To help a fund manager avoid having too small a selection of companies to choose from, positive screening can be used. This enables the ethical investment fund to invest in a different selection of firms. Some funds will use both positive and negative screening.
Positive screening is essentially looking for companies who try to make a worthwhile contribution to society or the environment. However, different funds will view the same company in different ways meaning that firms will be eligible for some ethical funds and not others.
As you may imagine, by using either positive or negative criteria, the resulting companies can be wildly different. This means that without any real effort or analysis, it is easy to see why many ethical investment funds seem to be totally different and have differing risk ratios and annual growth returns. Some activities which are viewed well and may be used as selection criteria include:
- equal opportunities for employees
- environmental policy (including clean energy generation, energy conservation and recycling)
- forestry and / or sustainability
- waste disposal companies
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Saturday, October 11, 2008
What Is Positive Screening?
What Activities Do Negative Screening Filter From Ethical Investment Funds?
A rather blunt but often effective tool in ethical investment is the use of negative screening. The first ethical and socially responsible investment funds used this method to help guide their decision making.
Essentially, negative screening is a process which excludes companies as potential investments by takng into account their corporate involvement in unsuitable industries. As time has passed and the ethical investment world has evolved, these criteria have been expanded to include other areas such as the environment. Some examples of business areas which are generally excluded by negative screening include:
- alcohol
- arms makers and sellers
- breaches in the human rights of employees or local residents
- gambling
- nuclear power
- polluters
- supporters of oppressive regimes
- pornography and adult entertainment
- tobacco
- users of pesticides in farming
Are Ethical Investment Funds Higher Risk Than Other Similar Funds?
The nature of investing with your morals has obvious side effects. One of these is that the risks associated with ethical investment funds are higher. There are several reasons for this which shall be explained below.
Firstly, it may seem obvious to comment on, but is often overlooked that fund managers might have a very small number of potential investments to choose from. If the criteria of the fund is applied rigidly, the fund manager may only have a very small number of approved potential companies. This is known as a small universe of potential shares.
The companies available to a fund manager may be from only very selected industries. This lack of potential companies and sectors can make the returns of a fund more volatile than might otherwise be the case. These funds can become less and less diversified. Though this is a still a potential problem, the increasing numbers of ethical investment funds offer an investor many different choices. It is now possible to select from ethical funds aimed towards income or growth and have a range of risk profiles and asset mixes.
These funds are often now termed in relation to 'shades of green'. Those funds using a positive selection criteria and hoping to encourage better corporate behaviour are often referred to as lighter green. Ethical investment funds which exclude companies whose corporate behaviour is not approved of are usually termed as darker green.
How Does Positive Engagement Work?
Many fund managers now use positive engagement as their primary strategy to force a company to improve it's policies.
The main idea behind positive engagement is a simple one: upper levels of management, including chairmen and presidents of companies, have to take note to the opinions of their 'owners' - the shareholders. In normal terms, for a small shareholder to voice an opinion with a director of a FTSE or NASDAQ firm would be impossible - but if your fund ownes several percent of the company's issued stock they will listen!
In the past, such opportunities with directors were really only used for a regular update as to the trading conditions and performance of a company and market. However, as time has moved on, so has the power of a fund manager. These days, a high profile fund manager can make life very difficult for a director who opposes fund policies - and this includes ethical policies. Rather than exclude a company with a poor environmental or social record, many fund managers are now taking the unusual step of purchasing blocks of shares so that they may influence company policy from within. In reality, they are amongst the few people who really can influence these policies.
Therefore, these fund managers are trying to prevent problems from getting worse and force positive change. This differs significantly with how we would deal with such issues in the past. Previously, change would only be forced on a company after a significant event which shocked those involved - oil spills from ocean going tankers is an obvious example. Why should oil tankers only be improved for reasons of safety AFTER an accident and oil spill?
In ways like this, a fund manager can be a powerful ally of the ethical cause and is able to effect massive change if given time.
What Are The Main Ethical Investment Strategies?
Essentially, fund managers use one of four main ethical investment strategies to help them select stocks (or equities) for their portfolio's. These are:
- Preference. Companies within an industry or sector are rated for their policies and performance against environmental or social criteria. Fund managers often look for a 'best in class'.
- Thematic. Themes are used to try and identify industries or stock market sectors which have the potential to influence the world in a positive way.
- Ethical screening. Companies are either included or excluded on investment grounds for their ethical policies and behaviour before a fund manager even looks at them! The fund manager is then choosing investments from a selection of companies which already meet high social or environmental standards. - Positive engagement. There are many companies who 'could do better' and fund managers may purchase blocks of shares in this type of stock. Once bought, the manager uses his influence at boardroom level to try and pressure the company to change policies and behave in a more responsible manner.
As you might imagine, it is important for each fund to announce their policies so that investors can clearly see which types of business are included and excluded.
There are companies which offer independent ethical research to help fund managers. They act as an ethical policy monitor to keep watch on an ongoing basis.
What Is The Ethical Investment Dilemma?
Anyone who tries to invest responsibly faces the ethical investment dilemma. It is impossible to avoid!
This dilemma really revolves around two simple questions. They are:
'What is or is not ethical?' and
'Who decides?'
After all, what is ethical and responsible to me may not be ethical and responsible to you. We all have different standards - a different moral code, if you will. This means that considerable thought should go into this area to help you decide what you are happy investing in. Alas, it just isn't as easy as 'doing good'. Socially responsible investment funds tend to focus on companies that try to make a positive contribution to the world, environment or people. Many funds also use their power as large minority shareholders for active engagement with the management of a company to try and promote better corporate behaviour.
Some things that it may be helpful to consider are:
- Each ethical fund will be different and have different policies and goals from every other ethical fund. This makes it a potential minefield to select a fund that meets your approval, or have a stockbroker or adviser pick a fund for you.
- It is important to study and understand the different screening processes and filters that funds use. Without really trying to understand them all, it is difficult to pick the one most suitable for you.
- It is also important to give some thought to the other investment criteria which would normally be applied. For example, the financial strength of the investment group, the skills and reputation of the fund managers and the level of resources committed to researching ethical issues.
As you may be starting to realise, the private investor needs to think very carefully about this ethical investment dilemma if he or she is to be successful on their terms.
This is serious thought that might be preventing analysis of potential investments - so it may be wise to try and limit it. Otherwise, an investor may find that they no longer have the time to look for investments and make money!
What Is Ethical Investment?
For those of us who try to look at investment with a conscience, ethical investment is possible via a number of collective funds or individial stocks.
Back in the eighteenth and nineteenth centuries, religious organisations were the first to use morals to help make investment decisions. In those days, the aim was simply to avoid involvement with companies whose products were not approved of - alcohol and gambling for example.
It took a long time for ethical investment to reach the average investor. For example, the first of such funds in the United Kingdom were introduced in 1984. Since that time, the use of a moral compass to guide investment decisions has evolved to include ever more complicated strategies and wider ranges of companies. The ideas of socially and environmentally responsible investment have also been developed. This means that some investments are favoured for being acceptable, whilst others are excluded for being less agreeable. The idea of active engagement within companies has also been developed.
The advanced levels of analysis in this area means that most 'investors with a heart' are better using a collective investment fund which specialises in the subject or simply following their lead. It is almost certainly enough for most investors to focus on picking profitable companies for investment, without needing to then filter for environmental policy or charitable work.
Most ethical funds will employ some form of advisory board to help formulate their ethical policies. By doing this, the fund manager removes much responsibility from themselves for their policies and therefore are only responsible for actual investment returns.
These committees will be responsible for such things as:
- deciding upon any selection criteria
- making sure that the fund and fund managers comply with their stated policies
- screening companies the fund may select from
It needs to be said that this area will not be applicable to everyone. Your author, for example, is a very enthusiastic recycler and explains the impact of global warming and climate change to anyone who seems to not understand. And yet, I still find it very difficult to invest with morals - I just want to make a profit!
