Tag: Traders

All traders related articles are found here. Educative, informative and written clearly.

How to Value a Company And Find The Best To Invest?

For investors, company valuation is a crucial part of determining the potential return on investment. Start by looking at the value of the company’s assets.

One of the most confusing questions for all beginners in the market is how to value a company. The worth of the companies is important for every investor. And the question of how to value a company has a sense for any investor, entrepreneur, employee, and for any size company. Thus, you have to find the best way to determine the worth of the company. Do you need to ask to see the company’s books or you can value a company based on the existing customers or news? How much time will it take to learn how to value a company? When you notice some interesting companies where to go first? Yes, you can ask in many ways how to value a company.

The first comes first.

For every investor, the value of a company is a crucial part of determining the potential returns on investment. Every investor should know if the company is fair valued, undervalued, or overvalued because it has a great impact on a company’s stock or stock options.

For example, a higher valuation might indicate the options will grow in value.

So, if you want to know how to value a company, be prepared to take into consideration a lot of the company’s attributes. This includes revenue and profitability growth, stage of growth, operating experience, technology, commodity, business plans. Yes, but the list isn’t full without market sentiment, growth rate, overall economic circumstances, etc.
To understand how to value a company in a simple way, you can take a few factors into account.

What metrics to use to value the companies?

Here is how to value a company and basic metrics you can use for that. You can use the P/B ratio and P/E ratio. These two metrics are important when you want to evaluate the company’s stock. These basic metrics you can apply to almost all types of companies. But it is important to know the other and often unique factors that can affect the process of how to value a company.

One of the variables in the valuation of a company’s health is debt. But a company’s debt is not continually easy to measure or define. So this metric can make the company’s value difficult to value.

When you want to value a company or stock, it is smart to use the market approach that includes a comparative analysis of precedent transactions and the discounted cash flow which is a form of intrinsic valuation since it is a detailed approach, and also uses an income approach.

How to value a company’s stock?

There are several methods that may give you insight into the value of companies’ stocks.

They are the market approach, the cost approach, and the income approach. The cost approach means that a buyer will buy a share of stock for no more than a stock of equal value. The market approach is based on the belief that in free markets, supply and demand will push the price of a stock to a point where the number of buyers and sellers match. The income approach defines value as the net current value of a company’s future free cash flows.

Market value as a method on how to value a company

The market value is simple. It represents the shares trade for but tells us nothing about stock’s intrinsic value. Thus, we have to know the stock’s true worth. This is a key part of value investing.
The stock value is shown in stock price. The P/E ratio is helpful to understand this value. To calculate the P/E ratio just divide the price of a stock by its earnings per share

When the P/E ratio is high it is a signal for higher earnings for investors. This ratio is helpful to use if you want to know how to value a company. The P/E ratio shows the company’s possible future growth rate. But you should be careful when using the P/E ratio to compare similar companies in the same sector.
Investors connect value to stocks with P/E ratios. If the average P/E ratio is, for example, 20 – 23 times any P/E ratio above 23 times earnings is classified as a company that investors keep in high

Investors and traders use the P/B ratio to compare the book value of a stock to stock’s market value. To calculate the P/B ratio use the most recent book value per share and divide the current closing price of a stock by it. If the P/B ratio is low you can be sure the company is undervalued. This metric is very useful if you want to have accurate data on the intrinsic value of the company.

But be aware, there are several P/E ratios and numerous variations, thus you have to know which one is in play. For more about this READ HERE

Cost approach or book value

Book value is the amount of all of a company’s tangible assets (for example equipment) after you deduct depreciation. So, when we are talking about the company’s “net capital value” it means the book value, estimated by the company’s book of net tangible assets over its book of liabilities. To calculate the book value you have to divide the net capital value by the number of outstanding shares. The result is a per-share value. The book value never takes into account the brand, keep that in mind.

Income as a method on how to value a company

Use the capitalized cash flow to calculate a company’s worth when future income is expected to stay the same as it was in the past. But if you expect the income is going to vary, use the discounted cash flow method.

Calculations are simple, divide the result from capitalized cash flow or discounted cash flow by the number of shares outstanding and the figure you get is the price per share.

Bottom line

By understanding how to value a company you’ll be able to understand the essence of making investment decisions. No matter if you want to sell, or buy, or hold the shares of stock in some company. Warren Buffett, for example, uses a discounted cash-flow analysis.
Sometimes, the company valuation is held as the market capitalization. So, to know the value of the company you have to multiply all shares outstanding by the price per share. For instance, a company’s price per share is $10 and the number of outstanding shares is 4 million. If we multiply the price per share by the number of shares outstanding we will find this company is 40 million worth.

To be honest, it isn’t too hard to value the public company. But when it comes to private companies it can be a bit harder. You can be faced with a lack of information. For example startups. They don’t have a financial track record and you have to value these companies based on the expectation of future growth. To value an early-stage company can be a great challenge.

Before you invest in any company, you’ll need to determine its value. This is important because you need to know if it is worth your time and money. Think about the company’s value as its selling price. Maybe it is the simplest way.

27th March 2020
MACD Indicator – Moving Average Convergence Divergence

MACD is one of the most popular indicators used among traders. It helps identify the trends direction, its speed, and its velocity of change.

MACD is short for “Moving Average Convergence Divergence.” It is a valuable tool. Traders know how important it is to use MACD as an indicator. Also, how reliable is using this tool in trading strategies. But that can wait for a while, firstly, let’s explain what is Moving Average Convergence Divergence or shorter MACD.

It is a trend-following momentum indicator that presents the correlation between two moving averages of a stocks’ price or in some other assets. We can calculate the MACD, it is quite simple.

Just subtract the 26-period EMA from the 12-period EMA. EMA is an Exponential moving average.

Here is the formula:

MACD = 12-period EMA − 26-period EMA

The 26-period EMA is a long-term EMA, while 12-period EMA is a short-term EMA.

If you need more explanation about EMA, let’s say that the exponential moving average or EMA is a type of MA, moving average. EMA puts more weight and importance on the most recent or current data points. That’s why the EMA is also referred to as the exponentially weighted moving average.

The result we get by using the calculation is the MACD line.

The MACD is useful to identify MAs that are showing a new trend, no matter if it is bullish or bearish. But it’s the priority in trading, right? Finding the trends has a great impact on your account since that is the place where you can earn money.

To recognize the trend you will need to calculate MACD as we show you, but you will need the MACD signal line, which is a 9-period EMA of the MACD and MACD histogram that is calculated:

MACD histogram = MACD – MACD signal line

The main method of reading the MACD is with moving average crossovers. When the 12-period EMA crosses over the longer-term 26-period EMA pay attention since the possible buy signal is generated.

You can buy the stocks or other assets when the MACD crosses above its signal line.

The selling signal is when the MACD crosses below this line.

MACD indicators are interpreted in many ways, but the general methods are divergences, crossovers, and rapid rises/falls.

How the MACD indicator works

When MACD is above zero is recognized as bullish, but when it is below zero it is bearish. If MACD returns up from below zero it is bullish. Consequently, when it goes down from above zero it is bearish. When the MACD line crosses more below the zero lines the signal is stronger. Also, when the MACD line passes more above the zero lines the signal is stronger.

