Forex Trading

Stocks – Are They Nothing More Than Pieces of Paper?

Contrary to popular belief, stocks are not just pieces of paper. When you own a portfolio of stocks, you really own tiny fractions of several companies.

If you think that this isn’t the case, just ask the lucky owners of Petco or Reebok stocks. In each company’s case, a larger company wanted to buy them. The only way to take over a company with publicly traded stocks is to buy all of the shares.

If you had Petco and Reebok stocks at $20 and $35 apiece, would you sell them to a larger company for less than that? Of course not. For $20 and $35? Probably not, since if you wanted those prices, you could have sold your stocks in the open market.

The only way for larger companies to take over smaller ones is to offer a premium to the owners of their stocks. In Petco’s case, for example, the stockholders received a 50 percent premium. That means if you had $10,000 worth of Petco stock, the very next day you would have had $15,000. Not bad for a day’s work!

Big profits like this can only happen when you take the initiative to start investing in stocks. But if you still think that stocks don’t have real value, read on.

What Gives Stocks Their Value?

Stocks go up in value because they are in demand. Stocks go down in value because they’re not in demand. This is the simple truth, but a misunderstanding of it leads to the notion that stocks are “just pieces of paper.”

Sometimes, stocks have an increased or decreased demand for no good reason. But the root value of stocks can be found in the value of their underlying businesses.

Stocks in Action – Fed Ex

For example, take a look at fairly stable company like Fed Ex (ticker FDX). It had annual profits of $1.8 billion in 2005. Since Fed Ex has 305 million shares of stock outstanding, this equals about $5.90 earnings per share (EPS).

Fed Ex’s share price is around $112 per share. This means it’s P/E ratio is about 19 (112 / 5.90 = 18.98), which is about the average P/E ratio for stocks in the S&P 500.

When you own a share of Fed Ex, you own a share of its profits. You own a share of the cash in its bank account, and you even own a share of its property, plant, and equipment. In the case of Fed Ex, you own a share of each of its trucks!

Now of course, if you own 100 shares of Fed Ex, that’s only 100 shares out of more than 300 million – even a million shares ($112 million worth) would be less than 1/3 of 1 percent of the company! In other words, your one share doesn’t entitle you to much decision-making power with what is done with that $5.90.

You might like them to buy more trucks, advertise more, or maybe even send you the check for $5.90 (a dividend). But you’re just a little guy, and nobody listens to the little guy. You can, however, vote in shareholder elections to decide the corporation’s board of directors.

The owners of stocks oversee the board, the board oversees the CEO, and the CEO oversees the company. That’s how owning stocks works.

The Real Value of Stocks – When Stocks Buy Other Stocks

So you can’t decide what to do with Fed Ex’s $5.90 in profits, because you only have 100 votes out of 305 million (you get one vote per share of stock that you own). But you know who could decide what Fed Ex would do? Someone who owned all 350 million shares.

Let’s say that the stock market took a real nose dive for some reason. That can happen. But let’s also say that Fed Ex’s business kept rolling along, generating profits in the $1.8 billion range like it did in 2005.

How low could the stock go? Imagine the stock went from $112 all the way down to $45. Now its P/E ratio would be 7.6 (45 / 5.90 = 7.6), assuming it continued to generate $5.90 in earnings per share. At this price, the entire Fed Ex company might be an attractive acquisition candidate for someone like UPS.

If UPS bought all 305 million shares of Fed Ex, it could do whatever it wanted with that $5.90 – it would be money in the bank. Better yet, by reducing competition and eliminating some overlapping costs, that $5.90 per share could easily turn into $6.50.

So how much would you sell your $45 share of Fed Ex for? Less than $45? Of course not. You’d be surprised, but UPS might be willing to offer as much as $65, if it thought it could get Fed Ex’s profits up to $6.50 (thereby recovering their investment in ten years).

Now you might be saying, “Hey, wait. I bought the stock at $112 and I’m supposed to be happy I can sell it for $65?” That’s not the point. The point is that stocks do have real value. If you’re a conservative investor, you want to buy stocks that are already beaten down and could potentially become acquisition candidates.

Just the possibility that someone could acquire an entire company keeps stocks from falling too low. And that’s what makes stocks more than just pieces of paper.

Stocks – Are They Nothing More Than Pieces of Paper? / William Smith

William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Stock Picks (All is Free)

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Welcome to the World of the Best Penny Stocks

There is an enormous amount of money that can be made in such type of Best Penny Stocks investments – but in most cases, if you or someone that understands and has the expert knowledge & the know how of what to buy, and when, can benefit better.

What are Best Penny Stocks?

Penny stocks are referred to as shares that trade from a fraction of a penny to a much higher amount. The biggest advantage of Best Penny Stocks is the ability to turn a small investment into a fortune.

The primary thing to do is to get the Penny Stocks leads that can easily either do your own research, or maybe use the services of a Best Penny Stocks newsletter. The dominant course of action involves a combination of the two firstly getting leads from professionals, then secondly, looking into those companies yourself and deciding if it is right for you.

How to get started?

Well! Investing is easy. To trade any investment, all you need to do is to create a brokerage account. Your broker will then take a small fee each time you buy or sell a stock. You simply need to contact a brokerage service and open an account with them, and then, you can easily buy and sell the stocks.

They will guide you through the simple process of getting started. Then you can easily start reviewing articles and start getting independent rankings of the unsurpassed brokers.

