Stock Preacher

Interest Rate

Rising and falling interest rates offer a special risk to stock investors. Historically, rising interest rates have had an adverse effect on stock prices. I outline several reason why:

Hurting a company’s financial condition

Rising interest rates have a negative impact on companies that carry a large current debt load or that need to take on more debt because when interest rate rise, the cost of borrowing money rises, too. Ultimately, the company’s profitability and ability to grow are reduced. When a company’s profits drop, its stocks become less desirable, and it stock price falls.

Affecting a company’s customers

A company’s success comes when it sells its products or services. But what happens if increased interest rate negatively impact its customers? The financial health of its customers directly affects the company’s ability to grow sales and earnings.

For a good example of this situation, consider what happen to Cisco System in 2000. Because a hugh part of its sales went to the telecommunications industry, Cisco’s profitability depend on the health of that entire industry. The telecom industry’s financial Achilles heel, which, in turn, become a pain in the neck to Cisco. Because telecom companies bought less, Cisco profits shrank. From March 2000 to March 2001, Cisco’s stock fell by nearly 70 percent! As of September 2001, Cisco stock price continued to decline because the companies that were Cisco’s customers where hurting financially.

Impacting Investors’ decision-making considerations

When interest rates rise, investors start to rethink their investment strategies, resulting in one of two outcomes:

Investors may sell any shares in interest-sensitive stock that they hold. Interest-sensitive industries included electric utilities, real estate, and the financial sector. Although increased interest rates can hurt these sectors, the reverse is also generally true: Falling interest rates boost the same industries. Keep in mind that interest rate change affect some industries more than others.

Investors who favor increased current income are definitely attracted to investment vehicles that offer a higher rate of return. Higher interest rates can cause investors to switch from stocks to bonds or bank certificate of deposit.

Hurting stock price indirectly

High or rising interest rates can have a negative impact on any investor’s total financial picture. What happens when an investor struggles with burdensome debt, such as second mortgage, credit card debt, or margin debt? He may sell some stock in order pay off some of his high-interest debt. Selling stock to service debt is a common practice that, when taken collectively, can hurt stock prices.

Because of the effects of interest rates on Stock portfolios, both direct and indirect, sucessful investors regularly monitor interest rates in both the general economy and in their personal situations. Although stocks have proven to be a superior long-term investment, every investor should maintain a balanced portfolio that includes other investment vehicles, such as money market funds, saving bonds, and/or bank investments.

A diversified investor has some money in vehicles that do well when interest rates rise. These vehicles include money market funds, U.S. Savings bonds (EE), and other variable-rate investments whose interest rate rise when market rate rise. These types of investments add a measure of safetly from interest rate risk to your stock portfolio.

Popularity: unranked [?]

What are Financial Assets?

Investing in Penny Stock is a way to success in the stock market. Like I said before on my last article “Emergency Fund”, we touched on what your own personal financial goals are and how you want to achieve them without touching your “Emergency Fund”.

Today we are talking about Financial Assets.

Liquid assets aren’t references to beer or cola… Instead, liquidity refer to how quickly you can convert a particular asset into cash. If you know the liquidity of your assets, including investments, you have some options when you need cash to buy some stock. All too often people are short on cash and have too much wealth tied up in illiquid investments such as real estate. Illiquid is just a fancy way of saying that you don’t have the immediate cash to meet a pressing need. Review your assets and take measures to ensure that you have enough liquid assets.

Listing your assets in order of liquidity on your balance sheet gives you an immediate picture of which assets you can quickly convert to cash and which one you can’t. If you need money now, you can see that cash in hand, your checking account, your saving account are at the top of the list. The items last in order of liquidity become obvious; they are things like real estate and other assets that can take a long time to convert to cash.

Selling real estate, even in a seller’s market, can take months, Investors who don’t have adequate liquid assets run the danger of selling assets quickly and possibly at a loss because they scramble to accumulate the cash for their short-term financial obligations. For stock investors, this scramble may including prematurely selling stocks that they originally intended to use as long-term investments.

Let take a look at the table

Personal Assets as of December 31, 2008

Assets	Market Value	Annual Growth Rate %
Current Assets
Cash on hand and in checking	$150	0
Banking saving accounts	$500	2%
Stocks	$2000	11% (stockpreacher : at least 500%)
Mutual funds	$2400	9%
Other assets
(Collectibles, etc.)	$240
Total current assets	$5290
Long-term assets
Auto	$1800	-10%
Residence	150000	5%
Real estate invest	$129000	6%
Total Long term Assets	$280800

Total assets $286090

The first column of the table describes the asset. You can quickly convert current assets to cash. Long term assets have value, but you can’t necessarily convert them to cash quickly.