The MACD can go zig-zag, it will whipsaw, the line will cross back and forward over the signal line. Traders who use this indicator don’t trade in these circumstances because the risk is too high. To avoid losses they usually don’t enter the positions or close them. The point is to reduce volatility inside the portfolio.

The divergence between the MACD and the price movement is a more powerful signal when it verifies the crossover signals.

Is it reliable in trading strategies?

MACD is one of the most-used technical indicators. It is a leading and lagging indicator at the same time. So it is versatile and multifunctional, so being that it is very useful for traders. But one feature of this indicator is maybe more important. The indicator has the ability to identify price trends and direction, and forecast momentum, but it isn’t complex. It is pretty simple, so it is suitable for beginners and elite traders to easily come to the result of the analysis. That is the reason why many traders view MACD as one of the most reliable technical tools.

Well, this tool isn’t quite helpful for intraday trading but can be used to daily, weekly or monthly charts.

There are many trading strategies based on MACD but basic strategy employs a two-moving-averages method. One 12-period and one 26-period, along with a 9-day EMA that assists to deliver clear trading signals.

Operating the MACD

As we said, it is a versatile trading tool and the indicator is strong enough to stand alone. But traders cannot rely on this single indicator for predictions. They have to use some other indicators along with MACD to ramp-up success in forecasting. It works great when traders need to identify trend strength or stock’s direction.

If you need to identify the strength of the trends or stocks direction, overlapping their moving averages lines onto the MACD histogram is really helpful. MACD can be observed as a histogram alone, also.

How to Trade Forex Using MACD Indicator

If we know there are 2 moving averages with diverse speeds, we can understand the more active one or faster will react quicker to price change than the slower MA.

So, what will happen when a new trend occurs?

The faster lines will act first and ultimately cross the slower ones and continue to diverge from the slower ones. Simply, they will move away. When you see that in the charts, you can be pretty sure the new trend is formed.

When you see that the fast line passed under the slow line, that is a new downtrend. Don’t think something is wrong if you cannot see the histogram when the lines crossed. It is absolutely normal since the difference between the lines at the moment of the cross is zero.

The histogram will appear bigger as the downtrend starts and the faster line moves away from the slower line. That is an indication of a strong trend

For example, you trade EUR/USD pairs and the faster line crossed above the slower and the histogram isn’t visible. This hints that the downtrend could reverse. So, EUR/USD starts to go up because the new uptrend is created.

But be careful, MACD moving averages are lagging behind price since it is just an average of historical prices. But there is just a bit of a lag. It is not enough for MACD not to be one of the favorites for many traders.

More about MACD

As you can see, the MACD is all concerning the convergence and divergence of the two moving averages. Convergence happens when the moving averages go towards each other. Divergence happens when the moving averages go away from each other. The 12-day moving average is faster and affects the most of MACD movements. The 26-day moving average is slower and less active on price changes.

MACD was developed by Gerald Appel in the late ’70s. It is one of the simplest and most useful momentum indicators that you could find. The MACD utilizes two trend-following indicators, moving averages, turning them into a momentum oscillator. So it provides traders to follow trend and momentum. But the MACD is not especially useful for recognizing overbought and oversold levels.

Bottom line

The MACD indicator is unique because it takes together momentum and trend in one indicator. This special combination can be used to daily, weekly or monthly charts. The usual setting for MACD is the difference between the 12-period and 26-period EMAs. You can try a shorter short-term moving average and a longer long-term moving average to have more sensitivity and more frequent signal line crossovers.

The drawback of MACD is that it isn’t able to identify overbought and oversold levels since it does not have an upper or lower limit to connect these movements. For example, over sharp moves, the MACD can continue to over-extend exceeding its historical heights. Moreover, always keep in mind how the MACD is calculated. We are using the current difference among two moving averages, meaning the MACD values depend on the price of the underlying asset.

So, it isn’t possible to relate MACD values for a group of securities with differing prices.

Some traders will use only on the acceleration part of MACD, some will prefer to have both parts in order.

The one is sure, MACD is a versatile indicator and every trader should have it as part of the tool kit.

9th March 2020
Trading After And Before Regular Hours

Traders can trade stocks during weekday mornings and evenings. Trading on weekends is not allowed. But you can benefit from differences in time zones on international exchanges.

By Guy Avtalyon

Trading after and before regular hours is possible. Okay, we all know that the stock market operates through regular trading hours and that is something even new traders know. But what they don’t know is that is possible trading after regular hours, meaning before and after. That is the so-called pre-market and post-market session.

Let’s take the US stock market as an example. The US stock market is open between 9:30 AM and 4 PM from Monday to Friday. Those are regular trading hours. Trading after and before regular hours means you have a chance to trade between 4 PM and 9:30 AM which is called the pre-market session and between 4 PM and 8 PM which is known as post-market session.

Over the regular trading hours, the billions of shares are traded, while trading after and before regular hours involves just a small part of it. So, it is possible to trade both before and after the bell but what result would you have? That’s something we need to discuss.

Let’s make clear what is pre-market and to define what is the post-market session. But there is also something you, as a new trader, has to know.

Stock market hours are not the same all over the world

The markets are not all open at the same time. Here are the hours of the major stock markets around the world.

USA
The NYSE and the NASDAQ are open from 9:30 AM to 4 PM EST (Eastern Standard Time). Both markets are not open when the main federal holidays are.
Canada
The Toronto Stock Exchange is open from 9:30 AM to 4 PM EST also. It isn’t open for 10 holidays per year.
Japan
The Tokyo Stock Exchange is open from 9 AM to 11:30 AM and from 12:30 to 3 PM JST. The Tokyo Stock Exchange is not open for 22 holidays per year.
Hong Kong
The Hong Kong Stock Exchange is open from 9:30 AM to 12 PM and from 1 to 4 PM HKT which is UTC+08:00 all year round. It is not open for 15 holidays per year.
China
The Shanghai Stock Exchange and Shenzhen Stock Exchange are open from 9:30 AM to 11:30 AM and from 1 PM to 3 PM CST ( UTC+08:00). Both are not open for 15 holidays per year.
India
The Bombay Stock Exchange is open from 9:15 AM to 3:30 PM IST (UTC+05:30). It is not open for 15 holidays per year.
United Kingdom
The London Stock Exchange Group is open from 8:15 AM to 4:30 PM GMT. It is not open for 8 holidays per year.
Europe
The SIX Swiss Exchange is open from 8:30 AM to 5:30 PM CET. It is not open for 12 holidays per year.
Euronext, Amsterdam, is open from 9 AM to 5:40 PM CET. It is not open for 6 holidays per year.

Pre-market is…

What is Pre-Market?

Pre-market trading is a trading activity that happens before the regular market session. It usually happens between 8:00 AM and 9:30 AM EST. Traders and investors might gather very important data from the pre-market sessions while waiting for the regular sessions. No matter how volume and liquidity are limited during pre-markets. The bid-ask spread is almost the same. So, they are able to estimate the strength and direction of the market thanks to this data.

