how to choosing a stock market simulation games ; A stock market simulation game is a great way to practice your investment skills before actually investing any "real" money in the stock market.
Simulation games are usually played on the internet, where people can experience the thrill of investing in the stock market without any risks, costs or any fear of losing money when and if they make a poor investment decision.
Below are some tips on choosing a stock market simulation game:
1. Choose a stock market simulation game that is used and recommended by reputable colleges, high schools, middle school, investment clubs, brokers in training, corporate education courses and any other group of individuals studying markets in the U.S. and worldwide.
2. Choose a stock market simulation game that is comprehensive and easy to implement in any Finance, Economics, or Investments class. A good stock market simulation game should feature trading of stocks, options, futures, mutual funds, bonds from the U.S. and many of the world's major markets.
3. Choose a stock market simulation game that provides a valuable, reliable, and realistic trading simulation at a reasonable price to members and other individuals who are interested in learning more about investing and trading. The simulation game should also have some capability for testing a variety for investment strategies.
4. Choose a stock market simulation game that has a toll-free customer service phone number and excellent e-mail support for members. The support function should be able to quickly answer any questions that members/players may have.
5. Choose a stock market simulation game that is easy to use and easy to teach even to those who have never had any real hands-on investment experience.
Simulation games, stock market simulation game, good stock market, investment strategies, options, futures, mutual funds.
Showing posts with label tips. Show all posts
Showing posts with label tips. Show all posts
Thursday, September 1, 2011
Tuesday, August 30, 2011
Best Taxation of Convertible Preferred Dividends
Best Taxation of Convertible Preferred Dividends : There are two basic types of preferred stock you can issue: hybrid or traditional. The type of preferred stock you issue will have an impact on your tax treatment, and consequently on the tax that investors pay on the dividends they receive. Some preferred stock has a convertible attribute, which does not have an impact on taxes unless an investor chooses to convert his hybrid preferred stock to common shares.
Hybrid Preferred Stock
Hybrid preferred stock is part debt and part equity. It represents a debt obligation to the company, while providing stockholders with a percentage of equity ownership in the company. When you pay dividends on hybrid stock, you use pretax dollars, which reduces your taxable corporate income. If you own hybrid shares, your dividends will be taxed in the same way as bond interest, which is taxed as normal income.
Traditional Preferred Stock
Unlike hybrid preferred stock, traditional preferred stock does not mature, but the company can call it back, meaning that the company can buy it from stockholders at a fixed price. If you issue traditional preferred stock, dividends you pay come from after tax dollars, or from earnings after tax has already been paid. If you own traditional preferred stock, your dividends are taxed as dividend earnings, which are taxed at 15 percent or less, depending on your tax bracket.
Convertable Preferred Stock
Preferred stock, whether hybrid or traditional, can contain one or more attributes. One of these attributes is convertibility. If you issue preferred shares that are convertible, you give investors the right to convert shares into common stock. Most convertible stock can be converted after a set date at a specific share price. If you own convertible hybrid stock, you may be able to reduce your taxes by converting it into common stock, because common dividends are taxed at a lower rate for most people.
Required Holding Period
If you earn dividends on hybrid preferred stock, your dividends will be taxed at your normal tax rate. If you own traditional preferred stock, your dividends will be taxed at the reduced dividend tax rate, as long as you meet the holding requirements. In order to qualify for the lower dividend tax rate, you must hold your stock for at least 90 days after receiving a dividend. (source smallbusiness.chron.com )
Hybrid Preferred Stock
Hybrid preferred stock is part debt and part equity. It represents a debt obligation to the company, while providing stockholders with a percentage of equity ownership in the company. When you pay dividends on hybrid stock, you use pretax dollars, which reduces your taxable corporate income. If you own hybrid shares, your dividends will be taxed in the same way as bond interest, which is taxed as normal income.
Traditional Preferred Stock
Unlike hybrid preferred stock, traditional preferred stock does not mature, but the company can call it back, meaning that the company can buy it from stockholders at a fixed price. If you issue traditional preferred stock, dividends you pay come from after tax dollars, or from earnings after tax has already been paid. If you own traditional preferred stock, your dividends are taxed as dividend earnings, which are taxed at 15 percent or less, depending on your tax bracket.
Convertable Preferred Stock
Preferred stock, whether hybrid or traditional, can contain one or more attributes. One of these attributes is convertibility. If you issue preferred shares that are convertible, you give investors the right to convert shares into common stock. Most convertible stock can be converted after a set date at a specific share price. If you own convertible hybrid stock, you may be able to reduce your taxes by converting it into common stock, because common dividends are taxed at a lower rate for most people.
Required Holding Period
If you earn dividends on hybrid preferred stock, your dividends will be taxed at your normal tax rate. If you own traditional preferred stock, your dividends will be taxed at the reduced dividend tax rate, as long as you meet the holding requirements. In order to qualify for the lower dividend tax rate, you must hold your stock for at least 90 days after receiving a dividend. (source smallbusiness.chron.com )
Estimating Market Capitalization and Dividend Growth Rates
Estimating Market Capitalization and Dividend Growth Rates : Generally, investors buy common stocks for two reasons. Stocks typically offer investors a cash dividend, and they also have the potential to provide the investor with capital gains. In this publication, we will present a method for calculating stock prices based on a constant growth model, which uses a discounted cash flows approach.
Now that we have a simple formula to calculate a stock's price, we need to figure out how to calculate all of the individual variables in that formula. Specifically, we need to calculate the projected growth rate in dividends and the market capitalization rate (discount rate or expected return).
Estimating Dividend Growth Rates
An estimate of a company's dividend growth rate can be made by examining a company's projected earnings growth rate. This estimate assumes that the return on equity for a company and its payout ratio remain constant.
Dividend growth can then be estimated using the following calculation:
Dividend Growth (G) = Plowback Ratio x Return on Equity
Where:
* Plowback Ratio = 1 - Payout Ratio, and
* Payout Ratio = Dividends Paid / Earnings per Share, and
* Return on Equity = Earnings per Share / Book Equity per Share
All of these variables can be easily calculated when you're researching a stock. They are often calculated for you by many of the online stock research tools. We explain the significance of many of these variables in our article on financial ratios.
