Instead, keep your top performing stocks forever. Peter Lynch says much of his overall success was due to a small number of stocks in his portfolio that returned big. But be honest when you realize that a stock is not performing as well as you expected it to and move on before your losses become even greater.
Sell losers. Buy a stock only if it qualifies criteria set under your investing strategy. Hefty discounts do not mean a good buy. But if you start early, the effects of compounding can be huge. By planning and investing early for retirement, you allow your investments more time to grow. Your savings will grow with the power of compounding. The sooner you start investing for retirement the better.
If you are a long-term investor, your investment decisions should not be guided by short term forecasts. Stick with your chosen investment strategy and ignore short term predictions. These crises create fear and uncertainty but only for a short period. The market crashes but recovers and continues to move on. The long-term trend has remained upward. The market has grown despite many crises in the past.
Keep your patience during crises and avoid emotional behavior. It is very difficult to predict and catch extreme peaks or troughs in the market. The investors who attempt to time the market are generally guided by emotion. If you want to be a successful investor, avoid emotional behavior. Make a retirement plan and stick to it. Avoid frequently reallocating the funds. Reallocating your retirement account frequently in an attempt to maximize yields may not only cause you to lose your way as it relates to retirement savings, but it can also cause you to unwittingly expose your savings to much higher risks than otherwise necessary.
Mutual Funds pool cash from investors and invest in securities. There are different types of mutual funds and they have different investment objectives and strategies. Read their documents before selecting any fund. Choose a fund consistent with your own investment objectives.
Sometimes your portfolio may pass through periods of under-performance compared to the overall market. It happens with great investors too! Practice patience. Build up your courage and stay. Rather, continue investing in a bear market. During the bearish phase of the market, invest in good quality companies for the long term. You can make the most of your money in the future. Historically, periods of low returns have been followed by periods of higher returns. Periods of market uncertainty provide wealth-building opportunities for the patient, diligent, long-term investors.
Historically inflation is a reality and erodes your savings especially if invested in bonds and other fixed securities. Sharpen your investment strategy by educating yourself. Read about some outstanding investors such as Graham, Fisher, Buffet , Templeton and Lynch and how they made their fortunes. Each one has dramatically exceeded market performance. Understand their innovative ways to analyze and pick up securities.
And read and read, to be a successful investor. If you want some regular income and also capital appreciation along with safety, you may keep a Balanced Fund in your portfolio. To balance the fund, money is invested in both bonds and equities with the predetermined weights allotted to the asset class; say it could be for equities and bonds. It provides moderate returns with lower risk and lower volatility. Fixed Maturity Funds are closed-ended debt funds with a fixed maturity date.
The Fund is parked in corporate debts, government securities and money market instruments with matching duration.
GTT CASE STUDY – Superior Stock Returns
Your final returns are not impacted by fluctuations. Bond yields and its market price move in opposite directions. High inflation and a high interest rate pushes bond yields up and brings down the bond price in the market. Investments in Government Bonds are free from default and provide reasonable returns, especially if invested when Bond Yields are high. A contrarian goes against prevailing market trends by buying good stocks that are presently performing poorly but have potential to perform well. A contrarian trading theory recommends making investments contrary to the apparent direction of the market or commonly accepted wisdom.
Some great investors such as Sir John Templeton and Jim Rogers adopted a contrarian trading strategy to achieve fantastic returns. The primary objective of the contrarian strategy is long term capital appreciation. OTC helps start-up new generation entrepreneurs to raise capital from investors without going through Stock Exchange. The trading is carried out by a market maker who provides both buy and sells quotes for a stock and is ready to take a position in the stock. Analyze to find great companies of tomorrow.
A huge portfolio in size not in money shows that you are not following any clear investment strategy. Try to cut down the portfolio to a manageable level by weeding out the losers or lowest gainers. A new entrant should start with stable and quality companies. Stick to blue-chip stocks that are known to be consistent performers. Blue-chip stocks are likely to fetch your capital appreciation with a steady stream of dividends. You should not adventure in volatile stocks at the beginning. Once you have acquired a feel for the market through blue chips, you can explore the mid-cap and small caps.
