Discovering Various Type of Brokerage Accounts

October 27, 2008

When you decide to start investing in the Market, you have to somehow actually pay for the stocks you buy. Most offer investors several different types of accounts, each serving different purpose. I present three of the most common types in the following article. The basic difference boils down to how particlular brokers view your “creditworthiness” when it comes to buying and selling securities. If your credit isn’t great, your only choice is cash account. If your credit is good, you can open either a cash account or . Once you qualify for a , you can (with additional approval) upgrade it to do .

To open an account, you have to fill out an application and submit a check or money order for at leaset the minimum amount required to establish an account.

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Online Stock Brokers Part 1

October 16, 2008

Part 1: Broker Role

When you are ready to dive in and start investing in stocks, you first have to choose a broker. It’s kind of like buying a car: You can do all the research in the world and know exactly what kind of care you want to buy still, you need a venue to do the actual transaction. Similarly, when you want to buy , you task is to do all the research you can to select the company you want to invest in. Still you need a broker to actually buy the stock whether you buy over the phone or online.

The Broker’s Role

The broker’s primary role is to serve as the vehicle through which you either buy or sell stock. When I talk about broker. I am referring to organizations such as E-trade, interactive broker, , Merrill Lynch, and many other organizations that can buy stock on your behalf. Broker can also be individuals who work for such firms. Although you can buy some stocks directly form the company that issue them, to purchase most stocks, you still need a broker.

Although the primary task of broker is the buying and selling of securities (keep in mind that the word securities refers to the world of financial or paper investments, and that stocks are only a small part of that world) such as stocks, they can perform other tasks for you, including the following:

Providing advisory services:

Investors pay broker a fee for . Customers also get access to the firm’s research.

Offering Limited banking services:

Brokers can offer features such as interest-bearing accounts check writing, direct deposit, and credit cards.

Brokering other securities:

Broker can also buy bonds, mutual funds, options, Exchange Trade Fund (), and other investment on your behalf.

Personal make their money from individual investors like you and me through various fees, including the following:

:

This fee is for buying and or selling stocks and other securities.

Margin interest charges:

This interest is charged to investors for borrowing against their brokerage account for investment purpose.

Service charges:

These charges are for performing administrative tasks and other functions. Brokers charge fees to investors for Individual Retirement Account (IRAs) and for mailing stock in certificate form.

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Explaining the Dow Jones Industrial Average

October 15, 2008

Yesterday the had the biggest pointgainer in 112 yrs and the fifth largest percentage gainer in its storied history after several weeks of forced and panic selling.

Many of you have e-mailed me letting me know that you are tracking the as never before, and have asked to give a brief overview of the Average, what it is made of, what it indicates, etc. It is clear that many folks do not know the basics, so here you go, as follows;

The index is made of 30 of the biggest U.S. companies and is set up as a calculated measure of performance. Today it is the world’s most famous and watched index.

The , as it has come to be known (there is also Transports, Utilities and Theory), is the oldest continuing U.S. market index; it measures the combined stock values of 30 Big U.S. companies known as the “Blue Chips.”

We do not find any Transports or Utilities in the Industrials, but it is interesting to note that in 1999 the industrial’s only tradition was broken when Intel (INTC) and Microsoft (MSFT) were added. This marked the first time that a (non-NYSE) traded stock became a member of the .

Started on May 26, 1896 by financial reporter Charles , at its inception It started with 12 companies, including now-defunct companies like U.S. Leather Co. and , Iron and Railroad Co and and was priced at $40.94  It is interesting to note that the only original component still around is Company (GE).

Today the Industrials has expanded to 30 components and reflects the U.S. economy’s move from big industrial companies to  include big financial companies like Citigroup Inc., technology bellwether IBM Corp. and drug manufacturer Pfizer Inc. (Financials, Technology and Drugs: healthcare).

The Industrial index today is made up of these big US companies: 3M, Alcoa, American Express, AT&T, Bank of America, Boeing, Caterpillar, Chevron, Citigroup, Coca-Cola, DuPont, ExxonMobil, , , Hewlett-Packard, Home Depot, Intel, IBM, Johnson & Johnson, JPMorgan Chase, Kraft Foods, McDonald’s, Merck, Microsoft, Pfizer, Procter & Gamble, United Technologies, Verizon Communications, Wal-Mart and Walt Disney.

In the beginning the was simple: Charles , when he complied the index back in 1896, originally took the price of one share of each company’s stock, added the numbers up and divided by the number of companies.

Thus the average when the index launched was $40.94: these pale compared to today’s 1000 pt surge to close at 9,387.61, or its record closing high of 14,165.43 on Oct. 9, 2007 just a year ago.

The way the is calculated today by the Jones & Co. is by a mathematical formula to adjust for things like stock splits, i.e., when a company doubles the number of stocks its shareholders have, splitting the price of each in half, or new companies being added or removed.

