Posts Tagged ‘investor’
While technical analysis concentrates on studying the behavior of the market price, fundamental analysis focuses on the analysis of economic forces that generate the upward price movement, down or consolidation.
The fundamental approach examines all relevant factors affecting the market price in order to determine the intrinsic value of that particular market. The intrinsic value is what the fundamentals say that an action should be worth based on the laws of supply and demand. If this intrinsic value is below the current market price, then the share price of the company is overvalued and needs to sell. If the market price is below the intrinsic value, then this undervalued and must be purchased.
Both approaches attempt to solve the same problem: to determine in which direction prices will move. Each one does it differently. The fundamental analyst studies the causes that move a market, the technician studies the effects. The coach, of course, thinks that the effect is all you need to know and that the reasons or causes are not necessary for analysis. The fundamentalist always know why.
Many investors are considered: fundamental or technical. In fact, many fundamentalists have a broad knowledge of graphic interpretation. Similarly, many technicians have a basic understanding of the fundamentals. The problem is that in many instances the fundamentals and charts are in conflict. Usually at the beginning of an important trend, the fundamentals can not explain what is happening. It is at this critical moment when the two approaches differ. Later than sooner, once again be in sync but it’s too late for the investor to do something.
One explanation for these differences is that the price tends to stay ahead of the fundamentals, i.e. acts as a leading indicator of the fundamentals. While the fundamentals and acquaintances have been discounted by the market, prices are reacting to fundamentals unknown. Some of the markets up or down the most important have started with almost no perceptible change in the fundamentals. By the time these changes becomes evident and the market trend is in advanced stages.
With practice, the coach develops an ability to read and rely on charts and indicators derived from the behavior of the price and volume. Learn to invest trust in those times when market behavior goes against what is perceived through the fundamentals. The coach does not wait for undisclosed fundamentals are confirmed by the market.
By accepting the premises of technical analysis, you understand that the experts consider that their way of acting is superior to that of the fundamentalists. If an investor had to choose one of two approaches, the decision logic should be the technical analysis. If the fundamentals are reflected in the market price, then the study of these fundamental becomes irrelevant. Reading the graphic becomes a version of the fundamental analysis. But you can not say the same fundamental analysis. This analysis does not include a study of the price. It is possible to negotiate on the market using only technical analysis, but it is difficult to imagine that an investor can be negotiated taking into account only the fundamental.
There are numerous ways to determine the value of a company. When you can determine it’s value, you can then determine the value of its traded shares. The most basic way to do it is to look at the company’s market value, which is also referred to as its market capitalization, or market cap.
So how do you calculate a company’s market capitalization? It’s not as diffuclut as you might think. It’s simply the number of shares a company has outstanding multiplied by the current share price. So as an example, if a company has a million shares outstanding and its current share price is $15, the company’s market cap is $15 million…Simple eh?
How large a company is can be measured by its market cap. Here’s a list of the the five basic stock categories of market capitalization:
1) Micro cap – These are companies that are under $250 million. These stocks are the smallest available and tend to be the most risky.
2) Small cap – These companies are worth $250 million to $1 billion dollars. The stocks of these companies are less risky than micro caps, but still have a lot of growth potential. However, the key word in this description is “potential”, so still make sure you do your homework!
3) Mid cap – Mid cap companies have a value of $1 billion to $5 billion. This kind of company gives investors a good compromise between the small and large cap companies. This gives the investor the chance to invest in a company that have have a degree of safetly found in large cap companies while still having some of the growth potential of a small cap company
4) Large cap – these companies are referred to as “blue chips” and have a worth of $5 billion to $25 billion. These companies are more for conservative investors as they appreciate on a steady rate and are relatively safe.
5) Ultra cap – These caps can also be referred to as “mega caps” and are the real “big boys” of the share market. Companies such as General Electric and Microsoft are good examples. Investing in these companies can be very expensive, but you can be assured the company won’t go bankrupt (and have ther share values drop to zero) over night.
So which ones should you go for? It all depends on what your goals are. Large caps tend to do better than small caps, but remember that even a company like Microsoft was once a small cap and therefore small caps have a lot greater growth potential.
An easy way to think of this is to compare stocks with trees. Think of a small cap stock as an oak tree that is a year old, and think of a large cap stock as a giant redwood that is over 200 years old. In a storm (ie turmoil in the stock market as we tend to see every few years), the oak tree is going to have rough time and may even die, while the redwood will be very sturdy and highly unlikely to suffer much damage after the storm is over. However, the oak tree still has a lot of potential for future growth whereas the giant redwood may not grow very much more over its lifetime.
Even though market capitalization is an important consideration, it shouldn’t be the only way to decide. It’s just one measure of value. If you are going to become a serious investor, you will need to look at numerous other factors to determine if a company’s shares are worth investing in.
You’ve probably seen a picture or video of the New York Stock Exchange sometime in your life- or any other stock exchange for that matter. When you think back on it, your mind probably recalls something similar to a crowded subway station- hundreds of people pushing and shoving into each other and incessant screaming and yelling.
Hardly seems like a refined place where business is done, right? Well, however you feel, stock exchanges function as the backbone of American capitalism and are very important as monitors and negotiators of the world of money.
Stock exchanges aren’t the only place where financial business is done, though. In the past century, normal, everyday people are becoming involved in profitable markets by becoming individual investors of companies by buying and selling stock.
Anybody can get in on the action, and there is money to be made in it. That is why so many people are getting to know the world of stocks and are starting to do their own types of business transactions.
But what about those that want a piece of the action but aren’t sure where to start? After all, those economics classes you took in college weren’t exactly a walk in the park.
The world of stocks is complex and sometimes hard to understand. Those who don’t have any knowledge of it have the door of opportunity slammed in their face.
Luckily there are trained professionals that can help any beginner get their own chance at the world of stocks. They are called stock brokers, and their job is to help you wade through the seemingly deep, murky waters of finance.
A broker is simply a person or an institution that is the middleman between a buyer and a seller of. They arrange the transaction that will be made between the two parties.
There are three types of brokers: full service, discount, or a bank/credit union. All three provide essentially the same services but each one goes about it in a different way.
The full service broker is the highest and most revered. They usually cost more every time you trade, but are desirable for those who want more personal service and who want intelligent investment advice that will help them get an edge on the competition.
A discount broker has lower quality than a full service one, but generally they cost less. Unlike full service, they don’t really offer any investment advice but just make the transfers.
A bank or a credit union is the third type. Sometimes, the bank or credit union will have a mutual agreement with a full service or discount handler. Instead of going to one of these, a person would go to their bank and buy or sell there.
Once you pick a certain type, there are three different types of service that the professional can give you. They are execution-only, advisory dealing, and discretionary dealing.
Execution-only services mean that the broker can only buy or sell when the client tells them to. This is the simplest of the three services because of the restrictions that guide it.
Advisory dealing involves the professional advising the client on what would be best to buy or sell. They will use their financial knowledge to try to help the client on the right path, but ultimately it’s the client’s decision.
Discretionary dealing basically gives most of the power to the professional. The client will inform them of the investment goals that they have, and then it is up to the broker to make all the financial decisions that would be best for the client.
Brokers are found all over the world: here in the United States, locations all over Europe, and also in Asian countries such as China and Singapore. They literally can be found anywhere where there is a chance of a potential investor being born.
Now that you know a little bit more about what brokers do to help their clients, you can take advantage of their financial knowledge. With one showing you the ropes, you can make your money work for you instead of having to work for your money.