Year: 2019

Female Entrepreneurs Enjoy More Trust Than Male

Female entrepreneurs are faced with rude questions about private life, family, marital status, or children. At the initial stage, investors implied they are a greater risk of loss.

By Gorica Gligorijevic

According to a new report from the Female Founders Forum, female founders are bringing more venture capital funding. More than male founders.
Startups led by female founders raised extra rounds in the percentage of 52, while the male result is 51%. This is data from the UK. It isn’t a big difference but we can learn something from this data.

First of all, female entrepreneurs are faced with investors skepticism when starting the business. But as time goes by they gain more trust. So, we can say that the biggest difficulty for female entrepreneurs happens in the beginning stages of setting up a business. Later, when they break that wall, it becomes easier.

To illustrate how difficult is for females in the early stage of their businesses there is an additional statistical result. The numbers in funding in the early stage are horrible for female-led startups. Only 21% of them have access to any investment. But when they succeed to get it, their startups raise cash faster than males’.

The stats show: after 4 or 5 years from the first raise round, 66% of female-led startups are winning second funding round. On the side without a female founder, the result is 62,8%.

Female entrepreneurs success

Female entrepreneurs have long been underrepresented in entrepreneurship. Male entrepreneurs had an advantage but that bias is changing now. Actually, since 2007, for example, in the US the number of female entrepreneurs has grown over 30%. In the moment of the census 2012, females were on the head of 36% overall US businesses.

If we take a look at the global entrepreneur scene, according to the Global Entrepreneurship Monitor, entrepreneurship amid women grew bt 13%. In the same period, male entrepreneurship grew by 5%.

The fact is that females are starting their businesses harder and with more barriers, but when they jump over them they show better results. Some studies revealed that if there could be more gender parity in entrepreneurship, US GDP might grow by $28 trillion by 2025.

And the picture is almost the same all over the world.

The worst places for female entrepreneurs

A study by HSBC Private Banking has exposed that over 30% of female entrepreneurs felt gender bias while seeking investors. Also, females get about 5% less funding than males while trying capital funding. The survey titled ‘She’s the Business’, studied 1200 female and male entrepreneurs in 8 distinct markets. The focus was on the entrepreneurs who have gained a minimum of £100,000 worth of funding. The study titled ‘She’s the Business’, taken by the HSBC Private Banking pointed: “Our research identifies the particular hurdles faced by women in the start-up community at critical points along the way, and explores the underlying, often subtle reasons why female entrepreneurs feel negatively impacted”

Gender bias

The scary fact is that some female entrepreneurs were questioned about marital status, children, suggesting them they are a bigger risk for investors. This study reveals that the UK is probably the worst place for female entrepreneurs to try to raise funding. More than half of them said they felt gender bias. The next worst country is the US. The interesting thing, in China, only 17% of female entrepreneurs said they faced similar bias.

Women entrepreneurs have made changes that can lessen gender inequality. First is an expansion in business networks for women. That should help them to make connections.

The gender inequality can decrease when more women make their wealth. Female entrepreneurs are inviting investors to take effort by making the fundraising process more transparent, incorporating at least one women in the panels, presenting precise criteria, and complete feedback after.

The gender disparity between entrepreneurs will not bring progress.

11th October 2019
How Long to Hold Penny Stocks?

by G. Gligorijevic

Trading penny stocks is one of the most hazardous investments in the market. They are extremely cheap, and this makes them volatile.

Do you want to make money with these cheap stocks? Well, you have to know the basics. And one of the basics is to know how long to hold penny stocks. Like with many other assets in the market, you have to know when is the right time to buy penny stocks and when it is to sell.

But why the penny stocks are so special?

As a difference from most blue-chip stocks, penny stocks ordinarily don’t match cyclical trends in the market. It may be more challenging to recognize how long to hold penny stocks. In reality, penny stocks will follow the general market trends in the sector they belong to.

If a positive event happens, most stocks in the given sector will follow the trend.

When we are talking about penny stocks, as you can guess, a minimum change in price will cause a great gain in percentages. To understand this, take a look at this company’s stock chart.

BroadVision, Inc. is an international software vendor of self-service web apps for business social software, automated commerce, business portals, etc.

The stock price of BVSN was yesterday $2.84 which is $0.16 up or +5.97% from the previous trading day.

But here is the tricky part. Penny stocks, no matter which company you are looking at, will always hit the peak. But what is following after the peak is what matters. Apps are booming nowadays. And typically for the penny stocks is that when the whole sector is rising most sector stocks will jump. When it comes to high-tech penny stocks, the volatility joined with positive feelings has produced some serious breakouts. What happens after those breakouts is more important. The stocks may collapse or to consolidate.