You can find a lot of retail brokers that offer pre-market trading but with limited types of orders. On the other hand, only several brokers with direct access will provide the possibility to trade in the pre-market sessions. You have to know you would not find a lot of activity so early in the morning but you can find the quotes for most of the stocks. There are some stocks you can trade in the pre-market. For example, APPLE is getting trades at 4:00 AM EST.

But the stock market is very thin before opening hours so you may not have many beneficial tradings early in the morning. Actually, it is possible to take additional risks.

Since the bid-ask spreads are large some slippage may occur.

So, never place a trade too early. The majority of pre-market traders enter the market at 8 AM EST. It is understandable because that is the time when the volume picks up at once over the board. The most interesting are the stocks. The morning news is already published and prices may indicate gaps based on them. This can be very tricky for the stock traders. Well, pre-market trading is tricky for stock traders in general.

How is that? Stocks can look strong at the pre-market session, but they can reverse direction when the market starts regular working hours. So, if you are not an experienced trader, you should analyze trading in the pre-market first.

Advantages of pre-market trading

You can get an early view of the news reports. But remember, the amount of volume is limited. So, you may have a false understanding of weakness or strength and you may fall when the real volume comes into play. Anyway, if you want to trade at pre-market you can complete your trades with limit orders over electronic networks only. Market makers have to wait for the opening bell to execute orders.

Trading stocks after-hours is…

It happens after the regular stock market hours are over. Why would anyone want to trade in the post-market trading session?

Well, the companies report earnings before the market opens or after the market closes. That’s strategy. The companies rather avoid reporting earnings during the regular market hours because they want to avoid unwilling changes in stock price caused by investors’ and traders’ reactions. For example, some companies announced their quarterly report during the regular hours but the results weren’t as good as expected. What is possible to happen? Well, investors and traders would like to sell that company’s stock and the price could easily and sharp drop making losses.

The truth is that the value of the stock will move no matter if the market is open or not. But, investors are seeking that very moment to access the market – the moment when the price is changing. That’s why the after-hours sessions are important. They are waiting for the companies to announce earnings reports and trade based on fresh news. Traders will not wait for the market opening bell. They will respond to the announcements and make a trade before the opening bell causes a stock fair value. If they don’t do so, they might be too late for profitable and smart trading.

Advantages of after-hours trading

After-hours trading carries a lot of risks but also has possible benefits. Traders can trade based on really fresh news. That means they can act quickly and benefit from attractive prices. Also, it is convenient, also. Some investors don’t like trading at the on-peak time. Trading after-hours grants them this opportunity.
Further, there is a wider bid-ask spread since the smaller number of traders. After-hours sessions are mostly made up of experienced traders. Also, there is higher volatility since the volume is lower. But we know, the higher the risk the greater reward is.
The truth is that after-hours trading allows traders the possibility of great gains.

There is no investing or trading without the risks involved. But if you choose trading after and before regular hours you will be faced with several very important risks.

Firstly, you will not be in a position to see or trade based on quotes. Some companies will allow you to see quotes only from the trading system the company uses for after-hours trading.

Also, there is a lack of liquidity.

Further, less trading activity could cause a wider bid-ask spread. That may cause more difficulty to execute your trade or to get a more favorable price as you could get during regular market hours. The additional risk is price volatility since the stocks have limited trading activity. Also, the stock prices can rise during the trading out of the regular hours but they could drop immediately when the bell opens the market.

Despite all these disadvantages, trading in the pre-market and after-hours trading sessions could be a great place to start. Just keep in mind that there are additional risks.

25th February 2020
How To Read Stock Charts?

Stock charts will provide you the information about the stock’s past trading prices and volumes. This is a remarkable advantage when it comes to technical analysis.

By Guy Avtalyon

How to read stock charts and what they are trying to tell you? How can you use them in making your investment decisions? So let’s see the importance of price action and technical analysis. Because that’s it.

We are 100% sure you’ve already had the opportunity to see the stock charts, for example, Yahoo Finance is one of those places. If you want to get some experience with outlook and parameters, it is the right place. Also, you could see the stock charts when you examine the company’s stock you wanted to buy.

And what can you see?

There are two types of charts: line and candlestick. It looks so simple and a small graph but contains a lot of very important data. For example, you can see the opening and closing price, the lowest and the highest price of the stock, and plenty of other information set in that small image.

What trading charts can tell?

You must know, a chart is a visual illustration of changes in stock price and trading volume. They are not magical or scary. In essence, the charts do one easy job: They want to tell you a story about the stock. Stock charts will give you an objective picture without hypes and rumors. They will neglect even news and tell you the truth and what is really going on with your stock.

For example, when you learn how to read stock charts you’ll be able to notice if institutional investors are heavily selling. That will quickly provide you valuable info on what you have to do. The charts literally tell you that. If you see in the graph the investors are massively buying, what are you going to do? What do the charts want to tell you? They want to tell you: buy too. Or if you see they are selling: sell too. Those investors are heading the exits.

The institutional investors’ buying or selling will shift your stock up or down. And the charts will tell you that on time. So you’ll be ready for action. That is extremely important in the stock markets that are volatile and stock price can change in a second.

How to read stock charts

Reading charts is one of the most important investing skills. Stock charts will tell you if the stock is depreciating or appreciating because they are recording the stock price and volume history. Well, when you grow your skill in chart reading, you’ll be able to find more. You will notice some small, often indirect signs in the stock actions such as whether the particular stock showed some unusual activities.

You choose the type of chart that best suits you, a line chart or a candlestick. But the charts will show you the price of daily changes in its price area.

Let’s breakdown all these bars and lines

You will notice the vertical bars. They record the share price span for the chosen period. The horizontal dash that intersects within the price bar shows the current price. Also, it shows where a stock closed at the end of the day. If the color of the price bar is blue that means the stock closed up but if it is red the stock closed down.

In the volume area, below the horizontal line, you will also see bars but volume bars that represent the number of shares traded in some period, day, week, month, etc. The color of the bars tells us the same as price bars. Also, there you will see the average volume for some stock over the last 50 days.

Charts will tell you all about the average share price over the last 50 days and the last 200 days of trading. But by reading stock charts you will have the info about how the stock price moved compared to the market. It is a so-called relative strength line. When this line is trending up, we can say the particular stock is outperforming the market, the opposite means the stock is lagging the market.

Changing the time period

You can do that and have a look at the daily, weekly, monthly charts.

Daily stock charts will help you to measure the current strength or weakness of a stock. These charts are very useful for identifying the precise buy points and creating a short-term trading strategy.

Weekly stock charts will help you to recognize longer-term trends and patterns in stock prices. The weekly charts use logarithmic price scaling. So, you can easily make comparisons between stocks or the major market indexes.

Indicators in the stock charts

All the charts will come with them. Indicators are tools that provide visual representations of mathematical calculations on price and volume. Well, they will tell you where it is possible for the price to go further. The major types of indicators are a trend, volume, momentum, and volatility. Trend indicators show the direction of the market moving. They are also known as oscillators because they are moving like a wave from low value up to the high and back to low and high again as the market is changing.

Volume indicators will show you how volume is developing over time, how many stocks are being bought and sold over time.

Momentum indicators show strong the trend is. They can also reveal if a reversal will happen. They are useful for picking out price tops and bottoms.

