SPAC Info

In a previous article, we already discussed briefly what was meant by fundamental analysis and what made it different from its counterpart, technical analysis. In this article, we dive into more detail on fundamental analysis and learn about the term “Capital Structure”, which is a measurement often used by analysts when evaluating the balance sheet of a company.

Capital structure is a composition of a company’s long-term or permanent capital, which consists of some combination of equity and debt. Equity can be further categorized as common stock, preferred stock or retained earnings. When it comes to debt, financial analysts have different opinions on what constitutes the debt component in a company’s capital structure. Some analysts only consider long-term debt, while others argue that short-term debt should also be considered to be part of the capital structure.

When analyzing a company’s capital structure, analysts use several different ratios that compare the company’s debt to total financing. The most popular ratio is debt-to-equity ratio, which is often referred to as the company’s leverage. Rating agencies such as Moodys and Standard & Poor’s use Retained Cashflow (RCF)/Net Debt ratio and Funds from Operations (FFO)/Net Debt ratio. For example, please have a look at Reuters Group (RTRSY) Capital Structure, that shows the capital structure of Reuters Group from year 2005 to 2007.

As stock investors, sometimes we need to know how a company’s capital structure changes over time. Of course, we can always search through SEC filings to find it, but there’s an easier way. We can use the new feature provided by Wikinvest, which pulls sections from annual reports and matches them up, as can be seen in NRG Energy (NRG) Capital Structure. Another example is Transocean (RIG) Capital Structure. This Wikinvest feature will save us time and effort when analyzing a company’s financial statements.

The emergence of e-commerce has enabled business owners, ranging from big corporations to the startups, to showcase and sell their products through the Internet. Dynamic website technologies such as PHP and JSP lead to the creation of shopping cart software, which makes online shopping more intuitive for online shoppers.

Besides shopping cart software, true e-commerce websites also depend heavily on electronic payment solutions. Because of the increasing number of Internet crimes such as fraud and identity theft, secure payment processing solutions are very important for protecting both business owners and consumers. These systems will ensure customers that all of their sensitive and personal information will be kept confidential and not fall into wrong hands. At the same time, business owners will feel confident that they will only receive payments from genuine customers. This, in turn, will minimize chargeback risks for them.

One of the companies providing payment and security solutions is Payvision. This international payment solutions provider offers multi-currency payment processing solutions that allow e-commerce website owners to accept payments from clients in more than 160 countries worldwide using their local currencies. To ensure confidentiality and prevent tampering, Payvision employs a secure, PCI compliant SSL connection to deliver all credit/debit card transaction information.

If you are new to stock trading and eager to learn, there are so many resources out there to help you learn the basics. Online courses, seminars and even personal training are available. But sometimes the best way to learn is the old-fashioned way – reading a book.

The most obvious advantage of reading a book is that it’s substantially cheaper than most courses and seminars available. By reading books, concepts that are not immediately understood can be reread as many times as necessary. The question is, which trading books are the best?

Be suspicious of any book that makes unreasonable claims in its title or cover “Become a day trading pro in an hour!” or “Turn $1,000 to $1,000,000 in a month!”.  It is likely these books will not teach you the fundamental risks associated with trading. Risk management is even more important than stock picking. No point selecting winning stocks only to have all your profits wiped out because of one trade where risk management was neglected.

There is a common misunderstanding that trading is a fast paced, exciting activity very similar to gambling rather than a calculated, measured activity. Any good trading book will give calm, reasonable, practical advice on trade selection, money management, risk management and trading psychology. This restraint suggests that author knows the market and is simply explaining what he/she has learned.

On the other hand if the language is fast paced, sensational and overwrought it is an indication that the author has written the book as entertainment rather than as trading education. The author’s goal is to sell books rather than educate the reader on trading.

Pay attention also to the book’s presentation. Are there many grammar and spelling errors? Is it an e-book sold by some guy off his web site? If it is, it may not have been professionally edited. Does the author offer the book with a 100% money back guarantee for a reasonable amount of time? If it doesn’t the author is unwilling to put his/her money where his/her mouth is. After all, they are making money following their own advice aren’t they? They should be able to offer a guarantee.

When considering a trading book, it’s worth taking a few minutes to search the author’s name in the search engines and see what comes up. Are there reviews of the book written by actual readers (not just testimonials on the author’s web site)? Has the author been mentioned in any news and forums? Does he/she have any real world trading experience, or do they just write trading books?

The best trading books will treat trade selection, money management, risk management and trading psychology as equally important to becoming a successful trader.

