Stocks Mutual Funds | Mutual Funds

How To Make It Big In The Stock Market!

Want to get rich quick. Then you need to be wise and plan accordingly. Trading in stock is an option to make money fast. Mutual funds and financial institutions use stock option trading to reap benefits. The stock trading system is very supportive to them rather than the small investor. The individual investor can gain as well but prudence is the watch word. Advice to help you If you are a new entrant; professional help can provide you the least risk and good reward stocks. Their analysis depends on a number of factors. A few factors that you could use are

• Understand one stock completely. To which industry the company belongs? What is the company’s investment? How it makes its money? Read its press releases, news and result broadcasts. Know the competitors of the company and the trends in the particular industry.

• Spend time on research and focus on what is important. Whenever you make decisions on buying, selling or holding write it down as to why you are making such a decision. A review of successful decisions and not so successful decisions can help you in future stratagem

• Evaluate and re-evaluate every stock on the market or the stock you have chosen the same way. Comparing and contrasting can give you some valuable insights into the stock market.

• Discuss with friends and explain the rationale of why you bought your stock and how you expect to perform. They may be rational when you are not.

• High valuations entail high risk (future performance determines the value of stocks and in case these predictions do not materialize prices will decline). Penny stocks too are the high risk category.

• Rise above emotions and loyalty. There will be many volatile swings in the market. Your stock may rise or even fall. You need to review decisions on any new data and change reasons for holding the stock.

• Reevaluating your existing stock is also essential. Review the reasons why you chose a particular stock. If those reasons are still valid then stick with it.

• Spend time on your investment weekly and observe the market trends. Keep track of your earnings and factors that may affect your investment.

• If your reasons to buy a stock are still valid you need not sell the stock.

• Beware of media or media quoted rates. It is not necessary that you buy or sell at the rates in the financial press.

Major signs of a good company

• Sales and earnings grow

• Company debt remains stable or declines

Tools that can help you in stock investment

There are a number of tools for an investor to make an informed and calculated decision on investment in the stock market.

• Internet research tools give you the latest data on company stocks and trends.

• Websites offer the same data given by internet research tools and also give stock trading tips by experts.

• Softwares that do the internet research and provide a detailed analysis. These softwares manage the stock quote file with 18,000 ticker symbols and more. Graphical display and export or import of data into other financial or editing softwares is an addition.

• Java Applets that perform a real time stock ticker updates that can be integrated with the financial software that you possess.

Many stock trading softwares use advance mathematical analysis on the stock market to make predictions about the future of a particular stock. These softwares are accurate in many instances. Yet real life can churn up possibilities that can never be accounted into software. Political and other situations affect stock and hence mathematics can be futile at times.

Market Psychology

"Nothing is neither good nor bad but thinking makes it so." - Shakespeare (1564-1616)

"The more things change, the more things remain the same." - Voltaire (1694-1778)

Paraphrasing, "Whatever was will be; that which has been done will be done. There is nothing new under the sun." - Ecclesiastes 1:9 (931 B.C.?)

What does the above have to do with market psychology? In my opinion, everything.

What has the most effect on markets? Earnings (or lack thereof)? Events? Economics? No. It is the perceived effect of those things by the market participants.

Human nature. The reason market behavior never changes is due to human nature; and human nature never changes. It never has, it does not now, and it never will. Period.

And what characteristics of human nature are most present in the markets? Emotions. Specifically, Greed and Fear. And Fear is, by far, the more powerful of the two.

A man may, or may not, stay up all night figuring out how to make an extra buck but he will stay up every night for a week trying to figure out how not to lose a buck.

It's who we are. We're all human. We can't help ourselves. It's our nature.

Why else do you think mutual fund portfolio managers play the "window dressing" game at the end of each quarter? It's because they don't want to look bad in the quarterly reports that are about to be sent out to the investors. They Fear for their jobs.

The legendary stock trader, Jesse Livermore, made his fortune, in large part, due to his ability to understand human nature as it applied to the stock market.

His ability to read the ticker tape to interpret or confirm the reactions perceived by the crowd to the various events of the day was extraordinary.

Market psychology: It's not what "it" is that matters, it's what "it" is perceived to be that matters.

Recap of the Enron Debacle

It has been over four years since Arthur Anderson was indicted for destroying Enron-related documents in order to deter investigators. Anderson’s indictment on March 14th, 2003 set off a string of events that would forever change the face of corporate America. Once Anderson was convicted on June 15th, 2002, the indictments and convictions in the Enron case quickly grew. Between October 2002 and April 2003, seven individuals were indicted for various crimes relating to the Enron scandal, including Andrew Fastow, Ben Glisan and Dan Boyle. On January 14th, 2004, Andrew Fastow plead guilty to two counts of conspiracy in exchange for no more than ten years in prison. On July 9th, Kenneth Lay surrendered to the FBI and was indicted on accusations of being a participant in a conspiracy to manipulate Enron's quarterly financial results, making public statements about the company's financial performance that were false and misleading and omitting facts that were necessary to make financial statements fair and accurate. Although Lay surrendered to the FBI, he maintained his innocence on all counts.

On October 19th, a federal judge granted Lay a separate trial from Skilling and Causey on the charges of bank fraud and deceiving banks about using loans to buy Enron stock on margin. However, the judge ruled that the they would be tried together on the other charges. Before the trio could be tried together, Richard Causey plead guilty to securities fraud three days after Christmas in 2005. Causey entered a plea deal which called for a reduced prison sentence of five years in exchange for full government cooperation and forfeiture of over million dollars. If Causey had not entered the plea bargain, he could have faced ten years in prison.