Please take note. I have stocks listed as short-term in the table. The reason is that this balance sheet is meant to list items in order of liquidity. Liquidity is best embodied in the question “how quickly can I turn this assets into cash?” Because stock can be sold and converted to cash very quickly, it is a good example of a liquid.

The second column gives the current market value for that item. Keep in mind that this value is not the purchase price or original value; it’s the amount you would realistically get if you sold the asset in the current market at the moment.

The third column tells you how well that investment is doing, compared to one year ago. If they percentage rate is 5 percent, that item increased in value by 5 percent from a year ago. You need to know how well all your assets are doing. Why? To adjust your assets for maximum growth or to get rid of assets that are losing money. Assets that are doing well are kept, and assets that are down in value are candidates for removal. Perhaps you can sell them and reinvest the money elsewhere. In addition, the realized loss has tax benefits

Figuring the annual growth rate as a percentage isn’t difficult. Say that you buy 100 share of the stockpreacher stock picks (GAL), and its market value on dec 31, 2003, is $50 per share for a total market value of $5000 (100 share x $50 per share). When you check its value on December 31 2004 you find our the stock is at $60 per share. The annual growth rate is 20 percent. You calculate this by taking the amount of the gain ($60 per share less $50 per share = $10 gain per share), which is $1000 (100 shares times the $10 gain), and dividing it by the value at the beginning of the time period ($5000). In this case, you get 20 percent ($1000 divided by $5000). What if GAL also generates a dividend of $2 per share during that period; now what? In this case, GAL generates a total return of 24 percent. To calculate the total return, add the appreciation ($10 per share times 100 share equals $1000) and the dividend income ($2 per share times 100 shares equal $200) and divide that sum ($1000 + $200, or $1200) by the value at the beginning of the year ($50 per share times 100 shates or $5000). The total is $1200 ($1000 of appreciation and $200 total dividents), or 24 percent ($1200 / $5000)

Popularity: unranked [?]

On our last Post “The Stock Market Basic Part 1″ We explain some of the basics of the Stock Market, such as how to prepare before you get started, How to pick the winners….

Today we are going to tell you about the Market capitalization!

What is the Market capitalization? How does it effect Stock Value?

You can determine the value of company in many ways. The most basic way to measure this value is to look at a company’s market value, also known as market capitalization. Market capitalization is simply the value you get when you multiply all the outstanding shares of a stock by the price of a single share.

Calculating the market cap is easy. It’s the number of shares outstanding multiplied by the current share price. Eg. company has 1 million share outstanding and its shares price is $10, the market cap is 10 million.

Small cap, mid cap, and large cap are not references to headgear; they are references to how large the company is as measured by its market value. Here are the five basic stock market capitalization:

Micro cap (under $250 million): These stock are the smallest with the potential growth but hence the riskiest available.

Small cap ($250 million to $1 billion): These stocks fare better than the microcaps and still have plenty of growth potential.

Mid cap ($1 billion to $5 billion): For many investors, this offers a good compromise between small caps and large caps. These stock have some of the safety of large caps while retaining some of the growth potential of small cap

Large cap ($5 billion to $25 billion): This category is usually best reserved for conservative stock investors who want steady appreciation with greater safety. Stocks in this category are frequently referred to as “blue chips”

Ultra cap (over $25 billion): These stocks are also called “mega caps” and obviously refer to companies that are the biggest of the big.

Remeber:

From a safety point of view, the company’s size and market value do matter. All things being equal, large cap stocks are considered safer than small cap stocks. However, small cap or micro cap stocks have greater potential for growth. Compare these stocks to trees: Which tree is sturdier? A giant California redwood or a small oak tree that’s just a year old? In a great storm, the red wood holds up well, while the smaller tree has a rough time. But you also have to ask yourself which tree has more opportunity for growth. The red wood may not have much growth left, but the small oak tree has plenty of growth to look forward to.

That’s why we are here! We will bring you solidly fundamental stock idea’s within the Small Cap Arena (small oak tree) that have the potential for huge growth!

small cap stock

For beginning investors, comparing market cap to trees isn’t so far-fetched. You want your money to branch out without becoming a sap. “Never invest on those small cap stock by yourself!”

Although market capitalization is important to consider, don’t just based on it. It’s just one measure of value. As a serious investor, you need to look at numerous factors that can help you determine whether any given stock is good investment.

Keep reading our blog and sign up to our newsletter! we will provide you all the information you need.

Popularity: unranked [?]