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Penny stock guide Ch. 15-20

CHAPTER 15

HOW TO PICK A Penny Stock BROKER

Now, the question arises is HOW DO I PICK BROKER?

You should first decide whether you want a telephoning broker or he should be an online broker as well. Then next you should find the following factors.

  •   Quality of information
  •  How fast is the execution of trade
  •   The markets available
  •   Costs attached with them
  •   Check how much equities they would pay
  •   Would they provide with CFD’S
  •   How much fees would he charge on the unused cash in your trading account
  •   How much discounts. Penalties will be there on frequent /infrequent trading.

WHAT ARE THE QUESTIONS YOU WILL ASK DISCOUNT BROKERS

How much do they charge for buying and selling shares? Do they have any subscription fees How do they buy and sell shares Do they deal with telephone and internet both? Do they offer trade discounts Do they offer and added services like alerts, dynamic market data etc.

CHAPTER 16

GOLDEN RULES OF BUYING SHARES

9 golden rules of buying shares

1. STICK TO THE RULES- Always remember that the stock prices would go up and down, what is needed is to stick to your strategy which you have planned. Swaying away from the rules would only bring losses.

2. DIVERSIFY — Do not invest all your eggs in one basket; invest in various sectors not just the one which is mining.

3. BUY SHARES THAT SUIT YOUR TRADING CYCLES — if you are buying shares for a long term it definitely wont suit you if you are short term trader and it goes other way also… short term shares wont suit the long term trader as well.

4. KNOW YOUR RISK TOLERNACE — A speculative share has a different risk profile as to out of favor  ” blue chip “.Allocate your capital according to your own risk tolerance and the risk profile of the trade.

5. DON’T RUSH IN — The market will be still there waiting for you when you are ready to trade. Learn about the market before you start trading particularly the new investors. The best way to start is with the PAPER TRADE, so as to learn the basics first.

6. DO NOT GET GREEDY — Don’t think that you will be a millionaire in a day, be practical and not over realistic. Don’t think it’s very easy, as it’s very easy to lose money also in the trade market.

7. ONKY INVEST WHAT YOU CAN AFFORD TO LOSE — if the shares are the cause of your worries then definitely either you have invested in the wrong ones, or you have far too many to handle, so SELL them , nothing in the world d is more important than your peace of mind.

8. NEVER EVER CHASE SHARES — exercise patience, never run behind the shares and purchase beyond your limits, because the time will definitely come when you will be able to buy them within your limits.

9. KEEP ACCURATE UP TO DATE RECORDS- The most important of all, for penalties for not declaring your profits and not paying the capital gains are too much high. So stick to the rules.

CHAPTER 17

STOCK MARKET INVESTING TIPS

What should you do to be successful in the stock market, may be the following tips would help you

HAVE A PLAN

If you want your money to grow, wealth to multiply then the first thing you need is a full proof and solid strategy plan. If your plan is not good then you would just end up fixing your errors.

INVEST REGULARLY

Investment in shares is not a onetime game. You should keep on investing if you want to yield good profits.

LOW COSTS

Frequent trading would definitely add up to costs. Certain fees are always there which you need to pay, but do not indulge yourself into counterproductive things, which ultimately would make you use up your profits too. Best is to stick to the basic low cost transactions.

DO NOT BUY TOO MUCH AT ONCE

Try to buy at a certain amount and a certain period of time, which will give you advantaged of best prices. Hence if you want to invest to do not invest at a time, do it over a time frame of days, weeks or months.

DIVERSIFY

It’s the most important and vital thing to diversify as it would help to minimize the risk. All the types of investment, goes thought the cycle of setbacks ups and downs… hence you should diversify to earn profits in long term.

DO YOUR REASERCH

Before you decide to invest choose the right industry and in that choose the correct company. It would take a little bit of time but, do your homework properly before investing because it’s ultimately your hard earned money you want to invest for betterment.

NO EMOTIONS

The most basic thing of investment is, you have to keep emotions aside what it needs is cool, calm and balanced mind.

