Our Guide to Stocks

Only time will tell the full story of the stock market crash of 2008, but on Monday October 6, the stock market would start a weeklong decline in which the Dow Jones Industrial Average would fall 1,874 points or 18.1%.  While the exact cause of this crash may differ from those of 1929 and 1987, they share one common element - they all began in October.

Anyone who has traded stocks understands the concept of a stock exchange, but not a lot of people understand the differences between the major exchanges. For example, why is it that one company might be listed on the New York Stock Exchange and another on the NASDAQ? The answer to that question can be found in the very reason that a stock exchange exists in the first place.

The American Stock Exchange, or Amex, was the third largest stock exchange in the United States, positioned behind the New York Stock Exchange and the NASDAQ stock market. Prior to the merger with NYSE Euronext, over 570 companies were listed on the Amex, with a market value in excess of $565 billion.

The Australian Stock Exchange Limited (ASX) operates Australia's national stock exchange for stocks / equities, derivatives, and fixed interest securities such as bonds. The exchange also provides comprehensive market information and trading data to a wide range of traders, brokers, and commissions.

The Bombay Stock Exchange (BSE), also known as the Stock Exchange Mumbai, is one of the oldest stock exchanges in all of Asia, dating back to 1875 when it was known as the Native Share and Stock Brokers Association. The exchange is home to about 5,092 listed companies, with a total market capitalization of around 59 trillion Rupees, or nearly $1.3 trillion (USD) as of September 2011.

The London Stock Exchange, or LSE, is one of the world's oldest stock exchanges, with a rich history dating back to 1698. The exchange began its life in the coffee houses of 17th century London, when John Castaing began issuing "at this Office in Jonathan's Coffee-house" a list of stock and commodity prices called "The Course of the Exchange and other things."

Everything is relative, and from the standpoint of stock exchanges, the NASDAQ is a newcomer. When trading began in February 1971, the NASDAQ became the world's first completely electronic stock exchange. Today, it is arguably the largest of the US stock markets.

For many years, more securities were exchanged on the New York Stock Exchange than any other trading floor in the world. This made the NYSE not only the busiest exchange in the world, but also the most prestigious. While the NYSE may no longer be leagues ahead of its rivals, the pictures of its chaotic trading floor will forever be the image of what happens every trading day on Wall Street.

The Tokyo Stock Exchange, or TSE, is one of the largest stock exchanges in all of Asia, with over 1 billion shares exchanging hands each trading day. The Tokyo Stock Exchange itself supports the trading of bonds and derivatives in addition to equities.

The Toronto Stock Exchange is just one of two national stock exchanges operating in Canada, the other being TSX Venture Exchange. Both of these stock exchanges are held by TMX Group, Inc., which is considered the cornerstone of the Canadian financial markets and the center of Canada's equity market.

The typical stock market holidays don't change very frequently. The list of holidays stays pretty static from year-to-year. But as employers shift their holiday schedules, it is important to understand what the market is doing too. After all, you don't want to schedule an important trade on the day a stock exchange is closed.

The history of the stock ticker and ticker symbols begins with the ticker tape machine invented by Thomas Edison.  The original need for symbols no longer exists, but stock tickers are still alive today.  There is even a bit of useful information coded into the symbols; if you know where to look.  So here is our version of:  All you ever wanted to know about stock market tickers.

Individuals new to the concept of investing often want to start trading stocks, but don't understand where to begin.  This article is going to be a simple introduction to stock trading basics.  We'll explain what takes place when you trade a stock, and what to look out for when calculating the return on your investment.

The greater returns associated with the stock market are directly related to the market's risk.  For example, investing in common stock is riskier than putting your money in a savings account at a local banking institution.  Fortunately, there are steps an investor can take to minimize the risk associated with stocks.

Investing in the stock market is both a rewarding as well as risky proposition.  Many investors are quite comfortable knowing their mutual funds are professionally managed, and the diversification of those portfolios has kept risk to a minimum.  For other investors, selecting individual stocks provides both a sense of control and satisfaction.

