Saturday, March 10, 2012

Stock Losses - Ten Tips On How Not To Burn Your Fingers In The Stock Market

1) Start with a small amount-

Remember when you invest in the stock market you can lose all of your hard earned money. And as a newbie you are likely to make all the wrong decisions. So till you gain some experience it is best to invest a small amount of money. Invest only that much amount which you are comfortable losing especially if you are investing for speculative purposes or quick profits. This will be your best strategy to minimize your losses as you begin investing in the stock market.

2) Keep an open mind and keep experimenting-

There is no single right or wrong way to investing in the stocks. Even if you follow some tips you have read on a website or have read a book on investing in the stocks or taken some friends advice, remember things don't always happen as you plan or wish. So remember to keep an open mind and experiment new things.

3) Don't be greedy-

We all have been taught this principle from childhood. So you may think why am I even mentioning it here. But greed forms a cloud on your mind that causes you to stop seeing the obvious and you don't see the pitfalls which you could have easily spotted otherwise. When I started investing the only thing I kept thinking about was how much profit I would earn quickly if I acted on a stock tip. Even though I thought, I might make a loss, at the back of my mind, I would completely ignore that fact and behave as if I would never make any loss. Be practical. Don't expect to earn $10,000 on your investment of $1000 in 15 days!

4) Buy the best stocks-

Trade only in the best stocks. Choose well established companies. There are some stocks that have high price volatility, which means there is a higher fluctuation in the daily price of such stocks. These stocks may give you higher returns but beware! There is a huge risk in investing in such stocks! You may make some profit on one day and the next day all your profits may get wiped off! So choose reputed companies even though they make have lower price volatility.

5) Use you own mind-

This tip is not meant to offend you. But this comes from my own experience. Do not blindly follow the tips given by friends, family, discussion forums or websites. Do not believe in rumors. I read the discussion thread on a forum and bought huge quantities of a particular stock. Now my stock has eroded 65% of its value. Only later did I find that the company I thought was going to give me huge and quick profits was on the brink of bankruptcy and was making straight losses for the last 4 years. All this information was available on the internet but it never occurred to me that I should do some research about the company I was going to invest in. So even if you have never invested before make your own mind and choose your stocks. Your guess is as good as anyone else and if you have followed tip1 you don't have much to loose. Don't forget to find as much information as you can, about the stocks you are planning to invest in, on the internet.

6) Don't buy at 52-week high price-

Many finance related websites and the stock exchange website displays some basic details about each stock like its current price, previous days close price, stock charts etc. In addition you can find the highest price reached by the stock in previous 52 weeks. I bought my loss making stock at its 52 week high price only to find later that the price started sliding downwards. This may not be true in all cases but its better to avoid buying a stock at its 52-week high price.

7) Don't pour more money to cover your losses-

There is a tendency to cover your losses by investing more money in some other stock you believe will earn huge profits. It's best to avoid investing more money to cover your losses till you get some experience of investing in the stock market. This is one mistake I did not make but some of my friends did. There may be some macro events at play that may be affecting the entire market or a particular sector. Some examples are fears of a recession in the economy, this event will affect all the stocks to some extent. Take another example, imposition of new taxes in the cement industry will affect all stocks in the cement sector. So if you pour in more money into some other stock and some of these macro events are at play you stand to lose money in these new stocks as well.

Good Real Estate Market Or Bad?

So you want to check out the real estate market, but you don't know what to look at. You hear all sorts of stories about foreclosures, dropping home prices, lending problems, and the like. In fact, you are pretty sure it's a bad market, right? NOT!

There are five (5) key statistics you need to look at to get a simple, but strong view! They are 'Home Sales', 'Median Price', 'Inventory', 'Mortgage Rates', and 'Home Affordability'. These will paint a nice picture of what's really going on.