The consolidation can be difficult

The stock will surely pull back but to a level lower than the peak and almost every time, that new level will be above previous highs.
What you as an investor or trader has to do is watch the indicators. Pay attention to indicators that display overbought or oversold. Use the RSI indicator. Yes, it is a simple tool but can help you to determine what to do with your penny stocks.
Never expect from penny stocks to give you a huge gain by holding them for a long time. Holding them too long is an extremely risky strategy. It is always better to set small goals. For example, 20-25% profit. Also, you can use some other stock-trading indicators or combine them. But you have to know that indicators will not show you everything.

Some traders don’t even use them, they believe they have a good hunch.
When it gets to buying penny stocks or selling them it is all up to you. Of course, there are plenty of tools you can use to be surer if it is time to buy or sell. But even they are not sure-fire. This is particularly true when it comes to how long to hold penny stocks. The problem with the period of holding penny stocks is that despite all indicators and your confidence some bad news like the company’s annual report may ruin everything. So, watch your penny stocks carefully, and when you see they are rising, and indicators show they could rise more, don’t wait too long. Take profit. That is what matters at the end of the day.

You can hold penny stocks 5 minutes or 5 months but never more than 6 months. That’s the answer.

10th October 2019
Getting Started Investing is the Hardest Part

Getting started investing can be very easy and smooth since you need a little money to start. Investing is better than savings accounts because it can shorten the period of earning.

By Gorica Gligorijevic

Getting started investing isn’t a big deal, it shouldn’t fright you. Honestly, it’s so easy.

You know what, when I was just a little girl (my grandma used to sing this) my parents gave a lot of effort to teach me how to save money. Grandparents would like to give me money for some holidays with advice to keep it for rainy days. I had my savings account. From time to time, they would put some money there but most of the time they insisted I have to put. And I did it. Not frequently, I have to admit, but still. With time that habit got strong roots. Every month I’d put 10% of my earnings on my savings account. I am still doing the same. That first savings account is my 10%-account.

No matter how big or small portion is. 10% would every time end there.

I can only speak from personal experience but I am sure that other people could easily find themselves in the same situation.

I am not going to give you advice because I know that is almost impossible to put anything on your savings when you are living paycheck to paycheck. Yes, the amount of money that the majority have available to spend every month is insufficient to put something aside. Despite the old saying about money: If you save me today, I’ll save you tomorrow.

But we all know how important is to have something aside. And it is possible. Let me show you how.

How getting started investing

Okay, do you know the rule “pay yourself first”? Yes, starting this is hard. But do you understand the meaning of this rule? Of course, you do but why not tell it again. This means you have to put on your savings every month some amount of money. It doesn’t matter how much it is. A few dollars, or other currency you have. Just when you get your salary, put aside several coins. Every month. And you will see, that amount will grow with time. Try this. I am not going to tell you how should you spend this money. You may have enough for exotic travel, or to buy a car, or after some time you may have enough for house buying deposit. Just start.

No, I will never tell you to live below your means.

Sacrificing isn’t a good way to save anything except life. If you try this method, living below your means, you will be unhappy and you will always have the feeling that something was taken from you. It can be a trigger for something more serious. But, anyway, try not to purchase the famous brands, too expensive things. Do it occasionally if it makes you happy. But don’t let it be your goal. Life is a lot more than brands.

Create a budget

What you can do is to make a budget frame. It is a smart idea to write down the amount of money you have every month. You can do that in some excel spreadsheet, or just in some memo. Also, there is a lot of money management apps you can use. OK, that’s the first step. The next is to subtract all the costs you have, for example, taxes, debts, loans if you have (don’t worry, we all have), etc. What you have in your hands after these deductions is your net income. This is the amount you have to use as a base for creating your budget. So, track your spending to be able to make some adjustments if it is necessary and possible, of course. You should review your budget from time to time to be sure you are on a good track.

Getting started investing

Do you know that your money can work for you? Yes. Let’s assume that after one year of saving you have enough for exotic travel. Why do you need to make it right now? Go somewhere else and save e.g. $1.000 on your trip. That amount is more than enough for getting started off investing. You can do that with less money, here you will find how. You can choose to invest in some mutual funds (it is probably the best for starting), or stocks, or real estate. By investing you will generate a greater return than your money sleeping in your savings account. If you invest in something you will let your money work for you. The whole process may be done with your banker’s help. Your bank has financial advisors, investment advisors, they will tell you where to invest. Or you can engage some brokers.

What are the advantages of investing

One of the main advantages of investment is that you can have your money work for you to earn more. Let’s say this way. You don’t need to work more to earn more. Your investment will that for you. Investing could bring you a higher living standard, for example.