Do your homework to pick up some good growth companies. Once you understand the investing process better, you can gradually expand your portfolio to include other categories. If you have any employment income, you may contribute to an Individual Retirement Account. Your contributions are tax deductible under certain conditions. Understand their tax implications and contribution limits. Avail the available benefits.
Investments in health savings accounts are generally tax deductible. Your money compounds without taxation. An HSA is one of the best ways to invest because it has a triple-tax benefit. You can pull the money out at any time tax free for medical expenses, but you can also use it like a traditional retirement account as well. If you work for yourself, set up a retirement account on your own doing some paperwork. Select and design a plan which meets your post retirement needs. Your investment in self-employment retirement savings plans may be tax deductible upon fulfilling prescribed conditions.
Here's the most popular individual k options. When you buy a stock, you are buying a participating interest in the company run by its management. Its performance depends on the people behind it. The commodity sector is cyclic in nature. The business cycle is long. Pick up stocks when the industry is coming out of a weak phase. While investing in commodity companies, look for market leaders.
Their performance depends on their capacity and the efficiency of their plants. Make a comparative analysis before investing. Avoid companies with large debt because during a weak cycle phase, they may find it difficult to service debt. No company can make significantly higher returns than its peers. Compare its market capitalization with the replacement capital cost for plants with matching capacity and buy as and when available with adequate margin of safety. When there is overall panic, liquidity dries up. Information gaps between traders widen, spread and transaction costs go up.
Since commodities are cyclical in nature, the holding period for commodity stocks are longer for reasonable gain. Buy the share only when it falls to the low end of the cycle. Having bought, wait until the turnaround happens. It could be a few years. Forecasting about an economy or market direction is like a shot in the dark and may go wrong. Invest in the company that provides consistently high returns on the invested money.
Their nominal yield provides you less purchasing power due to inflation. Bond payouts are fixed. Post tax returns are even worse. Stocks appreciate and stock dividends grow. Dividend growths give you some protection to your cash flows against inflation. While investing for your retirement fund, keep a mix of shares and cash equivalents.
Pay attention to your tax liabilities and avoid interest and penalties. Disclose all income earned from various sources. Save tax availing all admissible exemptions. Do proper tax planning. A dollar saved in tax is a dollar earned. If you owe taxes, make sure you take advantage of paying your taxes on a credit card to earn rewards. With rising longevity, plan for at least 25 years after retirement.
Think of maintaining the pre- retirement standard of life that would be about three- fourth of pre-retirement annual expenses. Calculate the requirement of retirement corpus post tax and post inflation. This will help you determine how much money you should be stashing away each month. There is neither dearth of financial products nor financial intermediaries.
Miss-selling is common especially depending on the commission that brokers, distributors or financial agents get. Do your home-work carefully. A large number of financial products are available in the market. Each carries a different risk and return. You have to be selective. You have to understand the risk of each product, returns and their maturity. Balance risk and return depending on your profile and needs.
There are different routes to invest in stocks. You can invest in stocks directly or through equity funds or exchange traded funds. While selecting mutual funds or ETFs, look at their performance over the last 3 to 5 years on a monthly rolling basis, their fees structure and also ratings given by reputed rating agencies. Investments in Treasuries are safe and free from default. Deposits with banks are also good for safety. There are wide variations in the performance of debt funds. There is also the possibility of losing part of your principle.
Make sure you also understand the difference between a bond fund and individual bonds. Though corporate debt can offer higher interest than banks, they are not safe and not secured. They are not liquid and you may have to sell them at a discount. Government bonds are a better option than corporate bonds. FMPs are close ended mutual funds with a fixed maturity date and the funds are parked in corporate debt, government securities and market instruments of matching duration. FMPs offer tax advantages. Always remember if something sounds too good to be true, avoid it.
A pyramid scheme promises payment without any economic activity just by inducting new members. Pure pyramid schemes are banned in several countries. But they emerge under dubious names with new formats. And their promoters would usually vanish with your money. Inflation erodes your wealth. This can be overcome by investing in blue chip companies and high-quality equity mutual funds for the long term. Keep your investments simple to monitor risks involved.
Investing is risky. Prefer safety over return. Keep your money safe even if it earns a lower return. The promise of high returns in short times may influence your decision to buy financial products, this may ultimately land you in financial loss. A financial advisor working for a percent-based commission has his interest ahead of yours.
