LAWS OF POWER

The 48 Laws of Power
by Robert Greene and Joost Elffers
Law 1
Never Outshine the Master
Always make those above you feel comfortably superior. In your desire to please or impress them, do not go too far in displaying your talents or you might accomplish the opposite – inspire fear and insecurity. Make your masters appear more brilliant than they are and you will attain the heights of power.
Law 2
Never put too Much Trust in Friends, Learn how to use Enemies
Be wary of friends-they will betray you more quickly, for they are easily aroused to envy. They also become spoiled and tyrannical. But hire a former enemy and he will be more loyal than a friend, because he has more to prove. In fact, you have more to fear from friends than from enemies. If you have no enemies, find a way to make them.
Law 3
Conceal your Intentions
Keep people off-balance and in the dark by never revealing the purpose behind your actions. If they have no clue what you are up to, they cannot prepare a defense. Guide them far enough down the wrong path, envelope them in enough smoke, and by the time they realize your intentions, it will be too late.
Law 4
Always Say Less than Necessary
When you are trying to impress people with words, the more you say, the more common you appear, and the less in control. Even if you are saying something banal, it will seem original if you make it vague, open-ended, and sphinxlike. Powerful people impress and intimidate by saying less. The more you say, the more likely you are to say something foolish.
Law 5
So Much Depends on Reputation – Guard it with your Life
Reputation is the cornerstone of power. Through reputation alone you can intimidate and win; once you slip, however, you are vulnerable, and will be attacked on all sides. Make your reputation unassailable. Always be alert to potential attacks and thwart them before they happen. Meanwhile, learn to destroy your enemies by opening holes in their own reputations. Then stand aside and let public opinion hang them.
Law 6
Court Attention at all Cost
Everything is judged by its appearance; what is unseen counts for nothing. Never let yourself get lost in the crowd, then, or buried in oblivion. Stand out. Be conspicuous, at all cost. Make yourself a magnet of attention by appearing larger, more colorful, more mysterious, than the bland and timid masses.
Law 7
Get others to do the Work for you, but Always Take the Credit
Use the wisdom, knowledge, and legwork of other people to further your own cause. Not only will such assistance save you valuable time and energy, it will give you a godlike aura of efficiency and speed. In the end your helpers will be forgotten and you will be remembered. Never do yourself what others can do for you.
Law 8
Make other People come to you – use Bait if Necessary
When you force the other person to act, you are the one in control. It is always better to make your opponent come to you, abandoning his own plans in the process. Lure him with fabulous gains – then attack. You hold the cards.
Law 9
Win through your Actions, Never through Argument
Any momentary triumph you think gained through argument is really a Pyrrhic victory: The resentment and ill will you stir up is stronger and lasts longer than any momentary change of opinion. It is much more powerful to get others to agree with you through your actions, without saying a word. Demonstrate, do not explicate.
Law 10
Infection: Avoid the Unhappy and Unlucky
You can die from someone else’s misery – emotional states are as infectious as disease. You may feel you are helping the drowning man but you are only precipitating your own disaster. The unfortunate sometimes draw misfortune on themselves; they will also draw it on you. Associate with the happy and fortunate instead.
Law 11
Learn to Keep People Dependent on You
To maintain your independence you must always be needed and wanted. The more you are relied on, the more freedom you have. Make people depend on you for their happiness and prosperity and you have nothing to fear. Never teach them enough so that they can do without you.
Law 12
Use Selective Honesty and Generosity to Disarm your Victim
One sincere and honest move will cover over dozens of dishonest ones. Open-hearted gestures of honesty and generosity bring down the guard of even the most suspicious people. Once your selective honesty opens a hole in their armor, you can deceive and manipulate them at will. A timely gift – a Trojan horse – will serve the same purpose.
Law 13
When Asking for Help, Appeal to People’s Self-Interest,
Never to their Mercy or Gratitude
If you need to turn to an ally for help, do not bother to remind him of your past assistance and good deeds. He will find a way to ignore you. Instead, uncover something in your request, or in your alliance with him, that will benefit him, and emphasize it out of all proportion. He will respond enthusiastically when he sees something to be gained for himself.
Law 14
Pose as a Friend, Work as a Spy
Knowing about your rival is critical. Use spies to gather valuable information that will keep you a step ahead. Better still: Play the spy yourself. In polite social encounters, learn to probe. Ask indirect questions to get people to reveal their weaknesses and intentions. There is no occasion that is not an opportunity for artful spying.
Law 15
Crush your Enemy Totally
All great leaders since Moses have known that a feared enemy must be crushed completely. (Sometimes they have learned this the hard way.) If one ember is left alight, no matter how dimly it smolders, a fire will eventually break out. More is lost through stopping halfway than through total annihilation: The enemy will recover, and will seek revenge. Crush him, not only in body but in spirit.
Law 16
Use Absence to Increase Respect and Honor
Too much circulation makes the price go down: The more you are seen and heard from, the more common you appear. If you are already established in a group, temporary withdrawal from it will make you more talked about, even more admired. You must learn when to leave. Create value through scarcity.
Law 17
Keep Others in Suspended Terror: Cultivate an Air of Unpredictability
Humans are creatures of habit with an insatiable need to see familiarity in other people’s actions. Your predictability gives them a sense of control. Turn the tables: Be deliberately unpredictable. Behavior that seems to have no consistency or purpose will keep them off-balance, and they will wear themselves out trying to explain your moves. Taken to an extreme, this strategy can intimidate and terrorize.
Law 18
Do Not Build Fortresses to Protect Yourself – Isolation is Dangerous
The world is dangerous and enemies are everywhere – everyone has to protect themselves. A fortress seems the safest. But isolation exposes you to more dangers than it protects you from – it cuts you off from valuable information, it makes you conspicuous and an easy target. Better to circulate among people find allies, mingle. You are shielded from your enemies by the crowd.
Law 19
Know Who You’re Dealing with – Do Not Offend the Wrong Person
There are many different kinds of people in the world, and you can never assume that everyone will react to your strategies in the same way. Deceive or outmaneuver some people and they will spend the rest of their lives seeking revenge. They are wolves in lambs’ clothing. Choose your victims and opponents carefully, then – never offend or deceive the wrong person.
Law 20
Do Not Commit to Anyone
It is the fool who always rushes to take sides. Do not commit to any side or cause but yourself. By maintaining your independence, you become the master of others – playing people against one another, making them pursue you.
Law 21
Play a Sucker to Catch a Sucker – Seem Dumber than your Mark
No one likes feeling stupider than the next persons. The trick, is to make your victims feel smart – and not just smart, but smarter than you are. Once convinced of this, they will never suspect that you may have ulterior motives.
Law 22
Use the Surrender Tactic: Transform Weakness into Power
When you are weaker, never fight for honor’s sake; choose surrender instead. Surrender gives you time to recover, time to torment and irritate your conqueror, time to wait for his power to wane. Do not give him the satisfaction of fighting and defeating you – surrender first. By turning the other check you infuriate and unsettle him. Make surrender a tool of power.
Law 23
Concentrate Your Forces
Conserve your forces and energies by keeping them concentrated at their strongest point. You gain more by finding a rich mine and mining it deeper, than by flitting from one shallow mine to another – intensity defeats extensity every time. When looking for sources of power to elevate you, find the one key patron, the fat cow who will give you milk for a long time to come.
Law 24
Play the Perfect Courtier
The perfect courtier thrives in a world where everything revolves around power and political dexterity. He has mastered the art of indirection; he flatters, yields to superiors, and asserts power over others in the mot oblique and graceful manner. Learn and apply the laws of courtiership and there will be no limit to how far you can rise in the court.
Law 25
Re-Create Yourself
Do not accept the roles that society foists on you. Re-create yourself by forging a new identity, one that commands attention and never bores the audience. Be the master of your own image rather than letting others define if for you. Incorporate dramatic devices into your public gestures and actions – your power will be enhanced and your character will seem larger than life.
Law 26
Keep Your Hands Clean
You must seem a paragon of civility and efficiency: Your hands are never soiled by mistakes and nasty deeds. Maintain such a spotless appearance by using others as scapegoats and cat’s-paws to disguise your involvement.
Law 27
Play on People’s Need to Believe to Create a Cultlike Following
People have an overwhelming desire to believe in something. Become the focal point of such desire by offering them a cause, a new faith to follow. Keep your words vague but full of promise; emphasize enthusiasm over rationality and clear thinking. Give your new disciples rituals to perform, ask them to make sacrifices on your behalf. In the absence of organized religion and grand causes, your new belief system will bring you untold power.
Law 28
Enter Action with Boldness
If you are unsure of a course of action, do not attempt it. Your doubts and hesitations will infect your execution. Timidity is dangerous: Better to enter with boldness. Any mistakes you commit through audacity are easily corrected with more audacity. Everyone admires the bold; no one honors the timid.
Law 29
Plan All the Way to the End
The ending is everything. Plan all the way to it, taking into account all the possible consequences, obstacles, and twists of fortune that might reverse your hard work and give the glory to others. By planning to the end you will not be overwhelmed by circumstances and you will know when to stop. Gently guide fortune and help determine the future by thinking far ahead.
Law 30
Make your Accomplishments Seem Effortless
Your actions must seem natural and executed with ease. All the toil and practice that go into them, and also all the clever tricks, must be concealed. When you act, act effortlessly, as if you could do much more. Avoid the temptation of revealing how hard you work – it only raises questions. Teach no one your tricks or they will be used against you.
Law 31
Control the Options: Get Others to Play with the Cards you Deal
The best deceptions are the ones that seem to give the other person a choice: Your victims feel they are in control, but are actually your puppets. Give people options that come out in your favor whichever one they choose. Force them to make choices between the lesser of two evils, both of which serve your purpose. Put them on the horns of a dilemma: They are gored wherever they turn.
Law 32
Play to People’s Fantasies
The truth is often avoided because it is ugly and unpleasant. Never appeal to truth and reality unless you are prepared for the anger that comes for disenchantment. Life is so harsh and distressing that people who can manufacture romance or conjure up fantasy are like oases in the desert: Everyone flocks to them. There is great power in tapping into the fantasies of the masses.
Law 33
Discover Each Man’s Thumbscrew
Everyone has a weakness, a gap in the castle wall. That weakness is usual y an insecurity, an uncontrollable emotion or need; it can also be a small secret pleasure. Either way, once found, it is a thumbscrew you can turn to your advantage.
Law 34
Be Royal in your Own Fashion: Act like a King to be treated like one
The way you carry yourself will often determine how you are treated; In the long run, appearing vulgar or common will make people disrespect you. For a king respects himself and inspires the same sentiment in others. By acting regally and confident of your powers, you make yourself seem destined to wear a crown.
Law 35
Master the Art of Timing
Never seem to be in a hurry – hurrying betrays a lack of control over yourself, and over time. Always seem patient, as if you know that everything will come to you eventually. Become a detective of the right moment; sniff out the spirit of the times, the trends that will carry you to power. Learn to stand back when the time is not yet ripe, and to strike fiercely when it has reached fruition.
Law 36
Disdain Things you cannot have: Ignoring them is the best Revenge
By acknowledging a petty problem you give it existence and credibility. The more attention you pay an enemy, the stronger you make him; and a small mistake is often made worse and more visible when you try to fix it. It is sometimes best to leave things alone. If there is something you want but cannot have, show contempt for it. The less interest you reveal, the more superior you seem.
Law 37
Create Compelling Spectacles
Striking imagery and grand symbolic gestures create the aura of power – everyone responds to them. Stage spectacles for those around you, then full of arresting visuals and radiant symbols that heighten your presence. Dazzled by appearances, no one will notice what you are really doing.
Law 38
Think as you like but Behave like others
If you make a show of going against the times, flaunting your unconventional ideas and unorthodox ways, people will think that you only want attention and that you look down upon them. They will find a way to punish you for making them feel inferior. It is far safer to blend in and nurture the common touch. Share your originality only with tolerant friends and those who are sure to appreciate your uniqueness.
Law 39
Stir up Waters to Catch Fish
Anger and emotion are strategically counterproductive. You must always stay calm and objective. But if you can make your enemies angry while staying calm yourself, you gain a decided advantage. Put your enemies off-balance: Find the chink in their vanity through which you can rattle them and you hold the strings.
Law 40
Despise the Free Lunch
What is offered for free is dangerous – it usually involves either a trick or a hidden obligation. What has worth is worth paying for. By paying your own way you stay clear of gratitude, guilt, and deceit. It is also often wise to pay the full price – there is no cutting corners with excellence. Be lavish with your money and keep it circulating, for generosity is a sign and a magnet for power.
Law 41
Avoid Stepping into a Great Man’s Shoes
What happens first always appears better and more original than what comes after. If you succeed a great man or have a famous parent, you will have to accomplish double their achievements to outshine them. Do not get lost in their shadow, or stuck in a past not of your own making: Establish your own name and identity by changing course. Slay the overbearing father, disparage his legacy, and gain power by shining in your own way.
Law 42
Strike the Shepherd and the Sheep will Scatter
Trouble can often be traced to a single strong individual – the stirrer, the arrogant underling, the poisoned of goodwill. If you allow such people room to operate, others will succumb to their influence. Do not wait for the troubles they cause to multiply, do not try to negotiate with them – they are irredeemable. Neutralize their influence by isolating or banishing them. Strike at the source of the trouble and the sheep will scatter.
Law 43
Work on the Hearts and Minds of Others
Coercion creates a reaction that will eventually work against you. You must seduce others into wanting to move in your direction. A person you have seduced becomes your loyal pawn. And the way to seduce others is to operate on their individual psychologies and weaknesses. Soften up the resistant by working on their emotions, playing on what they hold dear and what they fear. Ignore the hearts and minds of others and they will grow to hate you.
Law 44
Disarm and Infuriate with the Mirror Effect
The mirror reflects reality, but it is also the perfect tool for deception: When you mirror your enemies, doing exactly as they do, they cannot figure out your strategy. The Mirror Effect mocks and humiliates them, making them overreact. By holding up a mirror to their psyches, you seduce them with the illusion that you share their values; by holding up a mirror to their actions, you teach them a lesson. Few can resist the power of Mirror Effect.
Law 45
Preach the Need for Change, but Never Reform too much at Once
Everyone understands the need for change in the abstract, but on the day-to-day level people are creatures of habit. Too much innovation is traumatic, and will lead to revolt. If you are new to a position of power, or an outsider trying to build a power base, make a show of respecting the old way of doing things. If change is necessary, make it feel like a gentle improvement on the past.
Law 46
Never appear too Perfect
Appearing better than others is always dangerous, but most dangerous of all is to appear to have no faults or weaknesses. Envy creates silent enemies. It is smart to occasionally display defects, and admit to harmless vices, in order to deflect envy and appear more human and approachable. Only gods and the dead can seem perfect with impunity.
Law 47
Do not go Past the Mark you Aimed for; In Victory, Learn when to Stop
The moment of victory is often the moment of greatest peril. In the heat of victory, arrogance and overconfidence can push you past the goal you had aimed for, and by going too far, you make more enemies than you defeat. Do not allow success to go to your head. There is no substitute for strategy and careful planning. Set a goal, and when you reach it, stop.
Law 48
Assume Formlessness
By taking a shape, by having a visible plan, you open yourself to attack. Instead of taking a form for your enemy to grasp, keep yourself adaptable and on the move. Accept the fact that nothing is certain and no law is fixed. The best way to protect yourself is to be as fluid and formless as water; never bet on stability or lasting order. Everything changes.