KNOW YOURSELF

You should now yourself about the market as well as which stock is good, if you are not able to do that than its always advised to have a professional do it for you .yes, we definitely talked that we should keep our costs low, but in this respect it’s always good to have someone manage your trade if you are ignorant about it,

CHAPTER 18

DIFFERENCE BETWEEN STOCKS AND SHARES

For the first time investors it is difficult to decide where to invest his money .which option to select and when all the information seems to be confusing. In that the most common question asked is what the difference between STOCKS and SHARES is.

In today’s financial market, the distinction between the both is somewhat blurred, however

STOCKS mean ownership of certificates in multiple companies. You may not be only the stockholder but also the shareholder for each particular company as well.

SHARES mean ownership of certificates in a certain company. It makes the person the shareholder of that company.

The common misconception about stocks and shares is that they are different things. In reality they are the same thing but are referred to differently when talking about more than one company.

DIFFERENCE BETWEEN STOCKS AND BONDS

Sometimes it’s difficult for the new investor to differentiate the difference between the two. If I must say so, there are people who have been investing for a long time, but still they have not been able to articulate the difference. People think that stocks are more riskier then bonds and basically it is true also,

STOCK means ownership of certificates in multiple companies. The price to the stocks will actually depend upon the performance of the company. If company is doing well you will share the appreciation, but if the company has gone in loss, then u will equally be sharing the loss.

BONDS are “credit “given by the investor to the company. It’s a kind of loan provided to the company to carry on their activities. The percentage the investor gets is fixed.

The shareholder would stick to the shares even in bad times and would expect that the company would do better in future, but the bondholder is just concerned with his initial amount and the interest from the company.

It is possible that investor has invested in a small and a risky company and if the company shuts down then the bond holder has to lose his initial investment as well, but this happens in a rear case.

So what would be a wise investment BONDS OR STOCKS?

Well. It depends on the person personal decisions and what is his risk tolerance. Though the ideal long term portfolio could be a blend of little bit of both.

CHAPTER 19

FUNDAMENTAL ANALYSIS

It is always been a difficult and a confusing decision as to which stocks to buy. The financial analysts heavily depend to the Fundamental analysis at that time.

Fundamental analysis is looking at the basic or the fundamental financial level. It helps as key to determine the company’s health and gives the idea of the value of its stock. Fundamental analysis is the cornerstone of investing. Its core objective is to do the financial forecast of the company

To conduct companies stock evaluation

To make projections about its business performance

To evaluate its management

To calculate its credit risks.

TECHINCAL ANALYSIS

Technical analysis forecasts the future directions of the prices, through past data and market trend. It ‘ignores’ the actual financial condition of the company, market currency, it just solely goes by the “charts “that is the price and volume information only. It is just not limited to charting but it also considers price trends.

Technical analysts believe that the investors collectively repeat the behaviors of the investors who preceded them. While it will take long time for the technical analyst to be picked as the one to manage your trade, but certain financial institutions and banks are using them as tools.

CHAPTER 20

FAQ ‘S

If I buy, when should I sell?

Stock market is a creature in and of itself. When will the bull market is going to change to bear market is anyone’s guess. Hence, we should hold the shares which are stable and are moving up. When you see the company’s shares you have taken are dropping, dipping continuously, then I guess it is time to abandon the ship from those share, meaning it would be wise to sell those shares which are falling in price.

How many shares should I hold?

If they are fewer the better it is good to be diversified, but you should hold that many share that you can manage, and handle on your own. What is the point of holding 1000 shares and If you cannot know them all… instead it’s better to have 25- 30 which are manageable.

How can I buy and sell my shares tax efficiently?

You will be able to do this inside a self select Isa

Most of the brokers provide you with this facility where they give you an empty Isa wrapper. You have to fill it pound 7000 worth of shares and then trade tax free. All capital gains you make will be tax free.

What are Penny stocks?

There is no set accepted definition for the Penny Stock. Some define it as stock priced under 1$ and some say 5$. They are actually type of stock that generally trades at very low value and market capitalization. They are highly speculative and have high risk due to lack of liquidity. They are generally traded over the counter (OTC) and on pink sheets.

What is buying on margin?

A risky technique where in you are buying stocks with borrowed money from the broker. You can term it as a loan from the broker to buy the stocks. In this it allows the investor to be paid the fractional amount and the rest in borrowed from the broker. The broker sets a margin account with you and also charges you with brokerage on the loan and you have to pay interest as well. They can also hold the shares as collateral against the loan you have taken and can take the stocks, if you become a defaulter.

