Free Stock Picks, Swing Trading, Daily Stock Picks, Stocks to Watch Today, Stock Market Education

Stocks are equity investments. What does equity mean? Equity is a term that simply means ownership or having a stake in something. Therefore, this would mean that one share of a stock would give you ownership in the corporation that issued that stock. You now own a percentage of that company.

Bonds, also known as fixed income investments or debt securities, are a form of debt in which an investor loans money to an entity, such as corporate or governmental. A bond is like an “IOU” (I owe you) from the issuer (borrower) to the bondholder (lender), which indicates that the issuer will repay the bondholder over time for the loan, with a fixed interest rate. Unlike stocks, bonds are not only issued by corporations, as they are also issued by the federal government, state government, and municipal government. In summary, bonds allow people to invest their money as a loan to an entity in return for a stable rate of interest. The main categories of bonds are corporate bonds, municipal bonds (which are issued by cities), and U.S. Treasury bonds, notes and bills. Simply think of bonds as loans.

Another difference between stocks and bonds is that the owner of a corporate bond is among the first to receive any assets (their investment) from the dissolution of a company, should the company go bankrupt. In this sense, bonds are safer investments than stocks, particularly common stocks (as mentioned in my previous blog that common stock holders have last priority). Meanwhile, this also means that bonds do not receive a share in the wealth generated by a fast-growing company. Safer investments mean less risk, which means their potential of receiving high profits are lower compared to investments that are riskier. In other words, investments with higher risk have the potential for greater rewards. Why else would anyone take on risky investments, right?

So, now that you know the differences, which one should YOU choose? This is where the issue of risk VS. reward comes into battle. Do you to be a bondholder and have a better chance of getting a piece of your investment back if a company goes bankrupt? (Common stockholders usually lose their entire investment after the company pays back all their creditors, which includes bondholders and preferred stockholders.) OR are you willing to take on that risk in hopes of receiving high profits and nice rewards?

What is Fundamental Analysis?

Tim Huang — Mon, 20 Feb 2012 20:35:12 +0000

Learn the Stock Market Lesson — What is Fundamental Analysis?

Fundamental analysis is the study of economic forces that cause prices to move higher, lower, or stay the same. This method is different from technical analysis, which concentrates on the study of market action. In other words, fundamentalists study the causes of market movement, while technicians study the effect. However, both help you determine the direction that prices are likely to move and it is recommended that you study both methods.

The main idea of fundamental analysis is to find out the company’s intrinsic value by studying qualitative and quantitative factors. Quantitative factors are numerical and can be measured. Such factors include a company’s financial statements. As a fundamentalist, you need to know the company’s expenses, revenues, assets, and liabilities. Questions to keep in mind when studying fundamental analysis are:

-Is the company actually making profit?
-Are the company’s sales increasing?
-Is the company’s revenue growing?
-How much does the company own in debt?
-Are they able to repay its debt?

This means you should be spending a lot of time studying the company’s balance sheets, income statements, and cash flow statements to gain insight on the company’s future performance.

Qualitative factors are based on the quality of the company that are impossible to quantify, such as its quality of management. Other factors to consider are its organization, competition, and regulation (certain regulations might limit potential profits).

How does fundamental analysis compare to technical analysis? Which method should you use?

Many traders believe that technical analysis is a more effective approach because, by definition, the technical approach includes the fundamental. Technicians believe that anything affecting the price, such as fundamentally or psychologically, will be reflected on charts. Thus, they believe that the study of fundamental becomes unnecessary. However, the reverse is not true.

Again, this is not as to say that technical analysis is better than fundamental analysis, or vice versa. Keep in mind that there are times when there are conflicts between the charts and fundamentals, causing discrepancies. Some traders choose to use only one approach and if you don’t want to use both approaches, make sure you try both of them first and find out the one that works better for you.

62 stocks to watch

Tim Huang — Thu, 16 Feb 2012 21:02:01 +0000

You can click on any symbol to get a free instant analysis on the stock by MarketClub.

Credit Rating Downgrade

Tim Huang — Thu, 16 Feb 2012 21:18:37 +0000

Moody’s Investors Services, one of the big three credit rating agencies, is currently reviewing 17 global and 114 European financial institutions, signaling a warning that they might cut their ratings because of their inherent risk. The credit ratings of banks such as UBS AG, Credit Suisse Group AG, and Morgan Stanley may be downgraded by as many as three levels. Other banks, such as Goldman Sachs Group Inc., Deutsche Bank AG, Credit Agricole, Barclays, BNP Paribas, HSBC Holdings, JPMorgan Chase & Co. and Citigroup Inc. may be cut by two levels. Bank of America, Nomura Holdings Inc., and Royal Bank of Scotland, may be lowered by one grade. This is another sign of the impact of the eurozone government debt crisis on our global financial system.

Moody’s argue that capital markets activities create “complex, highly leveraged” balance sheets that are “typically laden with opaque risk exposures that can change rapidly.” Since attempts to manage risk can’t be measured, it’s hard to known how a bank is doing.

It hasn’t actually downgraded any rating yet. Exactly what is the impact of the potential? If the credit ratings of these banks get downgraded, it may raise borrowing costs and force banks to increase collateral. It is already hard for banks to raise capital today. With the increased regulation, the profitability and growth prospects of banks have weakened. The downgrade would just make raising capital even more expensive and difficult. However, similar to the response in August when Standard & Poor’s downgraded the United States from its AAA status, the threat of downgrades has not prevented investors from buying financial debt.

2 stocks to watch

Tim Huang — Wed, 15 Feb 2012 21:02:02 +0000

You can click on any symbol to get a free instant analysis on the stock by MarketClub.

IACI

TYP