BRANDING

BRANDING.
When you visit a dairy or livestock farm where there are lots of cattle grazing together on the same field, you will notice that these cattle bear certain marks on them. Because of the need to identify which cattle belong to whom, we have the need for each rearer to identify his own cattle. Some mark their own with colours and others stamp something on their cows. The process of giving you own “cow” a unique identity is branding.
Branding is naming or identifying. Every proper noun can be a brand. Any word in the English language that can be used to name a person; place or thing is good enough for branding. In marketing, branding is owning a word in people’s mind. When a company or product is branded, usually when you mention a particular word, that product, company or place immediately comes into people’s mind. There are thousands of words in the English language; Infact we can coin new words. But once one word can be identified with you, what ever your field is, you are branded. For us as business people, the power of branding lies in its ability to influence purchasing behaviour.
You can be branded for many things. Criminals can be branded. Even Judas Iscariot in the bible is a brand. But it is a brand that cannot sell. How many people have you met who named their children Judas? But we name our children Jude. Both names have the same meaning.
The whole world knows that at least 95% of our income in the country comes from crude oil. The unfortunate thing is that even though we own and produce the crude, we do not really determine its price. The world has since left where we are. The world does not thrive anymore on only mineral resource on the ground; it now thrives on mental resources.
I read an article written as part of a series on the transition agenda, in one of our national dailies. The article was on Nigeria and the I.T revolution. The author wrote something that struck me; “what it will take our country twenty years to earn in foreign exchange through sale of crude oil; we can earn in nine months through information technology”. We need to move ahead to develop other products and services for export.
Whatever can be named can be branded. This suggests that YOU can be a brand. Think about it. Are there specific names around the world you can remember right now that will bring specific ideas to your mind? Absolutely yes. Olusegun Obasanjo, Bill Gates, Michael dell, Nelson Mandela- all these names are brands. For the young person who wants to go into politics, the first thing you need to do is to brand yourself. You must understand that there is no outstanding generality. It is when you specialize that you are recognized. When you call your name as a politician, something must come to our minds. There must be a cause for which you are alive; something you believe in or a particular problem you have chosen to take out in this country. That is where to start from. If you are a student on campus, you should be known for something. When you hear “Steven Spielberg”, you know what that means. That is an awesome name in the movie industry. When you say “Disney”, you are talking about creative entertainment. In creating a niche for yourself, you should know a little bit about everything, but you should still be known for one thing. In your company, there should be many things you do well but there should be something you exceptionally well, for which you are known.
It is our turn to give the world first class brand from this country. There is a dire need for us to build an innovative society. A society that does not accept its problems or needs as God’s given. A society that recognizes and rewards ingenuity. Within the range of the faculty of our imagination ideas that can solve our problems. If we experience heat, we need to design cooling systems. If we experience diseases, we need to begin to research drugs that can take care of such diseases. If we have problems moving around, we need to create means of transportation. Whatever the problem is, it is time to begin to provide solutions. We need acceleration in our rate of innovation.
One of the challenges we have in our financial system is the fact that there are barriers between people who make products and those who need them. There is something called the velocity of money. It is the speed at which money moves. In our country, the movement of money is quite slow. The way we have design our financial system; we do not behave like people who need to make a lot of money.
For example, if I live at one end of Lagos, I open my newspaper and I see the advert for a product that is offered by a company on Victoria Island, until I go there, I may not be able to get the product. In other parts of the world, all you need do is just pick your phone, dial a tool free number and you have bought the good. You just give then your name, your credit card number and the date of expiry of the credit card. Tell them what you want to buy and it will come to you by mail. But here, we do too many things manually. One of the factors responsible for low life expectancy here is the fact that we believe in physical exertion and complexities. Life should be simpler. We should be able to log on the internet and buy things. That’s what they do now in other parts of the world. Of course the level of trust in our society is low, but it was once ideal. That is a problem that should be solved through innovative leadership.
Now I have some simple principles I want to list. They are basic principles for successful branding.
Be the first, the leader or the original in your category. Whatever you are doing, don’t do exactly what somebody else has done or is doing the way they have done it. You will not make much impact that way. Do what others have been doing, but have a slight edge. There are many car manufacturers but when Mercedes came on, it clearly defined itself as producers of prestige cars. That was a new category. So, in the category of prestige cars, Mercedes claims to be the first. If you can claim to be the original, it would pay you. For example, in the production of Cola drinks, Coca Cola claims to be the original.
Get as much publicity as you can for a start. I don’t mean advertising, I mean exposure. Especially the kind you get without having to pay much. This includes being featured in newspapers, on TV, or radio programs. That is how some of the most successful brands in the world go about it. They don’t necessarily spend the large amount of money in projecting their products; just befriend a journalist, an editor or a reporter you know. Or contract a Public Relations Consultant. There are companies in this country that always have one story or the other about them in the newspaper. That is publicity. Get as much of it as possible for a start. Again, if you can, get the help of a Public Relations Consultant, it will be of great help. Before you talk to an advert agency, talk to a Public Relations Officer. They are the ones who know just about all the reporters from all the newspaper houses and they can easily package how you get there.
Take advantage of the opportunities around you. Do not give any excuse for mediocrity. Your company or product is a candle that is lit; don’t hide it under a basket.