The formula is a way to keep the index consistent over time and to make sure today’s value can be compared in a meaningful way to what it was in years past.

This is done mathematically by changing the “divisor”, a number that is divided into the total of the 30 stock prices. That divisor today is 0.122820114.

Next, the index utilized what is termed a “price-weighted average,” meaning expensive stocks have more weight (influence) over the number than lower-priced issues. This is done because the index is based purely on the US Dollar value of the stocks in the index, i.e., a high-priced share goes up/down (move) 20% is a larger dollar increase than a cheaper share’s 20% move.

For example: when we note the drop in the price of last week, we also know that it did not have a huge effect on the because the automaker’s stock is already low. The stock fell $2.15, or 31 percent, on Thursday but only lowered the by 17.1 points. Therefore, GM’s drag was small on day when the index plunged 679 points.

Some of you have asked me if the is a good measure of how the US companies are doing in the market, overall.

The answer is that some folks on downplay the importance of the average because it is not as broad a measure as the Standard & Poor’s 500 index, which measures the performance of 500 NYSE companies stocks.

But once again, the is the patriarch of all , and it presents an simplified snapshot of how the market is performing up or down.

Most analysts that I know believe it is a very good tool when combined with the other market indicators, including the and the NAS composite, an index of shares on the tech-heavy . You will often see these indexes go up and down together percentage wise as you saw today.


9,387.61                       +936.42                     +11.08%

1,844.25                       +194.74                     +11.81%

1,003.35                       +104.13                     +11.58%

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Penny Stock Diversification Strategy

October 6, 2008

Diversification is a strategy for reducing by spreading your money across different investments. It’s a fancy way of saying “Don’t put all your eggs in one basket” But how do you go about divvying up your money and distributing it among different investments? The easiest way to understand proper diversification may be to look at what you should not do:

Don’t put all your money in just one . Sure, if you choose wisely and select a , you may make a bundle, but the odds are tremendously against you. Unless you’re Stockpreacher (real expert) on a particular company, it’s a good idea to have small portions of your money in several different stocks. As a general rule , the money you tie up in a single stock should be money you can do without.

Don’t put all your money in just one Industry. I know people who own several stocks, but the stocks are all the same industry. Again, if you are Stockpreacher (an expert) in that particular industry, it could work out. But just understand that you are not properly diversified. If a problem hits an entire industry, you may get hurt.

Don’t put all your money in just one type of investment. SMALL CAP STOCK may be a great investment, but you need to have money elsewhere. Bonds, bank accounts, treasury securities, real estate, and precious metals are perennial alternative to complement your Portfolio. Some of these alternative can be found in mutual funds or ().

Okay, now that you know what you should not do. What should you do? Until you become more successful in .

Only keep 20 percent of your investment money in a single small-cap stock.

Invest in four or five different that are in different industries.

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Market Risk

October 3, 2008

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People talk about the market and how it goes up or down, making it sound like a monolithic entity instead of what it really is a group of millions of individuals making daily decisions to buy or sell stock. No matter how modern our society and economic system, you can’t escape the laws of supply and demand. When masses of people want to buy particulars stock, it becomes in demand, and its price rises. That price rises higher if the supply is limited. Conversely, if no one’s interested in buying a stock, its price falls. Supply and demand is the nature of . The price of the stock you purchase can rise and fall on the fickle whim of market demand.

Millions of investors buying and selling each minute of every trading day affect the share price of your stock. This fact makes it impossible to judge which way your stock will move tomorrow or next week. This unpredictably and seeming irrationality is why are not appropriate for short-term financial growth.

In April 2001, a news program reported that in 2000, a fellow with $80000 in the bank decided to take his money and invest it in the . Because he was getting married in 2001, he wanted his money to grow faster and higher so that he could afford a nice wedding and a down payment on the couple’s . What happened? His money shrank to $11000 and he had to change his plans. Sometimes, “” begets “romantic” .

Losing money is only one headache you face when you lose money this way; the idea of postponing a joyful event, such as a wedding or home purchase, just adds to the pain. The gent in the preceding story could have easily minimized his losses with some knowledge and discipline.

Markets are volatile by nature; they go up and down, and investments need time to grow. This poor guy should have been aware of the fact that shocks in general aren’t suitable for short . Despite the fact that the companies he invested in may have been fundamentally sound, all stock prices are subject to the gyrations of the marketplace and need time to trend upward.

Understanding is especially important for people who are tempted to put their nest egg or emergency funds into volatile investments such as growth . Remember you can lose everything.

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Word of Mouth This Week #3 : Matching Penny Stocks and Strategies With Your Goals.

September 28, 2008

What we have learn these week?

Deciding what fits your

Looking at your purpose for investing

Determining your investing Style

Next topic we will take about “”. Any investment including Investment have . We will teach you how to control your “” on the next topic.

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