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Penny Stock Guide ch. 10-14

CHAPTER 10

INVESTING

PICKING Penny STOCKS AND PLANNING TRADES

Stock picking in many ways is as good as choosing a spouse for you. There are lots of options available to you if you have money. Once you have decided that you want to invest in shares, the biggest question which comes to the mind is how to I buy stocks? How do I plan my trades?

It is up to you to decide in which category of investors you want to be and which strategy you would follow

GROWTH INVESTING STRATEGY

IF you are kind of optimistic investor, then this strategy is good for you. Here the investor foresees the growth of the company’s earnings and invests in it. This type of strategy is considered to the best for beginners in the stock market.

VALUE INVESTING STRATEGY

Benjamin Graham and David Dodd both professors at Columbia Business School, and professors too many big investors, are known as FATHER of this strategy.

In this strategy, the investors tend to buy stocks whose price has recently fallen and are available at cheap prices. But you have to be careful, value investing does not mean “JUNK “.Investors has to do their homework on the companies, and distinguish between the value company and the companies with declining prices. The company should have its fundamentals healthy to prove its worth.

DIVIDEND INVESTING STRATEGY

In this strategy the investors, buys stocks which pay dividends regularly to them on quarterly or yearly basis… The choice of companies in this strategy should be sound and healthy. This strategy may not be the sexist strategy, but in the long run, this time tested investment strategy would definitely yield returns.

CREATING A STOCK TRADING PLAN

If you want to build your wealth, keep your wealth and grow your wealth you should have a solid Stock Trading Plan .A stock trading plan is a fixed set of rules and actions which formulate your trading strategy. Every trade you do should be governed by your trading plan.

Your trade plan is your road map to tell yourself and affirm yourself and reach your goals.

You will have to consider certain criteria for your plan like,

the timing Price of the stock Current news about the stock Liquidity of the stocks How long to keep the stock i.e. to hold them When to sell the stock What to do when the prices of the stock does not move. Etc

You can think of other aspects as well, but the above is the major point s you have to consider.

Once you have made a plan, mock run of the plan in the stock market which will help you to know if your plan is effective or it needs amendments.

CHAPTER 11

THE MECHANICS — PLACING THE ORDER

STEP 1

OPENING A SHARE DEALING ACCOUNT

Once you have decided that you want to deal in shares, you have to open a standard share dealing account, which usually is free. The basic share dealing account offers certain services for free , that means ” No ADVICE ” they would simply buy or sell as per instructions given. They allow you to trade over the phone or thru internet

If you have opened an account with your broker then you have to send them money stating which and how many shares you want to buy. They would charge you certain brokerage fees for their services. Also few of them charge trading fee, if there is no activity for a certain period of time as inactivity fee.

If you are trading through a web site, then it would ask for a username in which you want to open an account and then a password, that’s it and you are on. Once you put the  username and the password , it would ask you which companies shares you want to buy, how much you want to buy it would then give you a share quote , if acceptable to you .they get their research on the trading charts and

You can always think and come back again. If the quote is acceptable to you u confirms it and in return you will get an email confirmation by the broker and the deal is done.

Yes, it sounds a little tensed but you will get use to it over a period of time.

CHAPTER 12

RESEARCH STOCKS

STEP2

RESEARCH STOCKS

It is very important that you do proper research on the stock because the stock markets behave in weird ways and you should have proper knowledge to it. Never buy the stocks at random, as the market is not random and it works on lots of principles and attributes. If you want to succeed in the stock market you have to do proper research. Either you do the research on your own or you can hire someone to do it for you.

5 VITAL ISSUES

Fundamentals about the company. How is the company doing, is it a profit making company and a sound company. What is the price history of the stocks of that company, i.e. how much are the investors paying for the stocks. Price target is also a vital factor; you have to see how much the investors would pay for the stocks in future. What catalysts would change the investor’s perception of the stock? The most important of all compare the stocks with others in the same industry.

So, to sum up we can say that it’s important that as an investor you should have understanding of wider markets trends, knowledge of individual sectors. Also you should be able to analyze the financial records. You should not be able to have access to rumors and upcoming deals. Last but the most important is No emotional bias, generally this last point is overlooked.

