Tag: trading

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

Margin Call – How to Profit From The Trade
Every second in your account you must have 25% of the total price of the stock you hold to cover the maintenance margin.

By Guy Avtalyon

A margin call is something that every trader would like to avoid.
- Buying on margin means borrowing money from your broker to buy stocks.
- There is no profit without the risk involved.
Have you ever seen a better movie than Margin Call? A movie about the Financial Crisis? It just crossed my mind when I started to write this.

Okay, never mind. The subject of this article is a margin call in the stock market.

Let’s start from the beginning.

What turns around and around the stock market is a risk. I know that is the major problem for most of you. How to take the risk? Because the risk has its bright and dark side and you know that. For example, you are trading some stock without guarantees that it will perform well.

The identical risk that boosts stock prices one day can lower them tomorrow. Yes, the identical. Pretty scary.

But here we come to the bright side of the margin call. For investors who want to profit a lot and quickly nothing is better than buying on margin.

Buying on margin means borrowing money from your broker to buy stocks. Basically, it’s a loan from your broker.

How “buying on margin” works?

You can borrow from your broker up to 50% of the price of a stock.

For example, when the stock price is $20,000 you will pay $10,000 and your broker will lend you the rest which is another $10,000.

Let’s look at the possible scenarios.

Assume the stock price grows at $24,000. The return on your investment will be 40%. You invested $20,000, but you have to give back to your broker $10,000 and you will end with $14,000 in your hands. But you invested yours $10,000 so you will have $4,000 of profit. This is good and you can be happy because you made a profit.

But things may go in another direction.

Assume the stock price went down at $16,000. You will end up with a 40% loss on your investment. Even more, you have to give back the borrowed money to your broker increased by charges, fees, and interest on the loan, of course.

Buying on margin may be extremely risky. You may lose your entire investment. But you may lose more because of something known as a margin call.

Every second you must have an adequate amount in your account to cover the maintenance margin. That amount is 25% of the total price of the stock you hold.

What can happen if you don’t have enough cash in your account? Your broker will issue a margin call. That means, your broker is demanding you to cover the difference with more deposit and reach that 25% maintenance level.

Let’s go back to our example and situation when things went wrong. What will happen if the stock price drop at $12,000? Your loss is $8,000 and now you have only $2,000 in your account. The rule is that you MUST have 25% and $2,000 is not enough to cover that. So, you lost $8,000 and at the same time, you have to deposit an additional $500 in your margin account to stay in the market. Also, you have to pay back the money to your broker.

Is margin call dangerous to investors?

It can be extremely dangerous. In our example the missing deposit is small as the money invested isn’t big, but you can count how it is an enormous loss when the value of the investment is $200,000, $500,000, or million dollars.

The most frightful detail about margin call for you as new investors is that your broker has no obligation by law to warn you that your margin account is too low. So, what the broker will do?

The broker will sell your stock and liquidate your assets if it is necessary. He or she needs to ensure the maintenance level in your margin account. Even more, the broker can begin selling your stock even the margin call is issued. Such will not wait for you and will not give you a grace period. Damn, you are dealing with a un-patient broker. This is an extremely painful and dangerous situation. If you come up to this situation how will you earn your money back when the market turns in your favor. You have nothing to trade with.

The other danger about margin call is that you do not have an influence on which stock your broker may sell. Of course, the broker will choose the best players to cover fast and smooth the maintenance margin.

Moreover, the brokerage may change the rules and issue the margin call based on them. You will not have even zero chances to delay paying the margin call.

How to avoid the potential risk of a margin call

First, stay away if you don’t have enough experience in trading. Second, open some other account for an emergency with enough money to cover the margin call.

I can understand that you are willing to enter the market as a big player. At least to earn a big profit. Nothing is bad with that. Everyone wants the same. Just keep these things on your mind when you want to trade on margin. Buying on margin is an extremely exciting method, risky but with great potential to profit.

If you are 100% sure that you have a great player in your hands, and don’t have enough money to buy it, do it. Borrow from your broker. Sometimes, a great risk will bring a great profit. In the end, there is no profit without the risk involved.
13th September 2019
How Long To Hold Stock?

Patience is golden, but even being a golden rule of stock investing, it isn’t enough, there is more.

By Guy Avtalyon

Yes, you are asking the right question, because many stock investors ask: “How long to hold stock?” There are some possible answers.
You may hold your stock until it provides you a profit, or break your stop-loss rule, or you may hold your stock forever.

Actually, there’s no general rule that fits all stocks when the holding periods are in the question. So many variables can influence how long to hold stock.

The decision to hold stocks for the long term or the short term is individual. It depends on your poverty, expectations, or advisor. Several factors are involved in your personal decision especially if you have a winner in hand. The right question is: Will the winner be an excellent moneymaker in the future and how long?

