April 7th, 2009
When it comes to stock options, certain products fair better during a recession than others. For example, during the recession in the 1990s Haagen Dazs ice-cream prospered because it offered customers an affordable and luxurious experience.
This year they took a punishing blow to their popularity in the US by reducing the size of their pints of ice cream from 16oc to 14oz (therefore being pints no longer.) What bothered the US people wasn`t the fact they`d no longer be able to grab `a pint` of Haagendazs though.
It was the fact they`d have to pay the same price of for less of the product. Haagendazs described this shift as economic and `due to the recession`; however, if previous performance is anything to go by they don`t really have anything to worry about. Bad publicity about the downsized cartons is much more risky to their stocks than the unsettled economic waters are.
This story illustrates a point; no stocks are ever `safe.` Even those companies which are still surviving during the recession are not impervious to harm or guaranteed to stay profitable. So, choosing stocks during a recession is more complicated than you may first suspect.
Simple Tips
There are some simple rules to improving the chances of being successful when buying stocks during a recession. In many ways, a recession is actually a good time to buy, because some stocks will be at their lowest prices for decades. If you bet on a good horse (ie. buy safe stock) as soon as we get back in to a bull market, you can sell those stocks and make a huge profit.
If however, you purchase bad stocks, you`ll be worse off than ever. So, how do you get more of the good and less of the bad? Choose resilient products such as essentials. Steer clear of expensive luxury goods and buy shares in companies which produce or sell necessities such as: food, cleaning products, medicine and other basic products. It`s also important to pay a good price, over paying for stocks could result in you losing out.
Variety isn`t only the spice of life; it`s also the bread, butter, jam and the rest of the kitchen cupboard. When it comes to stock trading putting all your eggs in one basket is a very bad idea. Food analogies aside, if you choose to buy stock during the recession, it`s crucial that you diversify your options and choose shares with a variety of different companies. Otherwise, if one industry gets hit hard and it happens to be your speciality, you`ll be devastated.
Only invest in companies which have been doing badly, once the storm is over. If you go in too early things could get worse before they get better or a company could even go in to administration. Also: never buy in to companies who are in trouble financially. Instead, wait until there is at least some solid potential for them to earn money
Tags: buy stocks cheap, stock buying tips, stock tips, stocks in recession
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March 11th, 2009
Before doing stock investing you should know what you are buying!
Do you exactly know what you are buying when purchasing a stock?
Before entering the stock market someone has to know the answer to the question what is a stock?
Explaining it in its easiest way possible you would say that a stock represents an ownership or partnership with the company you invested your capital in. With the stocks you now own you possess a fraction of the company. You have become a shareholder of the corporation. When there are 1 million shares outstanding and you have bought 10,000 stocks 1% of the company belongs to you.
Everything which is related with this corporation is 1% yours. You always get 1% of every asset and future profit. The profit you get proportionally to the number of stocks you own is called dividend. But even when the corporation has made a profit your dividend is not definite. Only if the management concludes to distribute dividends you will get your portion.
Shareholders want to profit from the increase of higher stock prices.
The money you gave to the company is also called equity. This type of capital is also called risk capital, because the company will give you no guarantee that you will get your money back. Thus, for the company it is not borrowed money or debt. And you will not get assured interest rates. So, for the worst case possible namely when the corporation goes bankrupt you will lose your whole equity capital.
Being a shareholder contains voting rights too. One time per year you will get an invitation to the general meeting of shareholders. There the present and future condition of the company is discussed. Among other things this general meeting is also used to vote for a retention or the distribution of the dividends. You can decide if you are for or against a certain plan.
Shareholders don’t become shareholders in order to collect the dividend. Growing companies generally retain the dividend anyway in order to accelerate the growth process. Every stockholder is more interested in the stock price movements in the stock market. These are the returns everyone is after. In the stock price every present and future condition is already considered. But the fluctuations and price increases are much stronger than the annual growth rate of the stock issuing company.
Tags: Stock Definition, what is a stock
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March 11th, 2009
Every stock investor or trader should have a stock market psychology.
Whenever someone wants to invest in stocks he should have a certain kind of investor psychology. As a stock investor you should exactly know what expects you when investing in the stock market.
Most investors like stocks because the high dynamics in terms of price fluctuation is very attractive to them. But they only see those stocks which are in focus. In the latest finance news they are told again which stocks have gained most in value. After hearing those kinds of news some wannabe stock investors think that they could succeed in stock investing too because so many stocks are rising!
The following is wrong with this way of investor attitude:
Those stocks which have fallen dramatically or are still in their downward movement are not very interesting for financial news. But these shares which have lost a lot in value are out there too. So, who says that this potential investor will not buy one of this news-unimportant stocks?
In a stock investing psychology the shareholder has his emotions under control.
As a stock investor one should have the psychology where he has understood that stocks can also go down and that you are not always right with your investment decisions. You as a stock investor should know that when targeting a return on investment of 50% per year you must also expect a potential loss probability of 25% per year. Are you able to bear this loss rate?
If not you should lower your goal target from 50% to 30% where your loss potential can go down to 15% per year.
Another very important stock investor psychology is the control over fear and greed. These two emotions are the main factors which control the daily stock price movements. Not fundamental reports about our economy or the healthiness of a company drive the stock market. Fear and Greed are the main drivers of the stock market. Adjust your stock mentality in a way that you forget these emotions.
If your fear of losing money through stocks or your greed to become rich overnight dominates then forget an investment in the stock market as a long term loss is almost guaranteed.
Eliminate these two emotions within your way of thinking. Try that by saying to yourself that fear and greed are deleted and that you will be a very successful stock investor. This is truly only psychology but whoever has mastered this stock investor psychology has mastered the stock market.
Tags: stock market, Stock Market Psychology, stock trading mindset
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