Stocks for Dummies is a follow up to our article on Investing for Dummies because it shares many of the same ideas and concepts.  The sheer number of tasks each of us takes on everyday is astounding.  Our lives are busy and complex, so when something can be broken down and simplified, it gives us back the time we find so scarce and valuable.

One way that investors can leverage money to "play" in the market is through stock options.   In this "beginner" article, we're going to talk about the two most common forms of stock options:  "put" and "call" options.

When the stock market is bullish, investors seem to take more risk.  At least that's the experience with stock accumulators.  These financial derivatives provide buyers with a lot of upside potential when prices are on the rise.  Unfortunately, when stock prices fall, the losses can be devastating.

In the world of options trading, there is a word that is used to describe the relationship between the current trading price of the security and the strike price of the option:  moneyness.  Whether an option is in-the-money or out-of-the money tells the holder of the option if the security they own has value.

The term short-selling stock refers to the practice of selling securities that you do not own.  Investors will short-stocks when they believe a stock's market price is going to decline.  The process of short selling involves borrowing stock from a brokerage house to sell in the stock market.  At a future date, you repurchase the borrowed stock and that step in the process is referred to as a "short cover."

When it comes to buying and selling stocks, investors have several options, including placing stop loss orders.  It's important to understand how this type of order works; especially if you're trying to limit a loss in a volatile stock market.

When buying and selling stock through a broker, the investor generally has three types of orders they can place: market orders, limit orders, and stop orders. When working with a broker, it's important to understand both the trades that are possible as well as the firm's policies and procedures.

Investors that are new to the stock market may have heard the term "stock split," and not completely understood what the term means.  In this article, we're going to help define what the market calls stock splits and reverse stock splits.  We're also going to walk through an example of what happens after a stock split, and how a split can affect the dividends paid to investors.

When we published our article on Penny Stocks, we promised a follow up article that would cover stock research.  As we started researching this topic, it became clear that the information on the internet is somewhat limited.

In the first article in this series, Stock Research Part I, we talked about identifying the types of companies that we are interested in owning.  To solve this problem, we suggested owning companies that were in businesses that we understood.  We also talked about owning "excellent" companies with expanding value.

In the last article in this series on stock research, we learned how to calculate two important financial measures:  intrinsic value relative to government bonds, and return on equity.  In this next article, we will be taking a closer look at earnings stability and earnings growth.

This is the final article in our series on stock research.  In this publication, we will pull together an example that reviews everything we've learned up to this point.  That takes us back three articles, so let's summarize everything one last time.

Generally, investors buy common stocks for two reasons.  Stocks typically offer investors a cash dividend, and they also have the potential to provide the investor with capital gains.  In this publication, we will present a method for calculating stock prices based on a constant growth model, which uses a discounted cash flows approach.

If you're trying to project the expected return from a common stock, or any type of asset, one of the models you can use is the capital asset pricing model or CAPM.  In general, the capital asset pricing model describes the relationship between the risk of a particular asset or stock, its market price, and the expected return to the investor.

As its name implies, the Arbitrage Pricing Theory, or APT, describes a mechanism used by investors to identify an asset, such as a share of common stock, which is incorrectly priced.  Investors can subsequently bring the price of the security back into alignment with its actual value.

Perhaps the single most important measure of stock risk or volatility is a stock's beta.  It's one of those at-a-glance measures that can provide serious stock analysts with insights into the movements of a particular stock relative to market movements.

Value Line is one of the most respected names in the investment community.  Their research is an outstanding resource to both new and seasoned investors.  If you've ever seen a Value Line report, and wondered what all that information was telling you, then keep on reading.

At one time, the stock market provided serious investors with an opportunity to put their money to work over the long haul.  Today, investors like to move quickly in and out of the market.  That's just one reason technical strategies, such as price momentum, have grown in popularity.