How long to hold stock

A lot of factors will influence your decision.

First of all, the time you enter the market is important. If it is during a bull market you have to know two things. First, the usual bull market cycle will last from two to four years and you’ll be able to earn the majority of your profit during the first or second year. In simpler words, you have to wait until your stock rises up to 20 – 25% from buying price, that is the point where the profit can be taken. If your stock increase over 20% in the first 3 weeks or in a shorter period, hold it at least 8 weeks. After that period you have to examine the stock’s charts to check if your stock keeping up well. When you get this confirmation from the charts and the market is increasing too, there are a lot of chances that this trend will continue. You can expect the new breakouts and the value of your stock will rise more.

For genuine market winners, the average time from breakout to top will be from 12 to 18 months.

This looks like a pretty simple answer, but is it the right one?

What if your stock starts a downtrend and you see you can be stuck in a losing trade for a long time? That is why you must have settled rules before you enter a trade.

How to determine how long to hold a stock

The best way to determine how long to hold a stock is to do that based on your trading rules.

Before you purchase any stock you have to define what profit do you want to make. The next will be your ability to forecast how much your stock could decrease. Will your strategy provide you a bigger gain than loss? Is the stock in its downtrend, bottoming, or up-trend? You have to determine the largest possible loss you can afford.

Traders-Paradise has one suggestion for you.

The gain has to be minimum 1,5 to 2 times bigger than loss. There more variables you have to consider. For example, how much will you earn when sell your stock?

The golden rule in stock holding

Let us examine one possible scenario. You have bought the stock and you are 20% in profit after the first week. You predicted the worst scenario as a loss of 10%. In this case, your reward is at 2 to 1.

What you have to do? Should you sell? Well, the brief answer is No.

The right answer is that you should hold a stock for a longer time if you have, for example, a medium-term horizon. You have to hold your stock for several weeks or even months.

Hold the stock as long as you want to make a notable gain from a stock price move. Some traders would advise you to hold a stock something between two and 10 months to get the best reward. You have to be very blessed to develop a great profit overnight.

The average high-profit trade is 30% and the hold time is about 45 days. Also, the average drawdown is -11% to -15%. That is the statistics.

Patience is golden

You must be patient with a stock. Stocks need time to give you the profit you want. Long-term investments have made incredible profits.

Anyway, you must be careful because stocks can drop suddenly. To avoid a catastrophe you have to limit your loss but don’t place your stop-loss order at 5%. Usually, a stock may pull back 10-15%, and very soon after that, a profitable move happens.

12th September 2019
When To Buy Sell or Hold On The Stock

The enter or exit the investment must be in line with your investment plan.

by Guy Avtalyon

Beginners in the stock market are usually enthusiastic, but do they know when to buy, sell, or hold on to stocks to gain maximum growth and limit loss?

There are no guarantees for stock’s price, they can go up or down driven by various circumstances. So how to know when to buy, sell, or hold on stock?

No one can tell you about one specific, the best strategy, good for everyone. But advanced traders follow some “rules of thumb” when they examine their investment movements. They are establishing entry and exit points and evaluating fundamental factors. But they had to learn some universal systems at first and after that, they were able to choose the one or a few that suit them the best.

Examine Entry and Exit Points

An entry point is the price level where the trader buys an investment or “enters the position”. The exit point is a price where you sell or “exit”.

If you want to avoid the wrong decisions and if you want to know when to buy, sell, or hold on the stock you have to define your entry and exit points. That means you must have a clear strategy to lower the risk and enhance your return. In other words, you have to set the right entry point to maximize winnings.

Also, it is extremely important to define where to set a stop loss. This point is worth in case the stock price starts to drop. Yes, some traders will wait for the dropping price to grow, but that may be dangerous in case the stock value continues to decline. This is especially important for short-term traders with the idea to buy and sell in a short time.

Traders usually practice stop and limit orders to maintain the balance between gains and losses.

The point is to have more winning trades, right?

To avoid permanent watching the charts and price changes you can set stop or limit order. That will provide you to enter or exit the investment according to your investment plan.

A limit or stop order means that you decide how much stock you want to buy at a specific price or when it peaks a specific price. So, you can place a limit or stop order for a higher or lower price than the current market price. The market price is the prevailing price of the stock.

Stop and limit orders act separately but associate to the trader’s action in the same way. They enable traders to not have to continually watch price movements, but traders have various goals with these orders.

For example, when setting a limit order, the intent is to buy or sell a stock at a defined price. To be more clear, if a stock’s value is $85, and you want to buy it, you may set a buy limit order at $80 if you think it is your best entry point.

Thus, if you want to sell the stock, you may place a sell limit order of $90 if it is your projected or planned exit point.