Sticking with our example, if Stock A has a payout ratio of 60%, which means they pay out 60% of earnings in terms of dividends, their plowback ratio is 1 - 60% or 40%. Let's also assume the company's return on equity is 10.0%. That means their estimated dividend growth rate is:
Dividend Growth (G) = 40% x 10% = 4.0%
Estimating Market Capitalization Rates
If we go back to our simplified stock price formula, we can use that same calculation to develop an estimate of the discount rate (or market capitalization rate). Rearranging this formula we have:
Discount Rate (R) = (Dividends (Div) / Stock Price (P0)) + Dividend Growth Rate (G)
If we are going to develop estimated prices for stocks, then we're going to need to figure out the proper discount rate (expected stockholder return), based on stocks of equivalent risk. That means we need to calculate the discount rate for stocks that are of equivalent risk to the one we're thinking about buying.
We've already discussed how the dividend growth rate can be calculated, so we only need to solve for this portion of the discount rate equation:
Dividends / Stock Price
Fortunately, this particular ratio is a commonly published stock ratio, and is known as the dividend yield. In this example, we are examining a stock of equivalent risk to Stock A. Let's assume that Stock B has:
* Dividend Yield of 7.0%
* Payout Ratio of 45%
* Return on Equity of 12%
First, solving for the dividend growth rate:
Dividend Growth (G) = 55% x 12% = 6.6%
Finally, solving for the discount rate:
Discount Rate (R) = 7.0% + 6.6% = 13.6%
We now have a method for calculating a stock's price based on some fundamental information about the stock itself, and information on stocks of equivalent risk. That is, we've explained how to calculate all of the variables in our stock pricing formula:
Stock Price = Div / (R - G)
Now that we have a simple formula to calculate a stock's price, we need to figure out how to calculate all of the individual variables in that formula. Specifically, we need to calculate the projected growth rate in dividends and the market capitalization rate (discount rate or expected return).
Estimating Dividend Growth Rates
An estimate of a company's dividend growth rate can be made by examining a company's projected earnings growth rate. This estimate assumes that the return on equity for a company and its payout ratio remain constant.
Dividend growth can then be estimated using the following calculation:
Dividend Growth (G) = Plowback Ratio x Return on Equity
Where:
* Plowback Ratio = 1 - Payout Ratio, and
* Payout Ratio = Dividends Paid / Earnings per Share, and
* Return on Equity = Earnings per Share / Book Equity per Share
All of these variables can be easily calculated when you're researching a stock. They are often calculated for you by many of the online stock research tools. We explain the significance of many of these variables in our article on financial ratios.
Sticking with our example, if Stock A has a payout ratio of 60%, which means they pay out 60% of earnings in terms of dividends, their plowback ratio is 1 - 60% or 40%. Let's also assume the company's return on equity is 10.0%. That means their estimated dividend growth rate is:
Dividend Growth (G) = 40% x 10% = 4.0%
Estimating Market Capitalization Rates
If we go back to our simplified stock price formula, we can use that same calculation to develop an estimate of the discount rate (or market capitalization rate). Rearranging this formula we have:
Discount Rate (R) = (Dividends (Div) / Stock Price (P0)) + Dividend Growth Rate (G)
If we are going to develop estimated prices for stocks, then we're going to need to figure out the proper discount rate (expected stockholder return), based on stocks of equivalent risk. That means we need to calculate the discount rate for stocks that are of equivalent risk to the one we're thinking about buying.
We've already discussed how the dividend growth rate can be calculated, so we only need to solve for this portion of the discount rate equation:
Dividends / Stock Price
Fortunately, this particular ratio is a commonly published stock ratio, and is known as the dividend yield. In this example, we are examining a stock of equivalent risk to Stock A. Let's assume that Stock B has:
* Dividend Yield of 7.0%
* Payout Ratio of 45%
* Return on Equity of 12%
First, solving for the dividend growth rate:
Dividend Growth (G) = 55% x 12% = 6.6%
Finally, solving for the discount rate:
Discount Rate (R) = 7.0% + 6.6% = 13.6%
We now have a method for calculating a stock's price based on some fundamental information about the stock itself, and information on stocks of equivalent risk. That is, we've explained how to calculate all of the variables in our stock pricing formula:
Stock Price = Div / (R - G)
Monday, August 29, 2011
are tips a good investment in 2011
are tips a good investment in 2011 ; Inflation is probably the greatest enemy of a bond investor. Again it is true for a person with fixed income too. It is capable of putting your entire budget plan down. So, question may arise in your mind – is there any investment option which can fight against it? Where to put the hard-earned money so that it yields at least some relief at the devastating period of inflation?
seekingalpha ; Are TIPS Still a Good Investment?
I've been recommending TIPS since last November, when their real yields spiked and the market expected inflation to be negative for many years. Since then real yields have come down a lot, and inflation expectations have moved higher, Read More...
TIPS (Treasury Inflation-Protected Securities) for a Safer Bond Investment
Well, there is a very good way, which can help you in this situation, some TIPS. Don’t get confused. It stands for Treasury Inflation-Protected Securities and TIPS is really a great offer from the Federal Government, which is a sure shot way to beat inflation with no risk of money. If you could know the best way to use TIPS, then surely you will gain the power to fight against inflation. Read More...
Investment Tips for 2011 from Finance Expert Daniel Shaffer
It's been a wild ride. The Dow Jones is clocking in at above 11,000 these days. Just 20 months ago, in early March 2009, the index hovered around the 7,000s. Given the volatility, it's not surprising we average investors are skittish about entering or re-entering the market.Read More...
Investment tips for 2011
Naturally, if any of the following advice were foolproof, they wouldn't give it away. As always, do your own research, stay diversified and assess your own willingness for risk.Read More...
Top 10 investing tips for 2011
With an economy still on the mend and unemployment stubbornly high, it's important to make the best investing decisions for you and your family. The best strategy blends managing risk while investing to get the most bang for your buck. Read More...
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seekingalpha ; Are TIPS Still a Good Investment?
I've been recommending TIPS since last November, when their real yields spiked and the market expected inflation to be negative for many years. Since then real yields have come down a lot, and inflation expectations have moved higher, Read More...
TIPS (Treasury Inflation-Protected Securities) for a Safer Bond Investment
Well, there is a very good way, which can help you in this situation, some TIPS. Don’t get confused. It stands for Treasury Inflation-Protected Securities and TIPS is really a great offer from the Federal Government, which is a sure shot way to beat inflation with no risk of money. If you could know the best way to use TIPS, then surely you will gain the power to fight against inflation. Read More...
Investment Tips for 2011 from Finance Expert Daniel Shaffer
It's been a wild ride. The Dow Jones is clocking in at above 11,000 these days. Just 20 months ago, in early March 2009, the index hovered around the 7,000s. Given the volatility, it's not surprising we average investors are skittish about entering or re-entering the market.Read More...