He gets commission driven by sales. He will push products on you. An advisor with a high standard of ethics will charge you a fee only and will give you honest advice. Many financial advisors, through television and print media, provide advice which is not in the best interest of investors. Listen but critically analyze their advice before taking action. Technical analysis is based on interpretation of charts and graphs to find meaningful patterns. The estimates based on wrong interpretation may lead to the wrong forecast about the short-term price movements. Depend on professional technical analysts only.
For maximum effectiveness follow these three simple trading rules: keep your bets small, cut losers and ride winners. Set your cut off percent for loss and profit bookings. Keep emotions under control, especially when the market is volatile. Bullion such as Gold and Silver are safe and liquid investments. They are used as a hedge against inflation, currency devaluation and economic crisis. Check out our Apmex review for a good company to purchase bullion at.
The growth of business depends on the present stage of the product demand and chances of new substitute products coming into market. Select market leaders who can sustain their edge over time. Some products are short lived and replaced by new hi-tech products. Invest in companies with products unlikely to be replaced. Investing decisions should be based on long term goals and not on emotional reactions. Benjamin Graham, father of Value Investing, advises to maintain discipline with your own set of rules and keep patience.
When interest rates are low, yields on treasuries are also low and their prices are high. Yields and market price move in opposite directions. If interest rates increase in the future, the treasuries price will decline recording a loss for you. Your investing success depends on the correct selection of companies and buying them at the correct price.
To be a successful investor, you do not need a large number of stocks. You need only a few outstanding companies. Keep your list of stocks short packed with the best companies. Focus on investment quality, not quantity. Pick up the top ten dividend yielding companies out of the 30 listed on DJIA. These are known as Dogs of the Dow. Re-balance your portfolio every year. This strategy produces return better than DJIA over a long period.
A savings account adds liquidity to your portfolio. You can withdraw the money anytime. Therefore, keep only a small amount of money in a savings account that meets your small and immediate needs. Park your money elsewhere to earn more. Check out our list of the best high yield savings accounts. Gambling depends on pure luck. Your luck works for you. You put your money in well researched investment products where your money can grow.
Investments are generally for longer term, for larger needs and future demands. Inflation causes money to lose value. Money will not buy the same amount of goods or services in the future as it does now. It is therefore important to consider inflation as a factor in any long-term investment strategy. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value.
Sentiment can change overnight with an unexpected event or news, but not the ground realities. The market may react sharply and share price may move in either direction. Let the market cool. When interest rates are high, you can venture into the fixed-income market. Lock your money in long term or medium-term bonds. Besides getting good regular income, your investment appreciates when the interest market goes down.
Speculative stocks have a potential for huge profits, as well as the potential for substantial losses. Companies having businesses that are uncertain in their outcome fall under this category. For example: Oil and Gas exploration company. Speculators in the stock markets trade in these stocks to earn quick money but these stocks are extremely risky.
Junk bonds carry ratings that are below investment grade. These ratings indicate poor credit worthiness of the company issuing the junk bonds. Companies with below investment grade ratings offer a higher interest rate to attract investors. These bonds are very risky and you may even lose capital partially. Ratings indicate the investment grades and the risk associated with the issuer company and the bond issue.
The ratings are based on the credibility, stability and financial health of the company. The yield and rating grades have inverse relationship. Buy only bonds having higher ratings. Sector funds invest in sector specific ETFs and mutual funds. The performance of these funds primarily depends on the sector in coming years.
If a particular sector does not perform then the fund will be affected negatively. Before investing, look at the microeconomics related to the sector. This is the simplest stock picking strategy. A brand is created over a long period through high quality products and consistent growth. A successful brand has an intangible value attached with it and the market is always ready to pay for its brand value. Pick up the companies that offer strong brand names. If you notice a local company growing and performing well then research further. If it appears to be on an upward growth trend consider investing.
You never know, it may turn out to be an acquisition target at a very high premium later. Arbitrage is a kind of deal to earn profit from the differences in price between the two markets. You can buy securities in one market and at the same time sells them in another market at a differential price. You make profit through using arbitrage opportunities in two markets and by exploiting price gaps.