BEYOND SHARES-(ALTERNATIVE INVESTMENTS)

Beyond Shares: Alternative investment outlets for your money.
It was not like any of the ones you have held. At the last monthly meeting of Megawealth investment Club, held somewhere on Allen Avenue, Ikeja, Lagos members had been mobilized to be around for a presentation to the club by a top real estate agent practitioner. It was a full house and top on the agenda was discussion on where else to invest their money after one profitable year in the stock market.
Megawealth is among the few clubs that has done well in their investment activities in the stock market. Preliminary discussions of the report at the meeting showed that the club has raked in N11m from its investment in the Nigerian stock market which came to about 75 per cent in return. The club is planning to look elsewhere to enable it actualize its investment goal of 500% return on investment at year five when they are expected to decide whether they want to liquidate the club or continue.
It was therefore natural that when the presentation started, the opening from the chairman of the club, the estate practitioner was that the club should focus his advice on investment in the sector that could fetch the club minimum of 500 percent.
The stock market has done very well especially in the past seven months and there are indications that bullish charge would continue given the factors (pension fund money, influx of some foreign fund, depression in money market rates) fuelling the upward trend in the market. A big time investor celebrated a big time win in the stock market with some bottle of wine. He told some of his few friends that were around how he made N150million in First Bank alone among other decent returns in many of his investment.
In spite of the good performance of the stock market, portfolio managers advice that individual investors need to consider diversifying into other sectors and instruments in other to have a balanced portfolio that is believed to be an antidote to risks as opposed to putting ones investment eggs in one basket.
The risk in shares investment. The return on investment in Nigerian stock market is no doubt huge; but this is matched by the huge risks associated with playing in the sector. Just as an investor can pocket as high as 1,000 percent return on a good investment in the stock market, he can also lose everything invested. This is especially so as research suggests that only three percent of those who invest in shares do research. The rest just plunge in trusting friends and their stock brokers who in most cases are as ignorant as themselves.
Why invest in shares. What have endeared many investors to shares are the multiple avenues in which they can be rewarded. An investor can pocket some handsome money of the share he has invested if the price at which he is getting out is higher that the price at which he bought the share. He can also be rewarded by dividend payment if the company he has invested in its shares decided to give a portion of their income as reward to their shareholders. Sometimes, good companies give free (bonus) shares to their investors when they decide to reward them without shelling money. An added advantage is that you can use your share certificate as collateral to obtain loans from the banks or even your stockbroker. Not many investment instruments have such a possibility.
Why investors must look elsewhere. The primary goal of investors should be first and foremost not to lose the money he has invested even if he cannot get any return. Stock market is one place where you can lose everything and that is irrespective of whether you borrowed money to invest or you used your personal money.
Fund managers believe it is a measure of investment intelligence that one doesn’t put all one’s egg in one basket. They say there is a sense in diversification. This would include putting part of one’s fund in other instrument that don’t necessarily bring spectacular returns but can guarantee that the principal sums invested are not lost.
Look in the direction of money market. Investing in the stock market is about the safest as the likelihood of an investor losing his principal is rare, especially now that the Central Bank of Nigeria has cleansed the banking industry of its misfits. There is even more safety if you include treasury bills (Government instrument for borrowing money from the public) in your portfolio. The reason is that the federal government is unlikely to default. Indeed the returns on your investment are taken upfront. There are many instruments to consider in the money market. The most popular includes time deposits in various banks, commercial papers (which allows companies that need funding to borrow money directly from private individuals but guaranteed by a bank) the discount houses also have other innovative products that can yield decent returns (“money wise” is planning a focus on the five discount houses and what they offer)
Real Estate. This is one sector that is fast catching on. Those who have hit it big here swear that you hardly can lose with real estate investment.
There is a fact that is incontrovertible: that is if you plan very well you can make good money in any sector but supreme investment include planning not put all your investment eggs in one basket even if the return on that basket is supernormal.
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BASIC BUSINESS RULES

BASIC BUSINESS RULES.

In every endeavour there is what is fundamentals or basic rules which forms the foundation and you always need to have a good grip on the fundamentals to be successful. However sophisticated you become in your knowledge of business, you must not forget the basics.
Basic Rule One:
Your product or service must be what people want, need and are willing to pay for. As simple as is sounds, it is very important. One of the basic weaknesses that we have in our society is the fact that our economy is disoriented. We make money without really creating product and services. But things are fast changing. We have to align our mind with the fact that people have needs. This country has about 150 million people and all of them have basic needs that they meet everyday whether they are rich or poor. They spend money everyday and we have to begin to create product and services that will meet their needs but please let those things you have to offer be what people want, need, and are willing to pay for. Products and services that are not ideally suited to the market will die a natural death. You cannot to sell just what you like. You have to sell what people like or want. There are loads of businesses that have failed because their owners were not sensitive to the peculiar needs of their environment. The fact that someone is selling something and doing well in business does not mean it will work well for you, because the needs of the people where you are may not be exactly the needs of the people where that person is. So, we need the ability to recognize people’s needs. There is a disease that I call “People Blindness” and if that disease strikes you, you can’t do well in business. To do well in business, you have to know people. You have to understand people and how they think. The interesting thing sometimes is that what people really need, they do not think they need it. And when you want to sell what people do not think they need, you may have a tough time selling. So, the product and market must be ideal for the environment. Remember, you don’t catch a fish on your own terms. If you want to catch a fish, you don’t put the food you like on the fishing hook and put it in the river; you put the food the fish likes.
Basic Rule Two:
Everybody in your organization must focus on sales, marketing and income generation. That is why you are in business. If you are not selling, you are not in business. Nothing happens until you sell. Business is not about renting a shop or getting a beautifully furnished office space it is more than that; business is selling. Until you make your first sale, you are not yet in business. A wealthy man gave his grandson some money to start a business. The young man rented an office in the choicest part of town, a top class business district. He furnished the office and hired staff. Three months down the line, when his grandfather asked him how business was doing, he told him that although they had a good office space and staff, they had no customers yet. The old Man looked at him and said, “Son, you don’t need an office, you need an office, you need customers”. That gave the young man a complete paradigm shift. You need customers. I am not saying that you do not need an office, sometimes you really need an office to start, but it is not every business that needs an office to start up. However, you certainly need customers to start up. Without customers and without selling, you are not in business. Every business owner needs to find a way to communicate that to everybody in the organization. Every staff has to be interested in the bottom line which is sales. Is the turn over increasing? Every body in the organization should be a marketer. Every opportunity to market the organization’s vision and ideas must be effectively utilized irrespective of department. In fact, I will advise, that you focus your best and most talented staff on sales and marketing. And as you begin to sell, you need to be sensitive to the products that are most profitable. Focus your best hands on your most profitable products and go for the best results.
Basic Rule Three:
You must maintain a strong sense of purpose and vision. Vision is the key to motivation and for vision to motivate; it has to be focused on people. To want to become the biggest in town is not a compelling vision because it is focused on your wanting to succeed. Vision must be focused on the customers. Within your organization, you must maintain a strong sense of vision and purpose and ensure that there is synergy. What each department is doing must contribute to the overall purpose and vision of the organization. It is your responsibility as the top man or woman to ensure there is synergy. What each unit does should not be an end itself. Also, keep the morale high. Then, ensure that you locate each of your in their area of strength.
Basic Rule Four:
Maintain Strong Internal Control Systems. I would suggest areas that are critical for you to monitor. The first, being Cost Control. You must have a handle on your company’s finances. If you do not any accounting background, buy a book that deals with the subject from a non- professional’s perspective. You have to be able to understand figures because you will be in serious debt before you realize it if you are not able to interpret figures. There is always more to it than what you read on papers. What most people call profit is not profit. If you buy an item for two hundred naira and sell it for four hundred naira, don’t conclude that your profit if two hundred naira; it is not. Your profit is less than that because cost such as transportation, electricity bill, rent, staff salary and others have not been factored in.
The prevalent mentality in our society is that of the civil service culture. People are paid to spend money, but not to earn it. Infact, your not spending all the money allocated in a month is an indication that you are not efficient. When that is the prevailing mentality in a country, there is a problem. Your staff may develop the habit of writing requisitions without caring whether the company has the money or not. It is your business to manage your cash flow.
Inventory management is also critical to maintaining strong internal controls. If you are selling goods, you have to be able to define the point at which you must restock. When you find it difficult to meet the demands of your clients, it sends a subtle message that you are not serious about your business. You lose money and considering the fact that they have alternatives, you have an opportunity to keep customer.
The third critical factor in maintaining strong internal control is People dynamics. You will have observed that if you put inanimate objects together in the same room for ten years there will be no quarrels between them. However, if you put two people there, you can be sure that the atmosphere will change. If you allow negative negative emotions to run within your business, it will adversely affect your business. It is important that you manage how people relate with themselves in the office. Set up policies to control the people dynamics and establish rules for conflict resolution in your organization.
Basic Rule Five:
Your organization must never stop learning, improving and innovating. There are loads of businesses that have been grounded, that are being grounded and that will be grounded because of the violation of this basic rule. You must never stop thinking ahead. It must be your corporate culture to continually innovate because if somebody comes along with a better idea of how to do your business, then, he or she will take the market from you. The moment you feel that you have arrived, you have arrived. What works today may not work tomorrow. Human psychology thrives on new experiences and even your staff will lose their edge if you are stuck with the old routines. You have to be flexible in bringing about changes and forging new frontiers in your field. Be ready to experiment. Try new ideas and things. You cannot afford to have a rigid corporate structure at this stage. People are not sensitive to change, most especially when it is gradual. Understand that something is constantly changing about your business and about the taste of your customer. Build a learning organization.