Investment tips for 2011
Naturally, if any of the following advice were foolproof, they wouldn't give it away. As always, do your own research, stay diversified and assess your own willingness for risk.Read More...
Top 10 investing tips for 2011
With an economy still on the mend and unemployment stubbornly high, it's important to make the best investing decisions for you and your family. The best strategy blends managing risk while investing to get the most bang for your buck. Read More...
are tips a good investment in 2011, are TIPS a good investment, are tips a good investment for 2011, are TIPS a good investment 2011, TIPS good investment 2011, are tips good investments 2011, are bonds a good investment for 2011, are inflation protected bonds a good investment, inflation investments 2011, are TIPS a good investment, treasury inflation protected securities 2011 , Is this a good time to invest in inflation protected securities?, are tips good investments, are treasury bonds a good investment 2011 , tips bonds good.
Thursday, August 25, 2011
Tips for investing in volatile markets
Tips for investing in volatile markets : Experts have long recommended investors put their money into the stock market for the long term, but the recent performance of some assets has led investors to question this wisdom.
But despite the fall in confidence from stock market volatility, experts believe the ability of stocks and other assets to deliver attractive returns over the long term remains intact.
Tom Stevenson, investment director at Fidelity International, tells the FT his top tips for investing in volatile times:
1. Think about your tolerance for risk
Investing offers a way to develop long-term wealth. But investors need to choose from a range of investment alternatives by considering their risk and return prospects including cash, bonds, alternatives such as commercial property and commodities, and stocks.
Most people will understand the importance of making financial provisions for the future and will also have a savings goal in mind - perhaps for retirement, a holiday or just for future emergencies. Then, they may also know how long they have to save - a year, ten years, perhaps longer. There is also the investors temperament to consider - how well they could cope with the possibility of their investment falling in value. With these factors in mind, therefore, an individual should be able to judge how much risk they are willing to take.
Investment risk is like the volume dial on an amplifier – you can turn it up and down as you wish. In theory, the more risk you are able or willing to take, the greater your potential reward. Of course, more risk also means greater potential for loss.
2. Remember the value of dividends
When things are going well and the stock market is rising strongly, the extra return from dividends may be con
sidered as little more than a token gesture. However, in weaker markets the extra return from dividends becomes a valuable part of the total return, especially over time as reinvested dividends are compounded.
For example, £100 invested in the FTSE All Share in January 1988 would have grown to £304 by now. But if the dividends had been reinvested it would now be worth £726, more than double. Dividends can also be more reliable than both corporate earnings and stock prices during a bear market because many companies usually strive to maintain their dividend even if their profits are temporarily falling.
Source: Fidelity analysis, using Datastream to 23 August 2011
3. Recognise the benefits of diversification
Diversification has always been considered the first line of defence in reducing investment risk. This is because spreading your funds across different investments reduces the impact of an unexpected fall in one of them. In effect, it reduces the importance of each single investment decision.
Fidelity’s research shows the main asset classes perform differently at different times in the economic cycle.
Trevor Greetham, Fidelity’s asset allocation director, says:: “Recently there have been no safe havens in the equity world. However, stocks and bonds often move in opposite directions. Commodities dance to their own tune, sometimes moving with stocks, sometimes against. Each time a bull-run in one asset class comes to a halt, leadership passes to another.
“When equities peaked in 2007, commodities surged. When the commodities ran out of steam in mid 2008, government bonds started their charge. When the world economy recovers from its current difficulties, stocks will take up the running once more. A well-diversified portfolio of stocks, bonds, commodities and cash would have performed well over the past 30 years with a low level of volatility.”
4. Be aware of the dangers of trying to time the market
Perfectly timing your investments to coincide with the top and bottom of market cycles is generally not possible. Experts advise long-term investors to remain calm through periods of volatility. For new investors, the challenge is also a question of timing. Many investors experience a nervous wait for what they consider to be the ‘right moment’. Unfortunately, that moment is only clear once it has passed.
The real danger of missing that crucial bottom is that the early part of the recovery is often the strongest. After the dot.com crash, it took 56 months for the US market to fully recover, but half of the total gains were made in the first 16 months, according to Fidelity analysis.
5. If you are nervous, drip feed your investments
Investors who are nervous about timing their investment can make regular contributions to their asset growth in smaller tranches over a period of time. Regular savers, including those investing into managed funds with regular contributions are set to reap long-term rewards. This can be especially effective when markets are at a turning point.
“Buying the U” describes the process of feeding money slowly into the market while it is still falling, through the bottom and up the other side as the market recovers. Monthly investments offer a way to benefit no matter how the markets are performing: If stock prices go up, the stocks you already own will increase in value. If stock prices go down, your next payment will buy more stocks.
Such an approach can go a little way to eliminate the anxiety of timing large investments, can smooth the highs and lows of the market and even improve an investor’s eventual outcome. The regular investor finishes the period with an investment that is worth more than if the entire amount was invested at the outset, even though the units are the same price at the end of the period as they were at the beginning.
6. Start sooner rather than later
Conventional wisdom suggests it is ‘time in the market’ rather than ‘timing the market’ that is the key to developing long-term wealth. Therefore, starting to invest early is important.
The impact of compounding, which describes the exponential growth that can be achieved by earning interest on previously earned interest - is profound. The earlier you start investing, the longer your assets have to work in the market for you. Starting that strategy today or tomorrow is not too late but failing to act may result in falling short on assets when they’re needed most.(source www.ft.com )
But despite the fall in confidence from stock market volatility, experts believe the ability of stocks and other assets to deliver attractive returns over the long term remains intact.
Tom Stevenson, investment director at Fidelity International, tells the FT his top tips for investing in volatile times:
1. Think about your tolerance for risk
Investing offers a way to develop long-term wealth. But investors need to choose from a range of investment alternatives by considering their risk and return prospects including cash, bonds, alternatives such as commercial property and commodities, and stocks.
Most people will understand the importance of making financial provisions for the future and will also have a savings goal in mind - perhaps for retirement, a holiday or just for future emergencies. Then, they may also know how long they have to save - a year, ten years, perhaps longer. There is also the investors temperament to consider - how well they could cope with the possibility of their investment falling in value. With these factors in mind, therefore, an individual should be able to judge how much risk they are willing to take.
Investment risk is like the volume dial on an amplifier – you can turn it up and down as you wish. In theory, the more risk you are able or willing to take, the greater your potential reward. Of course, more risk also means greater potential for loss.
