How Do I Know When to Buy or Sell a Stock

If you are in the stock market participating in an active or passive way, the most difficult thing to know is when do you buy or sell your stock. There are different types of players in the market. Some believe in intraday trading, where people buy and sell stocks in a very short period of time in order to make quick gains.

There are also people who trade in a pre-fixed schedule like every quarter. And there are also some instances where people just want to buy and hold in order to make long term gains. These long term investors are also known as value investors. These are few of the major approaches used by traders and investors all around the world.

In order to know when to buy or sell, first one needs to understand the fundamentals of stocks and how it operates. Stock form part of the equity investment done by the company and its shareholders. Anyone who buys a share of a company e.g. Microsoft, means that individual is a partial owner of Microsoft to the extent of the number of shares he’s got. If the company does well he’s bound to get some gains out of it and in the opposite scenario he’s going to make losses.

There are a few things one needs to keep in mind while entering the stock market. Firstly try to find a stock which is trading very near or at par to its book value. If you find these types of stocks buy them only after learning a few facts about the company. Try to look into the company’s previous annual and quarterly reports in order to get some idea about the company’s position. After completing the whole research go ahead and buy the stock, as you will be getting it at a very low price.

Before buying make sure you find a brokerage house offering low brokerage rates, fast trading facilities and a good research desk. While buying, make sure that you have a profit target. Try to decide why you are making this investment. See to it that how the stock performs along with the other investments made in your portfolio.

Depending on your investment goal decide how much risk you can bear. It can be for your retirement, new home, car or even children’s college education. In case of a long term investment horizon you can take higher risks as the probability of risk decreases as the time goes by. So in the end you can buy shares at a low price and sell it depending upon your investment horizon. Here the chances of gain are very high due to the low price of stocks during the initial stage of investment.

Once your profit target has been achieved get out of the trade as soon as you can. This is something a lot of people don’t follow as they hold on to a stock when it is going through a bull-run. By following this strategy you might make lesser gains but it will definitely save you from making further losses down the line. 

For more information Click Here 

How Does Short Selling Affect the Market

Before embarking on a discussion on how short selling affects the market, it is important to clarify what short selling is.

Short selling can be defined as “the practice of selling assets, usually securities, which have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender.” In other words, the short seller benefits from a decline in the value of the assets between the dates of selling and repurchase. (Note: There are some costs associate with borrowing the assets and paying any dividends declared on those assets within that period.)

On the other hand, if the assets increase in value, the investor loses money. This is because, unlike earlier, he will have to spend more to acquire those assets than he got by selling them. This strategy of “shorting” or “going short” is the exact opposite of the strategy of “going long” where the investor profits from an increase in asset value.

There is another version of short selling, an extreme version if you will. It is called “naked short selling”. This is “the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale”. Naked short selling has been illegal in the US since 2008.

Now, since short selling is posited on asset prices falling, the practice has often been blamed for stock market crashes. The London banking house of Neal, James, Fordyce and Down collapsed in June 1772, precipitating a major banking crisis which included the collapse of almost every private bank in Scotland and a major cash squeeze in London and Amsterdam, the leading financial centers during those days.

One of the earliest such instances on the US was the Wall Street Crash of 1929 which led on to the Great Depression. This led Congress to enact the uptick law banning short sellers from selling shares during a downtick – the short had to be either at a price above the last traded price of the security, or at the last traded price if that price was higher than the price in the previous trade. It remained in effect till 2007.

In September 2008, a flurry of short selling, especially naked short selling, contributed to excessive market volatility, leading to a three-week ban on shorting for 799 financial companies. During this period, Germany, Ireland, Switzerland and Canada banned short selling leading financial stocks, and France, the Netherlands and Belgium banned naked short selling leading financial stocks. Australia went for a complete ban on the activity.

The stock markets are not the only ones affected by short selling. The collapse of the Dutch tulip market in 17th century and the “breaking” of the Bank of England by George Soros when he sold short more than $10 billion worth of pounds sterling are also examples of the extreme effects of short selling.

For more information Click Here

The History Of The New York Stock Exchange

“One belongs to New York instantly, one belongs to it as much in five minutes as in five years.”
- Thomas Wolfe (1900-1938), American short story writer and novelist.

New York has often been described as the center of world business, and if it be so, there’s no questioning what is its throbbing heart - the New York Stock Exchange (NYSE). For some time now, no company can be said to have truly “arrived” until it was listed on the NYSE. Here then, is a short history of the NYSE’s long and illustrious career as the barometer of the nation’s, indeed the world’s, financial health.