This is hard to do, but a lot of investors take advantage of this strategy in currency and Forex trading by looking at the different values of two currencies and trading the difference. It is a crime and if you do it you will be put behind the bar. Even if you're a low-level employee, you can get busted for insider trading. Online trading is very fast. You need a computer and high-speed internet to get started. Open an account with one of the best online brokers to get started. The broker software helps you to monitor you accounts also.
You can buy a stock that trades on the stock exchanges through your broker. You have to open an account with a stock brokerage firm before availing the trading related services. It is advisable to do some research on stock brokerage firms. Information on them can be found on the Internet. Compare various stock brokerage firms , their services and fees. Select the best. For trading shares, enter the name of company and the number of shares you want to buy or sell.
Select the options for placing your order and put your instructions, such as the type of order and its validity period. Passive investing is a buy and hold investment strategy. If you are a long-term investor, your main aim is capital appreciation and limited maintenance. Do limited buying and selling of securities. Under an active investing strategy, the investor engages in frequent buying and selling of securities. Active investing results into short-term investments. It is more of trading than investing.
It you are a long investor, adopt passive investing and not active investing. An Education IRA is a savings plan for education. Parents and guardians are allowed to make non-deductible contributions to an education IRA for a child under the age of The earnings are tax-free when used for education expenses. The funds in an education IRA can be withdrawn tax free when they are needed for educational purposes. You can find the best plans here. The Plan is a savings plan for college education. The investment earnings grow to meet the higher costs of a future education. Another option lets you save money in a tax-deferred account for future tuition fees.
Make sure you understand what the qualified educational expenses are before you start. Various Acts have been enacted by the Governments for regulating the stock markets. Regulatory Authorities such as the Securities and Exchange Commission have been established for regulating markets and protecting the interests of investors and others. Read and understand the main provisions. Although a regulatory agency seeks to regulate the activities of the securities markets, this does not guarantee a safe investment. You should always be careful while investing.
The strategy rests upon the assumption that in the long run stock prices go up. The buy and hold approach minimizes costs and allows the investor to participate in the long-term growth of a company. A defined-contribution retirement plan is a retirement savings plan that allows an employee to put a percentage of his salary into a tax-deferred investment account. Contribute to these accounts, especially if you are eligible for an employer match. Make sure you understand the pros and cons of a Roth k as well. Float is the total number of shares publicly owned and available for trading, out of the total outstanding shares.
Stocks with smaller floats are generally more volatile than those with larger floats. Look for higher float stocks. The federal and the state governments issue tax-free bonds. The interest is not taxable. If you are in higher income brackets, invest and avail the benefits. Your effective rate of return increases substantially.
Moreover, investments in these bonds are safe. Some Funds charge high entry, exits and annual management fees. Brokerage firms also charge hefty commissions. These fees reduce effective return on your investment. Minimize these expenses and avoid paying hefty commissions.
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Make sure you also understand when investment commission matter and when they don't. Big mutual funds, pension funds, hedge funds and banks have strong buying power. They buy and sell in bulk. Their action influences the market. You can take your proactive investment decisions and exploit the opportunities. Its earnings growth accelerates from quarter to quarter. Growth rate increases. This is characteristic of a winning stock.
The acceleration needs not to be continuous, but it should be in recent past. The stock market is unpredictable. In case of urgency, you may be forced to sell your investments even if the market is low. Hence you should keep a separate emergency fund with banks that you can access whenever required. The banks offer fixed deposits schemes that allow you to withdraw before maturity too.
You should never invest your emergency fund in the stock market. You should not depend on the stock market to meet your routine expenses. Similarly, you should not resort to breaking fixed deposits to meet such expenses. Plan your cash flows for the next three months and keep adequate cash to meet next three months expenses. You can park the fund in money market instruments to earn some interest too! Stocks with low price-to-earnings PE ratios may look cheap and attractive. But they may not be worth to buy. Invest only in good companies.
Buy a stock with strong fundamentals as and when available at low PE. The advice that you should only buy stocks with low price to earning ration is an investing myth. If your employer matches your contribution under you K plan, you must avail this and invest the maximum permissible amount.