2. Remember the value of dividends
When things are going well and the stock market is rising strongly, the extra return from dividends may be con
sidered as little more than a token gesture. However, in weaker markets the extra return from dividends becomes a valuable part of the total return, especially over time as reinvested dividends are compounded.For example, £100 invested in the FTSE All Share in January 1988 would have grown to £304 by now. But if the dividends had been reinvested it would now be worth £726, more than double. Dividends can also be more reliable than both corporate earnings and stock prices during a bear market because many companies usually strive to maintain their dividend even if their profits are temporarily falling.
Source: Fidelity analysis, using Datastream to 23 August 2011
3. Recognise the benefits of diversification
Diversification has always been considered the first line of defence in reducing investment risk. This is because spreading your funds across different investments reduces the impact of an unexpected fall in one of them. In effect, it reduces the importance of each single investment decision.
Fidelity’s research shows the main asset classes perform differently at different times in the economic cycle.
Trevor Greetham, Fidelity’s asset allocation director, says:: “Recently there have been no safe havens in the equity world. However, stocks and bonds often move in opposite directions. Commodities dance to their own tune, sometimes moving with stocks, sometimes against. Each time a bull-run in one asset class comes to a halt, leadership passes to another.
“When equities peaked in 2007, commodities surged. When the commodities ran out of steam in mid 2008, government bonds started their charge. When the world economy recovers from its current difficulties, stocks will take up the running once more. A well-diversified portfolio of stocks, bonds, commodities and cash would have performed well over the past 30 years with a low level of volatility.”
4. Be aware of the dangers of trying to time the market
Perfectly timing your investments to coincide with the top and bottom of market cycles is generally not possible. Experts advise long-term investors to remain calm through periods of volatility. For new investors, the challenge is also a question of timing. Many investors experience a nervous wait for what they consider to be the ‘right moment’. Unfortunately, that moment is only clear once it has passed.
The real danger of missing that crucial bottom is that the early part of the recovery is often the strongest. After the dot.com crash, it took 56 months for the US market to fully recover, but half of the total gains were made in the first 16 months, according to Fidelity analysis.
5. If you are nervous, drip feed your investments
Investors who are nervous about timing their investment can make regular contributions to their asset growth in smaller tranches over a period of time. Regular savers, including those investing into managed funds with regular contributions are set to reap long-term rewards. This can be especially effective when markets are at a turning point.
“Buying the U” describes the process of feeding money slowly into the market while it is still falling, through the bottom and up the other side as the market recovers. Monthly investments offer a way to benefit no matter how the markets are performing: If stock prices go up, the stocks you already own will increase in value. If stock prices go down, your next payment will buy more stocks.
Such an approach can go a little way to eliminate the anxiety of timing large investments, can smooth the highs and lows of the market and even improve an investor’s eventual outcome. The regular investor finishes the period with an investment that is worth more than if the entire amount was invested at the outset, even though the units are the same price at the end of the period as they were at the beginning.
6. Start sooner rather than later
Conventional wisdom suggests it is ‘time in the market’ rather than ‘timing the market’ that is the key to developing long-term wealth. Therefore, starting to invest early is important.
The impact of compounding, which describes the exponential growth that can be achieved by earning interest on previously earned interest - is profound. The earlier you start investing, the longer your assets have to work in the market for you. Starting that strategy today or tomorrow is not too late but failing to act may result in falling short on assets when they’re needed most.(source www.ft.com )
stock market strategy millionaire
stock market strategy millionaire : Looking for a quality investment to make? People invest mainly so that they can actually get a good return from it soon. With the present economic condition suffering more and more with each passing day, people are wondering which would be the best place to invest in. according to some investors the stock market still the most coveted place.
You must be wondering what are we saying since the markets are hugely suffering. Well we agree that the markets are suffering but if you are looking for an opportunity to become a millionaire overnight then perhaps the stock market is the safest bet. Read stock market investment tips lessons from stock market turmoil
It is not that we can assure you a million dollars from the stock overnight but then there are certain things which might help you or lead you to success in the stock market. Just follow the strategies given below and on implementing them properly being a millionaire would never seem to be a tough task.
- Have A Proper Strategy In Place Before You Start Trading:
Many people suffer huge losses because they simply do not have a good enough strategy in place. Find out what type of stocks would be good for you and would reap good early results. Make proper note of the risks that you can take and then chalk out the plan, remember a risk may yield thousands of dollars if it is well calculated or else you might make you lose thousands of dollars.
- Try And Follow A Long Term Plan:
Many people believe stock market is the best place for short term investment but do you know that most of the biggest profits that are made from the stock market come from long term investment. Try it out and make millions!
- Follow All The Fundamental Rules:
Success in any field is got by following the fundamental rules. So is the case with stock market, follow the basic rules and get high returns!
Kishore M.stock market strategy millionaire
How much you need to start your journey towards your first million dollars? Not more than a couple of thousand of dollars. What you need more is the right trading strategies and the right investing strategies. This is what Kishore M. is going to teach you in his leaked code. This is what you will learn:
1. Discover one of the best futures trading strategies that can double your account within two month. This is precisely what this futures trading strategy did for one of the students of Kishore.
2. Discover one forex trading strategy that within just 4 months turned $1K into $250K.
3. Learn one options trading strategy that turned $22.5K into $183K in just 2 months.
4. Master CFD trading with this strategy that made a whopping profit of 135% in just one week from APPLE.
5. One of the best property strategy to build a multi million property portfolio with no money down.
6. Discover how to build your online business within one week.
7. Discover one stock trading underground secret that will make the stocks FREE for you.
This is not all! You will also trade live with Kishore M. where he will show you how he researches the market and he will teach you how to trade step by step. You also get a Leaked Millionaire Code Manual that will give you all the detailed technical information.
stock market strategy billionaire, stock market millionaire, bbc news kishore ma, financial markets revealed, kishore m leaked millionaire code online, secret not revealed in stock market, stock market strategy millionaire, financial strategy millionaire, dow jones strategy millionaire,
You must be wondering what are we saying since the markets are hugely suffering. Well we agree that the markets are suffering but if you are looking for an opportunity to become a millionaire overnight then perhaps the stock market is the safest bet. Read stock market investment tips lessons from stock market turmoil
It is not that we can assure you a million dollars from the stock overnight but then there are certain things which might help you or lead you to success in the stock market. Just follow the strategies given below and on implementing them properly being a millionaire would never seem to be a tough task.
- Have A Proper Strategy In Place Before You Start Trading:
Many people suffer huge losses because they simply do not have a good enough strategy in place. Find out what type of stocks would be good for you and would reap good early results. Make proper note of the risks that you can take and then chalk out the plan, remember a risk may yield thousands of dollars if it is well calculated or else you might make you lose thousands of dollars.