More About Elliott Wave Theory
Within the Elliott Wave Theory, there are a series of categories to describe the waves in order of the largest to the smallest.Grand Supercycle
Supercycle
Cycle
Primary
Intermediate
Minor
Minute
Minuette
Sub-Minuette
Ralph Elliott discovered that all patterns are built in the same way. His impulsive wave, which goes with the main trend, always shows five waves in its pattern. Within each of the impulsive waves which are on a smaller scale, five waves can be found. In these smaller patterns, the same pattern repeats itself again and again. These smaller patterns are each labeled as different wave degrees within the Elliott Wave Principle.
As with any theory that is new to you, this probably all seems a little confusing. That may be due to my poor explanatory skills. If it is, I apologise. However, it is vital that you get some sort of understanding of this principle in more depth.
Simply put, to make investment profits you are competing against the rest of the global investment community. They ALL know how this stuff works and if you plan to be involved, it is vital that you understand some of it too. You may not feel it necessary to be able to analyse these things yourself (I don't), but when you read and article or newsletter of note, you will find it useful to understand the wave patterns they talk about. It all comes from Elliott Wave Theory.
Most other trading strategies refer to EWT somehow. If you get the chance, I urge you to spend some time reading one of Robert Prechter's books on the subject of Elliott Wave Theory. It will help you immensley
Very Basic Elliott Wave Theory
As you will have seen on previous pages, Elliott Wave Theory was first discovered by Ralph Elliott towards the end of the 1920s.
Elliott found that stock markets, which were thought to behave in a somewhat random manner, did not. He spotted that they traded in repetitive cycles. The emotions of investors as a cause of outside influences, created these cycles. He said that the upward and downward swings of the mass psychology always showed up in the same repetitive patterns. These patterns were then divided into what he termed to be 'waves'.
This link to waves means that his theory is somewhat based upon the Dow Theory. (Please accept my apologies in advance if the following description isn't as lucid as you might hope. I don't claim to be an Elliott Wave Theory expert, but I do find the work of EWI to be very useful.)
People involved with Elliott Wave do not claim that it is a forecasting tool, it does appear to be one of the best, if not the best forecasting tool available. Instead, the tool is a detailed description of how markets behave. From understanding how a market behaves, it is then possible to predict how it will behave in the future.
Of course any stock index is made up of component companies, however the actual trading is done by real people. Elliott Wave therefore also offers observations about the habits and patterns of humans. While this may be less useful to many than stock predictions, it too has many uses.
It could therefore be said the the social nature of man governs Wave Theory.
Alterations in price are divided into trends and corrections or sideways movements. Trends show the main direction of prices. While corrections move against the trend. Elliot called these 'impulsive waves' and 'corrective waves'.
My understanding of The Elliot Wave Theory is:
Every action is followed by a reaction.
There are five waves in the direction of the main upward trend followed by three corrective waves
This is known as a 5-3 move. A 5-3 move is a full cycle
This 5-3 move then becomes a subdivision of the next higher 5-3 wave
Whilst all this may sound a little complex, it does become much clearer when explained properly and in more depth (you have to buy the book for that!) and the regular reports written by Prechter often make for a surprisingly good read.
A Brief Biography of Robert Prechter
Robert Prechter has been publishing the Elliott Wave Theorist every month since 1979. Previous to this he worked as a Technical Market Specialist for Merrill Lynch for four years.
Robert Prechter has won numerous awards for his market timing ability and has become the both the public face and president of Elliott Wave International. He has written and co-written a number of books about market timing, Wave Theory and socio-economics. I don't think it would be an overstatement to call him a leading market thinker.
I first read his book Elliott Wave Principle in around 2001. I won't lie to you, it isn't a walk in the park. You need to concentrate and really work to understand some of it. If you plan to be an investor, understanding the theory of waves will be interesting to you. It will probably be worth the effort.
However, if you plan to trade in the market, this book is a must read. Even if you as a trader do not plan to use Elliott Wave Theory to help you, you must realise that virtually every other competent trader, investor and fund manager has read the book. Most fund managers and traders will refer to wave patterns to help them make investment decisions.
Knowing and understanding what many of the other market participants are thinking and the understanding the numbers they are analysing will be of invaluable benefit to you.
Once your knowledge of waves begins to grow, you may even become an Elliott Wave trader yourself. Understanding the market moves and smaller waves within a larger wave movements will open up many new profitable trading opportunities.
Who Was Ralph Elliott?
Ralph Elliott had the type of career that would be astounding even today...
He is remembered as the father of The Wave Principle, now known as the Elliott Wave Principle which is a number analysis system which can be used to predict many things in life, including market movements.
Elliott was born in Kansas in 1871. In his early career he worked for around 25 years as an accountant, often in executive positions. Many of these positions were held in Central America and Mexico. He learned skills of financial management and corporate reorganisation. In 1924 he became Chief Accountant for Nicaragua. Later in life he was struck by illness and turned his attentions to analysis of the stock market. He was completing a goal that he had expressed in a book he had written about Latin America: "There is a reason for everything, and it is [one's] duty to try to discover it."
Investigating the possibility of form in the marketplace, Elliott examined yearly, monthly, weekly, daily, hourly and half-hourly charts of the various indexes covering 75 years of stock market behavior. In 1934 his observations began to form a set of principles about wave movement and the application to stock prices.
In 1946, his finest work was published, Nature's Law - The Secret Of The Universe. The first 1000 copies sold out quickly to financial analysts and the position in history of Ralph Elliott was set. His research is now used by thousands of fund and money managers around the world to assist their decision making.
In the modern financial world, the leading interpreter of wave priciples is Robert Prechter.
Dividend Reinvestment Schemes
Depending on which study you read, dividend reinvestment is either very important to the long term returns to an investor or very, very important.
However, it is very difficult for a small scale, individual investor to do. If you only hod a few hundred or a few thousand shares in a company, the annual dividend payment can often be lower than the total dealing cost to reallocate the new money.
Recognising this, many larger companies with tens or hundreds of thousands of shareholders now operate something often called a DRiP. This is a Dividend Reinvestment Plan. Rather than be sent your annual cheque, the firm will purchase as many additional shares as the money will buy at very low dealing costs. By arranging such a scheme for thousands of investors at a time with a stockbroker, they can use economies of scale to keep the dealing fees as low as possible.
The money will almost certainly have any relevant taxes automatically deducted before it is applied, but it allows the little guy to reap some of the same advantages that were previously only open to funds and major corporations.
The main attraction of dividend reinvestment is the potential for a compound return on interest. This is very powerful and every investor should want to harness the power of compounding.
By reinvesting dividends, more shares are bought each year. These new shares will also produce an income stream which can be used to purchase more shares in future years. Over time, this has the power to make a significant improvement to the value of a holding.
If the holding is also increasing in value at the same time, this will provide an impressive improvement in performance.
Dividend Tax Rate
As you might imagine, the dividend tax rate will differ from country to country.
There are some nations where an individual is not taxed on this form of income. However, our research leads us to believe that most of these locations are small and sunny islands rather than the major economic powers of the world. As such these payouts are not generally from companies listed on a major world stock exchange, but instead from privately owned businesses.
If you benefit from this situation, the chances are that you aready know this and established the business there for this very reason! For the rest of us, our dividend tax rate will mainly depend upon the top rate of income tax at which we pay our taxes. There are many different formulas and potential calculations, so this site shall not even try and do this.
Rates can vary amazingly. For example, there was a time once in the UK where a dividend payment was taxed at 98%. We would not have believed this if we had not been told and shown by a high level UK civil servant. It takes no skill to add that the rate at which taxes are charged to dividends will impact the total return on any stock investment.
It is worth pointing out though, that in most major nations, basic rates of income tax are deducted at source from the dividend. This means that the cheque you receive has probably had most or all of your tax liability already deducted. This does not mean that you have no responsibility to declare the income though.