This is like your additional income. And your investment grows with the power of compounding. Complex investment products are designed more in favor of their sellers. Investors can come under their trap. Ignore complex investment products. Always remember the Subprime mortgage crisis! In good times, leverage investing magnifies your gains. And the chances are there that soon you will soon get addicted to leverage.
When bad times come, you will lose all the gains. Finally, you may be a net loser. Avoid leverage. Remember, leveraged ETFs don't match the market performance over time. In gambling, your money can double, triple or quadruple overnight; but not in the stock market. If you want to try your luck, you better go to Las Vegas. In the stock exchange you should expect only reasonably good returns.
All investments carry some risk. You can not eliminate risk, but you can reduce it. While traveling you carry the risk of having an accident and you reduce it by following traffic rules. In investing too, you can minimize the financial risk by following rules of investing. Be disciplined. This is a very attractive stock picking strategy. This strategy has been tested in the past on several companies and has a history of providing great results. Pick up companies with quarterly earnings growth. The earnings growth must be supported by earnings quality.
The strategy recommends that investors should verify the quality of the earnings. Companies can influence and control the earnings by ambiguous methods. The figure may be inflated by the company to show a better picture. Investors need to research for these ambiguities. Investors generally do not like to invest further in a company that has just reached a new high, they believe that the stock will not rise any further and may see a downward trend.
But big company grows like this. It is not too late to buy. New price highs offer new opportunities. This change may be due to new management, new products or markets or a new environment. Analyze changes and pick stocks that have recently seen some positive changes. Look for the best earnings performance now, not just a promise of future earnings. Apple is one of the best examples which shows that innovation may make wonders for a company.
With the introduction of innovative products like the iPod and the iPhone, Jobs turned around a loss-making company and brought it to new heights within a decade. When a stock reaches a new peak, investors want to book profits. They believe that the stock will not rise any further and may see a downward trend and this is the opportunity to make profits. Stocks of fundamentally strong companies making new highs are likely to climb further.
Let your investment grow. Price increase accompanied by increases in volume, indicates there is more demand for shares. This shows people are buying in. The price may rise further. On the other hand, price increase but with decrease in volume indicates the demand is diminishing for shares. The price may not rise further. Stock price decrease accompanied by increases in volume indicates there is higher selling pressure. This shows people are selling their holdings. The price may decrease further. The price may not decline further.
The share price of a company with a lower number of outstanding shares will move easily compared to a company with a larger number of outstanding shares. You can selectively invest in good small companies. Differentiate between the leaders and laggards of the stock market. There may be the same kind companies in an industry with similar products and business lines. Stocks should not be picked just because their price is cheap, they could be cheap because they are laggards. Good stocks come with a high price but also give high returns.
Choose leaders and discard laggards to win. Choose the best companies that have solid fundamentals such as earnings growth and profit margins and that are known for innovation and good corporate governance. You are thus building a strong portfolio with high quality stocks. Bitcoin, a digital currency, has appreciated very fast. Bitcoin is used as virtual currency for electronic purchases and transfers.
Though growing in popularity and value, it is opaque. Its future is uncertain. It is risky to invest. You can even invest in Bitcoin stock , but we don't recommend it. You can make profits by borrowing in low-yielding currencies like the dollar and euro and investing in high-yielding debt in emerging markets.
Borrow in one country with low interest rates and use this fund to purchase higher-yielding assets in another country that has high interest rates. The visual display of data is ideal for comparison. Learn some simple graphs such as the line graph, bar chart and pie chart. Here are some free stock charts to get started. Interest rates are generally quoted as annual interest rates.
Some banks compound or pay interest on a monthly, quarterly or half-yearly basis. If you take into consideration the effect of periodicity, the effective annual rate works higher than the quoted annual interest rate. While investing, compare the effective annual rate on bank deposits. Stocks of two companies behave in different ways. Their investing strategies are different. Their fund managers produce drastically different results. Every mutual fund is different. Do your homework to pick the best fund. Hedge funds, like mutual funds and Private Equity funds, pool cash from investors.
But they focus on alternative investment strategies which are generally aggressive and riskier in nature. They may generate higher profits but are not suitable for common investors. Whenever you purchase a stock, record reasons for making a buy. This will bring discipline and you will start following your own set of rules. In the future, you can analyze your earlier decisions and find your mistakes and learn from them.