Volatility indicators reveal how much the price is changing in a particular period. So, volatility isn’t a dangerous part of the markets, you have to know that. Without it, traders would never be able to make money! In other words, how is it possible to make a profit if the price never changes? High volatility means the stock price is changing very fast. Low volatility symbolizes small price moves.

Some traders don’t use indicators because they think the indicators can smudge the clear message that the market is telling. Well, that’s obviously an individual approach.

What are Support and Resistance Levels

Stock charts will help you to identify support and resistance levels for stocks. Support levels are price levels where you can see increased buying as support to stock’s price that will direct it back to the upside. Resistance levels, as the opposite, shows prices at which a stock has presented a trend to fall while trying to move higher, and switched to the downside.

Recognizing support and resistance levels is extremely important in stock trading. The point is to buy a stock at a support level and sell it at a resistance level. That’s how you can make money. If some stock has clear support and resistance levels, the breakout beyond them is an indicator of future stock price movement.

For example, you have in front of you the chart and you notice that the stock didn’t succeed to break above, let’s say $100 per share. And suddenly, it makes it. Well, in such a case you have a sign that the stock price will go up. You might see, as an example, that some stock traded in a tight range for a long time but once when it broke the support level, it will continue to fall until a new support level is established.

Bottom line

Knowing how to read stock charts will give you a powerful tool while trading. But you have to know that charts are not perfect tools. Even for the most experienced analysts. If they are, every stock trader and investor would be a billionaire.

Nevertheless, knowing how to read stock charts will surely help you. That may increase your chances of trading stocks. But you will need a lot of practice. The good news is that everyone who spends time and gives an effort to learn how to read stock charts can become a good chart analyst. Moreover, good enough to enhance the success in stock market trading.

Try to learn this. It can be valuable. We’re doing smart trading.

19th February 2020
The 60/40 Portfolio is Dead – How to Replace It

Bonds and stocks have only interacted negatively in the past 20 years. Their average correlation throughout the previous 65 years was positive. When this correlation isn’t negative, the 60/40 portfolio is weak in protecting your investment.

We all had believed, for a long time, that the ideal is a 60/40 portfolio, which consists of 60% in equities and 40% in bonds. That excellent combination provided greater exposure to stock returns. At the same time, this mix gave a good possibility of diversification and lower risk of fixed-income investments.

But the world is turning around and markets are changing too.

Experts recently noticed that this 60/40 portfolio isn’t good enough. Portfolio strategists claim that the role of bonds in our portfolios should be examined. They argue we need to allocate a bigger part toward equities.

Strategists report

Bank of America Securities (a.k.a. Merrill Lynch) published research last year named “The End of 60/40”. The strategists Jared Woodard and Derek Harris wrote:

“The relationship between asset classes has changed so much that many investors now buy equities not for future growth but for current income, and buy bonds to participate in price rallies.”

That note by Merrill Lynch caused great turbulence among investors. The point is that your conventional sense of investing 60% of your portfolio in stocks and 40% in bonds is no longer so smart.
Merrill Lynch strategists explained that there are grounds as to why the 60/40 portfolio will not outperform portfolios with more stocks versus bonds in it. Therefore, investors have to allocate a bigger percentage of equities to their portfolios instead of bonds.
This is the opposite scale compared to what investors used for many years. They were investing in equities for price rallies and buying bonds for current income.

How did the 60/40 portfolio die?

For the last 20 years, the golden rule was a portfolio of 60% stock and a 40% bond. Everything was good with that: investors had the bonds in portfolios, a 60/40 portfolio provided them the upside of equities, their investments were protected from downturns. But they gave evidence to investors as to why this ratio should be changed and why they have to add more equities than bonds.

Here are some. Data is for the markets globally. During the last year, $339 billion were in inflows to bond funds but almost $208 billion were in outflows from equity funds. So, we now have a tricky situation. Bond yields had fallen. The consequence is that we have about 1.100 global stocks that pay dividends higher than the average yield of global government bonds.

The global economy slows

We must have in mind that the global economy lags due to the aging society and there were rallies in bonds almost all over the world. It was like a bubble. Hence, the investors who manage a traditional 60/40 portfolio are in a situation that threatens to hinder returns.

“The challenge for investors today is that both of those benefits from bonds, diversification and risk reduction, seem to be weakening, and this is happening at a time when positioning in many fixed-income sectors is incredibly crowded, making bonds more vulnerable to sharp, sudden selloffs when active managers rebalance,” said strategists from Merrill Lynch.

The 60/40 portfolio canceled

The popular rule of thumb: investment portfolios 60% in stocks and 40% in bonds, is smashed. The finance industry did it. Moreover, financial advisors urging investors to hold riskier options since, as they claimed, bonds no longer offer diversification. Hence, bonds will be more volatile over the long run. Further, the 60/40 portfolio has sense in the market conditions when stocks and bonds are negatively correlated. The stock price falls – bonds returns rise both serving as a great hedge, bonds against falling stock prices, and stocks as a hedge against inflation. According to strategists, no more.

This will completely change the portfolio management.

The benefits from bonds, diversification and risk limitation, seem to be missing. The bonds are more vulnerable to unexpected selloffs. The mentioned rule of thumb was accurate for 20 years but not for the past 65. Also, it is noticed that this period of negative correlation between bonds and stocks is coming to an end.

Also, Morgan Stanley warns that returns on a portfolio with 60% stocks and 40% bonds could drop by half in comparison to the last 20 years. Earlier, the analysts and strategists from Guggenheim Investments, The Leuthold Group, Yale University, also prognosticate distinctly lower returns.

How to replace the 60/40 portfolio?

The 60-40 portfolio is dead and it is a reality.

Be prepared, you have to replace it. Some experts suggest keeping 60% in stocks but to hold a position shorter, as a better approach.

But you have to hedge your portfolio. Experts suggest single-inverse ETFs and options for that purpose.

The others think the best way is to replace the 60/40 portfolio with some hedged equity portfolio. This actually means you should have more than 60% in stocks since the stock market is more liquid in comparison to the bond market. For this to implement, it is necessary to have tools. Also, the knowledge on how to use them. From our point of view, it seems that time to forget the 60/40 portfolio is here. All we have to do is to change the mindset and stop thinking about the mix of stocks and bonds. Instead, it looks like it is time to think about changing the net equity exposure.

Maybe it is the right time to hold more cash, which can be a tactical defense. For example, cash can be a part of your 60% holdings when you are not fully invested in stocks. Or you can hold cash in the percentage that previously was in bonds. Also, you can combine it. You MUST build a hedged portfolio to avoid the 60/40 portfolio hurricane that is likely coming.
For example, build a portfolio of, let’s say 75% stocks and 25% your hedge combination. This range can be tighter also.

Honestly, it is so hard nowadays to fit the excellence of the 60/40 portfolio.

Bottom line

The 60/40 portfolio was really good but it had a wild side too. The stock portion was down over 25 years of its 91-year existence. Over those 25 years, the average loss was above 13%. But there were bonds with a gain of above 5%, which reduced some of the losses. This portfolio was stable and reliable and you could use it for a long-time.

The other problem with the disappearance of the 60/40 portfolio is diversification. Is it dead too?

