How to Invest and Technical and Fundamental Analysis

[blakfyahking]

What happens when you buy a stock:

The most convenient way to purchase stock is online. First you would log into your account, then you would find the symbol for the stock you are trying to purchase

Your brokerage interface should give you the following options when purchasing a stock:

A market order, stop order, limit order, or stop limit order

Market order - You will buy the stock at the price your brokerage enters the order. If you buy a stock during open market hours, the price is always changing even if it is by a few cents. The actual time your brokerage enters and secures the order is the price you will pay for the shares.

Example - You see stock for Ford (F) is going for $4.95 a share. So you put up $100 to buy 20 shares. From the time your request is entered online, your brokerage must receive it, and fill it. This is usually a few minutes before you can confirm you've received the stock. In those few minutes, the stock price could change from $4.95 to 5.01. You won't receive the full 20 shares.........the brokerage will give you 19 shares, and then return $4.81 in cash.

For this reason, people use stop and limit orders

Stop order - You set a price online in your account to buy a certain amount of shares once the market price reaches a certain number. Using Ford stock (F), being quoted at $4.95 again, say you want to purchase 20 shares for exactly 100 dollars. You decide that you know that Ford stock will rise significantly this week pass the five dollar mark. So you set a stop order of $4.98 to buy 20 shares. Your brokerage will receive the order, and once the stock price rises, your brokerage will fill the order as a market order.

It becomes a market order again because once the share price reaches the stop order you put in, it is then filled by your brokerage as a market order. So once again it's possible for you to still not get the full 20 shares if by the time your brokerage can fill your order after the trigger price of $4.98, the actual market price has risen to $5.01. This happens when the share price is expected to rise rapidly. Most often people aren't concerned with only purchasing a specific price of shares only a certain amount. Stop orders are good if you only care about paying for $100 worth of Ford stock. But if you want 20 shares of Ford stock in the same situation, then you would do what is called a stop limit order.

Stop limit order - The same concept applies for the stop limit order as in the stop order. The difference is that you can limit the price for which you are still willing to buy the Ford stock. You set a stop-limit price of $4.98 again for Ford stock that is currently $4.95 for 20 shares. Also contained in this stop-limit price is the limit of the order. The limit you also enter is $5.00. So the Ford stock jumps to $4.98. Your brokerage will initiate your order, but they will only fill it if they can get the 20 shares for any price between $4.98 and $5.00.

If the brokerage gets the stock between those prices, you will get the full 20 shares. If the stock price rises to $5.01 before your brokerage can fill the order, then it will cancel your request to buy the stock and you will still have your $100.

This is useful to know because there is a difference in buying a certain amount of shares and buying shares for a specific amount. It will make more sense in the Technical/Fundamental analysis part of investing.

Also, if you want to try to buy a less volatile stock at a current price, you can do a "fill or kill order". You will enter your request and your brokerage will attempt to buy the number of shares you requested at the current market price. If your brokerage cannot, then it will cancel your order. If it can, then you will receive the shares immediately.

These same concepts apply when selling stocks as well. You can also set limits lower than the current stock price for buying/selling orders.

Also, understand certain brokerages charge higher commissions to buy/sell stock using stop/stop-limit orders.

 

[blakfyahking]

Get this book^^^^^^^^

Now that you understand how to do stock investing, this book will give you the foundation of understanding investment analysis

for people not really interested in getting an MBA or degree in finance, it gives you a good overview of how companies are constructed and how stocks work

once you read that book and get the basics down, then you will be able to develop real investment strategies

 

[blakfyahking]

Here are a couple places you can check the market and the general economy

some are in-depth for the finance/econ/law geeks such as myself

some are generic and appeal to the average investor

For general US news and financial market news:

Wall Street Journal - prob the best news magazine worth it's subscription.....get an online subscription tho. It's cheaper, plus the paper one gets delivered everyday, it will get annoying trying to figure out what to do with old newspapers

Bloomberg.com - Great for financial news, shows world updates

Reuters.com - Shows world and US news, generally anything significant happening in the world will be posted by reuters before anywhere else, good place to confirm news from other sources

Financial Times.com - London newspaper gives a good perspective on US financial news from an outside perspective

Portfolio.com - more US financial and business news

World News:

Economist.com - not good for market analysis, but great for analyzing how current world events affect world markets, also gives a good perspective on a lot of business and foreign policy issues. worth the subscription even if you don't seriously invest......I would get the paper subscription if you aren't interested in reading a lot of info, the paper comes once a week and sums up current events............online subscription is more for the geeks LOL