From 1999 through 2005, home sales rose from 5.2 million to 7.1 million. Starting in 2006, home sales starting dropping, and in 2009 we were back to 2005 levels. This is what is known as a 'Market Correction'. If you were a home owner, and trying to sell during this period, you know exactly what this is. If sales are down, usually that means prices are down as well. However the real story lies in the fact that from 2008 to 2009, home sales rose by 300,000 homes. Out of the slump? Well, let's look further!

Median home prices dropped in 2009. In 2008 the median home price in America was $198,000, and in 2009 it dropped to $174,000. Not good, but explainable! For one there was a huge surge in distressed properties, which sell for 15% to 20% less than market value. Also, there was a huge influx of new home buyers, due to the government tax break, and these are typically lower cost homes. Lastly, there was a huge slowdown of high-end homes because jumbo loans became almost non-existent. So factor all this in, and the drop is very understandable! Bad market? Let's look further!

The saying goes, if there is five or less months of inventory (number of homes on the market divided by the number sold), then it's a seller's market. Anything at six months or higher, it's a buyers market. From 2003 to 2009, a span of seven years, we only had three seller's markets, 2003, 2004, and 2005. 2009 has a nine month inventory, down from eleven months in 2008, ouch! The only thing to remember is that one half of the market are buyers, and the other half is sellers. An inventory of eleven months is darn good for buyers, half of the real estate market! So what's my point, it's always a good market, it only depends on what you are doing, buying or selling! So, is it a bad market? Let's look further!

Anyone buying today, and financing, it is a tremendous market. Money is cheap these days, and history points this out. The trend is down, all the way from 10% in 1989, to now under 5%! No if, ands, or buts about it, the mortgage market is the best it has almost ever been, certainly the best over the last twenty years! So, is it a good market? Let's take a look at the last, but not least, category - affordability!

Can you afford a home? Not a bad question if you're getting into a mortgage. In fact, you really don't have to do anything but give your lender all the facts, and loan guidelines will tell you what you can afford. Simply put, it's a ratio between what you make, and what you spend. But there is a measurement for this, over time, and it's called 'affordability'. Affordability in the U.S. measures the ability to purchase a home. It's the amount of a median family's income consumed by the medium mortgage. In 1981 it took 36% of the family income to pay a mortgage. In 2009, it took only 15%, and this is a historic low!

If you are going to measure whether it's a good real estate market or not, which of the above factors is important to you? Sure home sales are down, but beginning to rise again, so what! Median prices are down, but rising again, so what! Inventory shows us it's a buyers market, so what! But, no matter if you are trying to sell a home, or buy a home, the major factors are interest rates, and affordability, right? It makes sense that if you're going to sell a home, you want low-interest rates, so a potential buyer can by your home. The same goes for affordability. In fact, the same reasons apply to both sellers, and buyers.

The word: It's a great real estate market, right now! Tell everyone you know!

Information on this article came from 'The 5 Statistics Every Agent Should Know', A Keller Williams Market Navigator, Vision and Opportunities publication.

Investing in a Bear Market

Currently the share market is in negative but still there is no need to panic because there are some rules to survive in the bear market and these rules would help in returning back to its original position quickly.

Sorry to say, but there are many investor who just could not resist the attraction to experiment in the market, as these investor believe that they can earn good profits because of the short-term price movements. However, there would be some good deals as well but it would be very difficult to recognize and could also give very painful rewards in a bear market.

Bear market as known to everyone particularly to the investors that it is completely different to bull market, not only in terms of price movement but also there are other differences as well that includes:

1. Time Factor:
Bear markets show slow movement of prices provided it is not activated by a crash like the October, 1987. Generally, the price movement in the bear market is slow and reduces gradually.

2. People become poorer:
In bear market there are very few investors who would have the funds and would be willing to invest. Besides broker no one would be interested in trading because the earnings of brokers would have been dried up.

An investor needs to change his mindset if he wants to survive in a bear market, particularly if the bear market has come up after a long-run bull market when everyone would have invested their money on stocks had yielded good returns.