Stop order is a defensive strategy to lower losses.

To secure your investment, in case the stock continues increasing in value, you may set a stop order at a point a lot bellow the current price. But if you expect that stock to be trading below, you may try to minimize your losses with a higher-stop order that will be close to the current price or just a bit under the current price.

Stop and limit orders are created to trigger when the pre-arranged price is reached. If you set a limit order at $90, the stock will be sold immediately when the stock increases, and $90 is touched. Or vice versa, if you set a stop order below the current price, the stock will be sold when the price drops and it reaches that price.

I hope the point is clear, the trader with the limit order wants to sell when the price rises, and the trader who placed the stop order wants to sell when the price drops.

Why is important to know when to buy, sell, or hold on the stock?

There is some risk involved in limit orders. A limit order “guarantees the limit price or better” but on the other side, what if it never gets filled?

A stop order means an exit from the stock position if the price drops, after your stock scores the stop you’ve set. In that case, your stop order becomes a market order and there are many competitors waiting to be filled. Hence, you don’t have a guarantee that your order will be filled at the specific price you placed. In some cases, you may end up selling the stock significantly below that level.

Moreover, if you have a sell stop at $90 and the price falls to $40, your order will be triggered at $60, which is a good thing. But things could go in the wrong way too. For example, if you purchased a stock at $80 and placed a stop at $75, the stock might go down to $70 and be sold, of course, but it can jump back to $90.

When to buy stock?

In investing, it is important to determine what a stock is worth. Will it rise up to the estimated value? Set a range at which you would like to buy a stock. That might be helpful. Will you pay that amount for a particular stock? Be honest while giving the answer.

If you don’t know the price target range, you will be in trouble with determining when to buy a stock.

Also, you have to know about the financial health of a company. It is possible through the company’s financial statements that have a treasure of information.

You have to pay attention to the company’s revenue, for example, or how it relates to its past reviews. Are the company’s sales growing or shrinking? Read the company’s guidance for revenue or sales, which reveals how it expects to perform in the future.

Cash flow is important too because it will provide you information about a company’s liquidity. A very good sign is when more money is coming into the company than it spends. It is a positive cash flow.

Further, a stock might be undervalued. So, you must estimate a company’s upcoming prospects. Compare it with current reports. In this way, you will find a possible price target. If the current stock price is lower, buy it.

When to sell the stock?

Whenever the expected price is bigger than the current stock price, you have a chance to earn.

The size of the return depends on how much of a discount a stock trades related to its expected value. Also, it is related to how much time the market needs to update its expectations. The higher the stock price discount and the sooner the market corrects its expectations, the higher the return.

You can sell your stock when it hits its expected value, or a more winning stock arises, or you change your expectations.

When to hold the stock

You have to know that it can take time for a stock to reach its real value. Any stock price forecasting is actually simple guessing.

Your stock may need several years for a stock to reach close to a price targeted. If you are sure your stock will grow, hold it 3 to 5 years. Very often, you will profit more. It is essential to know when to buy, sell, or hold on the stock if you want a profit.

11th September 2019
Should you buy a stock because of its dividend?

3 min read

Never buy a stock because of its dividend. A dividend shouldn’t be a reason to invest in a poor business. Most important is the performance of the business. That will drive a stock’s return and the company will be able to pay a dividend. So, you must pay attention to the business as a whole, the company’s plans, its goals, even to management and how they treat their employees.

Dividend stocks are recognized as safe investments, that is true. They are the highest valued companies. They have grown their dividends during the past 20 years and these are usually held as safe businesses.

But, just because a firm is providing dividends doesn’t mean it is a trustworthy investment. You have to learn how to avoid pitfalls that may arise, at first glance, with good dividends.

Executives can use the dividends to pacify nervous and fidgety investors when the stock price isn’t running as they are expecting. You must know how the management is handling the dividends in a company’s strategy, for example. If you notice a lack of growth, stay away. Such a business isn’t good to invest in, even if it provides good dividends.

Do you know what has happened in 2008?

A great stock’s dividend yields were forced to unnaturally high levels due to stock price drops. The dividend yields seemed fascinating, but as the economic crisis developed, the profits fell. That caused the numerous dividend plans to be canceled entirely. The best example is the banks’ stocks in 2008.

They were paying great dividends but whenever dividend is paid the stock value instantly falls by an equal amount. That’s the point. And you may ask if the bankers knew that? Of course, they did.

Let me explain you something.

Very often, the chief purpose why some company pays dividends is because the executives can’t discover some solid growth possibilities within their own company to invest its earned profits in.

Hence, the company allows extra earnings to stockholders by paying dividends. But this is good, you may say. Yes, but…

When a company gives a dividend equivalent to its profits, that is a sign that they are not able to find investment opportunity within their own business that would give greater return. If such a company stays for a long time in a similar situation, the growth will be slow. And at some point in time, they will stop paying dividends and the stock price will decrease to worthless.