PLANNING YOUR DAY

PLANNING YOUR DAY.

It is amazing, sometimes how quickly the day goes. Suddenly, and before we know it, our time is up. Then we are awakening to the painful realization that we have manage to achieve nothing meaningful while we had time. How sad!
Charles Schwab, the first American to earn one- million-dollars salary a year, wanted to know how to increase the productivity of executives in his company. And he turned to Mr. Ivy lee, a business consultant, who gave him this advice:

“Take a pad of paper, this evening Mr. Schwab, and list the most urgent projects which confront you, then study the list and number them, assigning number one to the most important job, number two to the next most vital, and so on on the list.

Beginning tomorrow, tackle number one and stay with it until it is finished before you move to number two, work down on the list. When the day is through, prepare a new list, again assigning top priority to the most important task still undone and so on down the list. Do this everyday and after you discover how well it works, share it with your people”. A few weeks later. Charles Schwab sent a cheque to ivy lee for twenty-five thousand dollars. And we all know why.

Dear reader, are you satisfied that you are getting the best out of each day of your life? To get the best, plan your day. One vital key to a successful day is this; you must have a list of things to do, and arrange them in order of priority. God has not given us enough time to do every possible thing we could do on this earth. But he has given us enough time to do the important things we need to do. Moses prayed in Psalms 90 verse 12 ; “teach us to number our days. That we may apply our hearts to wisdom”. Successful people all over the world usually have a list of things to do everyday. And they systematically go through the day, knocking off the items on their list in their order of importance.

Some of us have ideas. we know what to do, but we keep those ideas in our heads. But I think it is better for us to transfer our ideas on paper, so that we can leave our minds free to receive other creative thoughts. Some others write their list on scrapes of paper and lose them during the day. It is better to write our ideas and plans in a notebook, a notepad or a diary. This enables us see the things we have accomplished before, and those that are yet to come. It is also good to write down our list for each day




because writing crystallizes our thoughts and gives them physical expression.

Beloved friend, start this today, and you are likely to get the best out of tomorrow, especially when God himself intervenes on our behalf. Write down all the things you want to do tomorrow, today. Then mark them one, two, three and so on in their order of importance. And when tomorrow comes, attack item one first and stay with it until you finish it. Then move on to the next and the next until…. All is done!
Do this for a few days, and you will notice that a sense of fulfillment is coming will come into your heart. You are an achiever. You see, fulfillment is the mark of success. It is fulfilling to know that you are doing something meaningful with your life.

You may ask, what should I include on my list? Should I write daily routines or just the exceptional things? There are routine items you don’t need to write like eating and sleeping. But there are some others that may be vital like replying mails or making certain phone calls, or some meeting at the office. You should include such.
Then add the items that are not routines. And remember to number them in order of importance.

Let me also add, that you need not worry about finishing all the tasks on your list. Work will never end. What you don’t complete today should be added to tomorrow’s list.

Finally pray, before you make your list asking God for wisdom. And after you have made your list, ask God for guidance and favour. Proverbs 16:9 (Living Bible) says “We should make plans, counting on God to help us “. When you do what successful people do, you will succeed the way they succeed.

STOCKS BASICS

Stock Basics
Understanding the stock market starts with understanding stocks. A stock represents partial ownership of a company – the smallest share possible. Company's issues stocks to raise capital and investors who buy stock are actually buying a portion of the company. Ownership, even a small share, gives investors rights to a say in how the company is run and a share in the profits (if any). While stocks give owners certain rights, they do not carry obligation in case the company defaults or faces a lawsuit. In a worst-case scenario the stock will become worthless but that is the limit to the investor's liability. Companies issue stocks to raise capital. They may need a cash injection to expand or to acquire new properties. Each stock issue is limited to a certain number of shares, and when they are issued they are given a par value. The market quickly adjusts that par value according the perceived health of the company and its potential for growth. Investors usually buy stocks because they believe the company will continue to grow and the value of their shares will rise accordingly. Investors who acquire stock in a new company are taking more of a risk than buying shares of well-established companies but the potential gain is much greater. Those who bought Microsoft shares early in the game (and did not sell them) saw an exponential rise in their value. Stock trading is done on stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ (National Association of Securities Dealers Automated Quotation System). This means that only companies listed on a public exchange have shares that can be bought and sold on the open market. Of course, you could also buy partial ownership in a smaller company that is not listed on a stock exchange but that is a very different type of investment than buying stocks. Because stocks must be bought and sold on a stock exchange, an individual investor needs a broker to make transactions for him. Brokers take orders to buy or sell a certain stock. The order may include instructions to trade at a certain price or simply what the market will bear. Once the broker receives the order he attempts to execute it by finding a buyer or seller as the case may be. The buyer or seller is also represented by a broker and each broker receives a commission on the sale. Stocks have several advantages over savings investments. Because they represent ownership in a company they give the holder rights to participate in major decisions the company faces. Every share represents one vote and shareholders are regularly asked to vote on important matters. Ownership also allows stockholders to benefit from any profits the company makes. Profits are distributed in the form of dividends, and may be issued once or twice a year at the discretion of the company directors. If the company prospers the value of the stock will rise and distribution of profits also increases. The downside of this is that if the company does poorly the value of the stocks may fall. When compared with savings investments (like bonds or bank certificates of deposit) stocks have the potential to earn more money -- but they also carry the risk of loss. Learning about the stock market and the various investment strategies can help to minimize loss, and most investors find they do much better on the stock market than is possible with any kind of savings investment.
Stock Markets
The term 'Stock Market' is commonly used to encompass both the physical location for buying and selling stocks as well as the overall activity of the market within a certain country. When we hear an expression such as 'The stock market was down today' it refers to the combined activity of many stock exchanges i.e. the New York Stock Exchange (NYSE), NASDAQ etc. in the United States. The 'Stock Exchange' is the correct term for the physical location for trading stocks. Each country may have many different stock exchanges and usually a particular company's stocks are traded on only one exchange, although large corporations may be listed in several different locations. Stock exchanges exist throughout the world and it is possible to buy or sell stocks on any of them. The only restriction is the opening hours of each exchange. Both the NYSE and NASDAQ for example operate from 9:30 a.m. to 4:00 p.m. Eastern Time from Monday to Friday. Other exchanges have similar opening hours based on their local time. If you want to trade on the Hong Kong Stock Exchange your order will be executed sometime between 9:30 p.m. and 4:00 a.m. New York time. The major stock exchanges of the world are located in Japan (Tokyo Stock Exchange), India (Bombay Stock Exchange), Europe (London Stock Exchange, Frankfurt Stock Exchange, SWX Swiss Exchange), the People's Republic of China (Shanghai Stock Exchange) and the United States. The major exchanges in the US are the NYSE, NASDAQ, and Amex. Stock markets closely follow the economic health of a country. When the economy is doing well the market is bullish. Bull markets occur during times of high economic production, low unemployment and low inflation. Bear markets, on the other hand, follow downtrends in the economy. Inflation and unemployment are rising and stock prices are falling. Fluctuations in stock prices are also driven by supply and demand, which in turn are determined to a large extent on investor psychology. Seeing a stock rise in price may cause investors to jump on the bandwagon and this rush to buy drives the price even faster. A falling price can have the same effect. These are short term fluctuations. Stock prices tend to normalize after such runs. The stock exchange is only one of many opportunities to invest. Other popular markets include the Foreign Exchange Market (FOREX), the Futures Market, and the Options Market. The FOREX is the biggest (in terms of value of trades) investment market in the world. FOREX traders buy one currency against another and can profit from small changes in value. Most FOREX trades are entered and exited in one 24 hour span, and traders have to keep a close watch on the market in order to make profitable trades. The Futures Market is a market of contracts to buy and sell goods at specified prices and times. It exists because buyers and sellers of goods wish to lock in prices for future delivery, but market conditions can make the actual futures contract fluctuate considerably in value. Most investors in the futures market are not interested in the actual goods – only in the profit that can be realized in trading the contracts. The Options Market is similar to the Futures Market in that an option is a contract that gives you the right (but not the obligation) to trade a stock at a certain price before a specified date. They can be traded on their own or purchased as a form of insurance against price fluctuations within a certain time frame. All three of these markets are quite risky and require considerable knowledge and experience to prevent substantial losses. They also require close attention to market movements. Stocks, on the other hand, are less risky because movements of the market are usually gradual. Although short term investment strategies are possible, most view stocks as long term investments.
Stock Indexes
Stock indexes are a statistical average of a particular stock exchange or sector. Indexes are composed of stocks which have something in common – they are all part of the same exchange; they are part of the same industry; or they represent companies of a certain size or location. There are many different stock indexes, the most common in the United States being the Dow Jones Industrial Average, the NYSE Composite index, and the S&P 500 Composite Stock Price Index. Stock indexes give an overall perspective about the economic health of a particular industry or stock exchange. There are several different ways to calculate indexes. An index based solely on the price of stocks is called a 'price weighted index'. This type of index does not take into consideration the importance of any particular stock or the size of the company. An index which is 'market value weighted', on the other hand, takes into account the size of the companies. That way, price shifts of small companies have less influence than those of larger companies. Another type of index is the 'market-share weighted' index. This type of index is based on the number of shares rather than their total value. Index Funds As well as giving an overall grade to a particular economy, indexes can also be an investment instrument. Mutual funds based on indexes are known as 'passively managed mutual funds' and have been shown to consistently outperform managed funds. Mutual funds based on an index simply duplicate the holdings where the index is based on. Thus if the Dow Jones rises by 1% the fund based on the Dow Jones also rises by the same amount. This has the advantage of lower costs for research and transactions – savings that can be passed on to the investor who participates in these funds. The Big Indexes The Dow Jones Industrial Average is one of the best-known indexes in the United States. It follows the stock movements of 30 of the most influential companies in America including General Electric, Coca Cola and General Motors. It is a 'price-weighted average' index – thus giving more influence to more expensive stocks. Some analysts feel that the price-weighting does not give an accurate picture of stock market movements and that 30 companies are not enough to form an accurate assessment. The S&P 500 Index is based on 500 United States corporations. These companies are carefully chosen to represent a broad slice of economic activity. It is second in influence after the Dow Jones and is felt to be an accurate predictor of the state of the United States economy. Outside of the United States the most influential index is the FTSE 100 Index. This is based on 100 of the largest companies listed on the London Stock Exchange. It is an indicator of the British economy and is one of the biggest indexes in Europe. Other important non-US indexes are the CAC 40 from France and the Nikkei 225 from Japan.
Stock Prices and Quotes
In glancing through the stock prices listed in the newspaper one might wonder how stocks are priced and what affects price movement. After all, there is a wide variety of prices and some well-known companies are traded for relatively low prices while obscure listings may sell at high prices. To a certain extent stock prices are determined by investor confidence but that confidence in turn is based on real or perceived performance. Companies report their financial status on a quarterly basis when they disclose cash flow, sales and earnings. These hard numbers are the foundation of a company's worth, but investor speculation can undermine or override actual financial data. Rumours abound on the stock market, and if there is news that a company is about to make a strategic move buyers may flock to buy that stock. As with any other market, the principal of supply and demand applies. If there is a sudden upsurge in investor interest, the price of a stock will rise accordingly. Conversely, fear among investors can cause a stock price to plummet. In the long run, however, company performance and worth are the biggest factors in determining stock prices. Stock prices are available from many sources. Newspapers carry market summaries of the day's movements and online sources can provide current prices around the clock. Stock brokers can also provide quotes – either online or by telephone in the case of full-service brokers. A stock quote table in a newspaper or Internet web site is full of useful information that can help the investor make decisions about buying or selling stocks. Being able to read a stock table is a necessary skill for anyone interested in the stock market.