Research before buying the shares; this can be done in many ways,

Go through the TV SHOWS and the newspapers, they have all the details of the shares which are doing well. Take valuable tips from friends and family members who have the knowledge of the subject, Never take any decision in HASTE and do not ignore any ADVICE. Full service brokers also help to do the research, they hire the stock analysts and they in turn find out which would be the ideal stocks purchase for the client. They charge a specific fee for their services. Interviews of the owners, CEO’S, directors etc also are helpful as they normally give the correct synopsis of their company. In today’s world the internet technology has made the things easier for the investors to the research on their fingertips, they can research on trading charts and platforms. Some of these charts are available for free and some have costs attached to it.

It is of very important that you get all relevant and correct information on time so as to grow in the market and make maximum profits. You should be aware of that in the stock trading wrong and unreliable information is very dangerous.

CHAPTER 13

HOW TO READ QUOTES

HOW TO READ SHARE QUOTES IN NEWSPAPERS / INTERNET

Most of the people track their stock trades in the business sections of the newspaper or on the internet. The information provided on the stock table is the most current data available.

The stock table looks something like below

STEP1

Column 1 and 2 are the 52 WEEK High and Low — This is the highest and the lowest price paid for the single stock over the last 52 weeks i.e. one year.

STEP 2

Column 3 is the Companies name and the Type of stock — This column lists the name of the company. If there are no special letters or numbers following the name it is considered to be a common stock, but For example “pf” is return then it means the preferred stock, different symbols imply different types of stocks.

Step 3

Column 4 is the Ticker Symbol (SYM) — This is the unique alphabetic name which identifies the stock issued by the firm. If you are looking for the stocks quotes online you should search for the company by the Ticker Symbol.

STEP 4

Column 5 is the Dividend per Share — This indicated the annual dividend paid for each share, but if the space is blank then the company is not paying any dividends.

STEP5

Column 6 is the Dividend Yield –This is the percentage return on the dividend. Some companies do not pay dividends regularly; the Board of Directors decides how much to pay on quarterly basis calculated on annual dividend of the share divided by the price per share.

STEP 6

Column 7 is the Price/ Earnings Ratio –Mostly commonly known as P/E, this is calculated the current stocks prices by earnings per share from the last 4 quarters. The higher the P/E, the more investors are paying for the company’s potential.

STEP 7

Column 8 is the Trading Volume –The figures shows the total number of shares traded for the day, listed in hundreds. To get the actual number traded add”00″ to the end of the numbers listed or multiply the number in the column by 100

STEP 8

Column 9 and 10 are the Days High and Low — This indicates the maximum and the minimum people have paid for the stock in a day

STEP 9

Column 11 is the Close — The close is the last trading price recorded at the end of the day, i.e. at market close.

STEP 10

Column is 12 is the Net Change — This is the dollar value change in the stock price then the last day’s closing price. If the + (positive) sign indicates rise and a – (negative) sign indicates a drop in the price.

CHAPTER 14

HOW TO BUY SHARES?

We have already discussed this before, but just to refresh it further, in ancient days dealing in trade market was only the privilege of the rich people, but now it is not so a common man is also a part of the trade market.

You can buy shares through any of the following ways

Stock broking through bank, custom stock brokers over the telephone or on line trading through internet.

If you have no idea how to go about investing and really need a lots of help then in that circumstances , you can go for ADVISORY SERVICE , where in the stock broker looks in to you individual account and advises you on buying and selling

But , if you wish to hand over the entire thing to someone else, then in that case you can go for DISCRETIONARY SERVICE, in this there is certain strategy between you and the broker which is agreed upon and the stock broker takes all the decisions of buying and selling on your behalf with your money. This type of service risk factor is more.

You can categorize the brokers in two major types,

Discount brokers – these brokers will collect a certain amount of annual fee form you and will only carry out what has been told to them, over the phone, in person or on the internet.  They would give ZERO advice to you.

Full Service brokers- these brokers give you recommendations and advices on which stocks are good to buy, which will yield profits and which stocks are overvalued. They provided these services with a little higher fees and sometimes even commissions

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