That’s the secret. So when you ask yourself should you buy a stock because of its dividend, be careful and have a bigger picture in mind.

You should buy a stock because the company is paying attention to the development, research, infrastructure… Things that will increase your profit as the stock price is going up.

Now, can you answer me, should you buy a stock just because of its dividend?

Of course not.

Moreover, dividend-yielding stocks are taxable income.

A dividend is a delivery of a part of a company’s earnings to stockholders. It can be done in cash, stocks, or other assets. It is a bonus to investors.

Yes, many investors see dividends as the main point of stock holding. They want to hold the stock long-term and the dividends are an addon to income. Nothing is problematic in that. But buying a stock just because of dividend is very wrong.

Dividends are an indication that the company is doing well, dividends are not bad. It has profits to share, more cash than it demands and it can give it to its stockholders. And a stock’s price may rise quickly after a dividend is paid.

And there is a catch, on the ex-dividend day, the stock’s value will surely drop. The value of the stock will drop by a sum almost the same to the amount paid in dividends.

When you want to buy some stock do it because you believe in business or you think the value will rise. Don’t do it only because of a dividend.

You would like to know THIS

10th September 2019
How to Calculate the Loss and Profit
2 min read

(Updated October 2021)

It is always useful to discover the percentage rise or drop. That is called profit and loss.
To calculate profit and loss we have to make clear some terms involved in the calculation.

We will use the stock as an example.

* Cost Price ( CP): The price at which you buy a stock is the cost price. That is the amount paid for purchasing stock.

* Selling price (SP): The Price at which you sell a stock is the sales price. That is the amount received when a stock is sold.

* Profit (also the gain): You get a profit when you sell a stock at a price higher than its cost price. You will like to sell your stock at a higher price. CP < SP

* Loss: If you sell a stock at a price lower than buying price, then you caught a loss. CP > SP

The percentage of profit or loss is always calculated on the cost price.

The formula for profit is

Profit = SP – CP

The formula for loss is

Loss = CP – SP

Let’s calculate the percentage of loss and the percentage profit. Percentage Loss and Percentage Profit are calculated based on CP

Profit% = (Profit/CP) × 100

Loss% = (Loss/CP) × 100

For example, one trader purchased a share of stocks for $1.000 and then sold it or $1.250.

What is the profit and profit in percentages? Is it 3%, 15%, 18%, 20%, 25%?

OK, this is basic.

The words “purchasing” or “buying” are indicated as CP, cost price.

In our case, CP is $1,000.

The trader sold the stock at $1.250.

The word “sell” is indicated as SP, selling price.

In our case, SP is $1.250.

We can easily find the profit. It is SP – CP, so

profit = $1.250 – $1.000 = $250

Don’t miss this What Is APY and How to Calculate it

Now, we have to find the profit percentage.

The formula is

[(profit)/CPx100]

so

[(250/1000)x100] = 25%

Our trader made a 25% profit in this transaction.

But what would happen if our trader sold the stock at $800?

CP is $1.000

SP is $800

loss = CP – SP

loss = $1000 – $800 = $200

or

[(200/1000)x100] = 20%

The trader’s loss is 20%.

Calculate the Loss and Profit in Percentages
- Divide the amount that you have profited on the investment by the amount invested. To calculate the profit, subtract from the price for which you sold the price that you initially paid for it.
- Now that you have your profit, divide the profit by the initial amount of the investment.
- The last step, multiply the number you got by 100 to see the percentage difference in the investment.
If the percentage is negative, you have lost on your trading. If the percentage is positive, you made a profit on your trade.

By calculating the profit or loss you are actually estimating the change. Our calculation is based on the relationship between the selling price, and cost price. The difference shows if we are making a profit from the transaction or will we have a loss.

You would like to READ: Gordon Growth Model – Mathematics of Trading
6th September 2019
Short Selling For Profit

What to do with stocks when the price starts to decline? Bet that a stock will fall more.

By Guy Avtalyon

Short selling for profit is a trading strategy that attempts to profit from an expected decrease in the price of a security. Basically, a short-seller wants to sell at a higher price and buy at lower.

How does short selling for profit work?

Let’s you are a trader and you have some information that some stock will decrease in value by the expiration date. Ofc, you don’t hold that stock but you can borrow it from a broker. For example, you borrow 100 stocks at $10 market price. And you open the position, meaning you want to sell them at market price by their expiration date. And you succeed. Then you close your short position and sell your borrowed stocks for $1,000. But before you give back that 100 stocks to your broker you are betting that their price will decrease in value before the expiration day. That happens. Now, you are buying these stocks at a lower price, it is called covering the short position.