Peter L. Bernstein said, “Diversification is the only rational deployment of our ignorance.” Investors have to figure out different access if stocks and bonds no longer balance one another. This great portfolio will miss everyone. Maybe, one day, we will meet again. But some conditions have to be fulfilled. The interest rates should be 6% again, the stock market valuations shouldn’t go over 15x the previous 10 years’ worth of average earnings. That is hard to achieve now.
R.I.P. the 60/40 portfolio.

10th February 2020
Stock Market Bubble How to Recognize It

What is a stock market bubble? How a stock market bubble is created? What is the definition?

We are talking about a stock market bubble when the prices of stocks rise fast and a lot over the short period and suddenly start to drop also quickly. Usually, they are falling below the fair value.

A stock market bubble influences the market as a whole or a particular sector. A bubble happens when investors overvalue stocks. Investors can overestimate the value of the companies or trade without reasonable estimation of the value.

How does this thing work?

Let’s say investors are massively buying some particular stock. They become overly eager to buy. How does that affect the stock price? The stock price is going up. The traders notice the growing potential and believe that the stock price will rise more and they are also buying that stock with an aim to sell it at a higher price.

This trading cycle has nothing with the usual criteria related to trade. When this cycle lasts long enough it can extremely overvalue the stock or some other asset, generating a stock market bubble that will burst.

Because a stock market bubble is a cycle defined as speedy increase, followed by a decrease.

We would like to explain this in more detail. When more and more traders enter the market, believing that they also can profit and perhaps go on the double, but we have a limited supply of some stock, it isn’t unlimited. So, on one side we have an enormous number of traders willing to buy a stock, and on the other side is a limited number of particular stock they are interested in. The consequence is that the stock price will rocket. That sky-high price isn’t supported by the underlying value of the company or stock.

Finally, some traders realize that the growing trend is unsustainable and start selling off. Other investors start to follow that and catch on and start draining their stocks, in hopes to recover their investments. And here we come to the main point.

The declining market isn’t investors’ darling. The stock prices are dropping, traders who enter the market too late have losses, the stock market bubble bursts or in a better scenario, deflates.

Actually, we can easily say that behind the stock market bubbles lies a sort of herd mentality. Everyone wants a piece of high returns, it’s logical, right? Well, it continues with a downward run.

What causes it?

When eager investors are pushing the value of the stock, much over its proper value, we can say that we have a bubble. For example, the stock proper value is, let’s say $50 but investors boost it at $150. You can be sure the price will go back to its proper value, soon and extremely fast. The bubble will pop.

A good example is the dot-com bubble of 1999/2000. The markets were cut from reality. Investors accumulated dot-com stocks so wildly. How was it possible when they knew that a lot of these companies were worthless? They didn’t care.

That pushed the NASDAQ to over 5.000 points in a short period. That was the bubble and everything got apart very fast and painful.

One of the most famous market bubbles took place in the Netherlands (former Holland) during the early 1600s. It is the Dutch tulip bulb market bubble or ‘tulipmania’.

What happened?

The speculators pushed the value of tulip bulbs sky-high. The rarest tulip bulbs were worth six times more than the average yearly salary. Today, tulipmania is in use as a synonym for the traps due to extreme greed.

That can happen when someone follows some investor and notices how good it is and suddenly that one decides to do the same. But such copycats are not single individuals in the stock market. There are millions doing exactly the same thing. In a short time, everyone is plunging the money and the market reacts respectively by inflating prices. And eventually, the bubble will burst.

A stock market bubble as positive and negative feedback loops

Whatever has begun to shift stock prices up to become self-sustaining is a positive feedback loop. For example, investors hunting higher growth. When prices increase, investors are selling stocks. The others are buying them to profit on the growth. Someone will ask what is wrong with that. Well, new purchasings are driving the prices up higher and more investors are seeking those profits. The cycle is starting. And it is good but only when this positive feedback loop, as economists call this, comes as a reflection of reality. But when the feedback loop is based on fake data or questionable ideas it can be very dangerous. A great example is the Stock Market Crash of 1929. That was a time of blooming speculators in the markets. Speculators are trading stocks with borrowed money. The loan is paid from profit. When speculators have good trades they can make a fortune. In a different scenario, when they try to limit losses on debt, they can lose the shirt.

The stock prices will go down, the other investors will quickly sell with the same hopes to mitigate losses. The prices will go down further and create a “negative feedback loop” and poor market conditions will bloom. This is exactly what happens when the stock market bubble bursts. The stock prices are going down further as investors try to sell their stocks to cut losses.

Bottom line

As you can see, a stock market bubble happens when investors are buying stocks neglecting the value of the underlying asset. It is caused by a kind of optimism, almost irrationally, despite the rule of thumb: avoid impulsive trading.

The crucial nature of a stock market bubble is that trading can go in a direction that is not in your favor. Optimism can fade. Investors seeking higher profits easily can see their own disaster when the growth starts to slip. Why should they stay in positions any longer? They will not, of course. It is opposite, the selling off will start and the stock market bubble bursts. And it can do it for random reasons. Be careful, you can recognize a stock market bubble when everything is done. Only rare investors are able to anticipate it is coming. Well, that’s why they are successful and rich.

7th February 2020
The Barbell Portfolio – Strategy Of A Balance

The barbell portfolio holds only short term and long term bonds and generates fixed income. A flattening yield curve situation is the best time to use this strategy, while a steepening curve is harmful to the strategy.

The barbell portfolio was invented by bond traders. The strategy means to hold safe short-term bonds and riskier long-term bonds. Put them together and that is the barbell portfolio. This also means that you are betting on both sides. But your barbell portfolio gives you protection since you have extremely safe short-term bonds. Yes, they will provide you with less profit but the profit is compensated from the other side of your portfolio – by long-term bonds that are extremely risky but provides a great profit.

Building a barbell portfolio, you will give your investments a balance that can run you through different circumstances, even extreme ones. The barbell portfolio is a very simple investment allocation actually. But the barbell portfolio is heavily weighted on two ends, just like a barbell. This concept is easy to understand and we want to explain it by using bonds. You can create this kind of portfolio with cash and stocks, also it can be a nice substitute to a 60/40 stock/bond portfolio.

How to structure barbell portfolio

Let’s say the short-term bonds are risk-free. But you will not earn a lot by holding only them. To have a profit you must add something riskier to your portfolio. So, you can do it by holding long-term bonds. You see we are not considering mid-term bonds. There are long-term bonds to provide the yield to your portfolio.

Yes, they are the riskiest but also give the highest returns.

The idea of this kind of portfolio is to bypass and avoid the risk on one side of the barbell portfolio and to do it as much as possible but to put more risks with long-term bonds.

For every investor, the risks diversification is one of the most important parts. So how to do that with a barbell portfolio? For example, you can build it if one half of your portfolio is in bonds with 5 years maturities and the rest is in bonds with 15 years maturities. The point is to put weight on both ends of your portfolio. But it hasn’t to be equal weight. it can be turned in one direction or another. Of course, it depends on an investor’s vision and yield demands.

You have to pay attention to the bond barbell strategy. It isn’t a passive strategy. You will need to monitor short-term bonds and adjust them frequently. Also, the other end with long-term bonds should be adjusted from time to time because of their maturities shorten. Some investors will just add new bonds to replace the existing.