- Try And Follow A Long Term Plan:
Many people believe stock market is the best place for short term investment but do you know that most of the biggest profits that are made from the stock market come from long term investment. Try it out and make millions!
- Follow All The Fundamental Rules:
Success in any field is got by following the fundamental rules. So is the case with stock market, follow the basic rules and get high returns!
Kishore M.stock market strategy millionaire
How much you need to start your journey towards your first million dollars? Not more than a couple of thousand of dollars. What you need more is the right trading strategies and the right investing strategies. This is what Kishore M. is going to teach you in his leaked code. This is what you will learn:
1. Discover one of the best futures trading strategies that can double your account within two month. This is precisely what this futures trading strategy did for one of the students of Kishore.
2. Discover one forex trading strategy that within just 4 months turned $1K into $250K.
3. Learn one options trading strategy that turned $22.5K into $183K in just 2 months.
4. Master CFD trading with this strategy that made a whopping profit of 135% in just one week from APPLE.
5. One of the best property strategy to build a multi million property portfolio with no money down.
6. Discover how to build your online business within one week.
7. Discover one stock trading underground secret that will make the stocks FREE for you.
This is not all! You will also trade live with Kishore M. where he will show you how he researches the market and he will teach you how to trade step by step. You also get a Leaked Millionaire Code Manual that will give you all the detailed technical information.
stock market strategy billionaire, stock market millionaire, bbc news kishore ma, financial markets revealed, kishore m leaked millionaire code online, secret not revealed in stock market, stock market strategy millionaire, financial strategy millionaire, dow jones strategy millionaire,
stock market investment tips lessons from stock market turmoil
stock market investment tips lessons from stock market turmoil ; The stock market has had people gasping lately, seemingly losing or gaining roughly 5 percent every day. It would be folly to assume the worst is over, because most market observers agree that the one thing they can expect from this market - even as they argue over its future direction - is volatility.
But as most investors are catching their breath, it makes sense to look at five lessons they might have learned about the market - had they been able to focus amid the chaos.
1. There is still a case for owning stocks.
Investing legend Jack Bogle, in an interview with Morningstar Inc., said the odds are that stocks will have a better return than bonds over the next decade. Here's how Bogle, the founder of the Vanguard Group, figures it:
The 10-year Treasury is yielding roughly 2.3 percent, so its return will be between 2 percent and 3 percent over the next decade. Stocks also have an average yield of 2.3 percent, "but they have earnings that should grow even if the economy grows a little more slowly than say at 4 percent instead of 5 percent. In nominal terms, that would be a 6 percent return on stocks. Maybe they can grow a little faster."
2. Cash begets calm.
Somewhere between being fully invested or completely on the sidelines, a big slug of cash is a powerful asset in turbulent times.
For someone nervous about the money they have in the market, having sufficient cash to ride out the bumps and not believing they must sell something to protect themselves is smart. And for someone worried about being out of the market if and when there's a rebound, having cash allows them to pursue the "buying opportunities" that come up when the market is down.
"When you have a big-enough cash cushion, you can feel like you have more control, which is good at a time when the market seems so out-of-control," said Richard Geist, president of the Institute on the Psychology of Investing.
3. We bemoan loss more than we celebrate gains.
A 500-point decline in the market has investors ready to pull their hair out and fearing for their financial future, but a 500- point gain doesn't have the same person contemplating an early retirement. It's the same percentage move, but investors feel perceived losses more acutely than gains.
Knowing that, individuals need to guard against knee-jerk reactions to downward markets, because there surely are more bad trading days ahead.
4. Leveraged and inverse ETFs are not to blame for the market's volatility.
The supposition here is that with exchange-traded funds representing such a big part of the total trading these days, the leveraged funds are kicking volatility into high gear for everyone. It makes for nice chatter, but it doesn't appear to be true.
According to Morningstar, leveraged and inverse ETFs represent just 5 percent of total assets held in ETFs. Moreover, during the 10 trading days ended Aug. 12, those ETFs represented just 13 percent of the dollar volume being traded in ETFs.
5. The market is full of surprises - and opportunities to be wrong about "what's next."
When Standard & Poor's downgraded the U.S. credit rating, the general consensus was that demand for Treasury bonds would fall. Instead, it rose. When consumer confidence reached its lowest levels since 1980, the assumption was that the stock market would tank. It rose.
In fact, every time the market appeared headed for a deeper hole lately, it rallied, and every time it appeared the rally was strengthening, it faltered.
So although it is tempting to make moves while trying to anticipate where the market will go in the next day, week or month, it's typically going to be more profitable to stay focused on how to generate returns over the next decade and beyond.
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But as most investors are catching their breath, it makes sense to look at five lessons they might have learned about the market - had they been able to focus amid the chaos.
1. There is still a case for owning stocks.
Investing legend Jack Bogle, in an interview with Morningstar Inc., said the odds are that stocks will have a better return than bonds over the next decade. Here's how Bogle, the founder of the Vanguard Group, figures it:
The 10-year Treasury is yielding roughly 2.3 percent, so its return will be between 2 percent and 3 percent over the next decade. Stocks also have an average yield of 2.3 percent, "but they have earnings that should grow even if the economy grows a little more slowly than say at 4 percent instead of 5 percent. In nominal terms, that would be a 6 percent return on stocks. Maybe they can grow a little faster."
2. Cash begets calm.
Somewhere between being fully invested or completely on the sidelines, a big slug of cash is a powerful asset in turbulent times.
For someone nervous about the money they have in the market, having sufficient cash to ride out the bumps and not believing they must sell something to protect themselves is smart. And for someone worried about being out of the market if and when there's a rebound, having cash allows them to pursue the "buying opportunities" that come up when the market is down.
"When you have a big-enough cash cushion, you can feel like you have more control, which is good at a time when the market seems so out-of-control," said Richard Geist, president of the Institute on the Psychology of Investing.
3. We bemoan loss more than we celebrate gains.
A 500-point decline in the market has investors ready to pull their hair out and fearing for their financial future, but a 500- point gain doesn't have the same person contemplating an early retirement. It's the same percentage move, but investors feel perceived losses more acutely than gains.
Knowing that, individuals need to guard against knee-jerk reactions to downward markets, because there surely are more bad trading days ahead.
4. Leveraged and inverse ETFs are not to blame for the market's volatility.
The supposition here is that with exchange-traded funds representing such a big part of the total trading these days, the leveraged funds are kicking volatility into high gear for everyone. It makes for nice chatter, but it doesn't appear to be true.