As always, it is worth taking professional advice to help with you individual situation. The tax inspector, Inland Revenue, IRS or whomever, is not generally the organisation that you want to fall foul of.
How High Is A High Dividend Yield?
For an investor looking to supplement an income, companies that pay a high dividend yield wil be very attractive.
It is vital for an investor to recognise that everything is relative. A high dividend yield can only be 'high' relative to the payments from other companies. These payments can be compared to other companies in the market as a whole, in the same sector (builders, for example) or from the same part of the index (FTSE 100 companies, for example, are regularily compared against each other, purely due to size rather than any similarities in industry or business model).
This means that for an investor to make such a comparison, they must have access to the other pieces of relevant data. This can be either a very time consuming job, or alternatively, simply a case of downloading the relevant information from a market info provider. There are, of course, mutual funds and unit trusts that specialise in hunting out the big payers.
It is worth noting that it is often, though not always the case, that a firm that makes above average size payments will also have a strong cash flow. The above average payments are often made possible by the strong cash flow. It also follows, that such companies are probably more profitable than others.
Therefore, it can be argued that firms who pay a high dividend yield are worthwhile as investments for a number of reasons. It goes without saying though, that individual research should always be carried out before an investment is made.
Please note that the dividend yield being paid by a company is relative to price. This means that as the stock price moves, so does the yield. The numbers actually move opposite to one another. Therefore, as the market price increases, the annual dividend is worth less as a percentage.
However, this means that strong, solid companies which pay high dividends can be bought for very acceptable prices when the market generally is falling. Not only can these companies - or their stock - be purchased at favourable prices, their annual dividend will be worth far more than was previously the case because of the drop in price.
Understanding And Calculating A Dividend Yield
To estimate the current income level from shares we can calculate the gross dividend yield (which means that it is calculated free of tax).
Where D0 = the dividend paid during period 0
and P0 = the share price of the stock at the end of time period 0
Gross Dividend Yield = D0 divided by P0
This may not be a useful guide to the likely future return from an investment in the company. As we know, there are two potential sources of financial return from a stock holding. The first is the the potential gain or loss from price movements. The second is the dividend yield. But this ratio only provides us with information about the income and not the capital. It is also worth noting that unlike a fixed income investment, the income stream may change. The directors may decide to increase or reduce payment and so D0 (shown above) may prove to be a poor indicator of the following year, D1.
There are also potential pitfalls when comparing the income streams yields of different companies. The management of the companies being compared may have entirely different opinions about the worth of paying out earnings to owners which will be reflected by differing policies.
Dividend Policy and Dividend Cover
he dividend policy and dividend cover of a company are important factors to understand about an investment. Analysts want to understand and measure the likely return from a company before an investment is made and then at regular intervals.
One way of doing this is to assess whether a firm has a stable payment policy. Do they increase their payments in an orderly and regular way? Are payments made at a constant rate? Will the firm be able to maintain these payments?
One measure used to help answer these questions is a ratio known as dividend cover. Dividend Cover = Earnings Per Share divided by Dividend Per Share
The inverse of this ratio is the proportion of earnings that belong to ordinary shareholders which are distributed to them. This is known as the dividend payout ratio.
A company who has a dividend cover ratio of 1.0 pays out all earnings in dividends. This means that should earnings fall, the company might be forced to cut annual dividend payments. If the company has financial reserves, it may be able to make the annual payment from these cash reserves in the short term.
Many firms use annual dividend payments as a signal to shareholders and the market of confidence, so in the short term, directors will be reluctant to reduce payments, unless the firm is in trouble.
The Definition Of A Dividend
The definition of a dividend as it relates to finance is:
a. a pro-rata share in an amount to be distributed
b. a sum of money paid to shareholders of a corporation out of earnings
These seem reasonably straightforward, but as with anything in life, there is much that lurks beow the surface...
An investor holding common stock / ordinary shares in a company will receive a return in one of two ways, either through capital gains or losses which come from price changes and dividends. There are practical limitations to a company paying out a dividend. Firstly, the payment must be legal. Company law will lay down the rules and guidelines. A firm must have distributable reserves on the balance sheet to be able to pay a dividend. A company may therefore dip into the undistributed profits of previous years.
Many firms will want to do this to ensure a dividend payment and maintain a certain level. Failure to do this can send out a negative signal about the firm.
A firm also must have the cash availaible to pay out. Any experienced investor will know that profits do not necessarily mean cash!
To An Investor, A Dividend Is A Valuable Thing!
Analysts use a number of methods to value and assess companies. The dividend policy of a company offers useful insights into the valuation and potential return an investor might receive.
There are a number of ratios based on accounting methods which are used. These can help to estimate the future dividend flow from a stock.
In the UK, for example, they are usually paid every six months. The first is known as an interim dividend, whilst the second is known as the final dividend.
These payments can be the same size or of different amounts. If the interim and final dividend are for different amounts though, it is usually the final which is the larger sum.
Since payments from a holding can be a large or at least significant portion of long term returns, it is useful for an investor to gain a working knowledge of this subject.
What Is A Bear Market?
Answering the question "What is a bear market?" could clearly be very quick and easy or shockingly complex! We have tried to offer a conclusive bear market definition elsewhere. However, should you be hoping for a more indepth discussion of the complexities and impacts of bear markets, this is the page for you!
In his book, "After A Crash: Bear Market Money Making", 'Uncle' Harry Schultz describes some of the effects of the 21 bear markets seen between 1900 and 1987. He describes the index as losing between 13.9% and 90% in the different downward periods. Clearly, adding these losses together totals an enormous amount of money.
He also points out that these losses are for the index. Some stocks will have moved very differetly to the average producing many differing results for individuals. In addition, the index only tracks the biggest 'blue chip' companies. These firms are likely to have lost far less value than their smaller counterparts.
Understanding Bull And Bear Market Situations
Understanding some of the basic facts about bull and bear market behaviour and charachteristics is sound advice that any newcomer should follow.
Clearly, the movements and underlying economics of each type of market is very different from each other and is discussed in this section of the site.
For many investors, especially relatively new ones, the current market situation - no matter what it may be - can appear to be the way that stock markets have always been. However, this isn't the case. Over the years - and the US market has been in existence in one form or another for over 100 of them - there have been some violent movements in price and prolonged periods of both prosperity and despair. It should be noted that in trying to analyse both bull and bear market features, no two have been the same. They almost certainly last for differing periods of time, are caused by different things, require different investment strategies and can create and destroy wealth in different ways.
In other words, understanding how either a bull or a bear market might work and move is very important.
Unfortunately, here at StockExchangeSecrets.com we do not have a crystal ball that will perfectly define or predict coming rises or falls in markets. Instead, we shall try and provide a brief but useful overview of these important terms and conditions.
The Canadian Stock Exchange
Unusually, there is no Canadian Stock Exchange in the way that there is, for example, an exchange in London that serves the United Kingdom. Instead, Canada has had several exchanges upon which companies can list and investors can buy and sell. Over time, the TSX has become the dominant exchange handling the bulk of transactions.
However, in days before the speed of light, worldwide communications that we now enjoy, just one stock exchange in a nation the size of Canada would have been very difficult for many to access.
A most investors would know, the main exchange is the TSX - or Toronto stock exchange. There is also, however, a TSX Venture Exchange - CDNX - which serves the public side of the venture capital market. The Venture Exchange was initially formed by the merger of the Alberta stock exchange (ASE) and Vancouver stock exchange (VSE). Until 24th November 2000, there was also a Winnipeg stock exchange. This merged with the above mentioned Canadian Venture Exchange. The Canadian Dealing Network has also merged with the CDNX.
Since Canada has such an abundance of natural and mineral wealth, it makes sense that there should be a specialist exchange to serve these companies. This is National Gas Exchange - NGX - and serves the entire North American natural gas market. It is also a leading player in North American electricity contracts.