3. Stay happy even if your investment yields low returns
It is the time when an investor earning zero return on his investment must be satisfied because he is better than those who are having negative returns on their investments. It is the time when people used to see their value of investment and stocks falling.

4. You must have cash in hand:
Since most of the investment would give negative returns therefore you must have cash in hand in such time of crisis.

5. You must have diversified your portfolio before bear market or else it's too late:
It is important that you have diversified your portfolio and by doing this you would have reduced your risk, but if you have not done this until the bear market is reached, then it is too late now.

6. If you have cash, keep it with you:
Many brokers would suggest investing in the market and will say that the market is going to get better, but remember that they are thinking about their own personal fee therefore, it is a better idea to wait and enter the market when others have started investing.

Thursday, March 1, 2012

Defining Bull and Bear Markets

If you listen to much financial news, you may hear a variety of odd phrases used to describe the activities of the stock market. Perhaps two of the more confusing of these are the terms "bull market" and "bear market", while these terms are descriptive of major trends across the market, if you're not sure what they mean then that information doesn't do you a whole lot of good. To help you make sense of the bulls and the bears, this article compiles definitions of each type of market as well as what they mean to investors and their investments.

Bull Markets

A bull market is the term that's used to describe an optimistic market, or one in which the prices of stocks and other securities continues to rise. Major investors are usually more than willing to make new investments in a bull market because they are reasonably sure that they'll be able to earn a profit on their investments due to the market-wide trend of growth and expansion.

What an Optimistic Market Means

Basically, an optimistic market means that the economy is doing well and that people are more willing to spend their money on investments in companies that they trust. During an optimistic market, many lesser-known companies begin to thrive because they share something in common with their well-known counterparts; sometimes it's simply being in the same industry as a well-performing company.

Though there is a lot of money being made with an optimistic market, it's important that you don't start thinking that it's a guarantee of success... the stock market is very volatile and fluid, and just because large portions of it seem to be doing well this doesn't mean that some sections can't begin to drop in value without warning. On many occasions optimistic markets end because investors are artificially inflating the price of many stocks with repeated investments, and when the stock is discovered to be worth less than what people are paying for it the market shifts from large amounts of buying to great sales of stocks and other securities.

Bear Markets

The opposite of a bull market, a bear market is the term that's used to describe a pessimistic market. Instead of rising, a pessimistic market sees the process of stocks and other securities lagging behind or falling outright. Many major investors are hesitant to make new investments in a bear market, because they know that there's a good chance that prices will fall even lower due to the market-wide trend of falling prices and reduced profits.

What a Pessimistic Market Means

As opposed to an optimistic market, a pessimistic market usually means that the economy is not doing as well and that people are less willing to spend their money on investments or anything that they don't really need. During a pessimistic market, lesser-known companies tend to struggle to stay afloat and even larger companies tend to have to make cutbacks or lay off employees until the economy picks up again.

It's important to keep in mind that though the prices of most stocks are dropping in a pessimistic market, it's still possible to make money... especially in long-term investments. Many companies will recover from pessimistic markets to show record profits in the following years, and stock prices will rise substantially. Buying shares when the prices are low can seem risky at times, but in many cases will prove to be quite profitable down the line should you stick with the investment and ride out the economic troubles.

Standing Armies in Modern Finance - A Global Credit Crisis

"I sincerely believe... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." - Thomas Jefferson, 1816

Jefferson's warnings almost two centuries ago about the pernicious banking establishments were indeed prescient. The seismic events of 2008 set off by the chicanery of the high priests in modern finance have borne out his suspicions as citizens of the world grapple with the sheer scale of the global credit crisis.

In March 2003, as America's military was amassing on the borders of Iraq to uncover Saddam Hussein's phantom cache of weapons of mass destruction, America's army of investment bankers on Wall Street were quietly manufacturing its own arsenal, diabolically concocting an alphabet soup of financial sludge that masqueraded shaky mortgages and risky loans as AAA-rated investment grade bonds. At the click of a mouse, these toxic securities would transmit electronically over the trading terminals of the world and land on the doomed balance sheets of the unsuspecting buyers, where they would lie in wait to wreak maximum devastation.