Further, you can apply investment plans for saving and growing money. The best part of investing is that you can be a long-term investor and money earned from investments can be spent to cover future expenses, for example, for your retirement, or buying a house, new car, your children’s higher education costs, or just you want to have more.

It is important for you to understand that investing isn’t gambling.

You can make a profit on investment due to research and careful choice of a suitable investment vehicle. It isn’t betting. The truth is that you can make losses in the market. That’s the reason to make less risky investments. Never mind if they have lower returns. Stay on them until you find yourselves capable to play riskier. That time may never come. You can stay in safe investments for your whole life. It is OK.

In that way, you will protect your property in the long run.

So, you can see that getting started investing isn’t always the hardest part. It can be very easy and smooth. You just need a little money to start. At least if you have some targeted amount you have to save in some period, investing will short that period. You’ll be able to gain it sooner. Sounds good, don’t you think?

10th October 2019
Bull Market – What Everyone Should Know?

A stock bull market means that investment’s price rises over a long period. Investors’ faith in stock prices lead the prices themselves in a self-fulfilling prediction. A bull market means profits for investors who own stocks.

What exactly is a bull market? If you are like me several years ago, you are confused with all these terms, conditions, maths, evaluations, or estimations of the stock market.

May I be honest with you?

The truth is that I know nothing about the stock market when I entered. I was foolish, I know. But my desire to earn, to be investor was something I never have had before. It was like this…

A personal story

A friend of mine had a grandfather. Extremely interesting figure. He came from Italy to the US as a kid. OMG, he was just 12 when he bought a ticket and came with nothing except dreams about fortune. To shorten this story, after several years of struggling he made his first success. He became a clerk in the office of some broker. Step by step, that wonderful man became very rich. People, listen. Very rich!

I wanted the same. ASAP! I asked him for the recipe. Oh, how I would like I never did such a thing! The first lesson was: You know nothing, have to learn a lot. C’mon, man! Give me something else to start. I thought I know everything. I have just finished university. With a diploma in the hands, I thought I know everything possible about anything. Of course, I was wrong.

That blessed man told me I had to learn. How to, where to go? I spoke with some friends. No help. So, I decided to start. I found a broker, put some money (not a lot) on my trading account, and started to find a stock. That was a nightmare! My first trade was totally a disaster! I placed another trade. The result was the same. In two trades I lost everything.

Ok, at least I tried. Then I went back to my friend’s grandfather and asked him to teach me.

“You get your first lesson, my son.”

OK, I understand. I have to go for basic. And I started to learn. You must learn to have a chance to earn.

The bull market was the point where I started. I can’t explain why, but I felt I needed to know what it is.

The term “bull market” indicates a stock market is rising. Of course, every single investor supposes the market to rise. Better say, has a hope it will rise. But having only hope means to stand in the mud. You can slide in a moment and fall. Having my previous experience in the mind, I needed more facts.

Nice from this zoological term

So, I learned that the bull market occurs when the prices rise for 20% or more.

Further, I learned that a bull market systematically produces higher highs and higher lows. A stock bull market happens in a strong economy. Nice again, thanks bulls. But what can drive a stock bull market, that I wanted to know?

And I found (with a little help from my friend) that great revenue, profit, and P/E ratio are the most important.

The revenue should be in line with the economy, meaning revenue should grow by the speed of economic growth. Here is some interesting part. As consumers spend more on goods and services rise the economy will rise. Super!

And I came to the companies profit.

The revenue must generate profit.

But some knowledge defeated me. I thought that great profit is a wonderful thing and it is good when the company can generate more profit from the same revenue money. But it is not so simple.

And the P/E ratio! The stock price is just the amount of money it will cost to buy a share of a company. But stock prices can vary. If the demand for the stock rise, its price will rise too. The P/E ratio estimates the relationship between a stock price and its earnings per share.

I was confused just as you are now, I believe.

In a bull market

In a bull market, you’ll notice powerful demand and limited supply for securities. This means that more investors want to buy securities and less want to sell. What will happen? The stock price will rise, right. Let’s go further! Let’s observe investors’ psychology.

In the stock bull market condition, investors have the hope of earning a profit. They are positive and optimistic. Oh, how I wanted to have that experience. Instead, I was scared to death. I needed more knowledge to sure what I am doing. My first trade was so stressful and, by the way, I wanted to show my older friend that I can learn.

In the periods of the bull market, people have more money.

And they are spending. In turn, it stimulates the economy to grow. My old friend told me something important and let me share that with you.

When it is the bull market, you should buy stocks in the early stage, while they are not too expensive. As the price goes up, just wait for its peaks and sell your stocks. And don’t worry if there are some losses in price. It is temporary. Just invest in more stocks with a higher chance of getting a bigger return.
I am grateful to him for this lesson. But there was one piece of advice that sounded the most important to me: “Play the market like toreador plays his wonderful performance in the arena. Peaceful, with confidence, elegant. Tickling the bull. You have to know where the limits are, don’t get surprised.”