Types of Trading
The stock market is a reliable indicator of the actual value of companies which issue stock. Values of stocks are based on verifiable financial data such as sales figures, assets and growth. This reliability makes the stock market a good choice for long term investing – well-run companies should continue to grow and provide dividends for their stockholders. The stock market also provides opportunities for short-term investors. Market skittishness can cause prices to fluctuate quite rapidly and investor psychology can cause prices to fall or rise – even if there is no financial basis for these variations. How does this happen? News reports, government announcements about the economy, and even rumours can cause investors to become nervous or to suspect that a company will increase in value. When the price starts to fall or rise, other investors will jump on the bandwagon, causing an even faster acceleration in price. Eventually the market will correct itself, but for savvy short-term investors who watch the market closely, these price changes can offer opportunities for profitable trading. Short term traders are divided into 3 categories: Position Traders, Swing Traders, and Day Traders. Position TradersPosition trading is the longest term trading style of the three. Stocks could be held for a relatively long period of time compared with the other trading styles. Position traders expect to hold on to their stocks for anywhere from 5 days to 3 or 6 months. Position traders are watching for fundamental changes in value of a stock. This information can be gleaned from financial reports and industry analyses. Position trading does not require a great deal of time. An examination of daily reports is enough to plan trading strategies. This type of trading is ideal for those who invest in the stock market to supplement their income. The time needed to study the stock market can be as little as 30 minutes a day and can be done after regular work hours. Swing TradersSwing traders hold stocks for shorter periods than position traders – generally from one to five days. The swing trader is looking for changes in the market that are driven more by emotion than fundamental value. This type of trading requires more time than position trading but the payback is often greater. Swing traders usually spend about 2 hours a day researching stocks and executing orders. They need to be able to identify trends and pick out trading opportunities. They usually rely on daily and intraday charts to plot stock movements. Day TradersDay trading is commonly thought of as the most risky way to play the stock market. This may be true if the trader is uneducated, but those who know what they are doing know how to limit their risk and maximize their profit potential. Day trading refers to buying and selling stock in very short periods of time – less than a day but often as short as a few minutes. Day traders rely on information that can influence price moves and have to plot when to get in and out of a position. Day traders need to be rational and analytical. Emotional buyers will quickly lose money in this type of trading. Because of the close attention needed to market conditions, day trading is a full-time profession.
Stock Options
Stock options are contracts to buy (or sell) a stock at a certain price before a certain time in the future. Buyers of options have the right to buy the stock at the specified price, but they are not obligated to exercise their option. Sellers of options have the obligation to sell the underlying stock if the buyer of the option wishes to exercise it. A contract to buy is called a 'call option'. The buyer of a call option hopes the price of the underlying stock will rise, allowing him to buy it at less than market value. The seller of the call option expects that the price of the stock will not rise, or at least is willing to accept a partial loss of profits made from selling the call option. For example: An investor buys a call option on IBM with a 'strike price' (the price the stock can be bought) of $50. The current price of IBM stocks is $40 and the cost of the call is $5. If the price rises above $55 (strike price + cost of call) the buyer could exercise his right to buy and make a profit by reselling on the open market. The seller would still gain from the increase in price from $40 to $55 plus the $5 he made by selling the call. If the price remains below $55 the call would not be exercised and the seller would profit by $5 per share and the buyer would lose his $5 per share. Options are traded on specific stocks. They detail the name of the stock, the strike price (the price the stock can be bought or sold at), the expiration date and the premium (the price of the option itself). After the expiration the option cannot be exercised and is worthless. Options have a value and are actively traded. An option to buy Microsoft, for example, is listed like this: MSFT Jan06 22.50 Call at $2.00 This tells us that an option to buy 1 share of Microsoft at $22.50 before the third Friday in January 2006 can be bought for $2.00. Options usually expire on the third Friday of the specified month, and they are usually traded in lots of 100. To buy this particular option you would have to pay $200 (plus brokerage fees). An option to sell a stock is called a 'put option'. This gives the holder the right (but not the obligation) to sell a particular stock within a certain time period at a certain price. In this situation the buyer is expecting the price of the stock to fall but does not want to sell outright in case the price rebounds. The seller feels that the price is stable or is willing to acquire the stock at the low price. For example: An investor buys a put option on Microsoft with a 'strike price' (the price the stock can be sold) of $35. The current price of Microsoft is $40 and the cost of the put is $5. If the price falls below $30 (strike price + cost of put) the buyer could exercise his right to sell at a higher price than market. The seller would have to buy the stock at the higher-than-market price but any losses are offset by the $5 he made by selling the put. If the price remains above $30 the put would not be exercised and the seller would profit by $5 per share and the buyer would lose his $5 per share. As can be seen, stock options can be used to protect against loss or as an investment opportunity in their own right. They are generally used as part of a trading strategy which combines the purchase of stock with the purchase of options. For example, in a bull (rising) market you could buy stocks and call options and sell put options. This allows you to take full advantage of rising stock prices – the stocks you buy will rise in value, the call options will allow you to buy stock at less than market prices, and if the market dips and the buyer of your put option exercises it, you can pick up additional stocks at low prices. If the buyer does not exercise the option, you make money from the sale of the option. Conversely, in a bear market, you can sell stocks, sell calls, and buy puts to limit losses and generate profits. Unstable markets can use a mixture of puts and calls to maximize profit potential. Options are traded on Futures and Options Exchanges. There are 6 such exchanges in the United States including the American Stock Exchange (AMEX) and the Chicago Board Options Exchange (CBOE). In Europe the main options exchanges are Euronext.liffe and Eurex.
Getting Started
Anyone with money to invest can buy and sell stocks. Stock trading has its own specialized vocabulary but once you have the basics under your belt you can understand better how the market works. As with any investment, the more knowledge you have about stock trading the more successful you are likely to be. Most stock trades are done through a broker – an intermediary who takes orders and executes them. Brokers can also offer advice about which stocks to trade and the condition of the market. These 'full-service' brokers charge a relatively high commission. To cut costs, many people use discount brokers that charge significantly less. You don't get advice, but to some, that is an advantage. Some of the services commonly offered by brokers include online trading, broker assisted trading and some brokers offer options like Interactive Voice Response System for placing orders by telephone and wireless trading systems for making orders by using web-enabled cellular phones or other handheld devices. Some brokers have their own proprietary software for placing orders over the Internet while others allow you to access their order department through their website with a password. Whichever systems they use, almost every broker offers a variety of charting options that allows you to track movements on the stock market. Analysis software may also be included in their service or available for an extra fee. Types of Orders There are different types of orders that can be made when buying or selling stocks. A 'market order' is an instruction to buy or sell at the current market price. The order is usually executed very near the price you are quoted at the time of your order. However, if the stock price is fluctuating or is not actively traded there may be a difference between the quote and the actual transaction. A 'stop order' or 'limit order' can be placed if you expect the stock price to move and wish to buy or sell at a certain price above or below the current market price. A stop order instructs the broker to trade at a certain price, while a limit order is an instruction to trade at a specified price or better. A stop order helps to limit losses or protect profits. They become effective when the market hits the stop price but may trade above or below the stop price because they are traded at market price after they become active. Limit orders may not be placed at all even if the market reaches the limit price. If the market moves quickly there may not be time to execute your order before the price falls out of the limit price range. For example: You buy Bell Canada (BCE) at $50 and then put in a stop order of $45. If the price of BCE falls to $45 your stop order will become effective and your stock will sell at market price. Conversely, if you place a limit sell after buying BCE for $60, when the price rises to that level your stock will be sold at a profit. You could also buy BCE with a limit buy order for $45. This allows you to (possibly) buy stock at less than current market. If the price does not fall to your limit buy price, however, you will not buy any of that stock. All orders can be placed as 'good ‘til cancelled' (GTC) or as a 'day order.' GTC orders remain in effect until they are cancelled but day orders remain effective only until the end of the current trading day. Stocks are usually traded in 'round lots' – lots of multiples of 100. It is possible to trade other amounts of stocks, but this kind of trade is called an 'odd lot'. Trading software can handle both types of orders, but odd lot orders are slightly more difficult to fill than round lot orders.
Stock Brokers
Brokers handle most of the buying and selling on the stock market, and the average investor will use a brokerage service to handle his trades. There is a broad range of brokerage services available. There are brokers who offer many services for aiding their clients meet their investment goals. These 'full-service brokers' can give advice about which stocks to buy and sell and often have full research facilities for analyzing market trends and predicting movements. These perks are not free – full service brokers charge the highest commission rates in the industry. Whether or not you decide to use a full-service broker depends on your level of self-confidence, your knowledge of the stock market and the number of trades you regularly make. Investors who wish to save on commission fees can use a 'discount broker'. These brokers charge much lower commissions but don't offer advice or analysis. Investors who like to make their own trading decisions and those who make many trades often use discount brokers for their transactions. Some traders may use both types – there is no reason why you can't have two brokers. The least expensive way to trade stocks is usually with an online brokerage. Both full-service and discount brokers usually offer discounts for orders placed online. Some brokers operate exclusively online and offer even better rates. No matter what type of broker you choose, you must first open an account. Each broker sets their own requirements for maintaining an account balance but it is usually between $500 and $1000. When choosing a broker look at the fine print and find out about the fees involved. Some brokers charge an annual maintenance fee while other charge fees whenever your account balance falls below the minimum. There are two basic types of brokerage accounts. A 'cash account' offers no credit – when you buy you pay the full amount of the stock price. A 'margin' account, on the other hand, allows you to buy stock 'on margin' – the brokerage will carry some of the cost of the stock. The amount of margin varies from broker to broker but the margin must be protected by the value of the client's portfolio. If the portfolio falls below a specified amount the investor will have to add more funds or sell some stock. Margin accounts allow investors to buy more stock with less cash thereby realizing greater gains (and losses). Because they involve more risk than cash accounts, margin accounts are not recommended for inexperienced traders. Before choosing a particular broker the investor should carefully consider his needs. Does he wish to receive advice about which stocks to buy? Is he uncomfortable making trades on the Internet? If so, he should go with a full-service broker. Technology savvy investors who have the knowledge and confidence to make their own trading decisions are better off with a discount broker. After deciding which type, compare a few competitors. There can often be significant differences in costs when all the annual fees and brokerage rates are factored in. Try to gauge how many trades you expect to make in a year, how much cash you can deposit into your account, whether you wish to use margin accounts and which services you need. This information will allow you to compare the actual costs of various brokers