“Support” and “resistance” is slang popular with business professionals on Wall Street.

“Support” applies generally to a stock that is directed downward in the short term, but may be a long-term uptrend or downtrend. It refers to the price level at which the stock seems to bounce back up over time. You may consider support as a floor that the stock did not seem to break for a long time.

Staying with the above example, “resistance” is like a ceiling. It ‘s the price level at which the stock seems to bounce back down once it is reached.

The good news is that once a stock finally penetrates through the resistance, you can go to the moon. Traders love a stock that breaks through the ceiling because there is nothing holding it from going higher.

Similarly, once a stock falls through the floor, it is likely to go down and down until it finds a new support. This could be a support level at which the stock previously had stayed several times in the past.

Stocks that face resistance or support usually don’t break the level easily. Trading professionals generally like to buy stocks that are in a long-term uptrend and are just bouncing up from support. Or better yet, they like to buy a stock when it breaks through its resistance.

In the previous article, we already discuss three kinds of investing styles, growth investing, value investing and GARP investing. This article will continue the discussion of stock picking strategies by describing the final two stock picking strategies, fundamental analysis and technical analysis.

Fundamental Analysis

Fundamental analysis is a stock picking strategy whereby an investor or analyst tries to estimate the intrinsic value of a company based on financial facts. Although this strategy requires time and effort, it is more suitable for long-term investors.

Through fundamental analysis, investors seek to understand the trends of earnings of a company and expected future profits rather than market sentiments. In addition to revenues and earnings, investors also focus on factors such as, ROI (Return on Investment), ROE (Return on Equity), cash flows and P/E ratio etc.

Technical Analysis

Technical analysis, also known as chart analysis, is an investment strategy through which investors predict the future price movement of a stock based on past performance. Technical analysis mainly depends on supply and demand for particular stocks and trading volume.

Technical analysis is completely opposed to fundamental analysis. Technical analysts or chartists do not care much of the intrinsic value of the specific title.

Despite the advantages and disadvantages of each stock picking strategy, many investors are making millions regardless of the strategies they choose.

A choice of investors of a particular strategy should depend on its market knowledge, industry trends and potential for business growth. Above all, investors devotion of time and ability to calculate risk play important role in the choice of a particular stock-picking technique.

Effective stock picking strategies are vital for an investor to grow her assets significantly. An investors stock picking strategies depend on several factors including the performance of companies, market and industry trends, and share prices.

In this article we are talking about some of the stock picking strategies based on various investing styles.

Growth Investing

In this investing style, investors focus on fast growing company, with significant increase in revenues and profits. Investors who focus on this strategy aim to make money from the significant increase in the price of the shares of particular companies they choose to invest.

Normally, the profit from growth stocks are much higher than other types of stocks. However, the risks associated with this type of action are higher than others. Growth investors select young and rapidly growing companies, despite the expensiveness of these stocks, as investors bet on future growth potential of the companies.

The basic idea of growth investing may vary from sector to sector and company to company.

Value Investing

In this style, investors invest in value rather than invest in growth. Value investors focus on stocks that are trading below their intrinsic value. Value investors look at fundamentals of the company carefully and believe that the market undervalues these stocks.

Value stocks are cheaper than the net asset value of their respective companies. Value investing does not mean choosing  a low cost stock, but investing in undervalued stocks that have good growth potential.

GARP Investing

GARP (Growth At Reasonable Prices) is a combination of  value investing and growth investing strategies. Through the GARP investment strategy, investors focus on stocks that are reasonably priced  and at the same time has a strong growth potential.

In laymans terms GARP investors do not go for either growth stocks that are at high risk or low price stock prices, which are in difficulty. Thus, GARP investors avoid costly high-growth stocks. The important barometer for investors GARP is the PEG ratio, which is the PE ratio divided by growth.

When everyone you know is gossiping about the latest hot stock, it can be difficult to resist the urge to buy. Maybe your neighbor invested huge amounts in some fancy new bioethanol stock. Perhaps the newspaper is praising a certain company as “the next big thing.”  Regardless of where the stock tip comes from,  investing in stock tips can easily have negative consequences.

Following the hot stock tips is almost always a bad idea for a number of reasons. The first is very simple. Many stocks become hot because the company is liked by the people . Unfortunately, sympathy and financial viability are two very different qualities. If a company does not operate under a sound business plan, it will not do well in the long run, no matter how many investors put their money. The technology bubble of the late 1990s is an excellent example of that. During this period, it became relatively easy for almost all Internet-related companies to acquire funding. This has led to dozens of well-financed companies with business plans that do not actually include practical strategies for becoming profitable. While a few healthy companies pulled through, a large number of companies that went public during this period are no longer in existence.