According to Morningstar, leveraged and inverse ETFs represent just 5 percent of total assets held in ETFs. Moreover, during the 10 trading days ended Aug. 12, those ETFs represented just 13 percent of the dollar volume being traded in ETFs.
5. The market is full of surprises - and opportunities to be wrong about "what's next."
When Standard & Poor's downgraded the U.S. credit rating, the general consensus was that demand for Treasury bonds would fall. Instead, it rose. When consumer confidence reached its lowest levels since 1980, the assumption was that the stock market would tank. It rose.
In fact, every time the market appeared headed for a deeper hole lately, it rallied, and every time it appeared the rally was strengthening, it faltered.
So although it is tempting to make moves while trying to anticipate where the market will go in the next day, week or month, it's typically going to be more profitable to stay focused on how to generate returns over the next decade and beyond.
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Monday, August 8, 2011
Benjamin Graham criteria to assess the financial health of a company
Benjamin Graham criteria to assess the financial health of a company ; Whatever size stock you're interested in, it's important to invest in companies with strong balance sheets. Benjamin Graham used three criteria to assess the financial health of a company:
* Total debt that is less than tangible book value.
Tangible book value is defined as total assets less goodwill, other intangible assets and all liabilities.
* A current ratio greater than two.
Current ratio is defined as current assets divided by current liabilities. It is an indication of a company's ability to meet its short-term obligations.
* Total debt less than two times net current asset value.
Companies meeting this criterion are able to pay off their debts with cash and other current assets making them far more stable.
* Total debt that is less than tangible book value.
Tangible book value is defined as total assets less goodwill, other intangible assets and all liabilities.
* A current ratio greater than two.
Current ratio is defined as current assets divided by current liabilities. It is an indication of a company's ability to meet its short-term obligations.
* Total debt less than two times net current asset value.
Companies meeting this criterion are able to pay off their debts with cash and other current assets making them far more stable.
Wednesday, July 27, 2011
tips to rollover a 401k to an IRA
tips to rollover a 401k to an IRA ; The good news is that rollovers are really easy to do. You do have to be careful, however, to avoid a few traps that could cost you a small fortune, A 401k rollover requires just two steps:
* Decide where you want to open your rollover IRA account.
* Initiate the transfer of your retirement account from your 401k to the new IRA.
Let's take a look at each of these steps in some detail.
Rollover options
Before you can roll over a 401k, you must first open the correct type of IRA account. There are several options here, and the two most popular choices are a brokerage account and a mutual fund account.
Brokerage account. Transferring a 401k to a brokerage account is ideal if you want to invest in a variety of stocks, bonds and ETFs. Discount brokers now charge just a few dollars for equity trades, and most rollover IRA accounts have minimal if any fees. Having used Scottrade for my SEP IRA, I can attest to just how easy it is to buy and sell investments online.
As you review the best options for your retirement account, you'll want to consider several factors.
First, make sure the broker offers the type of IRA account you need. If you are opening a standard rollover IRA, you will find that every major online broker offers this type of account. For specialty IRA accounts, like a SEP IRA, however, you'll find many brokers that do not offer that type of account.
Second, you'll want to evaluate fees. The fees to consider include both account maintenance fees and trading fees. Given the competition today among brokerage firms, you will find many low-fee options.
Third, you'll want to look at the trading tools. Many online brokers now offer virtual trading accounts, where you can practice trading without putting your money at risk. The best brokers also offer video tutorials on everything from evaluating stocks to trading options.
How to initiate the 401k rollover
After you've decided where to open your IRA, the next step is to initiate the rollover. Here are the steps I've taken:
* Call your 401k administrator.
The very first thing I did was call my 401k administrator. My 401k was handled by Fidelity, so a call to customer service provided me with all the information I needed. The key questions to ask are whether there are any fees for rolling over a 401k and what forms you need to initiate the transfer. You can also speak with the person at your former employer who handles retirement accounts, but in my experience, they will end up referring you to the company that manages the 401k.
* Call your IRA administrator.
Whether you've chosen a brokerage or mutual fund company for your new IRA, I'd highly recommend calling them too before initiating the transfer. I like to confirm what they need to complete the transfer.
* Initiate a direct transfer.
There are two ways to roll over a 401k into an IRA -- direct transfer and via check. I've always used the direct transfer method. It's easier as you never have to handle a check, and it avoids the possibility of the IRS deeming you to have taken a distribution from your 401k (triggering taxes and potentially a 10% penalty).
Once you initiate the transfer, keep an eye on your accounts to make sure the rollover occurs without a hitch. These can take a few business days, and it always makes me nervous. Once the transfer is complete, your 401k rollover is complete and you're good to go.
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* Decide where you want to open your rollover IRA account.
* Initiate the transfer of your retirement account from your 401k to the new IRA.
Let's take a look at each of these steps in some detail.
Rollover options
Before you can roll over a 401k, you must first open the correct type of IRA account. There are several options here, and the two most popular choices are a brokerage account and a mutual fund account.
Brokerage account. Transferring a 401k to a brokerage account is ideal if you want to invest in a variety of stocks, bonds and ETFs. Discount brokers now charge just a few dollars for equity trades, and most rollover IRA accounts have minimal if any fees. Having used Scottrade for my SEP IRA, I can attest to just how easy it is to buy and sell investments online.
As you review the best options for your retirement account, you'll want to consider several factors.
First, make sure the broker offers the type of IRA account you need. If you are opening a standard rollover IRA, you will find that every major online broker offers this type of account. For specialty IRA accounts, like a SEP IRA, however, you'll find many brokers that do not offer that type of account.
Second, you'll want to evaluate fees. The fees to consider include both account maintenance fees and trading fees. Given the competition today among brokerage firms, you will find many low-fee options.
Third, you'll want to look at the trading tools. Many online brokers now offer virtual trading accounts, where you can practice trading without putting your money at risk. The best brokers also offer video tutorials on everything from evaluating stocks to trading options.
How to initiate the 401k rollover
After you've decided where to open your IRA, the next step is to initiate the rollover. Here are the steps I've taken:
* Call your 401k administrator.
The very first thing I did was call my 401k administrator. My 401k was handled by Fidelity, so a call to customer service provided me with all the information I needed. The key questions to ask are whether there are any fees for rolling over a 401k and what forms you need to initiate the transfer. You can also speak with the person at your former employer who handles retirement accounts, but in my experience, they will end up referring you to the company that manages the 401k.
* Call your IRA administrator.