Nowadays, investors are fast learning about the Penny Stocks, which represent all the small companies across the world, also are fantastic and have to grow or be discovered yet.

Many investors like the Best Penny Stocks, because it does not take a big cash outlay to get them started, and can easily own a piece of a good company inexpensively too.

Generally speaking, if someone that understands and also has the expert knowledge has the desire to jump start on making money from Penny Stocks, you can almost definitely gain the benefits of a penny stock professional.

To uncover the hottest stocks before they make their moves, it always necessarily requires resources and time that most individuals do not have to spare. In addition, it takes a market knowledge that can only be developed by years of experience within the trenches.

Many investors consider stocks as the Best Penny Stocks when it sells for less than $1, or maybe literally, pennies per share. These are often considered to be the same as micro cap stocks, but their definitions are surely different.

Penny stocks trade at prices below $5, while micro cap refers to a stock with a market value of all the outstanding shares, which is below $150 million. Penny Stocks are often talked about, and is a much-debated topic in the financial circles.

A consistently high volume of shares that are actually being traded is one thing that you would definitely look for in a Best Penny Stocks investment. But be cautious because it’s possible to skew the results of average volume trading. So try to go with the consistent volume to obtain a good idea of what the stock will provide as an acceptable rate of return.

Another thing to remember, is to make sure that the liquidity of the Penny Stocks is something you make a note to look at regularly, how many individuals are selling and purchasing everyday?

Do not end up being left with almost the dead money, efficiently money that you can easily only release by, selling the Penny Stocks at the bid and losing money because the price is diving.

They are riskier than average investments, but have tremendous reward potential, indeed, some Best Penny Stocks have gone from 25 cents to $20.00, while others may seem to have really become worthless.

Beware of the Downside too!

The downside is the risk, volatility of the shares, and the lack of corporate transparency. Everybody dreams of finding a stock that can be acquisitioned on the splendid inexpensive hang on, while it skyrockets in value, making them wealthy beyond their dreams.

Despite all of the concerns, Penny Stocks can be a major investment draw due to the huge profit potential. But don’t buy them from consumers using high-pressure sales or scripted sales tactics. Also, do not ever trust anyone that promises or guarantees you a return.

If a broker does, it’s illegal and do not trust a seller who won’t give you the time to do your own research. After all, it is you who is going to benefit from Best Penny Stocks at the end.

Welcome to the World of the Best Penny Stocks / William Smith

William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Best Penny Stocks (All is Free)

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How Do People Trade In Commodities? Is There Big Bucks To Be Made?

Remember the old TV show, WKRP in Cincinnati, in which the dorky Les Nessman would always give the pork bellies report?

Or how about the 1980’s movie, Trading Places, in which Eddie Murphy and Dan Akroyd corner the orange juice market? These are both examples of commodity trading in the popular media.

Commodity trading is one of the fastest growing sectors of the financial markets, and for good reason – in 2006, commodity prices have gone through the roof. If you haven’t heard anything about the prices of pork bellies or orange juice skyrocketing, that’s because there is much more to commodity trading than just these two items.

Corn, oats, soybeans, wheat, soy meal, bean oil, cattle, coffee, sugar, cotton, steel, copper, silver, gold, platinum, natural gas, crude oil, and gasoline are just a few of the dozens of commodity trading options. Metals – steel and gold, in particular – and petroleum-related products, have seen major price movements in the past year.

Commodity Trading – Buy Low, Sell High; Or Sell High, Buy Low

If you remember back to Trading Places, the classic commodity trading comedy, Eddie Murphy and Dan Akryod entered the trading pit and immediately started selling orange juice contracts.

They didn’t own any orange juice, but they were able to sell it anyway. This is how commodity trading works – you either hope to buy low, sell high; or sell high (first), and then buy low.

Commodity Trading Hedgers

This aspect of commodity trading can best be understood by taking a look at the market participants. On one hand, you have the hedger. Hedgers want to guarantee commodity prices in order to lock in profits or avoid excessive losses.

For example, imagine a jewelry maker who needs 1000 ounces of gold to make a collection of necklaces. He needs the gold in six months, but the way gold prices have been going up, he’s worried that he won’t be able to afford it.

To hedge in the current price of $500 per ounce, the jewelry maker could buy ten 100 ounce futures contracts on a commodity trading exchange. Then six months later, if the price has gone to $700, the value of his contracts will have gone up by $20,000 each.

He can sell the contracts for a profit and use the proceeds to buy the actual gold, which will result in a net price of $500 per ounce.

If, in the above example, the value of gold had actually fallen to $400 per ounce, the jewelry maker would have lost money. He’d be locked in to paying $500 per ounce for gold when the actual market value was only $400.

Still, if the jewelry maker’s primary concern was to not end up paying $700 per ounce, this will have been a valuable commodity trading experience. In this way, hedgers use commodities contracts like insurance.

Commodity Trading Speculators

On the other side of commodity trading is the speculator. This is someone who has no business interest in wheat, crude oil, or copper, but essentially gambles on the price of each commodity going up or down.

Commodity trading is very popular with speculators because it requires very little margin. This means that commodity trading speculators can control thousands of dollars worth of commodities for just a few hundred bucks.

The downside of leverage in commodity trading is that it can lead to very big losses that you might not be prepared for.

For this reason, your credit history will be more important when applying for a commodity trading account than an account to trade in almost any other financial market.

How Do People Trade In Commodities? Is There Big Bucks To Be Made? / William Smith

William Smith the author provides additional financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Commodity Trading (All is Free)

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