While it may be possible to avoid the trap of accepting stock suggestions, there is an inescapable truth. Unless you know a person who is financially active and very literate, your ‘hot-tip’ will probably ‘stone cold’. Since stocks can be traded instantly, new information is reflected very quickly in the price of an asset. If you’ve heard a bit of stock in the newspaper, investment newsletter or a friend, there’s a good chance that many others have heard the same thing, and that the market price has already adjusted to these expectations. Although the stock tip you received was followed up by enough investors, prices could temporarily become inflated, causing even greater losses when prices readjust.

Despite the fact that most hot stock tips is not worth acting on, invest in individual stocks can be a fun and rewarding hobby for those who can afford the risk. Since hot stocks are so hard to choose, however, it is important to be aware of the true risks and significant. Do not be seduced away from sound investment principles to follow up the latest hot stock tip.

Fundamental analysis is one way of analyzing the value of a stock based on the economic health of the company issuing the shares, measured in terms of revenues, profits, assets, liabilities, Return on Equity (ROE), Return on Assets (ROA), return on investment (ROI), growth prospects and cash flows, etc.

The fundamentals tell you about the value of the company. You can say a company is having a solid foundation if it is growing at a nice pace, generating a profit, has limited debt and ample liquidity.

The analysis of the fundamental of a company always involves getting insight into its financial, rather than analyzing the movement of the stock price, the activity known as technical analysis.

Equity researchers normally do fundamental analysis to calculate the intrinsic value of the shares of a company. If  a company’s stock is trading above the intrinsic value or fair value, then the stock is overvalued. If the company’s stock price is less than intrinsic value, then the stock is undervalued.

If you follow the stock market very closely,  the price of the shares of most companies never matches the fair value. Often, day traders and investors prefer investment options in the short term, investing in these stocks, regardless of the outlook on the companies’ long-term growth. However, long-term investors generally prefer to invest in companies with sound fundamentals and ignore the short-term movements, the share price.

It seems that everyone is looking for the best stocks to join their portfolio choices.  Many investors are on a constant quest to find hot stocks and stock market advice tips that will help them with their goal of making a quick profit.

The problem with this philosophy is that many new players who are trading stocks adopt only a short-term plan, not longer-term stock market trading strategies. Unfortunately many people new to online stock trading can engage in a stock trading strategy only to abandon it if they do not give near instant prizes. This will then be replaced with another in a wide range of stock market trading strategies, and so on.

It is possible to get rich quick with stock picks and hot stocks, but a far more profitable approach for most stock market trading strategies is a get rich slowly approach. This approach don’t promise a quick profit, but also avoids losing all your cash fast. If you like those kind of risks you are properly better off getting involved in horse racing or casinos not stock investment, because that is gambling not investing.

Why would anyone choose a  stock trading strategy which may pay huge or may cost you your shirt? Is it better  to choose a stock market trading strategy that will give you good quality yields over a period of time?

Get rich slowly is always a good way of trading securities. That does not mean you can’t have a portion of your portfolio set aside for the possibility of a quick profit opportunity, but long-term stock market trading often proves to yield greater benefits.

Consider all your choices of stocks, hot stocks and stock market hot picks as part of an overall strategy for long-term investments allied with some small  risky sort term gains.

In previous article, we already talk about the advantages and disadvantages of short-term investments. This article will continue with the discussion of long-term investments.

Long-Term Investments

In long-term investment plans, there is a greater capacity to gain small and distributed profits over a longer time. And because it has a slow-but-steady pace, it becomes more stable and involves less risk.

But, of course, a disadvantage for the slow investment growth may indicate that you can not expect to earn profit quickly especially when you are badly in need of money. In addition, you may also have less control over your money because your investment would not mature quickly.

Also note that because investments may require a lot of taxes to be paid as it progresses and because of the market fluctuations, investments in the longer term may experience down time before you can actually pick up and become productive.

In choosing between these two major types of investments, the most important thing you must consider in order to assess which program would become more beneficial to you is to contemplate on your reasons for investing.

If you invested in equities with the ultimate goal to earn money quickly then surely you should adopt a short term plan. But on the other hand, if you want to invest for the future and as insurance in cases where you want to have money when you are old, then a plan for long-term investing is best.

Whatever your decision may be, always remember that there are advantages and disadvantages in all types of investments. And ultimately, to succeed in your business, you must be willing to take minimum risks and make intelligent decisions to manage your business.