The history of the Dow Jones Industrial Average, or DJIA, goes back to May 26, 1896.  Charles Dow, Wall Street Journal editor and founder of Dow Jones and Company, first compiled and published the average as an indicator of stock market performance.

No stock market report is complete without a mention of the Dow Jones Industrials.  It's an average that most investors like to talk about; and an index that many use to get a feel for the direction the market is moving.  Not everyone thinks it is as important as it once was, but everyone will agree that it has a rich history, and can be exciting to watch.

While the Dow Jones Industrial Average might be the most well known, it's not the oldest index put together by Charles Dow.  That title goes to the Dow Jones Transportation Index, which also plays an important role in something called the "Dow Theory."

In this publication, we are going to discuss the final of the three famous Dow Jones Indexes:  the Dow Jones Utilities Average.  With its humble beginnings back in January of 1929, the Utilities Index is the youngest of the three averages.  Unlike the Industrials and Transportations Index, this one was not created by Charles Dow.

Nearly everyone can appreciate diamonds. They're rare, and they can be valuable too. The same can be said for the companies in the Dow Diamonds. If you ever wondered what it would be like to own the Dow Jones Industrial Average, we have good news for you. That's the purpose of the Dow Diamonds.

As investors, we're used to hearing in the news that the Dow has set a new record high.  But in February 2007, we encountered a much more rare record setting day.  This was a Dow trifecta or hat trick of sorts, where all three of the Dow averages hit a high on the same day.

If you're a fan of the Dow Jones Industrial Average, then you know that it's been awhile since it crossed a major milestone.  In fact, on May 6, 2006 it was seven years since the Dow first passed the 11,000 mark.  That being said, how soon until we see the Dow Jones Industrial Average at 12,000?

Over the last two years, it's been difficult to tell where the stock market is heading. Investors are hoping the momentum that started late last year will carry over into 2012. Consistent with the approach taken in the past, we'll use the techniques of value investing described elsewhere in this publication to identify five good stocks to buy in 2012.

Over the last two years, it's been difficult to tell if the stock market is really on the rise.  In 2011, it will be interesting to see if the bull market that started back in July is sustainable.  Consistent with the approach we took last year, we're going to demonstrate the techniques of value investing described elsewhere in this publication.  We'll use that process to identify five good stocks to buy in 2011.

After a relatively good year in the stock market, investors are anxious to see what 2010 will bring.  We're going to continue down the path of value investing, and will use the techniques described elsewhere in this publication to find five good stocks to buy in 2010.

After another tough year in the stock market, investors are anxious to see what 2009 has in the offing.  We're going to continue down the path of value investing, and use the techniques described in this publication to find five good stocks to buy in 2009.

There is no doubt in anyone's mind that the stock market is off to a rough start in 2008.  But even in a down market, it's always possible to find stocks offering a great value to investors.   Here we're going to walk you through an approach to finding five good stocks to buy in 2008.

We're going to start the year off with a recommendation for ten good stocks to buy in 2007.  The stocks chosen are based on the theories and research techniques talked about in this publication, and that means emphasis is placed on companies with strong fundamentals.

As investors, it's important to know how to go about finding the best stocks to buy.  Before it's possible to successfully choose the best stocks, you first have to understand some of the fundamentals of evaluating these securities.  For example, what are the desired characteristics for a stock?

A stock market downturn is often the best time to identify potential takeover targets.  Fortunately, investors can use the same valuation techniques as corporate raiders when searching for stocks that are undervalued.

One of the ways a company can protect itself from a hostile takeover bid is by adopting a poison pill defense.  Generally, this term is used to describe several approaches the target company can employ to make the potential acquisition less desirable.

When interest rates are low, retirees and other investors turn to dividend paying stocks to provide them with a reliable source of income.  In fact, investing in companies paying high dividend yields is often viewed as the "sensible" or "rainy day" approach to creating an investment portfolio.