Let’s say, the price of your borrowed stocks declines at $6 each.

You sold them at $1,000, bought them at $600. Return 100 stocks to the broker and you pocket $400.

(100x$10) – (100x$6) = $400

The risk in this kind of trading is literally unlimited because the price may rise and rise to infinity.

But, the profit can be huge, also. The previous example showed a short-selling for profit. Well, by using short selling you may gain loss too.

Example of making loss while using short selling.

The vice versa case is when stock price increase in value during the time while you are holding them.

Let’s say their market price rose at $14 each and you are holding 1oo stocks. The equitation will be

$1,000 – $1,400 = – $400

You borrowed those stocks at a $10 market price. But despite your expectations, the price increased which means you made a wrong bet. But you have an obligation to return those to the broker, hence you have to buy them back at that higher price. In this transaction, your loss is $400.

Short selling for profit is a method for traders to benefit from a drop in a stock’s price.

Short selling is only possible by borrowing stocks. The problem is they are not always available because when they are you may be faced with a crowd of other traders that already massively trade them.

Is short selling for profit risky?

The short-selling for profit can be risky and questionable. When a huge number of traders choose to short some stocks, their actions will make a great influence on the stock price. With such big traders’ interest, the price will decline sharply. That is not a good situation for companies. Their market value decreases. Sometimes the markets forbid short-selling, especially during the economic crisis.

As I said, short selling is risky for plenty of reasons. You can make a great loss if the stock price increases instead to decrease.

The other reason is that the sharp increase in selected stock may cause traders to cover the position all at once. Moreover, short-covering usually force the price to go up. Then you have a situation that more and more short-sellers are covering their positions and such stock is grasped in a so-called short squeeze. So, like a chain of unfortunate events, right?

The main purpose of short selling for profit is when you borrow the stocks from the broker to sell them instantly and buy them back at a lower price. And return them to the broker. When the whole process is finished you should profit from the difference in stock price.

Risks of short selling

Short selling involves a magnified risk. When you buy a stock you can lose only the money that you have invested. For example, if you bought one share at $300, the maximum you could lose is $300. Stocks can fall to $0 and that is the maximum, there is no stock that may fall below zero. The maximum in your potential loss will stop at your initial capital invested.
In short selling, you can potentially lose an infinite amount of money. Stock can increase its value for an infinite time to an inconstant price. So, you’ll have an infinite loss.
For example, let’s say you enter a short-selling at $200, and suddenly the stock price increases by 300% to $800. You’re obliged to buy the stock back and return them at $800, essentially losing 400% of your capital. actually, you are in incredible debt.

Just be careful when you bet against stock price.

16th August 2019
Bitcoin dominance rate – Why some are concerned?

Why this question about the Bitcoin dominance rate now?

By Guy Avtalyon

The bitcoin dominance rate is a very important indicator of crypto market preferences. It is the measure of how Bitcoin is important in the crypto world. To know the Bitcoin dominance rate observe its market cap as a percentage of the entire market cap for all cryptos. The traders and investors pay a lot of attention to it.

Okay, it isn’t shocking news that Bitcoin is dominant. Everyone knows that. It is here for a long time, it was the first, it has attention like a rock-star.

So, why this question about the Bitcoin dominance rate now? The alarms are a turned-on because of Bitcoin’s current climbing.

In the crypto markets, it covers about 70% of the market cap as a whole. The same level was seen in April 2017.
So, there we have a concern on the scene!

Some are afraid that this is a sign that the bull run is close. That will accelerate bitcoin’s dominance to over 90%. The existence of any other crypto would be doubtful. That high dominance rate would destroy the others.

The altcoins are on the edge of return, think others. Or no-return, the opponents are kidding. As always, when it comes to data interpretation you can see and hear literally everything and anything. But to be serious, the bitcoin dominance rate may show us many things. Even the increase isn’t always good news.

Why increasing dominance rate isn’t good news?

Well, Bitcoin’s dominance rate is not an independent measure. It is related to momentum, inclination, confidence. In one word – popularity. Bitcoin is the most popular cryptocurrency without a doubt.

The price of Bitcoin is the measure of its reputation. On the other hand, dominance is related to bitcoin’s relationship to other cryptos. There is one trick: the dominance may increase when the price is going down and vice versa. To repeat, it isn’t an absolute measure.

Bitcoin’s high dominance

It could be a double sword.

Bitcoin is an extremely volatile asset and risky this attribute often led investors to less risky assets and, can we say, safer. But, on the other hand, thanks to its popularity the whole sector of crypto assets may benefit if there are more investors in Bitcoin.

This new increasing Bitcoin dominance is proof that investors’ sentiment that this crypto is relatively safe to invest in. The sentiment indicator is just a current opinion, be careful with that.

