Tag Archives: personal finance

When Should I Cash Out On My Penny Stock Investment?

Penny stocks take a while to earn a sizable amount. Some shady brokers won’t even speak to an investor if they find out they’re hoping to cash out of their penny stock investment.

As an investor of penny stocks, you’ll want to watch your trades and see when is a good time to cash out so that you benefit the most from your timing. Waiting too long to cash it out can cause your penny stock to lose considerable value points.

Instead of selling off your entire penny stock investment, if you need the money a cash out will bring you, try to only cash out on a smaller percentage of your holdings. That way, if the stock’s value is still on the rise, you won’t lose out on the potential gains.

Some investors cash out based purely on their emotions. If they are concerned about the stock crashing they might sell out too quickly. Or it could also be that they have done well with a particular stock for a while and they sell out in fear that their luck will run out.

Try to keep your emotions in check and cash out only based on what you know for sure. Your best guidance in this type of decision comes from the company’s performance and anything new you might have heard since you purchased the stock.

When you do cash out, take your original investment and re-invest it, enjoying your profits that were gained from the first penny stock investment you succeeded at. Or, take the profits you made and re-invest them so that if you lose anything on your second investment, you’re not cashing out with less than you originally started with.

If your first penny stock investment was successful, do not jump into a second one without taking the same precautions you took the other time around. By being cautious every time, you will have greater chances to have another successful penny stock investment.

If lady luck isn’t on your side and you don’t cash out and miss the boat to big profits, evaluate the life of the investment and see where it went wrong. Knowing why your penny stock investment caused you to lose money will help you avoid the same mishap in subsequent investments.

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When Would You Be Better Off Selling Your Stocks?

If you invest in stocks, then you probably are aware of the need to research, but let us face it, knowing when to pull out is not the easiest thing to decide for novice investors. The good news is that if you have chosen your stocks carefully, you won’t need to pull out for a very long time, such as when you are ready to retire. But there will often be a time when a specific situation would require you to sell your stocks before you have reached your financial objectives.

You may think that the time to sell is when the stock value is about to drop – and you may even be advised by your broker to do this. As is often the case, going for the obvious isn’t always the best solution to the problem.

Stocks go up and down all the time, depending on the economy…and of course the economy depends on the stock market as well. That is the reason why stocks are such a labyrinthine endeavor at times – you will often find it hard to decide whether to sell or not. Stocks have their own peaks and valleys, and in some cases, they can plateau.

Research would be your best friend in this case, as it could tell you about how stable a certain company would be. Changes in corporations have a profound impact on the value of the stock. For instance, a new CEO can affect the value of stock. A plummet in the industry can affect a stock. There are numerous factors that could change a stock’s value “just like that.” Here is a brief missive on the three primary reasons why you should sell a stock.

First, and most obvious reason to sell would be once you have attained your financial objectives. You could set yourself up well for retirement by selling your stocks, then opening up a savings account, or any other financial tool that is safer and less volatile.

People who are investing in stocks with their retirement funds in mind would frequently sell for this reason. The second reason to sell a stock is if there are major changes in the business you are investing in that cause, or will cause, the value of the stock to drop, with little or no possibility of the value rising again. Just make sure you sell your stocks before the value would even have a chance to drop down.

If the value of the stock spikes, this is the third reason you may want to sell. Quick example – assuming your stocks go for $100 per share and they suddenly move way up to $200 per share the following week, then it would often be prudent to sell, because that $200 per share can go right back down to $100 before you know it. Definitely, you will have to sell while the stocks are still at $200 per share in that example.

Anybody who is just a beginner in the world of stocks would absolutely benefit from the veteran advice of a financial specialist before they buy or sell. With their assistance and tutelage, you can make the right decisions and reach your financial objectives sooner.

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Fundamental Analysis – The Pros And Cons

Fundamentalists and technicians are the two groups of traders. Traders who would use fundamental analysis in order to predict price action are fundamentalists while technicians are traders who use technical analysis to predict price action. A lot of traders, of course, would use both types of analysis.

What we can talk about is fundamental analysis which is based on economic factors.

As for the fundamentalist, they would assume that the supply and demand for currencies is a result of economic processes that can be observed. So, they observe economic, social, and political forces that drive supply and demand. They think that if they observe all kinds of indicators, then they can predict price actions.