Stocks can provide an individual with two returns on their investment. The stock's price can increase over time, and selling those shares results in a capital gain for the investor. Companies can also pay shareholders dividends, which are usually received periodically throughout the year. 

One of the most common measures of a company's size is its market capitalization. Unlike some of the other measures of a company's size such as revenues, market capitalization is not reported in one of the company's financial statements. It is calculated based on the number of shares of common stock outstanding and its market price per share.

When people talk about buying stocks, they are usually referring to shares of common stock.  But for many investors, buying preferred stock may be a good compromise between common stocks and bonds.  That's because preferred stock offers the investor the advantages of both these securities.

As investors, we are always faced with the decision between risk and return.  The same logic applies to growth versus value stocks.  Rationale investors will agree that picking a quality stock is important; but not everyone agrees on the value versus growth decision. 

There is no doubt that the stock market presents us with a variety of investment opportunities every trading day.  One of the opportunities you should be familiar with is cyclical stocks.

Many long-time investors talk about blue chip stocks, but new investors may not understand what "blue chip" actually means - and for good reason.  Even seasoned stock market analysts don't completely agree on a definition.  In fact, you won't find a formal definition of a blue chip stock anywhere.

With stock ownership, it's certainly possible to have too much of a good thing.  Diversity of stock holdings is important, just ask any former employee of Enron.  When that company filed for bankruptcy, thousands of employees lost nearly all their savings.

During economic recessions, or market downturns, investors typically add defensive stocks to their portfolios.  That's because defensive stocks can be expected to perform relatively well during all phases of a business cycle, even during difficult economic conditions.

Dogs of the Dow theory, used as an investment strategy, was first popularized by Michael O'Higgins in his book Beating the Dow, which was published back in 1992. The theory is based on the purchase of high dividend yield stocks that are members of the Dow Jones Industrial Average.

Over the last twelve months, we've witnessed one of the most volatile stock markets in several years. As we start a new year, it's time to announce the Dogs of the Dow for 2012. After experiencing losing years in 2007 and 2008, the Dogs bounced back with positive gains over the last three years.

As we welcome the New Year, we're once again ready to announce the Dogs of the Dow for the year 2011.  After experiencing losing years in 2007 and 2008, the Dogs bounced back with positive gains in 2009 and 2010.

As we've done for five years running, we're once again ready to announce the Dogs of the Dow for the year 2010.  After experiencing a losing year in 2007, and taking a pounding in 2008 (a loss of almost 42%), the Dogs bounced back in 2009.  If you were following the rebound of the stock market last year, it's not surprising the Dogs made positive gains.

As we've done for the past several years, it's time once again to announce the Dogs of the Dow for the year 2009.  After experiencing a double-digit gain in 2006, and a losing year in 2007, the Dogs took another pounding in 2008 with a loss of nearly 42%.  If you were following the credit crisis of 2008, then it's no surprise the Dogs performed poorly last year.

It's time once again to announce the Dogs of the Dow for the year 2008.  After experiencing a decline in 2005, and a double digit gain in 2006, the Dow Jones Industrial Average had a mediocre year in 2007, gaining only 6.4%.  It was also a tough year for the Dogs of the Dow, finishing-up slightly lower than where they started the year.

The term "small cap stocks" is often used to refer to common stocks issued by companies that are considered "small" as measured by their total market capitalization.  There is a great deal of investor interest in small caps, because they offer some noteworthy advantages. 

In this publication, we're going to talk about a class of stock that you may have heard about, but might not completely understand.   We're going to discuss the term "penny stock."  In the U.S., investors often think of penny stocks as those issues that are not traded on one of the more prestigious stock exchanges.  But that's not the complete story.

Playing a stock market game is a great way to gain a better understanding of the inner workings of the stock market without the risk of losing real money.  We did some research and found several stock market games that are very good; so we'll point you in their direction.  We also took a look at alternatives to an online stock market game that might be of interest.