There was a Montreal stock exchange - now known as the Bourse de Montreal - which could trace it's roots back to the 1830s which made it the oldest Canadian stock exchange. Housed in the Tour de la Bourse - one of the tallest buildings in Montreal - it was originally formed in the Exchange Coffee House. These days it is a futures exchange, handling complex derivative, futures and options contracts.
In 1926 the 'Montreal Curb Market' was established to enable small and high risk 'junior' stocks. This enabled the exchange to grow significantly.
Life was not smooth for this Canadian stock exchange though. In February 1969 the building was attacked with a massive bomb that wounded 38 people. For organisations which wanted a free Quebec, the exchange and it's building represented Canadian and English power and authority.
On 10th December 2007, it was announced that the Montreal market would be acquired by TSX for C$1.31 billion.
Do You Know The Background Of The Toronto Stock Exchange?
The Toronto Stock Exchange provides a liquid market for senior equities. Listed issuers on the senior exchange represent a broad range of businesses from across Canada, the United States and other countries.
It has offices in Vancouver, Calgary, Winnipeg, Toronto and Montreal which enables it to offer a range of services across the country. Toronto has the third largest exchange in North America.
Click Here To Watch A Free Stock Trading Training Video TSX Group is a cornerstone of the Canadian financial system and economy and is at the centre of Canada's equity capital market. The company owns and operates Canada's two national stock exchanges - Toronto Stock Exchange serving the senior equity market, and TSX Venture Exchange serving the public venture equity market.
It also owns the Natural Gas Exchange (NGX), a leading North American exchange for the trading and clearing of natural gas and electricity contracts.
It is believed that the TSX grew from an 'Association of Brokers' formed by Toronto businessmen on July 26, 1852. However, no official records remain of this group's transactions.
On October 25, 1861, twenty-four men gathered at the Masonic Hall to officially create the Toronto Stock Exchange, which then became formally incorporated by an Act of the Legislative Assembly of Ontario in 1878.
Tokyo Stock Exchange History
The Tokyo Stock Exchange history effectively started in May 1878 when the Stock Exchange Ordinance was enacted. There had been calls for some form of public trading system since the 1870s when a securities system was introduced and Japanese bond negotiations had started.
On 1st June 1878, trading started on the Tokyo Stock Exchange.
On 30th June 1943, 11 Japanese stock exchanges were unified and a semi public corporation, the 'Japan Securities Exchange' was established. However, this was later dissolved in April of 1947. All trading was suspended from 10th August 1945 until December 1945. At the time, Japan was suffering regular air raids on the mainland and the conditions of war were worsening. An attempt was made to reopen the exchange in September 1945 by SCAP (Supreme Commander of Allied Powers) but was unsuccessful.
On 1st April 1949, three stock exchanges were opened in Tokyo, Osaka and Nagoya. Trading began on 16th May. Five more exchanges were later opened (in Kyoto, Kobe, Hiroshima, Fukuoka and Niigata) in July of that year.
In April 1950 a stock exchange was opened in Sapporo. Subsequent mergers have since reduced the number of exchanges five with the Tokyo stock exchange being the largest.
New York Stock Exchange History
The New York Stock Exchange history is a colourful one starting with it's formation under the Buttonwood Tree in 1792 to the Dow breaking 10,000 in 1999.
Here are some facts about members and member firms throughout NYSE history:
Highest price paid for a membership: $4,000,000 on December 01, 2005
Lowest price paid for a membership: $2,750 in 1871
First member firm to incorporate: Woodcock, Hess & Co., Inc., 1953
First member firm to go public: Donaldson, Lufkin & Jenrette, 1970
First member firm to be listed on the NYSE: Merrill Lynch, 1971
Watch This Free Stock Trading Training Video As the 20th century dawned, the NYSE was firmly established as one of America’s preeminent financial institutions. Trading in listed stocks had tripled between 1896 and 1899 and would nearly double again by 1901.
More space was clearly needed, the market was expanding. So the Exchange invited eight of New York City’s leading architects to join in a competition to design a grand new building.
The Exchange chose the neoclassic design of architect George B. Post. Today, the Exchange building is considered one of Post’s masterpieces and is a New York City and American national landmark.
Of course, one of the most important events in the New York Stock Exchange history happened in 1929 when the 'Great Depression' and stock market crash occured. It is a subject about which I have done quite a lot of reading and find fascinating. If you plan to understand crowd behaviour or human psychology, it is simply unmissable!
Stock prices fell sharply on October 24 1929, Black Thursday, with record volume of nearly 13 million shares. Five days later, the market crashes on volume of over 16 million shares which is a level not to be surpassed for 39 years. On September 3 1929, the Dow Jones Industrial Average reaches its 1929 peak of 381.17.
On October 29, Black Tuesday, prices fall sharply and the stock market crashes. This crash produces a record volume of nearly 16 million shares. The Dow Jones Industrial Average falls more than 11 percent.
London Stock Exchange History
The London Stock Exchange history is proof that from something small, a huge giant can be built. It can trace its history back more than 300 years. Starting life in the coffee houses of 17th century London, the Exchange quickly grew to become the City’s most important financial institution.
1698 John Castaing begins to issue 'at this Office in Jonathan’s Coffee-house' a list of stock and commodity prices called 'The Course of the Exchange and other things'. It is the earliest evidence of organised trading in marketable securities in London.
1698 Stock dealers are expelled from the Royal Exchange for rowdiness and start to operate in the streets and coffee houses nearby, in particular in Jonathan’s Coffee House in Change Alley. 1720 The wave of speculative fever known as the South Sea Bubble bursts. Details of this can be found in many investment books - especially those related to investor or crowd psychology. It makes for an instructive and entertaining read!! Without doubt, this has to be one of the most interesting times in London Stock Exchange history.
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1761 A group of 150 stock brokers and jobbers form a club at Jonathan's to buy and sell shares.
1773 The brokers erect their own building in Sweeting’s Alley, with a dealing room on the ground floor and a coffee room above. The members soon name it the 'The Stock Exchange'.
1801 On 3 March, the business reopens under a formal membership basis. On this date, the first regulated exchange comes into existence in London, and the modern Stock Exchange is born. Officially, London Stock Exchange history starts here!
1812 The first codified rule book is created.
1836 The first regional exchanges open in Manchester and Liverpool.
1854 The Stock Exchange is rebuilt.
1876 A new Deed of Settlement for the Stock Exchange comes into force.
1914 The Great War means the Exchange market is closed from the end of July until the new year.
1923 The Exchange receives its own Coat of Arms, with the motto 'Dictum Meum Pactum' (My Word is My Bond). For many decades, this phrase summed up the code of those working on or in the exchange.
1939 The start of World War Two. The Exchange is closed for 6 days and reopens on 7 September. The floor of the House closes for only one more day, in 1945 due to damage from a V2 rocket – trading then continues in the basement.
1972 Her Majesty the Queen opens the Exchange's new 26-storey office block.
1973 First female members admitted to the market.
1986 Deregulation of the market, known as 'Big Bang':
Ownership of member firms by an outside corporation is allowed. All firms become broker/dealers able to operate in a dual capacity. Minimum scales of commission are abolished. Individual members cease to have voting rights. Trading moves from being conducted face-to-face on a market floor to being performed via computer and telephone from separate dealing rooms. The Exchange becomes a private limited company under the Companies Act 1985. 1991 The governing Council of the Exchange is replaced with a Board of Directors drawn from the Exchange's executive, customer and user base. The trading name becomes '“The London Stock Exchange'.
1995 AIM is launched – read about it on other pages of this site.
1997 SETS (Stock Exchange Electronic Trading Service) is launched to bring greater speed and efficiency to the market. The CREST settlement service is launched.
2000 Shareholders vote to become a public limited company: London Stock Exchange plc.
2001 London Stock Exchange plc lists on it's own Main Market in July.
As you can see, the London Stock Exchange history has been one of growth and constant expansion and is a credit to the UK.