Currency prices are a reflection of the balance between supply and demand for currencies, by analyzing different data, such as interest rates, balance of trade, foreign investment, GDP and many others and because of this, traders can predict price actions. The problem is that there is huge amount of data to analyze. Fundamentalists can study any criteria except price action. Looking at different economic indicators are different fundamental analysts but the most important are economic growth rates, inflation, unemployment and interest rates. This is true to data that is related to interest rates and international trade is analyzed very closely.

What fundamentalists are aware of is when different economic indicators will be released. They usually have calendars where they note the date and time when different important statistics will be made public.

By learning and observing different fundamentals of the markets we can increase our knowledge and understanding of the global market. By doing fundamental analysis we can predict economic conditions very well. Also, we have a clear picture of general health of the economy. We will then know what is going on. Because of these reasons, we should not completely ignore fundamental analysis.

There are problems when it comes to fundamental analysis. Most of the time, fundamental analysis does not give us specific entry and exit points, so the trades can be pretty risky. It is not that easy trying to find a method of translating all of the different information into specific entry and exit points for a particular trading strategy. It is easy to be confused because there is so much information.

Because of this, there are therefore many traders who use some fundamental analysis to understand unexpected movements of the prices and to know the forces which move them, but they use technical analysis to decide when to enter and exit the trades.

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Set Your Investment Goals In Order To Succeed In Investing

So often, people who invest for the first time are painfully uninformed. They think it’s as easy as investing some dough, bada bing, bada boom, instant fortune. As expected, a great deal of them regret taking the plunge so early. It will be wise to realize that realistically all of these investments are full of risks – the danger of having your money fly away is very real! Definitely you need to be armed with the requisite skills before going into investment.

It would be a decision to make sure you are as informed as possible about investing before you actually start investing. You want to have a good idea about the nuances of the market. On top of all that, you must have a clear set of objectives for your investment. What do you really want to attain from your investment venture, and how? For example, your goal may be to be able to provide for your child’s college education, to buy a new house, to go on a vacation, or you may want to build some funds for your retirement. So make it a point to stop and pause for a few moments before investing your money, and think of what goals you have in mind for that money you plan to invest. If you have a goal and the requisite stick-to-it-iveness, you can make a decision that is not only smart, but also profitable!

Frequently, many people want to invest with a hope to be rich overnight. This is not totally impossible – but it seldom happens. Ergo, don’t press your luck. It is not only naive, but also foolhardy to make getting rich overnight your ultimate goal. A good alternative, and a tried, tested and safe one would be to invest your money and let your nest egg gradually grow over time. Once you have reached your objective, then you are free to use your return on investment for whatever plans you have had in mind, such as sending your kid to college or going on vacation. However, if you want to be rich quickly with your investments, then you may want to look into short term, high-yield investing. In order to increase the chances of success on such a venture, do as much reading up as you can on the topic.

Consulting a financial planner with at least a half-decade’s worth experience and great credentials is a smart move prior to investing. The latter part is especially important, because your goals should be equally important to you, and getting the right advice to help you meet those goals can be a great help. He or she should be able to give you an idea of the kind of realistic returns you can expect from your investment and when you can expect to reach your financial goals.

Investing is much more than just contacting your investment broker and giving him or her instructions on which stocks or bonds to buy or sell. If you really are serious on earning a healthy return on your investments, you cannot achieve this if you do not do your homework and if you are uninformed in most, if not all of the facets of investment.

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How to Buy Stocks Using Fundamental Analysis

What’s Fundamental Analysis

Fundamental analysis is a technique of choosing stocks by assessing fundamental measurements like earnings per share, revenue growth, cash on the balance sheet, increasing debt, etc, to evaluate what you imagine a stock should be trading at down the road. By comparing the value you suspect the stock ought to be worth, also known as intrinsic value, you can make a decision on if the stock is at an excellent price to buy today depending on the current price it is actually trading at. Where it could get complicated is in how we determine what a companies intrinsic value is.

What Fundamental Analysis Isn’t

Fundamental analysis isn’t a great forecaster of short-term price movements. Generally, fundamental investors are intermediate to long term investors because they need time for their thesis to play out. Many things can happen in the markets from a everyday perspective, but over the longer term, stocks with positive fundamentals have a tendency to trend higher in price and reap benefits for longer term holders.

