Understanding Earnings Per Share

One of the challenges of evaluating stocks is establishing an “apples to apples” comparison. What I mean by this is setting up a comparison that is meaningful so that the results help you make an investment decision.
Comparing the price of two stocks is meaningless as I point out in my article .Similarly, comparing the earnings of one company to another really doesn’t make any sense, if you think about it. Using the raw numbers ignores the fact that the two companies undoubtedly have a different number of outstanding shares.
For example, companies A and B both earn $100, but company A has 10 shares outstanding, while company B has 50 shares outstanding. Which company’s stock do you want to own? It makes more sense to look at earnings per share (EPS) for use as a comparison tool. You calculate earnings per share by taking the net earnings and divide by the outstanding shares.

EPS = Net Earnings / Outstanding Shares

Using our example above, Company A had earnings of $100 and 10 shares outstanding, which equals an EPS of 10 ($100 / 10 = 10). Company B had earnings of $100 and 50 shares outstanding, which equals an EPS of 2 ($100 / 50 = 2).
So, you should go buy Company A with an EPS of 10, right? Maybe, but not just on the basis of its EPS. The EPS is helpful in comparing one company to another, assuming they are in the same industry, but it doesn’t tell you whether it’s a good stock to buy or what the market thinks of it. For that information, we need to look at some ratios.

Before we move on, you should note that there are three types of EPS numbers:

.Trailing EPS – last year’s numbers and the only actual EPS
.Current EPS – this year’s numbers, which are still projections
.Forward EPS – future numbers, which are obviously projections

The Story of SHARE

Carl Shelton, a very successful businessman, felt a calling by the LORD, which eventually led to his leaving the corporate world to become an ordained Catholic Deacon. Carl Shelton spent many months with Mother Teresa in India, eventually returning to San Diego, California with a vision of starting a food program that would be non-charity, no government involvement, and self sustaining, with the emphasis on "people helping people." The task seemed impossible. However in February of 1983 SHARE was born. The first SHARE distribution was 7,642 units and was distributed at the Jack Murphy Stadium parking lot in San Diego, California. The fundamental essence of SHARE is its commitment to our spiritual life. It is based on acceptance and the belief that all people have something valuable to contribute. SHARE begins by offering a food program that is accessible and inclusive. It is a starting point for bringing people together based on a common need. As people work together to satisfy the basic physical hunger, we are in essence feeding a hunger that goes by another name. The hunger to belong and connect, with other human beings in a meaningful way. To many times we have witnessed a painful search for a hospitable place where we can be accepted and where community can be found.

SHARE practices the art of hospitality. SHARE does not place its focus on changing people nor does it attempt to win people over or reject them if they don't fit in. SHARE is inclusive - SHARE is building our community by working together. In April 1989, SHARE Colorado joined the SHARE national team and distributed its first share. The first month SHARE Colorado distributed over 8000 packages and over 288,000 pounds of food. Currently, SHARE Colorado distributes through 12 warehouses in Colorado, New Mexico, South Dakota, Wyoming and Nebraska. With the commitment of over 3500 volunteers, SHARE serves over 11,000 individuals and families every month. Over the first 15 years of SHARE Colorado's operation, they distributed 83.8 million pounds of food, served over 4 million SHARE packages, and volunteers have contributed over 8 million hours of time to their communities. SHARE participants have also saved over $57 million on their groceries.

How Does SHARE Work

What is SHARE?

The goal of SHARE is to help families save about 50% on their groceries, while encouraging the building of relationships with their neighbors in the community. There are no qualifications...if you eat, you qualify.

Who can participate?

Any one from the affluent to those with struggling budgets can participate in SHARE. You see, even those who can afford to spend more for food are being good stewards with their money by simply being more frugal. What's more, the minimal profits in each share of food sold go to support this program and sometimes those who can't even afford to buy a share. And if you're really not interested in participating for whatever reason, we do take donations, and the donation for what we call a "sponsored share". That means your donation goes to buy food for a neighbor in your community that needs help.

How do I participate?

Look in our website or our SHARE newspaper and find your zip code, or one close to it. Find a host site location in or around your zip code area. You can go to that host site during the listed registration//sign up times to place and pay for your order. If you've missed the registration times listed, call the numbers for the host site and see if they have another time. If not, you can always call the Share main offices for help in signing up or just information. You can also place your order over the phone at the SHARE main office and we can add your order to the site where you want to pick up. The host site locations accept Cash, Quest cards, and most take checks. If placing an order over the phone with the main office, you can use a credit card (Visa, M//C), Quest card, or check by phone. After you place your order, go back to your selected host site to pick up your order during the designated distribution//pick up day and time. (These days and times are also listed in the newspaper and website).

How does SHARE achieve this?

We select about twenty items that you're most likely to buy at the grocery store, including fresh fruits, vegetables, and frozen meats. Then through a national affiliate network, we purchase massive quantities of these items at very low prices. At no time do we ever accept donated food for distribution. Then through a network of volunteers at our warehouse and distribution centers known as "host sites", we deliver the food to these host sites where you pick up your order. As a non-profit organization, SHARE relies heavily on volunteers and passes on the huge savings by our reduced expense. Unlike a traditional grocery store, we don't maintain inventories, expensive stores, large employee bases, etc. We rely primarily on word of mouth advertising. Plus we're in it for you, not for the organizations profits.