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The Hong Kong Stock Exchange History!
Hong Kong Stock Exchange history dates back to 1866 but the first formal stock market, the Association of Stockbrokers in Hong Kong, was established in 1891. It was renamed the Hong Kong Stock Exchange in 1914.
A second exchange was incorporated in 1921 - the Hong Kong Stockbrokers' Association. The two exchanges merged to form the Hong Kong Stock Exchange in 1947.
The rapid growth of the Hong Kong economy led to the establishment of three other exchanges in the late 1960s and early 1970s. Prompted by the 1973 market crash and the need to strengthen market surveillance, the Hong Kong government set up a working party in 1977 to consider the unification of the four stock exchanges. As a result, the unified exchange - the Stock Exchange of Hong Kong (SEHK) - was incorporated on 7th July 1980. The four exchanges ceased trading after the close of business on 27th March 1986.
This was a pivotal point in Hong Kong Stock Exchange history as this merger allowed the market to grow and compete on an international scale.
After the October Crash in 1987, SEHK underwent a complete reform, including the establishment of a more widely representative Council and a strong, professional executive management team, to safeguard the interests of all participants and to operate and develop the market effectively.
To enhance the competitiveness of the Hong Kong stock exchange and to meet the challenge of an increasingly globalised market, the Financial Secretary of the Hong Kong SAR Government announced in his Budget Speech on 3rd March 1999, a comprehensive market reform for the securities and futures market. Under the reform, SEHK and Hong Kong Futures Exchange Limited (HKFE) were demutualised, the two exchanges and their respective clearing houses were merged with the Hong Kong Securities Clearing Company Limited (HKSCC) to form a single holding company - Hong Kong Exchanges and Clearing Limited (HKEx).
In accordance with the Schemes of Arrangements of the exchanges and the Exchanges and Clearing Houses (Merger) Ordinance which took effect on 6th March 2000, SEHK became a wholly-owned subsidiary of HKEx together with HKFE and HKSCC.
As you can see, the Hong Kong stock exchange history is one of massive growth and increasing market regulation to improve investor safeguards.
The Frankfurt Stock Exchange History
The Frankfurt stock exchange history is one of the oldest in the world.
Frankfurt was important for medieval fairs which enabled trading. An autumn fair is believed to have begun in the 11th century and in the 13th century a spring fair was added. This laid the foundations for Frankfurt to become a city which was important for commercial activity.
As the reputation of Frankfurt grew, traders from France and the Netherlands came to the city. Over time, a banking centre established itself. It is believed that 1585 is the year of the Frankfurt stock exchange's birth. Merchants came together to establish exchange rates between very regional currencies for ease. The merchants held their meetings in fields on the outskirts of the city.
The first rules were laid down in 1682 and it is now that trading in the way we know a market was begun. The Frankfurt stock exchange history was long even before a start that we would recognise in the modern world had begun.
It is believed that by volume it now serves over 90% of the German market. In total, there are more than 250,000 trades processed every day and over 70,000 listed securities.
The Xetra electronic trading system enables 15 countries to trade on a single platform. This has enabled very high levels of foreign investment into the Frankfurt stock exchange and it is believed that almost half of all market participants are based outside Germany.
Companies can list on the exchange in one of three different ways. They are called Prime Standard, General Standard or Entry Standard. EU rules govern the companies using either Prime or General Standard procedures. Those firms choosing Entry Standard face a lighter entry procedure and will be regulated directly by the exchange.
Australian Stock Exchange History
The Australian Stock Exchange history starts with six separate exchanges established in the state capitals Sydney (1871), Hobart (1882), Melbourne (1884), Brisbane (1884), Adelaide (1887) and Perth (1889).
The first interstate conference was held in 1901. The exchanges then met on an informal basis until 1937 when the Australian Associated Stock Exchanges (AASE) was established, with representatives from each exchange. Over time the AASE established uniform listing rules, broker rules, and commission rates.
Trading was conducted by a call system, where an exchange employee called the names of each company and brokers bid or offered on each. In the 1960s this changed to a post system. Exchange employees called 'chalkies' wrote bids & offers in chalk on blackboards. They also recorded transactions made.
Watch This Free Video And Learn To Trade Stocks!
In 1976 the Australian Options Market was established, trading call options.
In 1980 the separate Melbourne and Sydney stock exchange indices were replaced by Australian Stock Exchange indices. This is essentially the start of the modern Australain Stock Exchange history.
In 1984 broker's commission rates were deregulated. This has allowed competition to lower commissions gradually ever since, with rates now as low as 0.12% or 0.1% from discount internet-based brokers.
In 1987, the separate exchanges merged to form the Australian Stock Exchange. Also in 1987 the all-electronic SEATS trading system was introduced. It started on just a limited range of stocks, progressively all stocks were moved to it. This enabled the trading floors to be closed in 1990. Also in 1990, the warrants market was first opened.
In 1993 fixed interest securities were added. Also in 1993 the FAST system of accelerated settlement was established, and the following year the CHESS system was introduced, this superceded FAST.
In 1995 stamp duty on share transactions was halved from 0.3% to 0.15%. The ASX had agreed with the Queensland State Government to locate staff in Brisbane in exchange for the stamp duty reduction there. This caused the other states followed suit so as not to lose brokerage business to Queensland. In 2000 stamp duty was abolished in all states.
In 1996 the exchange members voted to demutualize. The exchange was incorporated as ASX Limited and in 1998 the company was listed on the ASX itself. The ASX arranged with the Australian Securities and Investments Commission to have it enforce listing rules for ASX Limited.
As you can see, the Australian stock exchange history is one of quickfire change and technology improvements!
Australian Stock Exchange History
The Australian Stock Exchange history starts with six separate exchanges established in the state capitals Sydney (1871), Hobart (1882), Melbourne (1884), Brisbane (1884), Adelaide (1887) and Perth (1889).
The first interstate conference was held in 1901. The exchanges then met on an informal basis until 1937 when the Australian Associated Stock Exchanges (AASE) was established, with representatives from each exchange. Over time the AASE established uniform listing rules, broker rules, and commission rates.
Trading was conducted by a call system, where an exchange employee called the names of each company and brokers bid or offered on each. In the 1960s this changed to a post system. Exchange employees called 'chalkies' wrote bids & offers in chalk on blackboards. They also recorded transactions made.
Watch This Free Video And Learn To Trade Stocks!
In 1976 the Australian Options Market was established, trading call options.
In 1980 the separate Melbourne and Sydney stock exchange indices were replaced by Australian Stock Exchange indices. This is essentially the start of the modern Australain Stock Exchange history.
In 1984 broker's commission rates were deregulated. This has allowed competition to lower commissions gradually ever since, with rates now as low as 0.12% or 0.1% from discount internet-based brokers.
In 1987, the separate exchanges merged to form the Australian Stock Exchange. Also in 1987 the all-electronic SEATS trading system was introduced. It started on just a limited range of stocks, progressively all stocks were moved to it. This enabled the trading floors to be closed in 1990. Also in 1990, the warrants market was first opened.
In 1993 fixed interest securities were added. Also in 1993 the FAST system of accelerated settlement was established, and the following year the CHESS system was introduced, this superceded FAST.
In 1995 stamp duty on share transactions was halved from 0.3% to 0.15%. The ASX had agreed with the Queensland State Government to locate staff in Brisbane in exchange for the stamp duty reduction there. This caused the other states followed suit so as not to lose brokerage business to Queensland. In 2000 stamp duty was abolished in all states.
In 1996 the exchange members voted to demutualize. The exchange was incorporated as ASX Limited and in 1998 the company was listed on the ASX itself. The ASX arranged with the Australian Securities and Investments Commission to have it enforce listing rules for ASX Limited.
As you can see, the Australian stock exchange history is one of quickfire change and technology improvements!
What Is The Stock Market?
Answering a question such as, "What is the stock market?" can and should be relatively easy, but it also might be frighteningly complicated as well.