Stocks versus Bonds
Whereas stocks give investors part ownership of a company, bonds are loans made by investors to corporations or governments. Rather than benefiting from company profits the way that stock holders do, bond holders receive a fixed rate of return – a percentage of the bond's original offering price. The return is called the 'coupon rate'. Bonds have a maturity date at which time the principal amount is returned. Bonds can be issued for any period of time – some take up to 30 years to mature. Bonds always carry the risk that the principal amount may not be paid back. Companies with higher credit worthiness are more likely to be safe investments but their coupon rate will be lower than companies with lower credit ratings. Credit ratings are provided by firms such as Standard and Poor and Moody's Investor Service. Credit ratings range from a high AAA to a low D. US government bonds are considered to be the safest type of bonds. Blue chip corporations (those with established performance records that span over many decades) are also very safe bond investments. Smaller corporations have a greater risk of defaulting on their bonds, but bond-holders are preferential creditors and will get compensated before stock holders in the event that the business goes bankrupt. Bonds can be bought and sold on the open market. Their value fluctuates according to the level of interest rates in the general economy. For example, if you hold a $1000 bond that pays 5% per year in interest you can sell the bond at higher than face value as long as interest rates are below 5%. If they rise above 5%, your bond can still be sold but usually at less than face value. This is because investors are able to get a higher interest rate than what your bond pays so in order to offset the difference your bond has to be sold at a lower cost. Most bonds are traded in the Over-The-Counter (OTC) market which is made up of banks and security firms. Some corporate bonds are also listed on stock exchanges and may be bought through stock brokers. New issues of bonds are usually sold in $5000 increments while bonds bought and sold after the initial issues are quoted in increments of $100. A bond that is listed at 96 is selling for $96 per $100 face value. Stocks or Bonds When deciding whether to invest in stocks or bonds, the risks versus the potentials have to be weighed. Stocks have much greater potential to increase in value but they are also more subject to market fluctuations. Investment grade bonds (those with a rating of BBB or better) carry less risk but offer a relatively low yield. Most investors agree that for the short term, bonds offer greater security and return. The situation changes, however, when time spans of longer than 10 years are considered. The stock market has consistently outperformed bond investments by a large factor. This is because companies continue to increase in value and any short term fluctuations in the stock market are smoothed out over time. Bonds still have their place in most portfolios, however. They provide a stable investment which helps to cushion against stock market fluctuation. A mixture of investments including stocks from various industries, bonds and other fixed-income investments is the way to provide maximum growth while securing your investment funds for the future.
Stocks versus Mutual Funds
A mutual fund is a diverse holding of stocks that are managed on behalf of the investors that buy into the fund. A mutual fund allows an investor to take advantage of a diversified portfolio without having to invest a large sum of money. What is the advantage of a diversified portfolio? It offers protection against rapid market losses of any one particular stock. If a portfolio is spread across 20 stocks, if any one of those stocks quickly loses value the effect is less than if the portfolio consisted of that one stock by itself. When investing it is always a good idea to diversify. The problem for small investors is that they often don't have the funds to buy a variety of stocks. Mutual funds allow small investors to benefit from diversification with a small amount of money. Besides stocks, mutual funds can be made up of a variety of holdings including bonds and money market instruments. A mutual fund is actually a company and investors that buy into a fund are buying shares of that company. Shares in a mutual fund are bought directly from the fund itself or brokers acting on behalf of the fund. Shares can be redeemed by selling them back to the fund. Some funds are managed by investment professionals who decide which securities to include in the fund. Non-managed funds are also available. They are usually based on an index such as the Dow Jones Industrial Average. The fund simply duplicates the holdings of the index it is based on so that if the Dow Jones (for example) rises by 5% the mutual fund based on that index also rises by the same amount. Non-managed funds often perform very well – sometimes better than managed funds. There are downsides to mutual funds. There are usually fees that must be paid no matter how the fund performs, and the individual investor has no say in which securities can be included in the fund. Also, the actual value of a mutual fund share is not known with the same precision as stocks on the stock market. Mutual funds are often a better choice for the small investor than either stocks or bonds. They offer the diversity that provides cushion against sudden stock market movements and usually provide a greater return than bonds. Of course, mutual funds can also lose value, especially in the short term, so short term investors may be better off with bonds which offer a set rate of return. There are three main types of mutual funds: money market funds, bond funds and stock funds. Money market funds offer the lowest risk – they consist solely of high quality investments such as those issued by the US government and blue chip corporations. Money market funds have rarely lost money, but they pay a low rate of return. Bond funds aim to produce higher yields than money market funds and therefore carry a correspondingly higher risk. All the risks that are associated with bonds – company bankruptcy, falling interest rates – also apply to bond funds. Stock funds usually have the greatest potential for profitable investment but also carry the greatest risk. The risk is more for short-term holders of mutual funds – stocks have traditionally outperformed other investment instruments in the long run. There are different types of stock funds including 'growth funds' that attempt to maximize capital gain and 'income funds' that concentrate on stocks that pay regular dividends. Mutual funds are an ideal investment for those with limited funds or investment experience. Choosing the right fund is a decision on how much risk you are willing to take against your expected return on your investment.
Penny Stocks
Penny stocks are low-priced stocks – usually with a value of less than $5 – of small companies. These stocks are traded on the Over-The-Counter-Bulletin-Board (OTCBB) and the Pink Sheets. Both these trading venues do not have the same kind of minimum requirements of exchanges such as NASDAQ or the NYSE set by the Securities and Exchange Commission. Companies which issue penny stocks may be new businesses or close to bankruptcy. A new issue of stocks could be a way to inject quick capital to try to save the business. All of these factors – low price, lack of standards, and lack of stability – make penny stocks one of the riskiest investments around. It is true that if a company succeeds the payoff will be great, but the vast majority of penny stocks end in bankruptcy. Other reasons why penny stocks are risky include... - Lack of information about the company. Companies listed in the Pink Sheets or the OTCBB do not have to issue financial statements. Most companies also have little reportable history. - Low liquidity. Penny stocks are infrequently traded, so finding a buyer may be difficult. The price may have to lower substantially to interest someone in buying the stock. - Potential fraud. Due to their unregulated nature, penny stocks are often used by con artists who sell them through spam email or off-shore brokers. So penny stocks are risky but are there any benefits to them? Not all penny stocks are frauds or companies facing bankruptcy. Some represent hard-working businesses that are struggling to meet the requirements to get listed on NASDAQ or the NYSE. Investing in these companies offers real growth potential – you have the opportunity to get in at the ground floor and ride all the way to the top. The difficulty is finding which companies have this growth potential. Getting this information requires a lot of research and unless you are willing to take the time to personally investigate a company, you may again be the victim of fraud. Some companies specialize in offering 'inside information' about companies selling penny stock, but they may simply be fronts for pushing a particular stock on unsuspecting investors. There are two ways to play the penny stocks – do research or play craps. The low cost of these stocks means that you will not lose a lot money if the company goes under, and as long as you are prepared to lose this money penny stocks can be an interesting and fun addition to any portfolio. It must be stressed, however, that penny stocks should only make up a small portion of any portfolio. The odds are that most penny stocks will end up in a total loss. If you would like to buy penny stocks you need to find a broker that will place an order for you. Many brokers will not cover them because of the difficulties in tracking them, but some online brokers specialize in penny stocks. Regulations require brokers to receive written confirmation from the client concerning the transaction. The broker is also required to give the client a document outlining the risks of speculating with penny stocks. Finally, the broker must disclose the current market price of the stock and the amount of compensation the firm receives for the trade. Monthly statements must be sent to the client detailing market value of each penny stock in the account.
Pink Sheets Stocks
If you are interested in penny stocks you are sure to hear about the Pink Sheets. It is an electronic quotation system for many Over-The-Counter (OTC) securities. The name comes from the colour of the paper the quotes were originally printed on. Today the Pink Sheets publishes quotations on the Internet, and most of its listings are so-called penny stocks. Penny stocks are securities that are less than $5 in value. Although they can be traded on regular stock exchanges, companies that are listed in the Pink Sheets usually do so because they cannot meet the requirements of other exchanges like the NYSE and NASDAQ. The Pink Sheets has no listing requirements – even companies with no financial history can be listed. The Pink Sheets is not a registered stock exchange. As such, it can list companies that would otherwise be unable to raise capital through stock offerings. Although it is not regulated by the Securities and Exchange Commission (SEC) its trading system is only accessible by brokers licensed by the National Association of Security Dealers (NASD) and these brokers are required to follow NASD regulations. Companies which issue stock listed in the Pink Sheets must follow Federal and State security laws. As an unregulated exchange, stocks listed in the Pink Sheets carry more risk than stocks on the big exchanges like AMEX. The lack of financial data means that companies may be facing bankruptcy and are issuing stock in a last ditch effort to stay afloat. Not all companies are in dire straights, however. Some may be in the process of becoming listed on the regular exchanges and use the Pink Sheets as an intermediate step to raise capital. To get listed in the Pink Sheets a company needs a broker dealer to quote the stock. The only requirement is that the broker is a member of the National Association of Securities Dealers (NASD). Once listed, the company remains in the Pink Sheets as long as the stock is quoted. It can happen that a stock that no longer exists still is quoted in the Pink Sheets – a situation that highlights the need for researching any company that lists here. The main advantage of buying Pink Sheet securities is their low cost. Investors who hope to get in on a new company right at the beginning can pick up stock for literally pennies. In the event that the company does well and grows the small initial investment will pay large dividends. There is a very real risk, though, that the company will simply vanish, leaving behind valueless stock issues. The investor interested in penny stock in the Pink Sheets should be prepared to lose all. For this reason, Pink Sheet investments should represent only a small portion of an overall investment portfolio. Another risk to the investor is the lack of liquidity of Pink Sheet listings. Volume is generally quite low and finding a buyer for stock may be difficult. The seller may have to settle for a much lower price than anticipated in order to unload his shares.