With copious amounts of liquidity from the Federal Reserve, collaboration from the rating agencies, an insatiable investor appetite for yield, and good old fashioned American ingenuity, enablers at every level in the financial food chain were about to be richly rewarded for their parts in the great American revolution called "Securitization". In a low interest rate environment, debt or income producing assets such as mortgages, consumer loans, car loans, credit card loans and student loans would be securitized and sold as high grade investments, boasting yields superior to those on treasury bonds.

In the aftermath of 9/11, the world held its collective breath over the apocalyptic warnings of dirty nukes smuggled by terrorists in suitcase bombs. Concurrently, in the far-flung money capitals of New York, London, Sydney, etc, Saville Row suited bankers unfettered by regulators and trained in the dark arts of alchemy diligently sliced, diced and bundled credit derivatives for global distribution, setting the stage for carnage in markets and economies, while receiving eye-popping compensation for devising yet another amazing feat of financial wizardry.

Emerging from the tech bubble and bust of 2001/2002, individual and corporate balance sheets became leveraged at a dizzying pace as America gorged on Chairman Greenspan's largesse of low interest rates and easy credit from lending institutions. Living within one's means, once a lauded personal virtue, lost its quaint charm in the age of hyper-consumption. Without good paying jobs, consumers struggling to maintain high standards of living tapped into home equity to supplement discretionary spending, and sank deeper into personal debt.

Lenders took advantage of the credit binge and promoted variants of risky mortgages and facilitated their refinancing. Mortgage backed securities coveted by yield- starved investors enjoyed robust growth, and complicated derivatives engineered by former physicists fuelled rampant speculation on the trading floors of banks, broker dealers and hedge funds. Barely out of the ruins of the dotcom bust, America was ready to roll the dice again.

Customized to the risk appetite of the investor, derivatives of asset backed securities called CDOs (Collateralized Debt Obligations) would consist of portfolios of fixed income assets divided into separate tranches. The higher quality tranche would offer risk averse investors a lower yield, while investors in the lower quality tranche would be the first to suffer any portfolio impairment in exchange for the highest yield. Mathematical models of financial engineers had shown that, in a perfect world, securities of varying credit qualities could be bundled together with the desired amount of risk and return allocated to each investor. Such models would soon be discredited in the ensuing turmoil of the current global credit crisis.

Seeking the quickest and most attractive returns, vast amounts of liquidity poured into the housing market beginning in 2003, bringing dramatic changes to the status of housing in American society. The bricks and mortar of a residential home no longer provided just a shelter and a sound, long-term investment for the homeowner. Housing began to appeal to the speculative frenzy of the trader class, and runaway prices in California, Nevada, Florida, Arizona and other hot markets were enticing misinformed and unqualified buyers to take on mortgages they could not afford.

While Congress preached the ownership society, unscrupulous lenders used predatory lending practices to sell the quintessential American dream of home ownership. Affordability was sidestepped as a critical issue for the individual homeowner because housing prices were projected to rise in perpetuity, a fatally flawed assumption which remained unchallenged until it was too late. Real estate was deemed a safe investment, and a setback in prices was unimaginable. Standard & Poor's model for home prices had no ability to accept a negative number, according to the cover story titled "After the Fall" by Michael Lewis in the December 2008 issue of Condé Nast Portfolio magazine.

Eventually, the alchemists' gold would revert to lead, and clueless investors in all manners of ill-conceived derivatives and asset backed securities, from Norway to China to the Middle East, would begin the painful process of writing down billions in losses. Seven years after the World Trade Center attacks aimed at destroying American capitalism failed, the world has since dodged another major bullet from Osama bin Laden. However, the irony cannot be lost on anyone that, having risen from the ashes of 9/11, the titans of Wall Street would ultimately succumb to their own greed, hubris and incompetence. The global Credit Crisis now threatens the very survival of the global financial system and the real economies of the world.