On the surface, a stock market enables the trading - buying and selling - of stocks. Once upon a time, and not all that long ago in fact, this was a geographical place where people would come together between certain times to make their trades. In this respect, a stock market resembled any other form of market. In some places, stock markets still have a fixed location, but in the modern internet and technological world which we now inhabit, it can be a network of computers all enabling buying and selling at agreed prices. These fixed location markets use a system known as 'open outcry'. If you have ever seen pictures on television of a commodities market with vast crowds of people - usually men - waving their arms furiously and shouting, then you have some idea of the open outcry environment.
Describing the 'stock' element is much trickier however. In the USA, stock is generally considered to be a part ownership in a company. These companies are 'listed' or 'quoted' which means that they are publicly traded and anyone can purchase a part ownership - should they choose to. In other places, the UK for example, this would be known as a share or equities.
There are mechanisms which enable stock to be traded privately. This would normally happen between two large companies or fund managers and would involve very large holdings. It would be impracticle for the average investor to privately trade 100 or 1,000 shares with another investor. Such trades are often mentioned in market reports in daily newspapers. This is because such large scale transactions frequently involve either large minority interests or majority holdings changing hands.
Also quoted on most major exchanges are debt instruments. These debts are known as 'bonds' and money will be borrowed by either central or local government and corporations. These debts will have a predetermined term, for example 20 years. At that time, the loan will be repaid at a predetermined price. Until that date, interest will be paid to the bond holder. The price of a bond is not fixed in the market which means that their capital value will fluctuate as will the amount of interest paid (as a percentage).
In recent years, the role of some stock exchanges has changed to include derivatives - futures and options to you and I. These are part of a highly complex world which will not be explained here, but they are an enormous economy unseen by the population at large.
The largest companies quoted on an exchange will also be members of an index. Examples are the FTSE 100, CAC40 or Dow Jones Industrial Average. To give an overview of the direcion of the market, this index figure is quoted by news and media and helps to generalise whether the market was or is 'up' or 'down'. These indices are weighted which means that the largest companies are worth far more in terms of percentages than the smaller firms. By definition, this means that the movement of an index therefore, most accurately reflects the movements of the top few companies.
6 Great Subjects For Learning About The Stock Market
How should a beginner start learning about the stock market?
It goes without saying that any subject as large and potentially diverse as stock market investing could be studied from many different directions and with a large number of goals in mind. Yet despite that, there are some things that almost certainly should remain constant.
It might be worth pointing out early, that if you dislike reading, learning and soaking up new information, learning about the stock market and investment generally might not be for you. However, if you are still reading... 1. Understanding the day-to-day market news and moves is an absolute must do. The first place to start is with a great quality newspaper. Where you live and which market you plan to invest in will largely determine the newspaper which is most appropriate to you. However, some great papers with excellent international coverage include the Financial Times of London and the International Herald Tribune. The Wall Street Journal is another excellent and informative read.
2. There are many weekly magazines that specifically cover money, finance, stocks and investment. These will look at the annual reports and news releases of all quoted companies in a way that a daily newspaper cannot. In the UK, for example, is the Investors Chronicle - one of the longest running magazines in Britain and with excellent coverage of all stock and share related investments. Find one relative to your market and add it to your regular reading matter.
3. Much can be gleaned from studying history. Here, we are suggesting that some stock market history be studied. Even the great Warren Buffett suggests that every investor should learn about market history and what made things happen and why. Who can argue with that? Most of the history of any market will coincide with the movements of the business cycle which will link to the basic economic knowledge you'll need (discussed below).
4. The world of finance and investment has seen many great minds. Some of these stars are still operating in markets today, others have long since passed. Many of them have put their thoughts, experiences and strategies down on paper either to show us all how great they are / were or in the hope of book sales. Either way, shortening your own learning curve by studying their work will be very useful.
Some names to look for include, Warren Buffett, Benjamin Graham, Jesse Livermore, Peter Lynch, George soros, Jim Slater and more. A few works by or about these people will teach all new and most experienced investors a thing or two.
Learning about the stock market also requires some background knowledge in other related areas. You won't need to become an expert, but when you read about the thoughts and commentary of experts, it will be useful to be able to understand them.
5. Getting to grips with some basic economic terminology will be very useful. Most investors do not need to be economists, but understanding the business cycle and broad economic states won't hurt. Equally, should you plan to invest internationally, an understanding of how and why currencies move as they do will help.
6. Good investment is the study and selection of good businesses. That being the case, all businesses - good and bad - use accountancy to keep score. Again, you don't need to become an accountant to be successful at investment, but you will see lots of numbers. It will be important to understand what these numbers and ratios mean, what they relate to and their impact on an investment or stock price. Being able to understand some of an annual report will be a real advantage in the long run. Reading just one book about accountancy will probably be enough -
To read more about getting started in investment, please also read:
Stock Market For Dummies
Where is the book, "Stock Market for Dummies"?
Amazingly, there currently is no such publication. We say amazingly because there are many people that search the internet every day looking for just this. They must be very disappointed.
Instead, the hugely successful 'for Dummies' series has niched down even further when branching out into the world of investment. A quick search of Amazon shows that there is currently:
> Stock Investing For Dummies
> Futures And Options For Dummies
> Trading For Dummies
There are also two special UK only for Dummies publications. They are:
> Investing For Dummies (UK edition)
> Investing In Shares For Dummies (UK edition)
There also appears to be plans for a further publication, Swing Trading for Dummies, which will be released in late 2008.
Your author's bookshelf has a copy of Stock Investing for Dummies on it. I can happily confirm that it is well written, informative and - as with all the others in the series - offers a good quality overview of the topic without becoming confusing or overly complex. In other words, it is a great starting point and highy recommended.
But if you have been searching online looking for the book "Stock Market for Dummies", have no fear, it seems that they are covering the topic! Whatever you may be hoping to find, we hope that you can find it amongst the 'for Dummies' series.
The Suitability Of Stock Investment For You
The suitability of stock investment for the individual is of paramount importance.
When choosing an investment, there are always many alternatives and as such it should be possible to pick the perfect thing. Despite the informational bias on this site, stocks and equities are not usually suitable for everyone or on every occassion. Therefore, the suitability of stock investments for you, the individual, is and always should be an issue to consider.
In most five to seven year periods, the returns of stocks and shares has comfortably beaten inflation in the major markets and economies. But, as is always repeated, past performance is not necessarily a guide to the future. The general increase in business and productivity results has worked its way into long term rising capital prices and dividend incomes. This in turn leads into increased performance of indirect equity products such as mutual funds, unit trusts, life assurance investment products, SICAVs and more.
There have been incredible short term fluctuations in capital values. However, the income stream from dividends has proved to be relatively stable.
Stock market based investments offer an opportunity to make a real and positive return on an investment. Yet, they should only be considered by people with a time frame of at least five years.
The suitability of stock investment is very low for people with a short time scale and those who cannot afford to see their investment lose value - even if only on a temporary basis.
General financial planning principles recommend that any individual uses spare money for other things before making direct equity investments. For example, it is important that an emergency fund be made and held in a cash account should there be a short term requirement for money.
Other longer term financial products should also be considered. These should include CDs, timed deposits, bonds and debt instruments.
For many people, a much more sensible option than any invesment will be the repayment of short term debt. These might be credit or store cards or overdrafts - essentially, anything with a high compound interest rate should be repaid before investing directly into stocks.
We hope that readers will take heed of these warnings and assess their financial planning from a logical and conservative perspective.
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How To Start Investing On The Stock Exchange
How to start investing on the stock exchange
Without a doubt in my mind, I believe that the main reasons that most people are unsuccessful as investors are a lack of both preparation and discipline.
Investment in any form is a show of faith in the future, optimism if you prefer. Whether you are buying property, antiques or stocks, you are displaying your positive outlook for your future years.