I’ll not. Thank you, my dear mentor.

9th October 2019
How to Defeat the Bear Market?

If you want to know how to defeat the bear market read this post to the end.

By Guy Avtalyon

Who wants to know how to defeat the bear market? Are you scared about the bear market? Yes, you should be scared. A bear market is one of the cruelest events that can happen to investors.
Let’s make clear what the bear market is. A bear market is when the price of stocks falls at least 20% or more from its 52-week high.
It is essential to understand the order of stock market returns, actually the range of return. Investors who do not understand the order may experience lingering effects that will reduce their profits for a lot.

Where the bear market may occur?

In short everywhere. Stocks, bonds, currencies, gold, oil. Literally everywhere where the trade occurs. Of course, when the prices of computers drop we can’t speak about the bear market. We will rather speak about deflation in such a case.

The bear market is brutal and dangerous. It can blot out everything you made in the bull market. The main goal for every investor during the bear market is to keep as much as it is possible the earning and investment.

I hope you know how to survive a bear attack. Do you really know? Did anyone tell this before to you? Well, the best way to survive a bear attack is to pretend you are dead. Just lay down, don’t breathe, don’t move, keep your eyes open to know what is the next bear’s move, but don’t move them. Clear?

Do it all but without panic.

The same comes when the stock market is down during the bear period. Stay calm and don’t panic.

How not to panic when the stock prices are going down?

Just keep in mind that it is the period. Yes, it is a period when the prices are dropping. A slump in investor confidence will indicate the attack of a bear market. You will see them running away as if chased by a pride of hungry lions. They are selling stocks with the speed of light. Oh, how wrong they are! Where they are going when the bear market is full of investing opportunities.

People, there is no need to get panicked.

That’s the natural condition of the market. To paraphrase a famous investor Peter Lynch, if you don’t understand that recessions can occur or the stock market may drop, you are not ready to enter the market, or at least, you will not do well there.

But we’re all on the same ship. There is no reason to panic. You have to know one thing. The market isn’t the Titanic. It will not crash so easily. This boat will correct itself. It will not happen overnight. So you have to be patient and stay calm. Remember how to survive a bear attack? That is exactly how to defeat the bear market.

During the bear market, most stocks will fall. How to stay in stocks in such circumstances? Just count!

Will it be better to have money in a savings account with a zero interest rate? Nope! Even when the price decline, your stocks will give you a better return.

The secret strategy on how to defeat the bear market is to buy and hold. Investing shouldn’t be the last trump card in your hand. You must have more options in your overall financial situation. You can’t defeat the bunch of enemies with one shot.

Except, of course, if you’re Luke Skywalker on the bombing run against the air vent of the Death Star.

How to defeat the bear market?

Buy now! Notice, be greedy when others are afraid. You should buy the stock when everyone else is selling. Evaluate the companies, their historical data, don’t read the news for a while (trust me, I know how journalists can produce breaking news, and highlight the headlines). Just be calm and let it appear. Let the right decision to come to you. The doors will be opened. Enter! Take your position! Ignore the jerks! Don’t listen to them, find your sweet spot. And don’t panic, again!

In the worst-case scenario, which is the most extreme, you can sell all your stocks and put cash to the bank account (to be honest, I don’t think it is smart, but still) or reinvest the money in more stable assets such as short-term bonds. But you have to know, if you sell all your stocks it is capitulation. It is the official term not my opinion about your investing. But if you do so, how will you come back, how will you rebound? You will be lost out. And it will be very hard for you to enter the stock market again.

The best way is to take a defensive strategy. This means to buy the stocks of big, stable companies. They are strong enough to defend your portfolio from the bear market. Their share prices are less sensitive to a bigger decline. For example, food businesses.

A bear market is a feeling about a particular market mood.

The bear market received its name for the behavior by which bears attack their victims. So, just pretend you are dead when the bear market occurs.

8th October 2019
Millennials’ Fears to Invest in the Stock Market

One of four millennials doesn’t think investing is a good idea.
Holding on to cash is financial hara-kiri.
The stock market isn’t out-of-reach and with a little amount, you can start investing.

By G. Gligorijevic

Millennials’ fears to invest in the stock market are shown in statistical data. Millennials are skeptical of the stock market at a great percentage. Yes, people! I can understand that. It isn’t easy to understand the stock market and when you don’t understand something, you are getting afraid. Moreover, you have heard a lot of scary stories. But take a look at your peers. Almost 1/4 think that a stock market is a great place to put their money. Are they braver than you?