Similarly, you will learn from your correct decisions. You can use the same logic to make profit in future. Warren Buffett says hold a stock longer, may be even forever. But if you want to sell, record reasons for selling a stock. This will force you to rethink before you decide. It will also create a history sheet to look back on for future reference. Remember all decisions need not be correct to be a successful investor. Work hard and learn lessons.
This will improve your success rate. Behavior Finance says ego and emotion are the greatest enemy in the stock exchange. Losses are always painful.
The Contrarian Investor's Thirteen: How to Earn Superior Returns in the Stockmarket
But admit mistakes and accept your losses. This will reduce your further losses. Prompt corrective action is required. This is truer in trading, especially in the derivative market. Time is money. Read and analyze them. They may be misleading. There are ample examples of unsuccessful investors. Read their case studies and find out common mistakes and strategic errors committed by them.
One common shortcoming among investors is that they know investing rules but ignore them while investing. Use your learning to be a successful investor. In the market one person sells and another person buys. Both think that they are smarter. Do not try to prove you are smarter than the market. You are in the market to earn some reasonable returns, not to show your strength by beating the market. Select a good equity fund.
It can be a diversified value or growth fund. Pick it and invest. Let it grow with time and watch the magic of compounding. Historically, a good diversified equity fund quadruples every 10 to 15 years. You will find different types of funds such as an equity fund, bond fund, income fund, balanced fund, sector fund and so on. Within each category there ate sub categories and the list goes on. You can understand US companies better.
You will need extra time to understand foreign markets. Your investment abroad will be subject to political and economic uncertainties especially due to changes in government policies. You have a wide access to a vast pool of information. Here is a word of caution. Many sources carry biased, false and misleading information. Scan and filter information. Trading in futures is like trading in stocks. If you want to invest or trade in the stock exchange or derivative market, you need to develop an understanding of the market.
Trading in futures is not gambling and your outcome does not depend on your luck. Always follow basic rules and strategies, as derivatives are risky. You can use it to hedge your portfolio against market risk. You can settle the future by cash payment. The expense is similar to the insurance premium you pay to protect your other assets.
If you are a producer or consumer of any commodity, you can buy or sell derivatives to hedge against fluctuations in the movement of underlying commodity prices. You can use options, futures or swap agreements to minimize uncertainties in your business. Some professionals and traders do speculate and trade in derivatives to capture gains that come from price fluctuations in the underlying asset. With leverage the outcome, profit or loss can be significantly high. Warren Buffet, great investor, has repeatedly warned against derivatives as a financial weapon of mass destruction.
Trading in options and future is quite different from investing. Their objectives and strategies are different. Derivative trading has a high risk and reward profile. If you are a new investor or you want to be a long-term investor and not a trader, derivatives are not for you. If you want to do both investing and trading, keep the capital separate. Use a specified capital in derivative market, the loss for which you can bear. Always remember derivative trading is highly leveraged and your entire capital can be wiped out. Of course, here you can make substantial gains too. Derivative trading is very specialized.
Initially it was the domain of professional and experienced persons only. But you can also learn practical tools to make profits in the Future Markets. Start by learning technical analysis. Study how to understand charts and to estimate the future price in the short term. Learn some common techniques to minimize risk. One way to minimize your risk is to place stop-loss orders after you initiate a position.
Keep discipline, close the position and accept the loss. It will automatically limit your downside. American Options are considered more liquid. Thus, the American Option can be exercised at any time during its life. On the other hand, a European Option can only be exercised at maturity. Though European options generally trade at a discount to its comparable American option, choose the American Option that gives you flexibility. If you decide to operate in a derivative market, use the collar strategy to limit your loss.
This does limit your gains also. If you are holding some number of shares of a company, write a call option and purchase a put option for equal number of shares of the company with the same expiry date. Uncovered calls are very risky. As a call writer, the profit you can earn is limited to the premium amount received but the loss you can face is unlimited. If you do not own the underlying asset and the market turns, you may lose huge money.