Yet despite this obviously good intention, many people make dreadful investments and lose large amounts of money. This optimism can become blinding and prevents us from seeing obvious risks or pitfalls. If we do see them, we may discount them or fail to understand their potential implications. Therefore, understanding the nature of risk is a key lesson that all investors should try to learn before they begin to invest directly in companies quoted on the stock exchange.
For years, investment newcomers were advised to start by choosing a few companies and investing on paper. In other words, the new investor would follow the progress of the company and share price without actually buying. Each day a new plot on a hand drawn graph of the company would help the investor to understand just a little more.
Over time, the investor might spot trends between the company and a leading index or sector. The price might move in odd and unpredictable ways causing a desire for more understanding and education to explain these mysteries.
This desire for new knowledge is a core trait of successful investors. To succeed in stock exchange investments, it is vital to firstly keep up to date, but if possible to stay ahead of the pack. This might mean reading trade journals, the annual reports of competing firms, company reviews, interviews and much more. This ongoing education is vital to success.
As computer technology has advanced and investment analysis tools that only a few years ago were expensive and highly specialised have proliferated, the basic learning process for an investor has changed.
Should it?
If plotting points on a graph hepled to truly understand the workings of a moving average or stop loss system, why stop? This used to be 'investment 101' but is now a task to be downloaded. For many investors, it was the most valuable investment they made. They learned to invest and to understand the workings of the stock exchange. They learned a skill, for others a trade.
This time and investment in learning will help the decision making process of an investor for years to come. It may both earn and save many thousands as the years pass.
Is this a process that you have taken? To accompany all the reading and theory that goes with investment generally, paper trading is an important pillar in understanding both investments and the stock exchange.
The Stock Market For Beginners: 7 Starter Tips
Other pages in this 'Stock Market For Beginners' section of the site look at the kinds of things that a new investor should do to help themselves. However, these were written in essay format and so for some time it has been on the 'to do list' to make a list and simplify the stock market for beginners tips.
Here we go... 1. Investing is not a hobby. To big merchant banks, it is a very competitive business. Therefore, you should also treat it as a business. That means understanding your own profit and loss as well as the companies in which investments are made.
Once this thought pattern is established, it makes the whole process so much easier. Simply ask, "Will this investment / trade / software / subscription make or lose me money?" Once an answer has been established, a clear course of action will present itself.
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2. Get some great investment management software. These days, a speedy internet connection and good money management and investment software costs virtually nothing. Why spend the time and effort trying to figure out the best ways to do things when solutions already exist.
Ideally, look to purchase two types of software. One will be for personal money management. This can be used for profit and loss and keeping track of the costs of subscriptions, stockbrokers and the like. The other will be used for tracking stock and fund prices, storing company news, technical and fundamental analysis and more.
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3. Get an education. Warren Buffett has suggested in the past that every investor should be able to understand basic accountancy principles, an annual report and stock market history. You probably do not need to become an accountant, but being able to understand the scoring system of the game can only help.
4. Learn about money management. Every investor will have the occassional (at best) loser and it is vital that no individual holding can wipe out a portfolio. Understanding asset allocation is vital.
Years of talking to people about investments has taught me that there are fundamental differences between the way investors behave. New investors ask for 'a tip' and want to know, "What should I buy?".
In contrast, professionals do not want tips. They have dozens of good ideas of their own. They won't be sharing those ideas with you and they will not be expecting you to share yours. Instead, they ask about how you allocate money. "Which sectors and markets do you like and why?" The difference between these approaches is like night and day.
5. Read widely. Getting a wide ranging education in personal finance, corporate finance, taxation, economics and investment theories will help. However, finding areas of the world or business in which you can become relatively expert can help in the process of finding investments.
The reality is that in the modern world - especially with the power of the internet - there is very little information that is not in the public domain somewhere. However, the world now has information overload. Whilst the information might be available, few people now have the time to find or understand it. The people who know these things and can 'join the dots' have regular opportunities for stock market investment.
Once the basics have been covered and understood, it may be that just one or two hours of reading each week will be enough to keep knowledge up to date. But keeping up to date is vital.
6. Find a good investment service to subscribe to. Many of the suggestions above can now be covered by joining just one stock market service. These services now aim to pick stocks, offer trading and portfolio management software and educational services too. If things go well, then by investing in the stock market picks, the service can be paid for with profits.
Though these services are often not 'cheap' they are generally very valuable and can help to make an investor or trader profitable whilst learning the ropes. This is a great way to learn or experience the stock market for beginners.
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7. Practice makes perfect. In the investment business, paper trading is how we all start. Pick a couple of companies, make a note of their price, the date, the reason why you want to buy them and then start following the stock.
As time passes, the hunch or assessment which made the stock such a great prospect will play out. Was it a good or bad decision? Would buying the stock 'for real' have made a profit or a loss?
This is an excellent learning experience and one that is vital to the long-term profitability of anyone in the stock market. To get the real experience, purchase some graph paper and chart the stock price movements each day by hand. Learn to compare this with the overall movements of the market and a whole new world of investment and money will begin to open up to you!
The Stock Exchange For Beginners - Part 2
In my previous message about the stock exchange for beginners, I tried to convey some of the realisations that a new investor needs to make to help him or her become successful.
This time, I am going to offer a few thoughts on what I believe helps me to be successful and a few examples of what can and may go wrong. As ever, I hope that this isn't below your level of either confidence or competence as I don't wish to insult. However, I have found that there seem to be far more people that want to understand finance 'a little better' than there are people who can lecture on the subject.
Firstly to an example. Back in the mid 90's I joined an Investment club in the UK. I knew a couple of the members from a local health club I was a member at. Knowing that I was (a) keenly interested in investment and (b) more knowledgeable than most of them, I was invited along. Suffice to say that on the first evening, I realised that I had been invited along to do all the work! I enjoyed the work so that didn't actually bother me. I also could purchase some additional investment tools 'for the club' which I couldn't justify for myself.
The main work of analysis was carried out by myself and another member who is a long-time friend and no mug in the world of shares and investment himself. We were using as our template a theory offered by Jim Slater which centred around price / earnings growth ratios. In short, it was highly successful.
At the end of the first year, we were 'up' by around 80%. Admittedly, this was during the tech-boom bull and any idiot could get 30% pa without trouble or effort, but still we were very impressed. The second year started well too and within 6 months of year two, our small company growth share portfolio (the only portfolio) was up comfortably over 100%. Nice work if you can get it.
For those of you that haven't been a member of an investment club and don't know, they are a democracy. Every opinion counts equal in a vote to buy or sell, whether they understand investment - or not. Here was our trouble. If you can believe it, making an enormous profit was 'boring' and they needed 'excitement'. To me, making money as quickly as we did was not merely exciting - it was thrilling!! But, when we wanted to sell they wouldn't and when we offered rock solid buy predictions they disliked something and again, we wouldn't.
I think our lowest point was not buying shares in a UK pizza delivery firm (that was growing very quickly and would have turned into a great investment) because (and I kid you not) one of the founding members didn't like 'Italian food'. Who cares?
The club ended rather badly with arguments and falling outs. Several years later it still has a couple of holdings in shares that might 'one day turn around'. Fat chance!!!!
So here is the tip: why do you want to invest? This needs analysis.
My friend and I invested because we were willing to put in the effort, wanted to increase our holdings, make money and frankly, we like winning in a global market against the nation's smartest minds!!
Our other members however, were there to gamble. It was just fun. Who cares about the result? We all meet in a pub, have a meal, chat about shares and throw some money at the market. We wanted profits, they wanted a social group.
After being up by over 100% after 18 months, we closed the club at a loss of both money and friendship. Ridiculous.
What about you? Why do you want to invest? If you want to gamble, take up sports betting. You get to watch a game as well as be financially involved - that sounds much better.
Do you plan to follow the market? If you don't, best to keep away.