How can you be sure the trend will continue? With what energy? What sentiments do is give power, to push things to go further, to build a chain of very convinced investors and traders who are buying bitcoin.

The added importance is market trust, particularly at the initial steps of institutional engagement.

Big traditional funds are not worried about the relative value of one token related to another. Their consideration is their portfolio. They will decide what is better to invest in, crypto, or some other asset. Having that in mind, it is more likely they will invest in Bitcoin if they want to have crypto in their portfolios.

Why is that?

Bitcoin has the liquidity, active derivatives market and is registered in most jurisdictions. With the rising dominance rate, Bitcoin has the opportunity to boost investors’ trust in the overall crypto market.

But nothing would last forever.

Prior run-ups in the dominance rate were followed with a change altogether with investors’ attention to new choices. That is a calculation. When market leaders grow extremely, wise investors take profits and re-invest in other winning assets. The last bull market noticed bitcoin’s dominance decline from above 85% to under 40%. This time it is something else.

How? During the previous bull market, we had plenty of new tokens. Where are they now? They are not exciting anymore? No, they are not existing anymore.

Moreover, the interest of institutional investors with a focus on bitcoin will launch bitcoin’s dominance to jump even more.

Stay tuned and keep your eye on what is happening behind the stage. Traders-Paradise has a fantastic example of how to MONETIZE BITCOIN

15th August 2019
Cannabis earnings – the countdown started

The cannabis industry is more than ever in investors focus

by Gorica Gligorijevic

Cannabis earnings is promising. This week can be very important for the cannabis industry. The time to post financial results is near. So, we will see their records for the last quarter. Aurora Cannabis is a top producer, but maybe some other marijuana stocks can generate more next year.

First in line to show the last quarter result are:

Greenlane Holdings Inc (NASDAQ: GNLN), Medipharm Labs Corp (OTC: MEDIF), and Village Farms International Inc (NASDAQ: VFF) they did it on Monday after the closing bell.

Today, the results from Tilray Inc (NASDAQ: TLRY) will be shown. It is expected Tilray to record a net loss of 25 cents per share and its revenue to be of $41.11 million. Today also, earnings result from Green Organic Dutchman Holdings Ltd (OTC: TGODF), Acreage Holdings Inc (OTC: ACRGF), and Flower One Holdings Inc (OTC: FLOOF) are coming after the market close.

On Wednesday, Aug. 14, Aleafia Health Inc (OTC: ALEAF), Jushi Holdings Inc (OTC: JUSHF), and Helix TCS Inc (OTC: HLIX) have to post their earnings reports. They are followed by Canopy Growth Corp (NYSE: CGC) and Trulieve Cannabis Corp (OTC: TCNNF) after the closing bell.

This is a busy week for cannabis companies. Investors seem ready to reward good companies. The main criterion among investors is the company can gain a profit. But, they are more than ready to punish the ones that don’t.

Cannabis earnings will rise

The cannabis industry is a big-money market. With legalization in more countries than it is now the case, it can be one of the most valued markets. I know there will still be the black market and a lot of money will go there, frankly more than in the legal markets. But still, this market could produce more than $250 billion in the next 10 or 12 years, counting the annual average sales, of course.

That sounds pretty good for long-term investors. So, I feel free to suggest to you some companies to watch in the future.

As the first Aurora Cannabis as a top producer.

It is the most trustworthy cannabis company among millennial investors. This data comes from Robinhood, an online app for investing with over 6 million users. The majority of millennial investors are Robinhood users. That put Aurora to the most-held stock online investment. It is reasonable to expect that millennials will take a bigger part in the world of investment in the future and support legal cannabis growth. It is easy to evaluate the reasons behind investors’ decision to invest in this company.

Aurora is leading the world production of cannabis with an annual production of 150,000 kilos. It plans to reach 625,000 kilos of annual output in 2020. And it isn’t unreasonable. By engaging the full production capacity, Aurora can produce 700,000 kilos of marijuana on the annual range.

Wall Street anticipates Aurora can be one of the best revenue generators in 2020 and capable to deliver about $518 million in sales per year.

The potential of cannabis earnings

There are not too many pot stocks in the arena that could hit this expectation. But, Wall Street predicted three cannabis stocks able to surpass Aurora Cannabis in 2020.

Curaleaf Holdings is expected cannabis earnings at $900 million in 2020 sales but with a cash-and-stock deal for Grassroots, which will bring to it about $350 million, let’s say Curaleaf Holdings may generate about $1,250 million.
Also, pay attention to Cresco Labs, the potential of $715 million sounds good as Canopy Growth with $521 million.