The history of the NYSE can be said to have begun in 1792, when twenty-four prominent brokers and merchants gather on Wall Street to sign the Buttonwood Agreement, agreeing to trade securities on a achievement basis. At that time, Bank of New York became the first company to be listed on the New York Stock & Exchange Board.

The first base of operations was at 40 Wall Street in a rented room, which was eventually destroyed in the Great Fire of New York in 1835. In 1863, the name New York Stock Exchange was adopted, and in 1865, it moved to 10-12 Broad Street. As trading multiplied over the next four decades, a larger building was required, and finally inaugurated on on April 22, 1903.

Over the next few decades, the Garage, the Blue Room, the Extended Blue Room and the Bond Room were added. As electronic trading gained popularity, the NYSE decided to close down many of the rooms that had been added by earlier expansions.

Currently, the NYSE is operated by NYSE Euronext, which was formed by the NYSE's 2007 merger with the fully electronic stock exchange Euronext. This merger brought together major marketplaces across Europe and the United States with histories stretching back more than four centuries. The combination was by far the largest of its kind and the first to create a truly global marketplace.

Even as the NYSE developed into the marketplace of the world, it wasn’t all smooth sailing. One of the first shocks occurred when President Abraham Lincoln was assassinated in 1865, leading to the exchange being closed for around a week. Then, in 1920, a bomb exploded outside the NYSE, killing 33 people and injuring more than 400. The scorch marks are still visible on the building.

October 24, 1929 marked the Black Thursday crash at the NYSE, leading to the the sell-off panic which started on Black Tuesday, October 29 and often considered the initiator of the Great Depression. On October 19, 1987, also known as Black Monday, the benchmark index (Dow Jones Industrial Average) dropped 508 points, a 22.6% loss in a single day.

There was also the Mini-Crash of 1989 on October 13, 1989 when a UAL deal went bust, causing the Dow to fall 190.58 points, or 6.91%. The Asian Financial Crisis led to a 7.18% drop in value (554.26 points) on October 27, 1997. There was a sudden 998 point drop on May 6, 2010 but the markets rebounded immediately.

In spite of these hiccups, the NYSE has progressed on its way as the predominant stock exchange in the world with the market capitalization of its listed companies at totaling $11.92 trillion as of Aug 2010.

For more information, please Click Here

What are the Similiar Things Between a MLP And REIT?

“Why not invest your assets in the companies you really like? As Mae West said, "Too much of a good thing can be wonderful".” 
-Warren Buffett, legendary investor and the third richest man in the world.

The importance of investing in creating wealth is underscored by Warren Buffett’s career. However, very few have the business acumen of the “Oracle of Omaha” and have to depend on others’ expertise for managing wealth. This has given rise to investing vehicles like mutual funds, Real Estate Investment Trusts (REITs) and Master Limited Partnerships (MLPs).

While mutual funds have been around for some time, REITs and MLPs are comparatively recent innovations. Both of them share some similarities and differences.

A REIT is defined as “a tax designation for a corporate entity investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90 percent of their income, which may be taxable, into the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.”

A MLP is defined as “a limited partnership that is publicly traded on a securities exchange. It combines the tax benefits of a limited partnership with the liquidity of publicly traded securities. To qualify for MLP status, a partnership must generate at least 90 percent of its income from what the US Internal Revenue Service (IRS) deems "qualifying" sources. For many MLPs, these include all manner of activities related to the production, processing or transportation of oil, natural gas and coal.”

Now, let’s talk about the similarities between a Master Limited Partnership (MLP) and a Real Estate Investment Trust (REIT).

One similarity, that has main implications for investors, is that they keep off the corporate income tax, on both a state and federal basis. finally, the investor’s share of the proceeds increases. Another major similarity that both REITs and MLPs also share with ordinary shares, pardon the wordplay, is their tradeability. Units of both REITs and MLPs are traded on stock exchanges just like common stock.

Another similarity is that both REITs and MLPs are classified into three categories each. REITs are of the following three types:

1.Equity REITs: These own real estate like offices, malls, etc.

2.Mortgage REITs: These lend money to real estate owners or buy existing mortgages or mortgages backed securities.

3.Hybrid REITs: These are basically a mixture of the above two types - own real estate and lend money to owners of real estate.

MLPS are of the following three types:

1.Roll-up: Multiple assets or small limited partnerships combined into a larger limited partnership.

2.Rollout: A large, single multiple limited partnership like a corporation spins off some of its assets into a separate multiple limited partnerships.

3.Roll-in: New assets put into a multiple limited partnership with a guarantee to combine supplementary assets in future.

As is clearly seen, there is a lot that is common between these two investment vehicles.

For more information, please Click Here