Advantages to Fundamental Analysis

The principle advantage to using fundamental analysis is that you can have real confidence behind the stocks you hold. By learning and analyzing a stocks long term story, you are able to better understand the vision of where the company may potentially be in the future. If you find great fundamentals like increasing earnings per share and revenue growth, you are more likely to keep the stock for the big 50 to 100% gains without having to be shaken out by small 5-10% pullbacks that come along the way. Another advantage is when you’re employing a “value” approach, fundamental investors are usually the first to purchase extremely beaten down stocks that may net big percentage gains over the subsequent years. Provided you can find stocks that are trading at deep discounts, aka have good “value”, you can take advantage of incredible stock returns before a stock even comes on the radar of a technical analyst.

Disadvantage of Fundamental Analysis

Fundamental analysis can be quite risky if you do not use proper risk management. Calculating a companies intrinsic value involves some type of prediction or anticipation of what an organization will earn down the road. One cloud that hangs over all forecasts of future estimates is the economy. When there is a tough economy, like there was in 2008, future earnings estimates of almost every company can come down and therefore you will have to adjust your expectations of a stocks future price. If you don’t manage your risk, or have a spot where you cut your losses, you may wind up riding stocks all the way down to $0.00 as numerous did with banking stocks in 2008. It is therefore highly important to keep up to date on the fundamentals of the stocks you hold for any likely negative headwinds.

Buying Stocks Using Fundamental Analysis

There are various methods and strategies to find out what a stock should be worth, but a straightforward metric that can be used to determine the value of a stock is a Price to Earnings equation. The Price to Earnings equation is simple and appears like this:

Stock Price / Full Year Earnings Per Share = Multiple

or

Multiple * Full Year Earnings Per Share = Stock Price

Stocks are forward looking so it is vital that you take a look at precisely what the future estimates are in order to discover what expectations happen to be being factored into a stocks share price. Using the second equation listed above, you can see that if you can establish a estimate of what a stocks future earnings per share is going to be, after which multiply it by a certain multiple, you can get a rough estimate of the potential upside of a stock. Precisely what multiple will we assign to a stock? Well there are numerous ways of thinking here but the most common can be a market multiple or perhaps a multiple in line with the companies growth rate.

A market multiple is the multiple that the market, for this example the SP-500, is trading at. The SP-500 happens to be trading around a 14 multiple, so we can use that as a conservative number. However a more accurate model to calculate a stocks multiple is usually to look at the stocks growth rate. A conservative approach here is to use a multiple that is equal to a companies future growth rate. An illustration would be a stock growing at 20% should use a 20 multiple to take into account the growth rather than the 14 multiple the SP-500 is trading at.

Using Yahoo Finance’s Analyst Estimates section, it is possible to type in a stock’s ticker symbol and see information such as the analysts future earnings per share and growth rate estimates. Looking at the below image you can see that next years earnings estimate for Apple (AAPL) is $47.76 . In the bottom pane you may also note that its growth rate next year is predicted at 11.4%.

Using the calculation above you can calculate the following price target as 11.4 * $47.76 = $544.46. Apple’s closing price as of 3/8/2012 was $541.99, therefore you could reason that Apple was fairly valued at that time with not a lot of upside. Nonetheless its also crucial to notice a companies earning history to see if it usually beats analyst targets or disappoints. As you can see in the middle pane labeled “Earnings History”, Apple is recognized for solidly beating even the highest of analyst estimates. If we assumed that Apple would carry out the same down the road, we could use the high wall street analyst of $53.00 as opposed to the average that we used previously. In this instance we receive 11.4 * $53.00 = $604.20. This would indicate a possible upside for Apple at around 11.5%. There is always more to the story than a stocks Price to Earnings equation, but this is meant to be a introductory example to one of many methods that professionals employ to calculate a stocks future price on a fundamental basis.

Summary

Fundamental analysis at its core is an excellent starting place to help you narrow your watch list of stocks from the many choices to the limited number that are well worth buying. While there are many different methods of fundamental analysis like growth investing and value investing, understanding a companies products or services, as well as its prospective future earnings is key for long term investors. Successful investors coming from all backgrounds, whether it be Warren Buffet employing a value approach, or William O’ Neil utilizing a growth approach, have integrated fundamental analysis within their investing system and have gone on to be incredibly successful in the markets.

To learn more about how to buy stocks you should definitely check out How to Buy Stocks Headquarters.