Whether you've chosen a brokerage or mutual fund company for your new IRA, I'd highly recommend calling them too before initiating the transfer. I like to confirm what they need to complete the transfer.
* Initiate a direct transfer.
There are two ways to roll over a 401k into an IRA -- direct transfer and via check. I've always used the direct transfer method. It's easier as you never have to handle a check, and it avoids the possibility of the IRS deeming you to have taken a distribution from your 401k (triggering taxes and potentially a 10% penalty).
Once you initiate the transfer, keep an eye on your accounts to make sure the rollover occurs without a hitch. These can take a few business days, and it always makes me nervous. Once the transfer is complete, your 401k rollover is complete and you're good to go.
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Saturday, July 16, 2011
way to end up with US$1mil in the stock market
way to end up with US$1mil in the stock market ; in good markets and bad, investors invariably find ways to reduce the value of their holdings by doing stupid things. But two new personal finance books are intended to keep you from becoming part of the punch line.The one that offers the most specific advice, in addition to being more entertaining, is by LouAnn Lofton, managing editor for online content at Fool.com, the Web site of the Motley Fool, the financial education company that also offers its own mutual funds. She argues that investors need to do research, be realistic, think long term and learn from mistakes. But that would make an awkward title, so Lofton calls her book Warren Buffett Invests Like a Girl: And Why You Should, Too (Harper Business, US$25.99).
Lofton begins by reviewing well-publicised research showing that when it comes to investing, women are far better than men at getting out of their own way. She dissects those studies and provides explanations – she calls them “the eight essential principles every investor needs to create a profitable portfolio” – of why she agrees that this is the case.
Here are her conclusions: Women trade less than men, so their transaction costs are less – and lower transaction costs mean greater returns. Women exhibit less overconfidence. (Men think they know more than they do, while women are more likely to know what they don’t know.) Women also shun risk, are more realistic, do more research, are more immune to peer pressure, learn from their errors and are less prone to taking extreme actions.
Lofton points out the benefits of each principle – for example, the less you know about an industry in which a company competes, the greater your chances of being surprised if you hold the company’s shares.
Then, to explain her title, she argues that Buffett has used these same eight rules to amass his fortune. For example, he doesn’t trade excessively. He also does extensive homework before he buys, is fond of saying his favourite holding period “is forever” and avoids investing in areas like technology that he says he does not understand.
The description of his investment style is a bit simplistic, of course. Not all of us can buy billions of dollars worth of a company’s shares, sometimes getting very favourable terms in return. For example, the US$5bil worth of preferred shares of Goldman Sachs that Buffett bought in 2008 paid 10% a year in interest.
That option wasn’t available to the average mutual fund investor.
Still, the idea of using Buffett as the symbol for her investing approach is effective.
There seems to be a (probably misplaced) rule in publishing that no one will take a personal finance book seriously if it has fewer than 40,000 words. This book rounds out its simple, clear and relatively short argument with four interviews with fund managers who share the author’s beliefs, and includes an ode to the joys of compound interest, none of which seem to be needed. And the book finds several ways of reprising its eight rules. That grows tiresome after a while – explaining the principles twice would have been just fine.
Monday, July 11, 2011
What to do when share prices collapse
What to do when share prices collapse : Since hitting a high of $17.68 in February 2007, Aristocrat’s share price has fallen 87 per cent. Aristocrat is now one of two things: a good business with a cheap share price, in which case you should probably buy it, or a formerly good business with a price that more or less reflects a structural decline, in which case avoid it.
Despite the above-average risks, Intelligent Investor is currently of the former view. Time will prove whether we are right or wrong, but if you have your facts right, what might stop you from acting on them to your advantage?
Superficially, we live in a rational world. In real life, many of us act from emotion rather than rationality. We panic and sell when share prices fall and become overconfident when they rise. In short, we suffer from a whole range of psychological biases.
Social proof
Did your parents ever ask, '‘If your friend jumped off a cliff, would you jump off too?’'
That’s an example of social proof, also seen in the stockmarket when unfavourable news hits the headlines and prices start to fall. Many inexperienced investors get spooked and sell out, creating selling momentum.
The best defence against this is to analyse the facts, think independently and be prepared to go against the crowd. That’s how you beat the market.
Conditioning
Prolonged or painful share price falls also ‘condition’ us to expect bad news. Having framed our expectations this way, often unintentionally, it’s hard for us to change our minds.
This can lead to biased analysis, resulting in us overlooking wonderful opportunities to buy at a low price. The solution is to keep an open mind.
Recency bias
Recency bias, where we place more weight on the importance of recent events, is another common trap.
Humans are wired to expect the future to resemble the present. We struggle to predict change, which is why economist John Kenneth Galbraith once said, ‘'The only function of economic forecasting is to make astrology look respectable."
It’s easy now to imagine Aristocrat’s earnings collapsing permanently. With debt levels increasing, management is allowing competitors to feast on the carcass of what was one of Australia’s best businesses.
But very few were considering that possibility four years ago when gambling revenues were strong, the Aussie dollar wasn’t such a headwind and Macau, where Aristocrat has a dominant market share, was poised to eclipse Las Vegas.
Back then, most investors were contemplating what else might go well for the company, not what might go wrong.
Aristocrat’s destiny probably lies somewhere between these two extremes. The key point is to have a long-term view, weigh up the probabilities of a variety of outcomes and adjust your portfolio accordingly.
Patience
Patience is also critical for investors to benefit from turnaround situations. Adopting a long-term view is a necessity because turnarounds take years.
Those that plan to get back in when the outlook is clearer rarely do, or pay a much higher price for the reduced risk.
If you’re an Aristocrat shareholder you may want to consider which, if any, of these factors applied to you while you were watching the share price fall.
What if you’re thinking of buying in?
Anchoring
With the share price falling 87 per cent, it’s easy to assume Aristocrat must be cheap. But '‘anchoring'’ to past prices is like driving while looking through the rear view mirror.
Investors must keep up with the facts and weigh up the gap between the current share price and the stock’s intrinsic value. The larger the gap, the larger the margin of safety.
Confirmation bias
If you remember Aristocrat going through similar problems in 2003, it would also be easy to bet on another dramatic recovery. But this would reflect confirmation bias, where we only see what we expect to see.
Humans like to seek out patterns but, instead, investors should search for information that contradicts their investment thesis. As Prussian mathematician Carl Jacobi warned, ‘'invert, always invert’'.
Aristocrat’s competitive position is much weaker this time and there’s no guarantee the company will benefit from a cyclical upswing. This should be reflected in any portfolio weighting decision.
Commitment bias
For investors buying more as the share price falls, there’s a risk of commitment and consistency biases.