Reuters.com - see above

Yahoo (AP - Associated Press) - good for world news only, market analysis is generic

MSNBC/CNN/MSN.com - Same as Yahoo LOL

For finance geeks/serious hobby investors:

Seeking Alpha.com - more for math heads and people more interested in technical analysis

Ino. com - good for checking updates on forex and commodities, best for early market analysis before it opens

Also to check real time quotes, check the markets:

CBOE.com - for options, commodity indexes and prices

Nasdaq.com - for real time stock prices on the Nasdaq

NYSE.com - For real time prices on the New York Euronext stock exchange

 

[blakfyahking]

Technical analysis - Evaluating and predicting stock prices based on historical data, and using trends found in the historical data to measure stock price performance in the market

Pros: Easier to use based on the ease of reading charts, easier to make a comparison of the stock's performance during a timeframe in the business cycle, focuses on the share price of the company without having to consider other metrics that sometimes include unnecessary intangibles that can affect a stock's price

Cons: Limited because it uses historical data and past performance doesn't necessarily dictate future performance, can be mathematically complicated to the average investor, does not consider intangibles that affect a stock's price, ignores the company's current health

Fundamental Analysis - Evaluating and predicting a stock's future performance based on analysis of the company's health using financial statements and management data

Pros: gives a clearer picture of a company's financial health, uses book value to quantify the difference between market price and book price of stock, give idea of future existence of the company based on cash flows

Cons: ignores past performance, difficult to do for those who don't understand how to read financial statements, harder to visualize stock price performance

The best investors use a combination of both.............I personally use a 60/40 combo of analysis: fundamental 60%/technical 40%

new investors may probably be best at following industry news and using basic technical analysis to evaluate stocks

 

[blakfyahking]

Things to watch on the market: Commodities and Forex

Commodities - products that are fungible (interchangeable with each other) and that are usually staples used by an economy. They are produced at regular intervals such as seasons or predetermined business cycles. Examples are oil, corn, pork, wheat, sugar, steel, gold, silver, aluminum, cotton. Their fungibility allows them to be traded at the same price universally, which creates markets for them to be traded in.

For example: A barrel of oil can be traded for another barrel of oil. A US dollar bill can be exchanged for another dollar bill. If a barrel of oil currently costs $30, then every barrel of oil is being traded at $30. A stock is not a commodity because the company that the stock comes from changes the value of the stock. Stocks are NOT commodities. If the book value of two stocks from two different companies was the same, but the market price was different for each stock, it would not be a fair deal for two traders to exchange stock. But if two traders exchanged dollar bills or barrels of oil, it wouldn't matter because the same products are traded universally at the same price. This is important to know because futures are traded based on the fact that commodities are fungible.

Futures are important to understand because they give clues as to how the general market perceives that a certain commodity will perform in the near future. There are indexes that show how many futures are purchased of certain commodities. I will explain futures in another post later. Just understand that even though stocks are NOT a commodity, they can be commoditized and indexes are used to measure stock futures. These stock futures will tell the initial jump expected in the general prices of many stocks before a market opens. Checking websites like Ino.com and Cboe.com will show stock futures and give clues as to whether the market will start up or down for the day.

Certain commodities like Oil and gold have a significant impact on the market..........I will explain the significance of those in another post.

Forex - the foreign exchange market is where currency is traded internationally. you typically need anywhere from $10,000 to $100,000 cash to be able to trade in the FOREX market. Most people don't trade currency, they just analyze the currency values to judge a country's economy, and to find signs of how a stock market in a country will perform for a given time period. The FOREX market generally uses three main currencies: dollars, yen, british pounds. The values of them in relations to each other show how much one currency has appreciated in value, and how much another has depreciated. This is important to know because the value of a currency can cause a business to lose millions of dollars, just based on the impact of the local currency value dropping.

Also a currency's value dropping can cause major commodities to be more expensive. The most common one is oil. Oil is a commodity severely affected by FOREX because the value of a country's currency will cause it to have to pay more to buy a barrel of oil. So analysts and investors pay attention to FOREX markets and see how they relate to commodities like oil. Also in fundamental analysis, consider whether the company you buy stock from is a multi-national corporation. If it trades in US dollars and the dollar drops in value, the company has a decreased cash flow for future business. This can impact its stock price if the company is already in jeopardy financially. Companies that are strong financially are rarely affected by the dollar depreciating in value, but a company with less cash on hand in certain industries can make itself less profitable.

Because of everything I typed: When looking at market updates, look at the exchange rates. And look at commodities like Oil and Gold and pay attention to their current prices. These two things have a direct correlation daily on the stock market......................