Fundamental Analysis Part One
The investor has many tools at hand when making decisions about which stocks to buy. One of the most useful of these is fundamental analysis – examining key ratios which show the worth of a stock and how a company is performing. The goal of fundamental analysis is to determine how much money a company is making and what kind of earnings can be expected in the future. Although future earnings are always subject to interpretation, a good earning history creates confidence among investors. Stock prices increase and dividends may also be paid out. Companies are required to report earnings on a regular basis and stock market analysts examine these figures to determine if a company is meeting its expected growth. If not, there is usually a downturn in the stock's price. There are many tools available to help determine a company's earnings and its value on the stock market. Most of them rely on the financial statements provided by the company. Further fundamental analysis can be done to reveal details about the value of a company including its competitive advantages and the ratio of ownership between management and outside investors. Financial StatementsEvery publicly traded company must publish regular financial statements. These statements are available in printed form or on the Internet. All statements must include an income statement, a balance sheet, an auditor's report, a statement of cash flow, a description of the business activities and the expected revenue for the coming year. Auditor's ReportThe auditor's report is one of the most important sections of the financial statement. The auditor is an independent Certified Public Accountant firm which examines the company's financial activities to determine if the financial statement is an accurate description of the earnings. The auditor's report contains the opinion of the auditor concerning the accuracy of the financial statement. A financial statement without an independent auditor's report is essentially worthless because it could contain misleading or inaccurate information. An auditor's report, although not a guarantee of accuracy, at least provides credibility to the financial statement. Balance SheetAnother important section of the financial statement is the balance sheet. This is a 'snapshot' as it were, of the financial condition of the company at a single point in time. The balance sheet shows the relationship between assets (cash, property and equipment), liabilities (debt) and equity (retained earnings and stock). Income StatementThe income statement shows information about the revenue, net income, and earnings per share over a period of time. The top line of the income statement shows the amount of income generated by sales, underneath which the costs incurred in doing business are deducted. The bottom line show the net income (or loss) and the income per share. Cash FlowThe statement of cash flow is similar to the income statement – it provides a picture of a company's performance over time. The cash flow statement, however, does not use accounting procedures such as depreciation – it is simply an indicator of how a company handles income and expenses. A statement of cash flow shows incoming and outgoing cash from sales, investments, and financing. It is a good indicator about how the company is run on a day-to-day basis, how it handles creditors and from where it receives growth capital.
Fundamental Analysis Part Two – Tools
Although the raw data of the Financial Statement has some useful information, much more can be understood about the value of a stock by applying a variety of tools to the financial data. Earnings per Sharethe overall earnings of a company is not in itself a useful indicator of a stock's worth. Low earnings coupled with low outstanding shares can be more valuable than high earnings with a high number of outstanding shares. Earnings per share are much more useful information than earnings by itself. Earnings per share (EPS) are calculated by dividing the net earnings by the number of outstanding shares. For example: ABC company had net earnings of $1 million and 100,000 outstanding shares for an EPS of 10 (1,000,000 / 100,000 = 10). This information is useful for comparing two companies in a certain industry but should not be the deciding factor when choosing stocks. Price to Earning RatioThe Price to Earning Ratio (P/E) shows the relationship between stock price and company earnings. It is calculated by dividing the share price by the Earnings per Share. In our example above of ABC company the EPS is 10 so if it has a price per share of $50 the P/E is 5 (50 / 10 = 5). The P/E tells you how much investors are willing to pay for that particular company's earnings. P/E's can be read in a variety of ways. A high P/E could mean that the company is overpriced or it could mean that investors expect the company to continue to grow and generate profits. A low P/E could mean that investors are wary of the company or it could indicate a company that most investors have overlooked. Either way, further analysis is needed to determine the true value of a particular stock. Price to Sales RatioWhen a company has no earnings, there are other tools available to help investors judge its worth. New companies in particular often have no earnings, but that does not mean they are bad investments. The Price to Sales ratio (P/S) is a useful tool for judging new companies. It is calculated by dividing the market cap (stock price times number of outstanding shares) by total revenues. An alternate method is to divide current share price by sales per share. P/S indicates the value the market places on sales. The lower the P/S the better the value. Price to Book RatioBook value is determined by subtracting liabilities from assets. The value of a growing company will always be more than book value because of the potential for future revenue. The price to book ratio (P/B) is the value the market places on the book value of the company. It is calculated by dividing the current price per share by the book value per share (book value / number of outstanding shares). Companies with a low P/B are good value and are often sought after by long term investors who see the potential of such companies. Dividend YieldSome investors are looking for stocks that can maximize dividend income. Dividend yield is useful for determining the percentage return a company pays in the form of dividends. It is calculated by dividing the annual dividend per share by the stock's price per share. Usually it is the older, well-established companies that pay a higher percentage, and these companies also usually have a more consistent dividend history than younger companies.
Technical Analysis Part One
Technical analysis is the art and science of examining stock chart data and predicting future moves on the stock market. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. Their holdings are usually short-term – once their projected profit is reached they drop the stock. The basis for technical analysis is the belief that stock prices move in predictable patterns. All the factors that influence price movement – company performance, the general state of the economy, natural disasters – are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements. Technical analysis is not intended for long-term investments because fundamental information concerning a company's potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements. Investors can take advantage of both upswings and downswings in price by going either long or short. Stop-loss orders limit losses in the event that the market does not move as expected. There are many tools available to the technical analyst. Literally hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic concepts of 'support' and 'resistance'. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels. Charts Technical analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period – weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices. A variation on the bar chart is the candlestick chart. These charts use solid bodies to indicate the variation between opening and closing prices and the lines (shadows) that extend above and below the body indicate the highest and lowest prices respectively. Candlestick bodies are coloured black or red if the closing price was lower than the previous period or white or green if the price closed higher. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish – the stock opened near its low and closed nears its high. Conversely, a red body with short shadows is bearish – the stock opened near the high and closed nears the low. These are only two of the more than 20 patterns that can be formed by candlesticks.
Technical Analysis Part Two – Indicators and Patterns
When glancing at charts the untrained eye may simply see random movements from one day to the next. Trained analysts, however, see patterns that are used to predict future movements of stock prices. There are hundreds of different indicators and patterns that can be applied. There is no one single reliable indicator, but when taken into consideration with others, investors can be quite successful in predicting price movements. Patterns One of the most popular patterns is Cup and Handle. Prices start out relatively high then dip and come back up (the cup). They finally level out for a period (handle) before making a breakout – a sudden rise in price. Investors who buy on the handle can make good profits. Another popular pattern is Head and Shoulders. This is formed by a peak (first shoulder) followed by a dip and then a higher peak (the head) followed again by a dip and a rise (the second shoulder). This is taken to be a bearish pattern with prices to fall substantially after the second shoulder. Indicators Moving AverageThe most popular indicator is the moving average. This shows the average price over a period of time. For a 30 day moving average you add the closing prices for each of the 30 days and divide by 30. The most common averages are 20, 30, 50, 100, and 200 days. Longer time spans are less affected by daily price fluctuations. A moving average is plotted as a line on a graph of price changes. When prices fall below the moving average they have a tendency to keep on falling. Conversely, when prices rise above the moving average they tend to keep on rising. Relative Strength Index (RSI)This indicator compares the number of days a stock finishes up with the number of days it finishes down. It is calculated for a certain time span – usually between 9 and 15 days. The average number of up days is divided by the average number of down days. This number is added to one and the result is used to divide 100. This number is subtracted from 100. The RSI has a range between 0 and 100. A RSI of 70 or above can indicate a stock which is overbought and due for a fall in price. When the RSI falls below 30 the stock may be oversold and is a good time to buy. These numbers are not absolute – they can vary depending on whether the market is bullish or bearish. RSI charted over longer periods tend to show less extremes of movement. Looking at historical charts over a period of a year or so can give a good indicator of how a stock price moves in relation to its RSI. Money Flow Index (MFI)The RSI is calculated by following stock prices, but the Money Flow Index (MFI) takes into account the number of shares traded as well as the price. The range is from 0 to 100 and just like the RSI, an MFI of 70 is an indicator to sell and an MFI of 30 is an indicator to buy. Also like the RSI, when charted over longer periods of time the MFI can be more accurate as an indicator. Bollinger BandsThis indicator is plotted as a grouping of 3 lines. The upper and lower lines are plotted according to market volatility. When the market is volatile the space between these lines widens and during times of less volatility the lines come closer together. The middle line is the simple moving average between the two outer lines (bands). As prices move closer to the lower band the stronger the indication is that the stock is oversold – the price should soon rise. As prices rise to the higher band the stock becomes more overbought meaning prices should fall. Bollinger bands are often used by investors to confirm other indicators. The wise technical analyst will always use a number of indicators before making a decision to trade a particular stock