Barbell Investing

It is all about aiming to balance risk in your investment portfolio. For example, if you put bonds on the left end of the barbell portfolio you might be faced with rising interest rates. So, the value of the bonds could decline. In order to balance the weight, you can replace them or part of them with, for example, with dividend-paying stocks, or some other ETFs. This left side has a great role. It has to protect your wealth so the savvy investor will always choose low-volatile and low-risk assets for the left end.

The right side’s role in your barbell is to give you high profits. That is your financial goal. So you can add some aggressive stocks there instead of long-term bonds.

The barbell strategy is actually a simple investment allocation. Two ends, two sides of your portfolio are designed like opposite ends. What you have to do is to allocate your capital between safe and aggressive sides. Some experts recommend holding 80% treasury bonds and 20% stocks.

Some may ask why to diversify like this. Here is why. Let’s say you have invested 100% in different stocks. Yes, you have a diversified portfolio but you are, at the same time, 100% exposed to downside risk and you are at risk to lose all your capital invested.

But if you build a barbell portfolio with 80% bonds and 20% stocks your downside risk can arise on your risky part of the portfolio. That is 20% of stocks. But the point is that the majority of your portfolio will be in safe investments. Moreover, bonds will give you interest too.

Why use this strategy?

Because it can lower risks for investors. At the same time, it can provide exposure to higher yield bonds. Higher yields will compensate for the higher interest risk rate. So that is the first benefit. This strategy allows investors to have access to higher yield long-term bonds. The other benefit is that this strategy reduces risks because the short-term and long-term bonds’ returns favor being negatively correlated. In other words, when short-term bonds are doing well, the long-term bonds will have difficulties. When you hold bonds with different maturities it is more likely to have less deadfall risk. Let’s say when interest rates grow, the short term bonds are rolled over and reinvested. Of course, at a higher interest rate. That will compensate for the drop in the value of longer-term bonds. Opposite, when interest rates are lower, the value of the longer-term bonds will grow. Simple as that.

But remember, it’s so important to manage the weight of both ends. And to do it actively. The contrary will never produce long-term returns. If you notice that the assets on one end of your barbell portfolio somehow look expensive you have to change it and balance by leaning toward less expensive assets on the other end. Well, if the prices are expensive on both ends, you will need to reduce overall portfolio risk.

Is there any risk?

Yes, interest rate risk no matter do you hold both long term and short term bonds. If you buy the long-term bonds while the interest rates are low they may lose value quickly when the interest rates increase.

An additional risk of the barbell strategy comes from the investors’ limitation, this portfolio doesn’t include intermediate-term bonds so you will not have exposure to them. And we all know that intermediate-term bonds give better returns than short-term bonds. Yes, they are riskier but not too much. In comparison with long-term bonds, intermediate-term bonds will offer a bit lower returns. That is the downside of the barbell portfolio because you don’t have an opportunity to earn on these returns.

Well, the main risk of the barbell strategy lies in the longer-term bonds. They are more volatile than their short-term bonds. As we said, you will lose if rates rise and you choose to sell them prior to their maturity date. If you keep the bonds until the maturity date, the fluctuations will not influence negatively.

The worst scenario for the barbell is when long-term bond yields are rising faster than the yields on short-term bonds. That is the steepening yield curve. The bonds that make up the long end of the barbell drop in value. So, you may be forced to reinvest the profits of the lower end into low-yielding bonds, to balance the portfolio.

But the flattening yield curve, if yields on shorter-term bonds rise faster than the yields on longer-term bonds you will earn. That is an advantageous part of the barbell strategy.

Bottom line

The benefits of the barbell investing strategy are numerous. Firstly, you will have a better diversification of your investments. Also, you will have more potential to reach higher yields with less risk. If interest rates are falling all you have to do is to reinvest at lower rates when the maturity date of that bond comes. In case the rates are rising, you will have the chance to reinvest the profits of the shorter-term securities at a higher rate. Since the short-term bonds mature frequently, that will provide you the liquidity and adaptability to solve emergencies.

27th January 2020
Black Swan Investing Strategy To Reduce The Risk

Predicting when the next black swan event will happen is the mission impossible. But you can create a portfolio created to reduce the risks related to black swans.

Black Swan investing isn’t quite a strategy, it is more a trading philosophy. Actually, it is a method of predicting the occurrence of black swans. The black swan is an unplanned, unexpected event in the markets. Such events come as a sudden blow and may influence the market. But black swan also can have both a positive and negative impact and we are going to discuss them here.

An example of a negative black swan is the crisis of 2008.

Black Swan investing is a trading philosophy based completely on the probability that some accidental event will hit the markets. To avoid losses caused by a black swan, traders who are trading based on black swan strategy always are buying options, never sell. They never estimate will the market go in one or another direction, up or down, they are buying. These traders are actually betting on the chance the market will move both up and down.

Protection of investments

Behind that behavior is investors’ need for insurance for their portfolio to protect against another black swan event like it was financial crisis 2007-2009.

They are afraid of is losing money as they did at the time of the crash. But losing money is a risk that you have and can determine. The black swan is a risk that you can not determine or predict. How can you plan some sudden and hidden events ahead? Hence, we can’t hedge out the risk of secret and unknown events. All we can do is analyzing past events.

The black swan investing theory is based on an old saying that presumed black swans did not exist. Nassim Nicholas Taleb developed black swan theory but in his book The Black Swan he also recommended traders to fire their advisors claiming that they don’t know enough or know a bit about investing. Brave claim indeed. His belief in the incompetence of financial advisors is based on their disregard for Black Swans.

Is it possible to predict the next event?

It sounds like an impossible task because it is. As we said, how can you predict something unknown? But what you can do is to build a well-diversified portfolio to reduce the risks. Also, now you have this tool to determine when to exit your trade and avoid money losses. Moreover, you can determine when to do that in profit.

Yes, your portfolio can be structured to reduce risks linked to black swans.

Positive or negative black swans

Okay, you would like to know how to invest for positive or negative black swans. So, first of all, you have to understand how not to depend on catastrophic predictions. Let’s say, you invested with the belief that the stocks will grow forever. Also, you are pretty much sure that the financial crisis will never come, or the company will never bankrupt. Well, something has to be changed in your beliefs. The truth can be very painful for you at this very moment. Stocks will not rise all the time. Not even in the next 20 years or even five. They will go up and down.

The main point of black swan investing is to profit from unpredictability. But such events come suddenly, they are surprising, so how can we invest in it? We cannot do it directly. All we can do is to be ready for them, meaning to be exposed to such exceptional but extremely impactful events.

How to expose to a positive black swan

How to do that? How to take advantage?

If you follow Taleb’s definition it is quite clear what to do to positive events. If you can seek exposure to something you can not predict, then seek out exposure that is unrestricted to the upside. Well, there is no need to know will some event come or not, or when it is going to happen. All you have to do is to detect exposures that have the potential to blast if meet the proper conditions.

Exposure to positive black swans may sound a bit esoteric. Some investors that are practicing a black swan strategy like to say that it is necessary to build a portfolio that is able to “invite” positive events, amazing and unexpected. We don’t have material proof that it works.