You say build community? How?

Our host distribution sites are generally churches, senior centers, schools, community centers, etc. The experience of picking up your "Share" of food at the host site is almost like a community party. People begin to know each other and many meet new friends. Many love and support the program so much that they ask how they can help out next month! Actually we encourage 2 hours of volunteerism for every participant. We consider volunteering anything from working at the host site or warehouse, to babysitting, to sharing a meal with a neighbor or friend. Virtually anything that you do for anyone not in your immediate family for free is volunteering. Most people find that they're already doing it without realizing it. With SHARE, we feed both the body and the Spirit.

About SHARE

SHARE Inc. is an independent, volunteer run association providing enterprise technology professionals with continuous education and training, valuable professional networking and effective industry influence.HistoryIn 1955, just two years after the release of IBM's first computer, a handful of the earliest IT professionals collaborated to form SHARE. Thus came into being the world's first organization of computing professionals.
Over the past five decades, SHARE has become synonymous with high-quality, user-driven education and resources to make enterprise computing specialists more effective professionals. SHARE serves more than 20,000 individuals representing over 2,000 of IBM's top enterprise computing customers. Our constituency includes many of the top international corporations (including the majority of the FORTUNE 500), universities and colleges, municipal through federal government organizations, and industry-leading consultants. While independent, SHARE maintains a close partnership with IBM and its subsidiaries, as well as with leading solution providers to continually strengthen SHARE's benefits for its members.
Our MissionTo enable people in Information Technology environments to achieve business results.
Our VisionWe will be an indispensable partner with our members and IBM - the community where users and technology meet to shape the future of Information Technology.The Value of SHARE MembershipParticipation in SHARE provides the opportunity to build relationships with a diverse community of IT professionals, enhances your professional development, and positions you as a thought leader in the industry.

Efficient- share market hypothesis

In the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient", or that prices on traded assets (e.g., stocks, bonds, or property) already reflect all known information, and rapidly change to reflect new information. Therefore it is impossible to consistently outperform the market by using any information that the market already knows, except through luck. Information or news in the EMH is defined as anything that may affect prices that is unknowable in the present and thus appears randomly in the future.

Historical background

The efficient-market hypothesis was developed by Professor at the as an academic concept of study through his published Ph.D. thesis in the early 1960s at the same school. It was widely accepted up until the 1990s, when economists, who were a fringe element, became mainstream.Empirical analyses have consistently found problems with the efficient markets hypothesis, the most consistent being that stocks with low price to earnings (and similarly, low price to cash-flow or book value) outperform other stocks.Alternative theories have proposed that cause these inefficiencies, leading investors to purchase rather Although the efficient markets hypothesis has become controversial because substantial and lasting inefficiencies are observed, Beechey et. al. (2000) consider that it remains a worthwhile starting point.
The efficient-market hypothesis was first expressed by , a French mathematician, in his 1900 dissertation, "The Theory of Speculation". His work was largely ignored until the 1950s; however beginning in the 30s scattered, independent work corroborated his thesis. A small number of studies indicated that US stock prices and related financial series followed a .Research by in the ’30s and ’40s suggested that professional investors were in general unable to outperform the market.
The efficient-market hypothesis emerged as a prominent theory in the mid-1960s. had begun to circulate Bachelier's work among economists. In 1964 Bachelier's dissertation along with the empirical studies mentioned above were published in an anthology edited by Paul Cootner.In 1965 Eugene Fama published his dissertation arguing for the random walk hypothesis,and Samuelson published a proof for a version of the efficient-market hypothesi.In 1970 Fama published a review of both the theory and the evidence for the hypothesis. The paper extended and refined the theory, included the definitions for three forms of weak, semi-strong and strong (see below).Further to this evidence that the UK stock market is weak-form efficient, other studies of capital markets have pointed toward their being semi-strong-form efficient. Studies by Firth (1976, 1979, and 1980) in the United Kingdom have compared the share prices existing after a takeover announcement with the bid offer. Firth found that the share prices were fully and instantaneously adjusted to their correct levels, thus concluding that the UK stock market was semi-strong-form efficient. However, the market's ability to efficiently respond to a short term, widely publicized event such as a takeover announcement does not necessarily prove market efficiency related to other more long term, amorphous factors. David Dreman has criticized the evidence provided by this instant "efficient" response, pointing out that an immediate response is not necessarily efficient, and that the long-term performance of the stock in response to certain movements are better indications. A study on stocks response to dividend cuts or increases over three years found that after an announcement of a dividend cut, stocks underperformed the market by 15.3% for the three-year period, while stocks outperformed 24.8% for the three years afterward after a dividend increase announcement.