Bull Markets and Bear Markets
The stock market moves up and down every day, but when movements continue downwards for a period of time the market is referred to as a 'bear market'. Upward moving markets are 'bull markets'. If a particular stock is doing well, it is said to be bullish. If it is losing value it is bearish. Bull and Bear are the terms to describe the general conditions of the stock market. These do not refer to short term fluctuations – a bear market is commonly understood as one where prices of key stocks have fallen in price by 20% or more over a period of at least 2 months. Even during a bear market, however, prices may increase temporarily. Bull markets are the opposite of bear markets – they are indicated by a rise in prices of key stocks over a certain period of time. Usually stock market conditions reflect the state of the economy. During bull markets the economy is doing well, unemployment is low and interest rates are reasonable. Bear markets usually occur during times of economic slowdown. Investors lose confidence and companies may begin laying off workers. At the extremes, an exaggerated bear market can lead to a crash brought on by panic selling. An exaggerated bull market can be caused by over-enthusiasm of investors. It leads to a market 'bubble' that will eventually burst. Although most money can be made during bull markets, there are also opportunities during bear markets. Knowing the characteristics of each type of market allows investors to profit from them. As would be expected, when the market is bullish investors wish to buy up stock. The economy is doing well and people have extra money which they wish to invest in stocks. This creates a situation of short supply which drives up prices even higher. During bear markets, on the other hand, prices are falling so investors wish to unload their stocks and put their money in fixed-return instruments such as bonds. As money is withdrawn from the stock market, supply exceeds demand which drives prices down even further. It is easiest to make money during a bull market. Getting in right at the beginning will allow you to make the most profits. During a bull market any dips in the market are temporary and should soon be corrected. The upward rising prices can't go on forever, though, so the investor needs to be able to gauge when the market reaches its peak and sell at that time. Bear markets represent opportunities to pick up stocks at bargain prices. Getting in near the end of a bear market offers the greatest chance for profit. The prices will most likely fall before they recover, so the investor should be prepared for some short term loss. Short-selling is also an investment strategy during bear markets. Short selling involves selling stock that you do not own in the anticipation of further price drops, so that when it comes time to deliver you can buy the stock for less than you sold it. Fixed return investments such as CAs and bonds can be used to generate income during a bear market. So called 'defensive stocks' are also safe to buy at any time. These include government owned utilities that provide necessities no matter what state the economy is in.
Stock Splits
One of the alluring myths that surrounds the stock market is the prospect that a certain stock may split, giving stock holders twice as many shares as before. What is poorly understood by the outsider, though, is that although the investor has more stock after a split, the value of each share is reduced. For example, if a corporation decides to split its stock 2-for-1, it issues one new share for each outstanding one. At the same time, the value of each share is cut in half. So the stock holders now hold twice as many shares but the total value is the same as before the split. A stock split is like receiving 2 five-dollar bills for a single ten-dollar bill. Same value – twice as much paper. Why would a company do this? A lot of it has to do with investor psychology. The price-per-share of a stock may be so high that the average investor feels it is out of his reach. A stock split reduces the price so that it may be more affordable to smaller investors. In reality, the small investor could have bought a smaller number of pre-split shares for the same price, but the appeal of buying a $20 stock as opposed to a $60 may be strong for some investors. Stocks can be split by a number of ratios but the most common are 2-for-1, 3-for-2, and 3-for-1. Stocks can also be reverse-split – the company reduces the number of outstanding shares so that each stock holder has fewer shares than before. Reverse stock splits are less common, but can be used for several reasons: the price per share may be so low that it appears as a poor investment; the company may be attempting to stave off possible de-listment on the stock exchange; to push out minority stockholders; or as a way to go private. Advantages Lower prices per share can result in greater liquidity – stocks are easier to sell at lower prices and there is less of a bid/ask spread. This is especially true for stocks that are priced in the hundreds of dollars – small investors view them as out of their budget and the high bid/ask spreads (the difference between buying and selling prices) can put off bigger investors. Other advantages have to do with investor psychology. A split is usually seen as a bullish indicator – stock prices are increasing and the company is doing well financially. There is usually a short-term rally around a stock which splits, but the market tends to normalize after a short period. On the downside, a split may cause investors to expect more about how the company performs. If these expectations are not met investor confidence may be shaken and the result could be a drop in share prices. The bottom line is a stock split does nothing to affect the worth or performance of a company. It may be nice to own more shares, but in the end your 2 five-dollar bills are still worth the same as your ten-dollar bill.
Trading Strategies
There are two basic ways to trade the stock market – shooting in the barrel or using strategies to determine which stocks to buy, when to sell, and how to protect your investment dollars. Needless to say, strategies outperform barrel shooting by a large margin. There are, however, hundreds of trading strategies to choose from. Of all of these there are a couple of tried and trued methods that have worked well for investors over many years. The beginning investor is advised to investigate some of these basic strategies and see for himself how they perform. New strategies can be explored once the basic ones are well-understood. HedgingHedging is a way of protecting an investment by reducing the risks involved in holding a particular stock. The risk that the price of the stock will drop can be offset by buying a put option that allows you to sell at the stock at a particular price within a certain time frame. If the price of the stock falls, the value of the put option will increase. Buying put options against individual stocks is the most expensive hedging strategy. If you have a broad portfolio a better option may be to buy a put option on the stock market itself. This protects you against general market declines. Another way to hedge against market declines is to sell financial futures like the S&P 500 futures. Dogs of the DowThis is a strategy that became popular during the 1990s. The idea is to buy the best-value stocks in the Dow Industrial Average by choosing the 10 stocks that have the lowest P/E ratios and the highest dividend yields. The companies on the Dow Index are mature companies that offer reliable investment performance. The idea is that the lowest 10 on the Dow have the most potential for growth over the coming year. A new twist on the Dogs of the Dow is the Pigs of the Dow. This strategy selects the worst 5 Dow stocks by looking at the percentage of price decline in the previous year. As with the Dogs, the idea is that the Pigs stand to rebound more than the others. Buying on MarginBuying on margin means to buy stocks with borrowed money – usually from your broker. Margin gives you more return than if you were to pay the full cost outright because you receive more stock for a lower initial investment. Margin buying can also be risky because if the stock loses value your losses will be correspondingly greater. When buying on margin the investor should have stop-loss orders in place to limit losses in the case of market reversal. The amount of margin should be limited to about 10% of the value of your total account. Dollar Cost and Value AveragingDollar cost averaging involves investing a fixed dollar amount on a regular basis. An example would be buying shares of a mutual fund on a monthly basis. If the fund drops in price the investor will receive more shares for his money. Conversely, when the price is higher, the fixed amount will buy fewer shares. An alternative to this is value averaging. The investor decides on a regular value he wishes to invest. For example, he may wish to invest $100 a month in a mutual fund. When the price of the fund is high he puts a higher dollar amount in the fund and when the price is low he spends less money. This averages out his investment to the original $100 per month. Value averaging almost always outperforms dollar cost averaging as a percentage return on the money invested. When used as part of a broader trading strategy it can help secure the growth of your investment fund.
Stock Trading Signals
By following a trading system, market condition will at times be favourable to buy and at other times be favourable to sell. Clearly defined conditions give 'signals' that the educated investor can read and act on. Signals are not as crucial for the long term investor. For these people, market conditions and the value of particular companies can be watched on a daily basis. For day-traders, however, signals are crucial for acting quickly on stock market movements. Investors who treat trading as a full-time job have the time to watch the market movements for signals. Oftentimes, however, signals can be automated and integrated into trading software. The investor can choose which signals to be alerted about and they will automatically appear on screen. Software signals are usually only available by subscription and some services charge hundreds of dollars a year for a complete package. This includes trading software and access to up-to-the-minute charts for the latest information about the stock market. Investors who don't have the time to watch the market closely can subscribe to services which publish signals on a daily or hourly basis. These services may employ market analysts who may follow several indicators to arrive at a particular signal. More commonly, however, their systems are completely automated with signals being generated by software which examines market conditions. Some of these services have a better track record than others – it's a good idea to research them before signing up. With any third-party signal provider it pays to know how the signals are being generated. Since there are such a large number of market indicators some of them may contradict each other. In addition, a particular indicator may send out conflicting signals depending on the time frame. Market conditions also play an important part on the accuracy of indicators. During upswings in the market, for example, trend indicators will send out buy signals but longer-term oscillator indicators will view the market as being overbought and send out a sell signal. Generally speaking, trend indicators are most accurate during trend conditions and oscillators are best during times of transition. Both types of indicators are often in variance with the other. To overcome these problems, try to find a signal generator that uses at least 3 market indicators for verification. Signals that are verified by 3 different indicators are strong and tend to be accurate. It is also important to look at signals from varying time frames. An upswing may simply be a short term correction and the market may afterwards continue its downward movement. Taking a broad view of market conditions allows you to see these variations more clearly. Depending on the type of service you sign up for, signals can be delivered by email on a daily basis, available for viewing on a website, or be integrated into your trading software so that popups appear on your screen for particular signals that you are watching. Companies which provide signals usually offer their services on a monthly basis. Some are quite expensive – as high as several hundred dollars a month. These are obviously aimed at the professional trader but other services are also available at more reasonable costs. The value of these services has to be weighed by the individual investor. They can be a great time saver but they may also encourage laziness when it comes to analyzing the market. A knowledgeable trader should have the tools necessary to judge the effectiveness of a signal system and do some of the calculations himself to keep on top of the market.