Our Guide to Stocks

We've all heard of a stock exchange, but not a lot of people understand the differences between the major exchanges.  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, is the third largest stock exchange in the United States, positioned behind the New York Stock Exchange and the NASDAQ stock market.  Over 570 companies are currently listed on the Amex with a market value in excess of $100 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 4,900 listed companies with a total market capitalization of around 63 trillion Rupees or nearly $1.6 trillion.

The London Stock Exchange or LSE, is one of the world 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 1.5 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 TSX 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 much.  The list of holidays stays pretty static from year to year.  But as employers shift their holiday schedules around, 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 of today if you know where to look.  So here is our version of - all you ever wanted to know about stock market tickers.

So you think you want to start trading stocks, but you'd really like to understand what is going on before you start investing your hard-earned money.  This article is going to be a very 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.

Investing in the stock market is both a rewarding and a 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.  But for other investors, selecting individual stocks provides both a sense of control and satisfaction.

When it comes right down to it, the greater returns on investment that are associated with the stock market are related to the market's risk.  Investing in common stock is riskier than putting your money in a savings account.  Fortunately there are a couple of steps an investor can take to minimize that risk.

Stocks for Dummies is a natural follow up to our article on Investing for Dummies because it shares a lot 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 a small amount of money to "play" in the market is via stock options.   In this "beginner" article, we're going to talk about the two most common forms of stock options - the" put" and "call" options.  With just two terms to help define what a stock option is, this might seem like a relatively simple explanation for a subject that can sometimes scare off new investors.

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 called a "short cover."

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 that we would be covering stock research in a future article.  But when we started researching this topic, we found the information on the internet is pretty thin.  Sure, you can find a lot of articles as well as tools such as stock screeners, analyst reports, and historical quotes.  But we really wanted to explain a logical way to go about conducting your own stock research.

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.

Here is the final installment on stock research; this is it - at least for now.  We've finally come to the end of this series and we will put together an example that reviews all we've learned about stock research.  And that takes us back three articles, so let's summarize everything one last time.

Most investors buy common stocks for two reasons.  Stocks typically offer investors a cash dividend in addition to the potential for capital gains.  Here we will present a method of calculating stock prices based on a constant growth model which uses a discounted cash flows approach.

If you're interested in 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 by which investors can identify an asset, such as a share of common stock, which is incorrectly priced and bring that price 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 - keep on reading.

The history of the Dow Jones Industrials Average, or DJIA, goes back to May 26, 1896 when 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 how the market is moving.  Not everyone thinks it's 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."

Here 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.  And 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.  And the same can be said for the companies in the Dow Diamonds.  If you've ever wondered what it would be like to own the Dow Jones Industrial Average - then we've got good news for you.  That's just what the Dow Diamonds are all about.

As investors we're used to hearing news through the years that the Dow has set a new record high.  But recently we encountered a much more rare record setting day - a Dow trifecta 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's crossed a major milestone.  In fact, on May 6, 2006 it was seven years since the Dow first passed the 11,000 mark.  So what's the logical question on everyone's mind - How soon until we see the Dow Jones Industrial Average at 12,000?

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 our approach to finding five good stocks to buy in 2008.

We're going to start the year off with our recommendations for ten good stocks to buy in 2007.  The stocks we've 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.

So you want to know how to go about finding the best stocks to buy.  Well, before you can go about deciding what the best stocks to buy are you first have to understand what you are really looking for.

With today's relatively low interest rates many retirees and other investors are turning to dividend paying stocks to provide them with a reliable stream 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.

When most of us think about buying stocks, we are almost universally talking about buying 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 gives the investor the best of both worlds.

There is no doubt that the stock market presents us with a variety of investment opportunities nearly every trading day and one of those opportunities you should know about has to do with cyclical stocks.  As consumers, we are pretty much at the mercy of large economic swings or cycles.  But as investors we realize these same economic cycles provide us with chance to grow our investment returns or protect ourselves - if we know what to look out for.

Lots of investors talk about blue chip stocks, but many new investors don't really 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.

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 stocks from the Dow Jones Industrial Average with the highest dividend yield.

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 had a mediocre year in 2007 gaining only 6.4%.  It was also a tough year for the Dogs of the Dow - finishing-up pretty much 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" relative to their total market capitalization.  There is a great deal of investor interest in small cap stocks because they offer some noteworthy advantages.

We're going to talk about a class of stock that most of you have heard about, but may not completely understand what is meant by the term "penny stock."  In the US, 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 a little snooping around and found a couple of stock market games that are pretty good - so we'll point you in their direction.  We also took a look at a couple of alternatives to an online stock market game that might be of interest.

Ever dreamt of giving up the daily grind? Want to strike out on your own and work from home, but don't know what you could possibly do to make a living? Full time Nasdaq trader Harvey Walsh wondered just that, and now he asks "Is day trading the ultimate work from home job"?

Friends of mine know that I am a genuine "fan" and student of the Dow Theory.  I have read past writings by Charles H. Dow, William P. Hamilton and Robert Rhea, and I believe today's premier interpreter of the Dow Theory is Richard Russell (see article below).

Charles H. Dow - It is interesting and amazing to note that not until Charles Dow started compiling the Dow Jones Industrial and Dow Jones Rail Index and started writing about the stock market a little over a hundred years ago, stock speculation was regarded merely as a game for the rich or as gambling for the brave. Sure, there were the tape readers, but the majority of the public regarded Wall Street as a source of excitement - the entertainment provided freely (unless you were on the wrong side) by figures such as Cornelius Vanderbilt, Jay Gould, and the infamous Daniel Drew.

I would like to share with the reader an article printed in the financial section of U.S.A. Today on March 7, 2003 which exemplifies the awesome power of a stock dividend.

If you found an investment that would return 20% or more, would you take out a loan at 8% to invest?  Do you own a home? Are you paying a mortgage around 8%? Do you have equity in your home?  If so you may want to consider taking out a home equity loan and using the money to invest.

Ever since the turn of the century, world stock markets have been very volatile. In other words there have been significant movements (up or down) in share prices. This phenomenon has been evidenced by the collapse in recent years of the share prices of the dot com companies (e.g. Yahoo, Amazon etc.) and the sharp falls in the share prices of telecommunication stocks (e.g. British Telecom, Marconi etc.). Yet despite these events there is very little emphasis placed on measuring the volatility of stocks.

If you are fairly new to investing and looking for some guidance or if you are seasoned investor, let me introduce you to NAIC.  National Association of Investors Corporation (NAIC) is a non- profit, tax exempt organization whose membership consists of investment clubs and individual investors. Founded in 1951, the mission of NAIC is to provide investment education, information and support. They prescribe to four basic, yet timeless investment principles:

If you are serious about making and keeping money by trading stocks, then there are three things you need to do, and do well: Money management, Orders and Trading system.

There are so many different stock trading software packages on the market that you could try a different one, every day of the year, and never run the same one twice. Many trading professionals use some type of stock trading software to keep their emotions in check and to enable them to focus on their stock trading strategy while avoiding the effects of fear and greed.

Ok, so you have done some research on the futures markets, and have decided to try your hand at trading. You have by now evaluated which contracts to trade, either by interest in a specific market, or by your belief that you have good information on future market moves through your job, or contacts you deem well informed. The next decision to consider then is choosing a broker.

It's time to change your thinking about this beaten-up stock market and get excited about the tremendous long-term potential. If you find the current market makes you feel like sticking your head in the sand and you long for the "good old days" of the roaring bull market you could be costing yourself a fortune.