Their idea is to give a portfolio a chance by setting up limited sums of money or scale it up. If it works, it’s okay. If it doesn’t work, just give up and risk later.

This stands in firm contrast to traditional investing advice.

Behind this idea

For any trader who wants to implement the black swan investing strategy, it is necessary to create a barbell portfolio. This kind of portfolio was created by bond traders. This strategy requires owing safe short-bonds on one side of the barbell, and on another side to balance the weight of investments, riskier long-dated bonds.

By building a barbell portfolio, you’ll have very safe investments on one end and notably risky investments on the other end. The safe investments virtually don’t have risk. They will survive even a black Swan. The risky side of the portfolio opens it up to the endless upside. This kind of portfolio advances despite any circumstances in the market. That’s according to Taleb.

Black Swan investing

Since black swan traders never sell and they are counting on the crash, they are buying out-of-the-money options.

But one question arises. Can any empirical evidence account for black swans? We are afraid the answer is no. So, we cannot predict the market. Why there are still people trying that? Because we all need progress in this field. Yes, we have algos, AIs, learning machines, automated trading, etc. But yet, no one can predict the market. And it is a great challenge. By fair, that moment isn’t so far from us. One day someone will find some formula for that. Frankly, how many people were able to predict all possibilities of the internet? A very small number. Today it is part of our daily lives.

Yes, we truly believe that one day, somewhere, someone will find a way to predict market movements. Meanwhile, there is no need to give up from investing because of the lack of unreachable knowledge. Just work with what you have and know. That would be enough. At last, it was enough for the past 200 years.

Pro tip: Develop an efficient portfolio on a demo account first; (1) Examine how well it guards you from random Black Swans (2) optimize (3) only then risk real funds.

Bottom line

Banks are a negative black swan business. The upside is inadequate and the downside is complete. The examples of positive black swan investing biotechnology stocks, venture capital, publishing, etc.

The venture investor that invested in Uber in its beginning was exposed to a positive black swan, but today would be more exposed to a negative black swan with the same investment.

The key principle in black swan investing is to find extremely aggressive as unreasonable as possible assets. Hence, when you find that chance, take it.

26th January 2020
Trading Exit Strategy App – Where to Find It

Here’s a look at the best trading exit strategy app to avoid your losing trades

Do we really have the trading exit strategy app? Only when you can assure yourself that you are not holding a wrong position you can be confident that you hold a good trade. Every single trade must have its own exit strategy, that takes into account both price rises and price drops. In other words, risk management. So you MUST plan your exit and you must have the best trading exit strategy that is possible.
Well, how to create a good risk management system? How to choose a good exit strategy? How to determine it?
That’s science. It is difficult and mostly depends on your feelings which is the riskiest part of every trade.

Identify when to take profit from trading

Having an effective trading exit strategy app means to have the opportunity to identify when to make a profit from trading. Sometimes you will close your position too early and miss the bigger profits, other times you may lose if you stay too long on position.

When is the right time, how to know when to take a profit?

It is crucial, before entering the trading setups, every trader MUST have an exit strategy. It isn’t a matter of traders’ will, it is a matter of protecting from losing trades.

If you don’t have a trading exit, you’re trading without a strategy, you’re trading based on guesses or emotions. So, the chances of making a loss instead of profiting, are more likely.

What is the best trading strategy?

Basically, a trading strategy is a plan of buying and selling in the stock markets. It is based on rules that have to provide successful trading and make a profit.

When you are trading the stock market, you have to make a decision to buy or sell an asset, or to stay on the position. To be able to make a decision you’ll need information.

Trading strategies MUST assist you to simplify the process of analyzing all information and making decisions.

The stock market works simply. It is like an auction house. It provides to both buyers and sellers to set prices and make trades. The stock market operates thanks to a system of exchanges but it is a zero-sum game. Meaning, some traders have to lose, so you would have a chance to make a profit. There is no other way. Any trade has only two ends: loss or profit.

What is necessary to identify when to take profit from trading?

You should consider at least two exits: stop-loss and take-profit in your trading exit strategy.
Stop-loss is the point where you exit the position when the trade isn’t going in your favor. Take-profit is the point where you exit the trade in profit.

Getting out of losing trades

Losing trades is a reality. They are coming together with winning trades. Yet you are never sure is your trade losing or winning one. This can discourage many traders and they may give up.
But, wins and losses don’t need to come randomly. You don’t need to trade like that.
Yes, the stock prices may go up and down and nobody knows exactly why the stock price makes changes. The stocks are volatile and their price may extremely and rapidly change.

That’s the reason to have the best trading exit strategy app and keep the investment safe.

Traders choose different strategies depending on the time frame of the trade and how long they want to keep the trade opened.
Today, if you want to trade successfully, you will need to pay for hardware and software to use available strategies. But still, you have no guarantees and (this is more important) you don’t have any chance to check will your chosen strategy end with loss or in profit.

Reasons for seeking the trading exit strategy app

If traders have a good entry, it is more likely to reach the stop-loss or take-profit target faster. That will give you a chance to make another trade. And another, and so on.

But, if you don’t have a good entry you will need time to see the result. That may hurt your profit. Of course, some winning trades will take a bit of time to develop.

When you have a good entry you may increase the number of trades you want to take and you will have more advantages. To this point, everything sounds logical. But how to avoid premature trading exits and losses?

For all traders, this should be the last warning!

When it comes to the exit strategy the things are not so clear to many people. Having the best trading exit strategy (as much as it is possible) is important. Even more than planning for entry. Why? Your exit strategy shows how you have hedged your trade.

Do you really know when and how to exit the trade?

Most of the traders think that the entry point is the most important. Yes, it is important without doubts. But are you sure your trade will go in your direction? Do you have something to protect you from sudden price changes? That is the exit strategy. And if you don’t plan your trades you may end up with big losses.

If you didn’t think of an exit strategy, here is what you have to do.

Set Trailing stop-loss

A trailing stop-loss will help you to manage risk while optimizing possible peaks. By setting a trailing stop-loss you will secure your profits and accumulate more. Firstly, you must set levels for profit and loss. You will do that in a percentage, for example, 1.75% stop-loss and 3% take profit levels. What will the trailing stop loss do for your trade?

It will close your trade when it has created the set peak and the trend begins to reverse.

A trailing stop order means to set a limit on the maximum potential loss but without setting a limit on the maximum potential profit. We can identify “buy” and “sell” trailing stop orders.

Use time-based exit strategy

This exit strategy is when you appoint the maximum time you want to spend on a trade. This is a good strategy because if your trade isn’t successful after a given time, the smart choice is to exit the trade. Well, how much time you will give a trade is up to you.

Time-based exits are good when the trend is moving against you. It is a simple strategy that can help you control your losses.

Stop-loss/take-profit strategy

The truth is, there is no other way to get out of the trade than with loss or with profit. The last mentioned is better, right?
One of the best exit strategies is applying stop-loss/take-profit.

The goal of stop-loss is to keep you in a trade and limit losses while take-profit will secure profits by closing the trade when the profit target is reached. It isn’t easy to calculate adequate risk/reward ratios for stop-loss/take-profit orders. You’ll need time and effort to master it.

For example, how to identify the stop-loss position based on the money you are ready to risk at each trade? Stop-loss totally depends on the money invested.