Since March 2008, storied names in banking, insurance and mortgage lending have collapsed from the rapidly imploding values of their sub-prime mortgage and derivative portfolios, while other lesser known, but similarly over-extended institutions on the brink have received taxpayer bailouts and written down close to US$1 trillion in losses. What has started as a U.S. housing crisis has evolved into a global credit crisis and has now morphed into a full-fledged economic meltdown that threatens to deflate asset prices worldwide. Haunted by the specter of 1930s depression reprised, governments in OECD countries rush to bolster their national banks and stimulate their economies; desperate to arrest the deflationary pressures from a de-leveraging process that is unwinding the financial system's historic indebtedness at warp speed.

The once mighty, now humbled and chastised, eagerly accept taxpayer balm at the federal trough which, in better days, would have been roundly condemned as utter folly of liberal socialism and, distinctly anti-capitalist. However, with the survival of industry behemoths like AIG and Citigroup in question, and the very future of the modern global financial economy in jeopardy, even the principled free marketeers who subscribe to Adam Smith and Ayn Rand recognize the dire need for temporary suspension of their much cherished laissez faire ideology, and grudgingly accept the economic pragmatism of government intervention. The day will hopefully soon return when the economy will right itself, and charges of socialism can again be thrown about in the same careless and carefree manner as they once were. But that day is not today.

The cumulative fallout from the housing and credit crises reverberating around the world has caused an unprecedented erosion of confidence in the global financial system. Balance sheets bloated with derivatives and mortgage backed securities suffer drastic impairment as the dubious values of non-performing assets are rapidly written down. Credit dries up and lending grinds to a halt at many banks because their capital reserves have depleted dangerously close to regulatory minimums. Without the flow of credit, global economies slam on their brakes simultaneously and enter recession. Stock market investors worldwide have suffered losses exceeding US$30 trillion in 2008, while commodity markets have also cratered with staggering losses in energy, metals and grains from their stratospheric peaks registered barely months ago.

The U.S. government has so far committed US$7.5 trillion in cash injections, loans, guarantees and consumer stimulus to bail out Wall Street, Main Street and Corporate America. The Federal Reserve has also cut short-term rates to almost zero with three and six month treasuries now yielding effectively nothing, Panic-stricken investors in their rush to de-leverage and exit risky investments have pushed up the prices of U.S. government bonds and put a floor under the US Dollar. In spite of massive bailouts, plunging markets, soaring deficits and mounting job losses that shatter investor confidence in the American financial system, the US Dollar has defied gravity and continued to frustrate traders hoping for a quick resumption of a greenback sell-off.

With the tidal waves of the financial tsunami rippling to the far corners of emerging markets like Iceland, South Korea and the Ukraine, it is apparent that the U.S.-originated systemic havoc is no longer contained domestically. Rather, the spreading contagion has exposed the vulnerabilities of an inter-connected global economy, confounding central bankers and policy makers alike as they ponder a global recession cascading over the economic horizon.

Without swift, bold, aggressive and coordinated policy action, a deflationary environment could take hold and the global recession could become a global depression. Although the extraordinary amounts of liquidity provided to counter the deflationary forces of wealth destruction could ultimately be inflationary in an economic recovery; that is probably an outcome which policy makers would not mind confronting, as they face the vastly more ominous threat of falling prices and shrinking output. At that time, when the economies of the world do finally recover, the US Dollar may come under renewed pressure as the currency market will have to digest the implications of an historic expansion of the U.S. money supply.

In the strangest of ironies, the US Dollar which has come to symbolize the collective ills of the American financial system has benefited the most from the de-leveraging process, and emerged amidst the chaos as the undisputed safe haven currency of choice. This phenomenon may be an aberration, but will likely continue until the last bit of excess and euphoria has been wrung from the system. It will take a gargantuan effort to extricate the world from the worst financial crisis since the Great Depression.