The much awaited trial of Kenneth Lay and Jeffery Skilling began on January 30th, 2006 in Houston, Texas. During the trial, the defense argued that there was never any wrong committed, but that the collapse of Enron was caused by a failure of market confidence. The defense also stated that thirteen of the sixteen Enron executive who pleaded guilty to crimes were actually innocent, but confessed because of the pressure exerted by federal prosecutors. On the other side of the spectrum, the prosecution argued that Enron’s leaders lied to investors and Wall Street about the true state of their financial affairs. During the course of the trial, eight former Enron executives testified against the Lay and Skilling, including the prosecution’s star witness Andrew Fastow. After almost a four month trial, the jury reached a verdict on May 25, 2006.

The jury found Jeffery Skilling guilty on nineteen of the twenty-eight counts of securities fraud and wire fraud, while acquitting him of an additional nine counts. Kenneth Lay was found guilty on all six counts of securities and wire fraud. Lay was also found guilty on four counts of fraud and false statements in a separate bench trial which began on May 18th. Skilling and Lay will be sentenced during the week of September 11th, 2006. Skilling faces up to one hundred and eighty-five years in prison, while Lay faces a total prison sentence of forty-five years.

It has been over four years since Arthur Anderson was indicted for destroying Enron-related documents in order to deter investigators. Anderson’s indictment on March 14th, 2003 set off a string of events that would forever change the face of corporate America. Once Anderson was convicted on June 15th, 2002, the indictments and convictions in the Enron case quickly grew. Between October 2002 and April 2003, seven individuals were indicted for various crimes relating to the Enron scandal, including Andrew Fastow, Ben Glisan and Dan Boyle. On January 14th, 2004, Andrew Fastow plead guilty to two counts of conspiracy in exchange for no more than ten years in prison. On July 9th, Kenneth Lay surrendered to the FBI and was indicted on accusations of being a participant in a conspiracy to manipulate Enron's quarterly financial results, making public statements about the company's financial performance that were false and misleading and omitting facts that were necessary to make financial statements fair and accurate. Although Lay surrendered to the FBI, he maintained his innocence on all counts.

On October 19th, a federal judge granted Lay a separate trial from Skilling and Causey on the charges of bank fraud and deceiving banks about using loans to buy Enron stock on margin. However, the judge ruled that the they would be tried together on the other charges. Before the trio could be tried together, Richard Causey plead guilty to securities fraud three days after Christmas in 2005. Causey entered a plea deal which called for a reduced prison sentence of five years in exchange for full government cooperation and forfeiture of over million dollars. If Causey had not entered the plea bargain, he could have faced ten years in prison.

The much awaited trial of Kenneth Lay and Jeffery Skilling began on January 30th, 2006 in Houston, Texas. During the trial, the defense argued that there was never any wrong committed, but that the collapse of Enron was caused by a failure of market confidence. The defense also stated that thirteen of the sixteen Enron executive who pleaded guilty to crimes were actually innocent, but confessed because of the pressure exerted by federal prosecutors. On the other side of the spectrum, the prosecution argued that Enron’s leaders lied to investors and Wall Street about the true state of their financial affairs. During the course of the trial, eight former Enron executives testified against the Lay and Skilling, including the prosecution’s star witness Andrew Fastow. After almost a four month trial, the jury reached a verdict on May 25, 2006.

The jury found Jeffery Skilling guilty on nineteen of the twenty-eight counts of securities fraud and wire fraud, while acquitting him of an additional nine counts. Kenneth Lay was found guilty on all six counts of securities and wire fraud. Lay was also found guilty on four counts of fraud and false statements in a separate bench trial which began on May 18th. Skilling and Lay will be sentenced during the week of September 11th, 2006. Skilling faces up to one hundred and eighty-five years in prison, while Lay faces a total prison sentence of forty-five years.

Facts and Myths about ESOPs

While the federal stats lag by two to three years there currently are more than 12,000. While most ESOP sponsors are closely held private companies with from 25 to 150 employees, there are many large, high-profile public companies such as Peoples Supermarkets and Home Depot.

As reported earlier this year, Bernard Marcus, co-founder of Home Depot announced that Home Depot "created over 1,000 millionaires" in 1997.

- That's right. Many of those people wearing the long orange aprons are (multi) millionaires.

Many business owners opt for selling some or all of their company to employees and by doing so convert corporate and personal taxes into tax-free capital appreciation for themselves.

The ESOP horizon remains very bright and Congress continues to broaden the qualification for ESOP sponsorship.

Effective this year, Subchapter S corporations also are qualified ESOP sponsors. This represents unique opportunities for S corp owners. As an example, many C corp owners sell their business to their ESOP and thereby avoid all capital gain taxes. Afterward, switching to an S corporation avoids all future corporate income taxes.

Why do more than 11,000 companies sponsor an ESOP? Because the ESOP is the most tax-advantaged mechanism for the owners of companies to achieve some very profitable goals.

First, you now have a willing buyer for some or all of your business and you pay no tax. Second, you can have the most cost-effective plan to motivate employees to give you their best efforts. After all, who works harder, owners or employees?

Suffice it to say that over the past 30 years, studies done by both federal agencies and the private sector conclude that, without question, ESOP companies are significantly more profitable than their counterparts.

An ESOP is an employee benefit plan operating through a trust that accepts tax deductible contributions from the company to purchase company stock. As mentioned earlier, the selling individual pays no tax. Think about how powerful an advantage this is to business owners. The business is purchased with tax-deductible dollars and the seller pays no tax.

The ESOP can acquire both new and existing stock. The ESOP trust can also borrow money.

Using an ESOP to borrow money is another dramatic cash advantage and tax savings opportunity for business owners because in paying back the loan both interest and principle are fully tax deductible.

Congress continues to endorse the tax savings and cash advantages available exclusively to ESOP companies. Now S corporations, as well as C corporations, are qualified sponsors.