Investing in the stock market has nothing to do with bravery it is all about common sense.

I know what you want to say: There are a lot of other ways of saving. Yes, that’s true. But is the return so great as with stock investing? Take a look at baby boomers! They stole cryptocurrencies from you, for example, not to mention other assets. Digital money should be yours. While you are hesitating to invest in the stock market, baby boomers and Gen X have an advantage.

Some of you may say: Yes, but they don’t have loans, they have homes, etc.

Sorry guys, but I have to disappoint you. They also have debts, mortgages, loans but don’t think the best way to earn more is to put cash in the savings account.

I’ll show you how wrong you are if you prefer to keep your cash in the savings account and how much you can lose over the years. Actually, I would like to show you how much you can earn if you invest in the stock market. So let’s make some comparisons.

Which are Millennials’ fears to invest?

Do you really think you need a million dollars to retire? You’re going to be very discouraged. That amount isn’t even close to cover the cost of your bag of groceries. Inflation is what will make it tricky.

To put it simpler, your parents needed much less money to cover the cost of their bag of groceries when you were born. The costs increased by about 300% over the past 30 years. Scary! But you can’t destroy the inflation. Inflation is good for some things but it is another subject. Let’s stay stick with this one. Having this on your mind, are you still convinced that one million dollars is enough for your retirement? I am not sure. It is more like you will need more. By keeping your extra money on your savings account you will never earn enough to beat inflation.

Holding on to cash is financial hara-kiri.

If you don’t mind, I want to show you something.

Over the last 90 years, the returns of the S&P 500 was 10%. This is one example but the same is with other stock markets. How much your savings accounts pay you? Let’s say it is a high-saving one so you may have 1,5% per year.

Assume you have $50.000. If you put that amount on the savings account after 30 years you will have, without correcting for inflation, almost $80.000. This means your savings account could generate only $1.000 per year. But what would be your income if you invest your $50.000 in the stock market? After 30 years of investing in a nice portfolio, you could have almost one million dollars.

Can you notice the difference? Millennials’ fears to invest come from lack of knowledge about finances.

Why Millennials are afraid to put their money in the stock market?

Investing has never been easier, but millennials are still afraid to start investing.
You don’t need the fortune to get involved in the stock market. You are investing to make a fortune. Today we have online brokerages and robo-advisors. That makes investing pretty much easier than ever.

Further, data is easy to access. You don’t need to read newspapers to gather the info about some stock. Yes, sometimes it can be fun and may bring a lot of entertainment, who likes it. But you have plenty of other ways out there to find the stock. Data is now easy to access and usually totally free.
You can start at less than $1.000. No one will think you are a loser if you start with less than $1.000 or with just little as $100.

Take profit of this, and take command of your future.

Investing has never been easier

The stock market isn’t out-of-reach and with a little amount of, let’s say $500 you can start investing. That is an optimal amount that may provide you decently returns. Start with this, try your hand. Of course, for the first investment, you can use some robo-advisor.

Ask your bank advisor to create an investment portfolio for you. There is no need to do it yourself alone.

Millennials’ fears to invest are without a real reason. The money is like sand. If you squeeze it in your hand, it will go through your fingers.

Don’t do that. You can play better and become a real wealthy. Grab your chance to win!

7th October 2019
The Race For Zero In The Brokerage Industry

by Dana M. Lang

Three online brokerage rivals, following each other, are cutting their base commissions to zero. The first was Charles Schwab with the announcement that it will stop charging commissions for the US equity, ETF and options from October 7. Only a few hours later TD Ameritrade stated that they, too, were cutting fees. And finally, two days ago October, 2 E*TRADE stated the same.

At least, very strange decisions.

Peter Crawford, Schwab’s CFO, in his blog post explained:

“Why did we take this step, and why now?

… There has been a clear pause in the so-called commission wars among the “traditional” e-brokers since the price reductions we made in 2017. At the same time, we are seeing new firms trying to enter our market – using zero or low equity commissions as a lever. We’re not feeling competitive pressure from these firms…yet. But we don’t want to fall into the trap that a myriad of other firms in a variety of industries have fallen into and wait too long to respond to new entrants. It has seemed inevitable that commissions would head towards zero, so why wait? … That’s exactly what we are doing here – we’re making these pricing changes because we believe they enhance both our value proposition and our competitive positioning, encouraging the consolidation of client assets and trades at Schwab.”

Charles Schwab has more than 12 million users and $3,7 trillion in assets.

This pricing discount is almost 6% of its total net revenue.

Crawford wrote: “… commissions per revenue trade (CPRT) have been falling for multiple years, so the potential revenue impact in coming quarters could very well be smaller, holding all else equal.”

Who else is cutting commissions to zero?