Stop-loss and take-profit work almost in the same way but you have to define their levels differently. To make this more clear, the stop-loss will minimize the cost of the failed trade but the take-profit order will give you a chance to take the profit at the peak of the trade. You have to recognize the right moment to exit with profit.

The market swings all the time. One positive trend can easily turn into a downturn in a second. You may think it is better to exit the trade with profit right now. Why risk potential earnings? Well, it isn’t a good option. If you don’t let your profit to grow enough and you exit the trade prematurely, you will lose a great part of potential gain. But, also, waiting for too long can be equally harmful.

The drawback of stock trading apps

Trading apps that you can find currently on the market are good for some things. They will give you a real-time market data or will help you to find new stocks. Yes, there are some apps for charting but still, you will need to write it down to Excel. Additionally, those apps can be costly and out of reach.

The majority of stock trading apps you can find don’t give the variabilities in a meaningful way. Moreover, they don’t include one of the most important features for every single trade – examining and testing on where to set a stop-loss and take-profit level and when to exit the trade.

But, even if you decide to purchase them, will you have an opportunity to check the efficiency of your strategy? So, they are useless for the execution of your trades.

You need an effective and accurate exit strategy app

We were examining almost all apps, spent many years on research to find valuable tools or apps that would give traders a chance to check their exit strategies.
We couldn’t find any. There was no such app.

Until now.

Here is Traders Paradise’s best trading exit strategy app.
What our app is doing?

Traders Paradise developed a trading exit strategy app, a unique tool for optimizing the exit strategy.

This unique and easy-to-use trading exit strategy app will do all the hard work and complicated math operations for you and performs it all on its own.

All you have to do is to choose the stock you want to trade. We have a long list of the companies and you simply have to mark any by clicking on the name or to type the ticker name or the name of the company. But HERE you can find the full explanation.

8th January 2020
Is Coca Cola Overvalued – Trick Or Treat

Coca-Cola has performed very well in 2019. The stock isn’t cheap but also, not overvalued. The increasing margin and investors seeking yield couldn’t be a problem for the company to continue great performing.

The question Is Coca Cola overvalued could be a trick. Why do we think so? If we take a cash flow at a consideration we can see that Coca Cola is trading at 24.4 times operating cash flow and 31.3 times earnings. Further, the forward price-to-earnings ratio is at 24.6%. and the latest price is $54.69 (data from January 3th, source Yahoo Finance). Although, the company is not expensive.

Further, if you have in your mind that most government bonds are trading under 0% yield, the negative interest rate in the EU, currently inflation is low, KO that provides a 2.9% yield, you must understand that it isn’t expensive.

Of course, it will be better if the stock can provide a higher yield but for that, we have to wait for additional dividend increases. On April 9, the stock traded at $55.77, the current price is at $54.69 but we all have to admit it isn’t a sharp decline in the stock price. Coca Cola management may reinvest the company’s operating cash in capital expenditures (CapEx) to get, improve, and keep the property, improve technology, or equipment. Further, the company can reinvest in development such as innovation to improve the product portfolio, marketing or M&A to maintain the business like it was in the past 20 years or more.

Also, Coca Cola can use the operating cash to further improve profitability. That would influence its P/E ratio.
Having all these indicators in mind it is easy to conclude that Coca Cola isn’t overvalued stock.

It has a high debt

Coca Cola has raised debt levels. The company has a slightly low liquidity position as the current ratio is at 0.92. The sustainable level should be 1.00 but the current debt levels are not something to be worried about. Boosted debt came from the fast increase of long-term debt and falling sales. But as we said, the company plans to improve sales and operating cash flow will likely grow. That could easily cover the debt. Moreover, the company’s bonds are doing very well.

Why do some investors think that Coca Cola is overvalued?

Some investors avoided this stock due to its valuation. But try to be honest, it isn’t expensive. The company is paying a stable dividend yield and, according to its statements, it plans to have strong sales in the future. Coca Cola isn’t in the phase of low operating cash flow. Experts’ opinion is the stock hasn’t sell signal. It is contrary, with 31.3 earnings it has “hold” or even “buy” signal. Moreover, some estimations and predictions show that stock may hit over $60 (close to $65) this year. Well, Coca-Cola is a solid dividend-paying stock and it will likely continue to produce stable profit for its shareholders.

The profitability of the company

Let’s see is Coca Cola overvalued. Over the last four years, the company had a total revenue drop of $10 billion to $34.3 billion. Operating margin was improved by 560 points up to almost 29% and income dropped to about $10 billion which is a difference of just $400 million. The good sign is that the company increased cash by almost $10 billion from its operations while dividend payments hit a new record of $6.74 billion.

This year, Coca Cola has got back $3.4 billion through dividends and distributed stock worth $233 million. Yes, it is lower than for the same period last year due to several factors and the dividend increase of 3% may not be so visible. But the stock has had a great play in 2019 with a return of over 16%. So, what do you think, is Coca Cola overvalued? We think it isn’t. The company has a great product portfolio that could boost sales. So, KO could be one of the best investments in the next year since, as we can see, there is still a lot of potentials. Maybe the better question could be is Coca Cola undervalued rather that is Coca Cola overvalued stock.

Coca Cola through the history

After 133 years of existing Coca Cola isn’t a woman-body-shaped-bottle. More about the company you can find in its fresh statements updated for Q3 earnings result for 2019.

The Coca-Cola Company is an American corporation established in 1892. It is primarily recognized as a producer of a sweetened carbonated beverage. It is a global brand not only the US trademark. The company is also focused on producing and sells soft and citrus drinks. Its product portfolio consists of more than 2,800 products available all over the world. That makes it one of the largest beverage producer and seller in the world and, also, one of the biggest corporations in the US. The company is headquartered in Atlanta, Georgia.

Almost 55% of its sales come from carbonated soft drinks. The rest 45% goes to juice, dairy, tea, coffee, etc. The interesting part is that Coca Cola is a market leader in almost all of these areas selling its products through over 28 million customer stores.

Speaking about its stock, Coca Cola could be everything but not overvalued. Moreover, it is a growing brand after 133 years. And the company still has great ambitions to meet consumers’ demands. Respect.

And don’t be worried if this famous producer is able to meet them. Despite the increasing competition, the company has transformed into an asset-light company. It manages to improve supply chains and modernize its packagings, the concentration of sugar and modern tastes.

Don’t ask is Coca Cola overvalued. It isn’t.

Bottom line

Coca Cola is consumer staples stocks. It provides goods that people need on a daily basis. That fact makes it an excellent investment in practically every economic condition exceptionally winning during economic slowdowns. People will always need these products no matter what economic or financial status is or if there is inflation or market downturns. The whole industry’s total return in 2019 was 27.3%. Compare this data with the 12-year average annual return of 10.4% and you will understand why it is still a good investment choice. Yes, it is 3% points below the S&P 500. Nevertheless, if the market gets rough, and especially if we will face the market correction, this industry will shine.

In the face of this context, Coca Cola is one of the best consumer staples stocks to buy in 2020. This pick should be proficient if the market is turbulence in 2020.

So, KO could be a good addition to investors’ portfolios.

5th January 2020