 5% drop is normal - it's just volatility. A 10% drop - there is a problem enough people are concerned about. A 20% drop - there is a serious problem. A 30% drop - run for cover, the world is ending.

Now, the key here is the word "perception". Humans have emotions; they are susceptible to persuasion and prone to exaggeration. When we see a problem, few of us have a real grasp of it; the rest "perceive" it to be something it may or may not be. The media obliges. Since crowds are only drawn to things big, having just a regular recession or a cyclical downturn is not newsworthy. But if there is a "crisis bigger than the Great Depression" - now, that makes for a good juicy headline! In the market, most problems are not as bad as they are thought to be, or they can be overcome by means not anticipated or mentioned by doomsday peddlers.

That's why the current bear market will end sooner or later and the good times will return. I don't know how or when, I just know they will because they always do. (As certain as every bubble - tech stocks, real estate, oil - is never a bubble until it bursts.) If you disagree, you are probably mentally listing the reasons why this time it's different or busy cashing out your 401(k) - just in case. And that's exactly my point: for a perception to take hold, the MAJORITY must believe it.

Now, this is not an all out call by a starry-eyed optimist to start buying with abandon. I believe prudence is in order and capital preservation is the key. It is just an attempt to put things in perspective. A reminder that history will once again repeat itself, that right now "this time it's different" but a couple of years from now it will be "I should have invested back when..."