Cutting commissions is good news, but investors have to know that shares of Schwab (SCHW) fell 10% on this news.

On the other hand, investors and traders got an opportunity to trade all over the world with almost no costs. Why do I say almost? Because there is still a per-contract commission on options trades of $0.65.

The same comes from TD Ameritrade. Just like Schwab, TD Ameritrade customers will not be free of all trading costs. The per-contract commission is the same, $0.65.

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And the last in this row of less-commissions is E*TRADE. On Tuesday, almost immediately after the market closed they revealed that will cut the base commission to zero. But this brokerage went a step forward, it will reduce the options contract cost for all traders at $0.50 per contract.

These reductions in trading costs will have an impact on less active traders.

The financial impact of cut commissions

E*Trade’s commission revenue was 17.7% of its net revenue for the first 6 months, TD Ameritrade’s commission revenue was around 30%, of its net, and Schwab’s commission revenue made up 6% of total net revenue. The biggest loser here, as we can see is TD Ameritrade.

Will trading commissions be cut at all online brokers?

Some of them charge a $1 per month or have a limited zero-commission offering. But with some of them, for example, Robinhood doesn’t have a commission but if you trade more than 200 shares at once, that will cost you more than any commission paid. And don’t be worried about brokerages. They will make their revenues on the ways we can’t even imagine. Big numbers are in play.

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We are waiting for Fidelity, TradeStation, and other online brokers. What will be their response? It’s not over. We are expecting more and more brokerages to follow those examples. But keep an eye on your broker’s charges, forget the commissions.

How much interest you have to pay for your inactive cash?

Does your broker has any other offer? How much you have to pay for the assets you trade the most? By the way, this cutting has no influence on future trades.

READ THIS TOO: Trading With Signals

4th October 2019
How to Calculate the Fair Value of Your Stock

Fair value points to the genuine value of a stock or other security that is agreed between the two parties, the seller and the buyer. It can be calculated for the assets that are traded, but not for the products that are being liquidated. It can be a challenge to calculate the fair value if there are no obviously visible market prices. The point of this is to define the price or value that is fair for both sides, the seller will not be on the losing side, and the buyer will end with a satisfying price.

For example, a trader Anna sells its stocks to the trader John at $50 per share. The trader John believes he could sell it at $70 per share once he gets them. So, John buys 1,000 shares at the price Anna is setting. It is a fair value because both sides agreed the price and the trade is beneficial for each of them.

How to calculate fair value?

You can do it with comparable information, for example.

Use respectable financial news and find the last closing price for the stock you want to buy. Say, you want to buy 100 shares of some company and the last closing price of their stocks was $30. The fair value of 100 shares would be 100 x 30 = $3,000.

Also, you can calculate the fair value using the discounted cash flows.

For example, you want to examine investment that offers a range of cash flows. And you can’t find anything comparable. So, how to calculate the fair value of the investment?

Let’s say it is an investment of $10,000 and it generates $2,500 cash flow per year. What you have to do is to write down the cash flows for, let’s say, 5 years.

$10,000

1 – $2,500
2 – $2,500
3 – $2,500
4 – $2,500
5 – $2,500

Assume that the rate of return is 6%, and first calculate the discount factor so that you could calculate the discounted cash flows for each year.

For calculation purposes, the percentages need to be transformed into whole numbers. It is done by adding 100 to the number of percents and then dividing that sum by 100, i.e. (100+6)/100=1.06. Now you can calculate the discount factor for each year by rising to power of that year this number, i.e. to the power of 1 for 1st, to power of 2 for 2nd, and so on.

That should look like this:

1.06^1 = 1.06
1.06^2 = 1.12
1.06^3 = 1.19
1.06^4 = 1.26
1.06^5 = 1.34

The next step is to divide every $2,500 cash flow by the discount factor for each of these five years.

$2,500 / 1,06 = $2,359
$2,500 / 1,12 = $2,232
$2,500 / 1.18 = $2,100
$2,500 / 1.26 = $1,984
$2,500 / 1.34 = $1,866

This produces five discounted cash flows of: $2,359, $2,232, $2,119, $1,984, and $1,866.
Add these five numbers to -10,000. That was the initial investment, do you remember? Let’s see the result. The result is 541. This means that using a 6% rate of interest, the fair value of this particular stocks is $541.

Also, you can calculate the fair value for a stock is by using the P/E (price to earnings) ratio.

The formula to calculate the P/E ratio is

the current stock price per share / current earnings per share

What you have to do is to compare P/E ratios among companies from the same industry. For example, if you want to find the fair value for a utility, you have to compare the P/E ratio to other P/E ratios in that industry.