14th August 2019
Gordon Growth Model – Mathematics of Trading

5 min read

by Gorica Gligorijevic

The Gordon Growth Model is useful to determine the intrinsic value of a stock and you will see how. It is all math.
Anyone who wants to be a profitable trader has to know math. Profitable trading is not about feelings, or prophecy and stock advice or picks. It is all about math. Yes, the main goal is to earn money more than lose.

But trading guessing is not a good idea. The math generates success and luck in your trading. Do you want to know how the math works in your attempts to profit and be a successful trader?

If you want to act like a pro you have to be able to explain and make the math behind your trading. Anyway, you might benefit from understanding the math behind the stock market.

At least, you have to know the basic calculations.

Traders-paradise wants to show you some simple to understand. It will help you to pick the right stock and keep your hopes of future returns more realistic.

Let’s first determine the intrinsic value of stocks. How to do that? Just use of the Gordon Growth Model. Oh, yes. You will need more explanation.

The Gordon Growth Model is known as the dividend discount model or DDM but without the current market stipulations, meaning the factors that influence the market, such as competitors, business challenges, etc.

The point of this Gordon Growth model is to relate the current intrinsic value of stocks to the value of a stock’s future dividends. This is a very old model but still actual and popular. The equation shows that the long-term real return from the market should be almost equal to the inflation, modified by the compound yearly growth rate in dividends and increased by the current dividend yield.

Let’s view this complex definition in a simple example.

The S&P 500 real growth rate in dividends has been around 1.3% per year over almost a hundred years. At the same period, the dividend yield was 5% annual. What you have to do is to sum these both. The sum you get is a bit less than actual 6,5% compound annual return from stocks for that period.

This is defined by an almost doubling of the PE ratio, called a speculative return. That was exactly what did add the stock returns.

Let’s see Gordon Growth Model and how to calculate it.

As we said the value of a stock is shown as

Stock’s value = D1 / (k – g)

where D1 represents the expected annual dividend per share for the next year k is the investor’s discount rate of return. You can estimate this using the Capital Asset Pricing Model, for example.

and g is the anticipated dividend growth rate. We take this as a constant.

When you have all these parameters, it is so easy to calculate the intrinsic value of the stock. For example, the S&P 500 dividend yield is about 2 %, 4.5% is how much you can expect dividends to grow due to the historical performances. So you can expect a long-run return at 6.5%.

To show you how this model is true whether or not a company pays a dividend or reinvests it let’s show you this real example.

Suppose your preferred company plans to pay a $2 dividend per share next year (D1). Also, you expect an increase of 10% per year following (g). Also, suppose you are expecting a rate of return on the stock to be 20% (k). Let’s say, the stock is trading at $20 per share now. Using the Gordon Growth formula, you can determine that the intrinsic value of one share of the stock is:

$2.00/(0.20-0.10) = $20

When you have all these parameters, it is so easy to calculate the intrinsic value of the stock.

You will very often find the Gordon Growth Model formula calculated:

P = D1/(r-g)

The stock price (P) is equal to the anticipated value of the dividend (D1) divided by the difference in the investor’s rate of return (r) minus the constant growth rate of the dividend (g).

In essence, the Dividend Growth Model utilizes the investor’s required RoR and the dividend growth rate to calculate the value of the stock.

But dividends will increase at different percentages. For example, dividends will grow quickly and then reach a steady rate. The dividend is still supposed to be $2 per share next year, but dividends will progress yearly by 14%, then 20%, then 24%, and then stable rise by 10%.

By using components of this formula, but examining every year the recent dividend growth individually, we can determine the current value of the stock.

Following the inputs for our example Gordon Growth Model formula shows:

D1 = $2.00
k = 10%
g1 (dividend growth rate, first year ) = 14%
g2 (dividend growth rate, second year) = 20%
g3 (dividend growth rate, third year) = 24%
gn (dividend growth rate every year after) = 10%

Let’s calculate the fair dividends for those years (we already find the dividend growth rate):

D1 = $2.00
D2 = $2.00 * 1,14= $2,28
D3 = $2,28 * 1,20 = $2,74
D4 = $2,74 * 1,24 = $3,40

The next step is to calculate the current value of every single dividend during the extraordinary growth period:

$2,00 / (1,20) = $1.67
$2,28 / (1,20)^2 = $1.58
$2,74 / (1,20)^3 = $1.59
$3,40 / (1,20)^4 = $1.64

Now we can calculate the dividend in the year of stable growth of 10%:

D5 = $3.40 * 1.10 = $3.74

Further, we can use the Gordon Growth Model’s formula to calculate the value of dividends in the 5th year:

$3.74/(0.2-0.1) = $37.40

This allows us to calculate the present value of the dividend’s growth in this 5th year, or how much that future growth is worth to us today:

$37.40/(1.10)^5 = $23.22

The final step is to calculate the current intrinsic value of stocks by summing up the present value of dividends in the first four years and the value of dividends in the fifth year.