Studies have shown that horse racing punters become more confident of winning after they’ve laid their bets. Clearly, that’s irrational but the same response is triggered in investors when they purchase a stock.
The best form of defence against throwing good money after bad is to keep weighing up the facts as well as the attractiveness of competing investments.
Authority bias
That Aristocrat’s largest shareholders are value investors Lazard Asset Management and Maple-Brown Abbott might provide a sense of validation.
But following '‘the smart money'’ without doing your homework is an example of authority bias, where we place too much trust in authoritative figures such as doctors, lawyers, brokers and advisers.
At one point or another, most investors will become overconfident. US investor Seth Klarman says it’s a form of arrogance to say the market has it wrong.
But because you need to go against the crowd to outperform the market, it’s important to arm yourself with the facts. That also helps protect you from self-deception and denial.
Do-something syndrome
Stress can also trigger do-something syndrome. French philosopher Blaise Pascal said, '‘All of humanity’s problems stem from man’s inability to sit quietly in a room alone."
The human instinct to respond quickly is of great help in the jungle where it can mean the difference between life and death but not necessarily in the sharemarket. In many cases the right action is to do nothing.
Benjamin Graham offers this advice; "You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else."
The trouble is that, as outsiders, we can never know the full story. The future is uncertain and we must prepare for every scenario.
That means avoiding stress and emotional responses that trigger poor decisions. This is perhaps most easily addressed with appropriate portfolio limits.
Large portfolio positions should be reserved for well-run, stable companies boasting a long track record of profitability.
Keeping Aristocrat to less than 3 per cent of a well-diversified portfolio should help you sleep soundly in the knowledge that a poor outcome won’t kill your portfolio.
Despite the above-average risks, Intelligent Investor is currently of the former view. Time will prove whether we are right or wrong, but if you have your facts right, what might stop you from acting on them to your advantage?
Superficially, we live in a rational world. In real life, many of us act from emotion rather than rationality. We panic and sell when share prices fall and become overconfident when they rise. In short, we suffer from a whole range of psychological biases.
Social proof
Did your parents ever ask, '‘If your friend jumped off a cliff, would you jump off too?’'
That’s an example of social proof, also seen in the stockmarket when unfavourable news hits the headlines and prices start to fall. Many inexperienced investors get spooked and sell out, creating selling momentum.
The best defence against this is to analyse the facts, think independently and be prepared to go against the crowd. That’s how you beat the market.
Conditioning
Prolonged or painful share price falls also ‘condition’ us to expect bad news. Having framed our expectations this way, often unintentionally, it’s hard for us to change our minds.
This can lead to biased analysis, resulting in us overlooking wonderful opportunities to buy at a low price. The solution is to keep an open mind.
Recency bias
Recency bias, where we place more weight on the importance of recent events, is another common trap.
Humans are wired to expect the future to resemble the present. We struggle to predict change, which is why economist John Kenneth Galbraith once said, ‘'The only function of economic forecasting is to make astrology look respectable."
It’s easy now to imagine Aristocrat’s earnings collapsing permanently. With debt levels increasing, management is allowing competitors to feast on the carcass of what was one of Australia’s best businesses.
But very few were considering that possibility four years ago when gambling revenues were strong, the Aussie dollar wasn’t such a headwind and Macau, where Aristocrat has a dominant market share, was poised to eclipse Las Vegas.
Back then, most investors were contemplating what else might go well for the company, not what might go wrong.
Aristocrat’s destiny probably lies somewhere between these two extremes. The key point is to have a long-term view, weigh up the probabilities of a variety of outcomes and adjust your portfolio accordingly.
Patience
Patience is also critical for investors to benefit from turnaround situations. Adopting a long-term view is a necessity because turnarounds take years.
Those that plan to get back in when the outlook is clearer rarely do, or pay a much higher price for the reduced risk.
If you’re an Aristocrat shareholder you may want to consider which, if any, of these factors applied to you while you were watching the share price fall.
What if you’re thinking of buying in?
Anchoring
With the share price falling 87 per cent, it’s easy to assume Aristocrat must be cheap. But '‘anchoring'’ to past prices is like driving while looking through the rear view mirror.
Investors must keep up with the facts and weigh up the gap between the current share price and the stock’s intrinsic value. The larger the gap, the larger the margin of safety.
Confirmation bias
If you remember Aristocrat going through similar problems in 2003, it would also be easy to bet on another dramatic recovery. But this would reflect confirmation bias, where we only see what we expect to see.
Humans like to seek out patterns but, instead, investors should search for information that contradicts their investment thesis. As Prussian mathematician Carl Jacobi warned, ‘'invert, always invert’'.
Aristocrat’s competitive position is much weaker this time and there’s no guarantee the company will benefit from a cyclical upswing. This should be reflected in any portfolio weighting decision.
Commitment bias
For investors buying more as the share price falls, there’s a risk of commitment and consistency biases.
Studies have shown that horse racing punters become more confident of winning after they’ve laid their bets. Clearly, that’s irrational but the same response is triggered in investors when they purchase a stock.
The best form of defence against throwing good money after bad is to keep weighing up the facts as well as the attractiveness of competing investments.
Authority bias
That Aristocrat’s largest shareholders are value investors Lazard Asset Management and Maple-Brown Abbott might provide a sense of validation.
But following '‘the smart money'’ without doing your homework is an example of authority bias, where we place too much trust in authoritative figures such as doctors, lawyers, brokers and advisers.
At one point or another, most investors will become overconfident. US investor Seth Klarman says it’s a form of arrogance to say the market has it wrong.
But because you need to go against the crowd to outperform the market, it’s important to arm yourself with the facts. That also helps protect you from self-deception and denial.
Do-something syndrome
Stress can also trigger do-something syndrome. French philosopher Blaise Pascal said, '‘All of humanity’s problems stem from man’s inability to sit quietly in a room alone."
The human instinct to respond quickly is of great help in the jungle where it can mean the difference between life and death but not necessarily in the sharemarket. In many cases the right action is to do nothing.
Benjamin Graham offers this advice; "You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else."
The trouble is that, as outsiders, we can never know the full story. The future is uncertain and we must prepare for every scenario.
That means avoiding stress and emotional responses that trigger poor decisions. This is perhaps most easily addressed with appropriate portfolio limits.
Large portfolio positions should be reserved for well-run, stable companies boasting a long track record of profitability.
Keeping Aristocrat to less than 3 per cent of a well-diversified portfolio should help you sleep soundly in the knowledge that a poor outcome won’t kill your portfolio.
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