If the company has a high P/E ratio it usually means the company is overvalued. On the other hand, a low P/E ratio shows the company is undervalued. For example, if you hold a stake of shares in a company with a P/E ratio of 4 and the average P/E ratio for other companies in the same industry is 2, you can be sure that your stock is expensive or, in other words, overvalued.

The next thing to do is to modify the stock price to the average P/E ratio. Let’s say the average P/E ratio is 2, and the P/E ratio on your stock is 4. This means the current price is $8 and earnings per share is $2. We know that by following the P/E ratio formula.

Use the P/E calculation to find what the stock price needs to have a P/E ratio of 2.

The equation is

New P/E ratio x Earnings per share

And the answer is 2 x $2 or $4. The fair value for this stock is $4, not $8.

Bottom line

The puzzle of what security is really worth is one of the basic questions in investing. By calculating fair value, you will find the answer, maybe not exactly but you will be very close to it. Although, fair value calculations are essential to any investor’s stock.

Ways to fair value can classify value investors and growth investors.

The growth investors will estimate earnings that can be unstable. On the other hand, value investors will buy stocks at a discount to their fair value. They will wait for the fair value of their investments to rise. But both kinds of investors have to know that their companies can stumble. Also, the company may get significantly bigger which will cause keeping historical growth rates difficult.

The point is to buy stocks that will rise to meet the fair value of the company.

You might find these interesting too:

>>> The Average Daily Trading Volume How to Calculate

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3rd October 2019
Stock Investing – The Pros and Drawbacks

5 min read

by G. Gligorijevic

Stock investing isn’t just buy and sell stocks. It is the whole philosophy and math. Well, you have to learn more about the logic behind the stock market.

When you want to buy a stock, that means someone else has to sell it. Be aware, that someone has worked on the numbers and concluded that the wise move is to get out of the position right now. Do you know why that one decided like that? How to be sure you are doing a good job if you pick that stock?

Stock picking is a struggle against other investors.

Maybe they know just like you, maybe more, maybe less.

The basic formula is easy: Pay a value that’s smaller than the long-term, per-share price of the underlying business. The philosophy of investing is in understanding how to determine that value.

Maybe you prefer to be a “growth” investor. So, your focus should be on the analysis of a company’s potential for future profits. You should choose the one growing fastest. As a growth investor, you are interested in great earnings. The P/E or price-to-earnings ratio is a popular metric for valuing stocks. Growth investors often are willing to pay P/Es of 20 or more.

Value investors usually buy stocks with lower P/E ratios. This appears more traditionally. But buying cheap has some risks. Very often when some stock is cheap it is a sign that the company has some problems. Is this true? No! Simply NOT! There is no easy way or formula that helps you to pick a fabulous stock to deal with. You have to research and make a decision.

But maybe you should invest in funds than individual stocks.

Stock investing demands time and intense analysis. It also needs notable cash to create a fully diversified portfolio. A choice is a mutual fund. That will spread your bets between hundreds of stocks.

Stock investing is attractive and enjoyable for a lot of people. If you want to enter the market on your own, you can use funds as the essence of your portfolio. Later, just set aside a small account for your selection of the individual stocks.

One of the main benefits of investing in the stock market is the chance to grow your money. Over time, the stock market performs a rise in value. Yes, the prices of individual stocks rise and fall daily. But, investments in solid companies that are able to grow, tend to make profits for investors. Moreover, investing in many different stocks will boost your wealth by leveraging growth in different areas of the economy. It will bring you a profit even if some of your individual stocks lose value.

Stock investing gives a lot of benefits to investors.

Owning stocks means to take advantage of a growing economy.
How does it come?
That is a kind of chain of good fortune. Everything is connected and logical.
Assume you want to buy a stock you’ve been examining for some time. And finally, they announce a surprise bit of good news and the price rallies sharply higher and so you jump in.
Let’s say, you have a sudden profit on your hands but, the stock reverses. It has retracted back to your entry price. Actually, it has gone beyond your entry price and you are a loser! You may think that it’s just market games and “shaking out weak hands”. So, you decided to hold on, knowing that patience is a trading power. Finally, you’re down further than you expected to be in the stock.
If you were ultra convinced of the upside potential, you may see this as an opportunity to buy more shares at a better price. On the other hand, you may panic and sell as you continue to watch the price trend further against you.

What happened?

Experts developed the “Efficient Market Hypothesis” which states that stock prices instantly diminish all news. So, there’s no possible way for a trader to profit from news releases. That experts feel that strongly.

Here is one example.

Maybe two years ago, Samsung announced it is expecting profits to hit record levels in the third quarter. And almost three times as much as the same period the year before.
Following the announcement, their share price dropped.
That might seem counter-intuitive. But there are other factors at play. At the same time as announcing this expected profit win, Samsung’s CEO quit. He told that the company was going through an “unprecedented crisis” and that “a new spirit and young leadership” was needed to respond to the challenges. In this case, the decline in stock price can be understood. You know, if the CEO is worried, perhaps investors should be too.