I'm not the world's greatest at tracking a market - I can admit it. Each day, I look at the shares in my portfolio, funds I advise clients about, prospective investments I am mulling over, general financial news and read a few posts by other advisers / analysts online. And yet, if I'm honest, I worry that don't pay enough time each day to the markets.
If you want to make serious decisions, with serious amounts of money and (hopefully) make serious amounts of profit, you need to be - SERIOUS!!!
Personally, I don't like the idea of gambling much. I consider myself to be either a speculator or an investor, not a gambler. When I first started investing, I didn't know the difference (though I started at 18 and had no-one to guide me). That meant that all my investments were gambles. Mostly, they weren't so hot.
These days, I assess and analyse much more. I avoid 'turnarounds', since I don't think they turn around too often. Greater life experience has taught me to recognise that most companies that need to turn, or might turn, are already dead - they just don't know it yet.
I also have learned my lesson with 'development' companies. You know the thing, one great idea that 'if' they get to market will make 'tens of millions'. I own shares in a couple that I bought years ago. Broadly, I was right to buy. Of all the development stocks I could have bought, these actually did develop and do make products. They just don't make profits yet - years after I bought.
One of my development picks actually dominates the bluetooth market. That's right, I invested in the company that developed much of the bluetooth technology we use today! How could it not make a bundle of money? Am I a genius or what? Years later, I am still down 65%.
Another has an amazing fuel saving device for gear boxes in cars, lorries and off-road vehicles. In this age, you'd think that fuel saving technology would be all the rage. Over the years, I have bought more shares in the lows and sold them in the highs to make some 'trading' profits. But still my initial investment (I think 8 years ago) is down.
Though I may not have realised it at the time, these were not investments, they were gambles. So is the stock exchange really a place for beginners?
An investment is in a company that has products, a defined market and notable market share, profits, a track record and much more. Remember that. Think about Warren Buffett - he makes investments, good ones at that.
I'm also quite traditional about investing. I have never spread bet, used an option or future or sold short. I don't use leverage. If I can't figure out what might go wrong, FOR CERTAIN, I'd rather not do it. I buy, I hold and I sell. That's it.
I have no doubt that these admissions mean that I miss out on all sorts of possible investment opportunities. There are all sorts of weird and wonderful investments out there, but I invest and I don't like to gamble.
If you think about it though, what I just said doesn't really hold me back. I own some coins, stamps, comics, unit funds, shares, books and art - I did mention that I speculate didn't I? And if the world suddenly has a crisis, it means that I own actual, physical assets as well as just share certificates.
So that brings me to another point ... can you focus?
Ideally, you need to know quite a lot about certain areas and use that knowledge for your investment benefit. The art and books I own are mostly related to cricket. I love cricket and know a lot about the game and it's history - which means that I know when I see something of value. If it has value now, it probably will have for some time to come. Whether I buy at a good price or not, value and scarcity count.
Who'd imagine ME telling you that the stock market isn't everything?
Investment risk is lowered by knowledge. Every time. If you are buying shares on the stock exchange, what does the seller know that you don't? What do you know that the seller does not? You can bet your life that the buyer or seller opposite you in any transaction has done some serious research. If you don't do yours, who do you think will win? You or the market?
So of all the things that I might have said about investing, I haven't really made it sound 'sexy' yet. Have I? The truth is, investing isn't really very sexy. Lap dances are sexy. Pop stars are sexy. Carmen Electra is sexy. Investing is graphs, moving averages, annual reports, company statements, calculators and work. Not so sexy. It's kind of like being an accountant but with marginally more life and a few graphs.
But the great thing about investment is that in the long run, you decide whether you'll be successful or not. The harder you work at it, the luckier you will be. If you are just starting out, think about YOU first, not the market or companies. Decide on what you want to specialise on, whether the stock market for beginners is a place to invest and how you will approach it.
It might help to find areas in which you have useful knowledge already. Either that or decide on an area and slowly become an expert. What do I mean? Well, if you worked in a bank for 10 years, you must know something about banking. When you read an annual report from a bank, do you laugh and see through the waffle or does it make real sense? If you can see through the waffle of some far off CEO and CFO, you can start to compare the relative prospects in the same market of competing firms. Hey - that could be an opportunity!
If you really know about banking, you can compare the product offerings and service as well as the annual reports. You might still know some bank staff that are happy to tell you honestly that they are being 'creamed' in the market or whatever. Before you know it, you have a picture building of a competitive market. Before long, you will REALLY understand the investment potential of several companies. That will put you far ahead of many other investors.
As I said earlier, investment risk is lowered by knowledge - EVERY TIME.
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The Stock Exchange For Beginners Guide - Part 1
As I start my guide, about the Stock Exchange For Beginners, where should a newbie really start?
Firstly, I believe, with a realisation.
The stock exchange is rarely a place where anyone 'gets rich quick'. Offhand, I don't know where anyone does that, but certainly not in investments. Sure, some occassional stocks and shares will rise quickly making their owners money, but rarely will you become rich. Bear in mind that if an investment doubles in one year (which is pretty rare) you needed to be already wealthy to make a lot of money. If you invested a thousand, you will have just 'made' a thousand. You aren't wealthy or rich yet.
There are ways for an investor to make enormous profits, but as ever, they involve enormous risks. Things like options and futures really are NOT for the beginner with limited resources. They are highly technical, involve the potential to lose all of your investment quickly and need constant monitoring. I know that I am quite traditional in this sense, but many options appear to me as if they are little more than a gamble. That is not how a prudent investor operates! Instead look for reliable and predictable companies, quoted on the stock exchange and suitable for beginners. Second realisation is this ... It isn't easy for beginners to make money on the stock exchange . If everyone could become a billionaire by investing, Warren Buffett would not be famous. It takes time, study and effort and most importantly - independent thought. Not everyone has the will or stamina to carry that through. I know that mine wavers from time to time. Who doesn't suffer setbacks and confidence knocks?
Thirdly, though it may be a 'hobby', the stock exchange isn't 'fun'. The world of investment is dominated by investment banks and their bankers. They do all the big deals, float companies, issue bonds, trade stocks, bonds, currencies and commodities and make lots of money. They employ some of the world's brightest young MBA's to figure out new and improved profit making ventures. They do all this because it is a business, with real money and real profits. Nobody is playing around.
If you want to be successful, you too need to view it as a business. Here is tip number one: if you are interested, go and do some reading about Benjamin Graham. Buy his books and digest. It will take a while, but it is the proper place to start. It was Ben Graham that first coined the idea successful investment is businesslike.
All that said, the little guy can still make money investing. I know, I do. Why can't you? Funds find it hard to invest in small companies, maybe that offers you an edge. Often, money managers are so busy working their 15 hour days that they miss wider discoveries in society. Just by going to the mall or supermarket, you might spot lines selling well and get a head start on the analysts. If that approach sounds good, you might like to grab a book by Peter Lynch - he offers guidance on how he finds winners, or as he puts it 'tenbaggers'.
If you really want to do well in investment on the stock exchange, then you need to approach it as if it were your own business. A part-time business perhaps, but still a business.
The stock exchange for beginners can be a daunting way to make a second income. Fear not, with time, you can learn the skills. But, I warn you again that it takes effort, independent thought and study to really do well.
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The Stock Exchange For Beginners
Welcome to my guide to The Stock Exchange For Beginners. To navigate this section, all you need to do is click on the following links to read each part of my guide. Good luck!
The articles pages are designed to explain the stock exchange in a way that most beginners can understand. In short, this stock exchange for beginners section is designed to be an indispensible guide to investment for the absolute newbie. I urge you to sit down and have a good read of the messages listed below. Why? Each month I post one or more of my articles on a number of websites and the following 'Stock Exchange For Beginners' articles created on average 10 times as many hits to my site as my normal writing would.
For days after each posting, my inbox was full of notes from readers and new subscribers. They were all grateful that I could make a complex subject so simple and were thanking me for my efforts. What can I say, but that these must be popular for a reason!!
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