1.67+1.58+1.59+1.64+23.22=$29.7

The main benefit of this formula is that it may cool down your emotions when trading. Calculating this can bring you down to the ground in growth periods, and also can support you when the market is falling.

So, can the Gordon Growth Model’s formula predict the future market returns? In short, yes.

But the weakness of the Gordon growth model is its hypothesis that there will be a constant growth in dividends which is rare. So, you can use this formula for companies with stable growth rates.

12th August 2019
Passive Investing is a Good Choice

Passive investing is the way to force your money to work for you.

By Guy Avtalyon

Passive investing has become a significant part of the market. Finally! The low-cost index funds or exchange-traded funds are popular. However, there are still a lot of investors who are trying to achieve an excellent return through active investing. The question is why they are doing that when passive investing provides a better alternative.

What is passive investing?

It is investing your assets in funds that mimic a market. The main task of fund managers is to purchase the security in the precise proportion of a particular index to copy it. It is a passive investment. Sometimes you will hear the term “indexed investing.” It is the same.

Let’s consider a bit more the act of active and passive investing strategies. Three years ago, the S&P500 had a total return of 9.54%. What did every passive investor make? Precisely 9.54%. On the other hand, an active investor gained 12,5%, but the other made just a 1,9%, or some made losses of -27%.

How is that possible?

The passive portion returned 9.54% and the total market returned 9.54%. But returns before the cost is not what should be counted. You should count what you actually earn. And what is that? The returns after cost and after-tax.

So, where is the catch?

Passive management is cheaper than active. Active management is more costly. If you know that the cost of managing an index fund is between 0,15% and 0,50% rely on the market replicates, you will find that an active investing will have a minimum of 1% higher costs than passive investing.

That 1% is 100 basis points and may not sound a lot.

But let’s consider the following situation.

Let’s say you put your money in the bank account instead of buying stocks because you don’t want to pay that 1% of costs. You are short immediately 5-6%. Your wealth is worthless. Actually, if you invest that amount in stocks there is a chance to gain more. With putting money in the bank account you will lose 15-16% of your net profit from potential investments in the stock market. In only one year. Over time this difference could considerably decrease your wealth. It will surely lower your standard when retirement.

The costs of active investing are not only fees. The activity by nature adds more costs. The active trades create capital gains more often than passive investing. So, why wouldn’t you avoid them entirely? It is simple math. If you want active investing you would pay more. Just take into account the taxes and costs.

So, we have to say, index funds and passive investing can be a better option than actively managed funds.

Passive investing in index funds has changed the investment world.

In 1975, Jack Bogle, the father of passive investing, introduced the index fund. His radical idea showed the financial sector regularly cheated the individual investor with the unknown and opposed fees.

This doesn’t mean that everyone should be indexed. Of course not. Active managers’ choices hold prices closer to values. That allows indexing to operate. Index investing means to leverage their trade without paying the costs. The majority of investors decide to index part of their money, some do it with all of them. But the others want to explore the less-priced securities.

Let’s consult the statistic, in 2017, the percentage of securities owned by passive fund portfolios was about 5% of the total in the global market. The biggest part it took in the US where it was 15 %.

When it comes to investing, you can choose between active and passive investing.

Picking the right is crucial to your investing profit. If you make a mistake, you can end up with money loss. With the right one, you are the winner and you can make a big success in the stock market.

How to find the right passive investing opportunity?

Passive management requires buying investments that track an underlying index or making asset allocation and holding to it for the long term.

One form of passive investing is the mutual fund investment because the mutual fund’s purpose is to return what the S&P 500 returns every year. The advantages of passive investing are numerous.

Passive funds don’t require you to make trades and adjust holdings daily. The management fees are much cheaper, which is a benefit in the long run. You will always get the same percentage as the market returns. Good or bad, but the same.

Passive investing is easy. You just have to pick some investments and that’s all. There is no need to monitor the market every second and make changes or to try to catch price swings. But passive investing is not for investors who want to beat the market. Yes, you can do it from time to time, but all the time. So, probably, if you are not a professional you will make big losses.

Passive investing is more than set up your portfolio and don’t touch it anymore. You have to monitor your portfolio and make corrections as the market moves. You have to rebalance.

Say the stocks increase in price, bonds are falling. If you have a 60% stock and 40% bond in your portfolio, this price movement requires an adjustment to 70% stock and30% bond in the portfolio. In case you never make these changes in your portfolio you will take on too much or too little risk. You will not achieve your targets. So, some monitoring has to be done. In the first place, you have to think about your money. The money is not just a piece of paper. Having money means that you are free and safe.

You have to force your money to work for you. Passive investing is for sure a good way.

22nd July 2019