You will have to fulfill your commitment of delivery by purchasing the asset at a high price. As a put writer, the profit you can earn is limited to the put premium amount received but the loss you can face is unlimited. If the market turns opposite of your expectation, you will incur a huge loss. You will have to fulfill this commitment of delivery by selling the asset at a low price.
The Naked Option is an uncovered option and there is no cover to protect you if the market goes against your expectation. If you sell a Naked Call or Put Option, you should have underlying assets or an open position in the futures market to protect you from an unlimited loss arising out of adverse price movements. Always cover your risk when entering into a derivative market. If you believe that a stock is likely to move up, you can buy futures by agreeing to buy a specified quantity of the shares on a particular date at a fixed price. You will earn if the market goes up. But if the market turns opposite of your expectation, you will incur a huge loss.
You should limit your loss by buying put options also for the same shares. If you believe that a stock is likely to go down, you can sell futures through contract to sell a specified quantity of the shares on a particular date at a fixed price. You will earn if the market declines. But if the market turns opposite of your expectations, you will incur a huge loss. You should limit your loss by selling put options also for the same shares. But you are not sure in which direction it will move. You simultaneously purchase both a call and a put option with the same underlying asset, strike price and expiration date.
You will make a profit depending on the quantum of the price movement. But if there is no or negligible price movement, your loss will be limited to the premium paid. If you own shares, you can sell call options to earn money. Your risk is covered. If the market goes up and the buyer exercises the call option, you can deliver the shares. Here you need not to purchase the shares at high price to fulfill your commitment of delivery.
If you believe that a stock is likely to move up, you can buy futures or call options. But if the market turns opposite of your expectation, you will incur a huge loss in the case of futures. Your loss in call options is limited to the premium paid. If you believe that a stock is likely to decline, you can short sell futures or buy a put option. Your loss in the put option is limited to the premium paid. In the Long Straddle option strategy, you simultaneously purchase both a long call and a long put of the same underlying security.
The strike price and expiration date for both purchases should also match. You will make a profit from the price movement. The amount of profit depends on the quantum of price variation and the purchase premium paid. In a short straddle option strategy, you simultaneously sell both a put and a call of the same underlying security. If the price does not move or moves only marginally, you earn. Are you self-employed, an artist, freelancer, contract worker or small business owner?
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Why this market sell-off is different. Bear or bull? Five reasons to claw or thunder. The flip side of Sears: U. Investors gloomiest on world growth in decade: poll. Fidelity launches new company for trading, storing cryptocurrencies. Question : We are using a dividend approach for our investing accounts and until recently we have made out quite well. But now, too often the dividends are not beginning to make up for the loss in the value of the shares. Are there certain ratios or tools you use to identify which securities are more likely to avoid this fate?
Answer: In my Yield Hog columns, I examine companies from a number of different angles. But even the best companies stumble now and then. Sometimes, even when a company is doing everything right, its shares will still get clobbered. When the market decides to plunge — as it did this week — no company is safe. If you want to avoid market turmoil altogether, you could invest in guaranteed investment certificates.
But if you are going to own stocks — and I strongly believe most people should own some, either directly or through funds — there really is no way to avoid volatility and short-term losses. They are the price you pay for the superior long-term returns that equities deliver.
Learning to live with volatility — not escape it — is one of the secrets to building wealth. It can be helpful, during times such as these, to focus on the income your stocks are producing. Dividends are far more stable than share prices, and over the long run — again, assuming you hold high-quality companies — your dividend income will rise steadily.
Knowing that your cash flow is secure and growing can be a great source of comfort when the market is experiencing one of its periodic — and unavoidable — bouts of turbulence. Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length. The good news: Based on patterns seen over the past decade, now may be a good time to buy. David Berman will explain. Click here to see the Globe Investor earnings and economic news calendar.
For more Globe Investor stories, follow us on Twitter globeinvestor. Click here share your view of our newsletter and give us your suggestions. Want to subscribe? This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.
If you would like to write a letter to the editor, please forward it to letters globeandmail. Readers can also interact with The Globe on Facebook and Twitter. Read our community guidelines here. Customer help. Contact us. Log in. Log out. Article text size A. To view your reading history, you must be logged in. Log in Register. Scott Barlow Market Strategist. Published October 16, Updated October 16, Comments Please log in to bookmark this story. Log In Create Free Account.
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