It is time to encourage real engineers to build roads, bridges and repair the crumbling infrastructure rather than allow financial engineers to wreak havoc with the next generation of destructive derivatives.

South Florida Condo Market: Trends for 2006

During the past six years, the scene in South Florida has transformed from low-rise structures to high-rise condominiums hundreds of feet high--South Florida condo market has been booming. But as the building heights rise, so did selling prices. Now, the dramatic hype of condo development is on the verge of landing its way back to ground, as real estate analysts predict.

The apparent upward inertia of the South Florida condo market has been thwarted by inevitable economic realities, making even the most headstrong condo developers of the region recoil. As supply outpaces demand in the South Florida condo market, selling prices already are equilibrating. Values of newly-built condos could pretty much tumble by at least 30% by the time the market plummets. As a result of unbridled overbuilding, lenders are wary of financing condo construction, thus compelling developers across South Florida to cancel, defer or overhaul their respective projects.

In May 2005, T-Rex Capital of Connecticut announced that it would construct a luxury condominium, named Eighty Points West, which will provide views of the West Palm Beach waterfront and a marina for yachts up to 90 feet. It will also have amenities such as a fitness center, theater, and library. However, none of that has started yet, and the company's president Cliff Preminger said that construction has been postponed to next spring.

Metrostudy, a consulting firm based in West Palm Beach, reported that as of June 30, 2006, nearly 52,000 condo units in Miami-Dade, Palm Beach, and Broward counties were either still under construction or already done but still unoccupied. The figures exclude the thousands of units built in South Florida since the year 2000, when the housing boom initiated. Roughly 104,000 units are being planned for the coming years. Analysts doubt that most of these will ever be built.

Analysts trace the condo problems to short-term investors, who bought condos at low pre-construction prices and waited as the units rise in value before having to close on the properties. These investors "flipped" the properties to other buyers for hefty profits, essentially trading condos like shares of stock. This trend systematically induced demands to inflate, steering prices upward while driving developers to build more. For the case of downtown Miami, the epicenter of the condo construction shockwave, the development is fuelled by international money.

Condos also sprung up in downtown West Palm Beach as buyers were enticed by the idea of living near CityPlace, the shopping and entertainment complex that opened in 2000. Fort Lauderdale, on the other hand, isn't as overbuilt because the city restrains further residential building downtown until an affordable housing law is passed. Overall, the insufficient number of long-term owners purchased condos combined with investors dumping properties for sale has created a surplus of properties across the South Florida condo market. More than 11,000 units remain vacant in South Florida, according to Metrostudy. Investors have been getting frantic as they have been advertising all sorts price slashes, plasma TVs and other perks to attract buyers.

While some lenders have discontinued financing for condo construction, others who remain have tightened lending policies, such as insisting at least 60% pre-sales. This starkly contrasts the situation before when some lenders had no pre-sale requirements.

Another striking blow to developers is the continually increasing costs of construction materials. Due to this, several condo developers "have canceled projects, returned deposits, put land up for sale and are at risk of foreclosure." For instance, the Waves Las Olas would not be built in downtown Fort Lauderdale. Neither will the Courtyards at Flagler Village be constructed. Several other projects have been put into cessation in South Florida.

Developers and investors are attempting to salvage anything from the condo slump by converting units back into apartments. Only a few years ago, the condo conversion craze was really hot when developers were buying apartments and turning them into condos to satisfy the insatiable demand. Since the start of 2004, more than 1,800 condo-converted units in Palm Beach County have been reconverted to apartments. In Broward, 1,088 condos have been transformed into apartments, while 672 condos in Miami-Dade have been switched back to apartments. Real estate experts concur that it will take at least two years for the South Florida condo market to bounce back, provided that consumers stop using condos for overnight investments and instead revert to home-buying philosophy of past generations.