But sometimes share prices drop on good news and it is really hard to understand why.

Market expectations are always priced into the market price. Say, for example, a company has a forecasted earning per share of $1. They’ve never missed an earnings target. So investors expect the firm will actually earn $1.10 per share. They think it’s currently undervalued. The firm then announces an earnings report of $1.05 per share.

Good news, right? They beat their forecast.

But, crucially, because investors thought the firm should earn more than this $1.05 per share, the stock’s price was bid upwards to a price that reflected earnings expectations. Because the real earnings are less than the current market price, the stock price drops as investors sell off their shares.
This effect can be intensified by investors who completely copy what everyone else is doing. In this case, selling off their shares. Every investor must have the bigger picture. That’s the point.

What you have to do?

If the stock is basically strong, hold the stock despite the stock price going down. It won’t matter much in the long term if the company. Most of the great companies focus on their long-term goals. This means that a few times, they might miss the short-term expectations.
But, short-term interests shouldn’t be ignored completely by the company or investors. Nevertheless, if the company is overall performing good in the long run, then there’s no point of worry. In any business, there will be few difficulties in the short run.
Additionally, do not get connected to short-term expectations. Analysts will keep on making expectations every quarter. It’s their job and this is what they are paid for. If a company keeps on working for the short-term goals, it might never be able to focus on long-term growth.
Overall, if the temporary setbacks are not going to affect the long-term profitability of the company, then ignore the short-term fluctuations and hold your stock.

2nd October 2019
Dow Jones Dropped More Than 300 Points, But Two Stocks Hold Gains

3 min read

The Dow Jones dropped more than 300 points after frustrating economic data stopped an early rally in the stock market on Tuesday. The stock market rally experienced a strong reversal. The rally appeared under more pressure as worsening U.S. manufacturing index activity renewed recession fears. JPMorgan Chase (JPM) dropped below a buy point, as Treasury yields declined.

The Institute for Supply Management’s manufacturing index declined to its lowest level previously seen in June 2009.

The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) both lost more than 1%. All sectors declined, but industrial stocks were damaged the most.
But some of the Dow Jones Index stocks made the largest gains, Apple (AAPL) and Visa (V). Apple stocks rose for 0,5% and Visa increased by 1,4%. Visa has been consolidating below the 50-day line the past three weeks after pulling back from a 184.17 buy point of a flat base.

Apple scored a new high early and gained as the market reversed. It regained a 221.47 buy point of a flat base and continues in buy range from the entry. The market uptrend is under pressure, so you must be aware that all trading is riskier now.

According to investors.com “investment banks, machinery, and telecom stocks led the downside among IBD’s 197 industry groups.” On the other side, long-term medical care, gold miners and food, and beverages were between the several groups resisting the decline.
Hexcel (HXL) fell 6% to a two-month low, retailer Boot Barn Holdings (BOOT) sank 5% in below-average volume.
Israeli medical technology company InMode (INMD) and Visa were some of the few IBD 50 stock winners with increases of 1% or more.

The point is that just one strong market session could upgrade the whole picture, but if another large sell-off occurs could freeze the stock market rally.

China trade discussions will continue next week, but there are possible risks for the weak stock market rally. Investors have been hoping for a China trade suspension of hostilities. That was the reason why the market wasn’t down on Monday.

The added uncertainty to the markets is the Trump impeachment inquiry. For now, it doesn’t make to much damage to the US stock market but investors may become more nervous because of all of that.

Is this a scary start to October?

Markets are already in bubble territory. Dow, S&P experienced the worst day in more than 5 weeks after gloomy US manufacturing report. Manufacturers quoted the US-China trade war as pressing on demand and making materials more expensive, according to the ISM.

“The disappointing data is only fanning long-standing fears of slowing global growth,” said Alec Young, managing director of global markets research at FTSE Russell.

Stocks didn’t like this data pretty much.

Investors came into Tuesday’s session, with increased emotion around the U.S.- China trade relationships hoping that it will come to an end soon.

But stocks dropped after the Institute for Supply Management (ISM) stated U.S. manufacturing activity dropped last month to its lowest level in a decade. The U.S.-China trade concerns caused that. The weak manufacturing data come from Europe too. All of that forced investors to sell equities and bought bonds.
The market recognized the ISM report as a warning the trade war is taking increasing damage to the economy.

What is next?

Yes, Dow Jones dropped but investors are waiting for data from ADP and Moody’s Analytics. They are planned for release on Friday. For investors, it is a kind of preview to the government’s monthly job report. So, we will see.

2nd October 2019