Theoretical background

Beyond the normal maximizing agents, the efficient-market hypothesis requires that agents have that on average the population is correct (even if no one person is) and whenever new relevant information appears, the agents update their expectations appropriately. Note that it is not required that the agents be rational. EMH allows that when faced with new information, some investors may overreact and some may underreact. All that is required by the EMH is that investors' reactions be random and follow a normal distribution pattern so that the net effect on market prices cannot be reliably exploited to make an abnormal profit, especially when considering transaction costs (including commissions and spreads). Thus, any one person can be wrong about the market — indeed, everyone can be — but the market as a whole is always right. There are three common forms in which the efficient-market hypothesis is commonly stated — weak-form efficiency, semi-strong-form efficiency and strong-form efficiency, each of which have different implications for how markets work.
In weak-form efficiency, future prices cannot be predicted by analyzing price from the past. Excess returns can not be earned in the long run by using investment strategies based on historical share prices or other historical data. techniques will not be able to consistently produce excess returns, though some forms of may still provide excess returns. Share prices exhibit no serial dependencies, meaning that there are no "patterns" to asset prices. This implies that future price movements are determined entirely by information not contained in the price series. Hence, prices must follow a random walk. This 'soft' EMH does not require that prices remain at or near equilibrium, but only that market participants not be able to systematically profit from market . The 2007 could be cited as evidence. For while the use of very sophisticated models of the market was able to accrue profits from the existence of small anomalies in the market since their general adoption by hedge funds, brokers and investment banks early in this century, the current downturn has seemingly stymied all of these models and, moreover, has wiped out such 'profits' going back over a dozen years. However, while EMH predicts that all price movement (in the absence of change in fundamental information) is random (i.e., non-trending), many studies have shown a marked tendency for the stock markets to trend over time periods of weeks or longerand that, moreover, there is a positive correlation between degree of trending and length of time period studied(but note that over long time periods, the trending is in appearance). Various explanations for such large and apparently non-random price movements have been promulgated. But the best explanation seems to be that the distribution of stock market prices is in which case EMH, in any of its current forms, would not be strictly applicable
In semi-strong-form efficiency, it is implied that share prices adjust to publicly available new information very rapidly and in an unbiased fashion, such that no excess returns can be earned by trading on that information. Semi-strong-form efficiency implies that neither nor techniques will be able to reliably produce excess returns. To test for semi-strong-form efficiency, the adjustments to previously unknown news must be of a reasonable size and must be instantaneous. To test for this, consistent upward or downward adjustments after the initial change must be looked for. If there are any such adjustments it would suggest that investors had interpreted the information in a biased fashion and hence in an inefficient manner.
In strong-form efficiency, share prices reflect all information, public and private, and no one can earn excess returns. If there are legal barriers to private information becoming public, as with insider trading laws, strong-form efficiency is impossible, except in the case where the laws are universally ignored. To test for strong-form efficiency, a market needs to exist where investors cannot consistently earn excess returns over a long period of time. Even if some money managers are consistently observed to beat the market, no refutation even of strong-form efficiency follows: with hundreds of thousands of fund managers worldwide, even a normal distribution of returns (as efficiency predicts) should be expected to produce a few dozen "star" performers.

Criticism and behavioral finance

Price-Earnings ratios as a predictor of twenty-year returns based upon the plot by The horizontal axis shows the as computed in Irrational Exuberance (inflation adjusted price divided by the prior ten-year mean of inflation-adjusted earnings). The vertical axis shows the geometric average real annual return on investing in the S&P Composite Stock Price Index, reinvesting dividends, and selling twenty years later. Data from different twenty-year periods is color-coded as shown in the key. See . Shiller states "confirms that long-term investors—investors who commit their money to an investment for ten full years—did do well when prices were low relative to earnings at the beginning of the ten years. Long-term investors would be well advised, individually, to lower their exposure to the stock market when it is high, as it has been recently, and get into the market when it is low."This correlation between price to earnings ratios and long-term returns is not explained by the efficient-market hypothesis.
Investors and researchers have disputed the efficient-market hypothesis both empirically and theoretically. attribute the imperfections in financial markets to a combination of such as overreaction, representative bias, an inability to use rather than linear reasoning, and various other predictable human errors in reasoning and information processing. These have been researched by psychologists such as These errors in reasoning lead most investors to avoid high-value stocks and buy at expensive prices, which allow those who reason correctly to profit from bargains in and the selling of growth stocks.
Empirical evidence has been mixed, but has generally not supported strong forms of the efficient markets hypothesisAccording to Dreman, in a 1995 paper, low P/E stocks have greater returns.In an earlier paper he also refuted the assertion by Ray Ball that these higher returns could be attributed to higher beta,whose research had been accepted by efficient market theorists as explaining the anomaly in neat accordance with One can identify "losers" as stocks that have had poor returns over some number of past years. "Winners" would be those stocks that had high returns over a similar period. The main result of one such study is that losers have much higher average returns than winners over the following period of the same number of years.A later study showed that cannot account for this difference in average returns.This tendency of returns to reverse over long horizons (i.e., losers become winners) is yet another contradiction of EMH. Losers would have to have much higher betas than winners in order to justify the return difference. The study showed that the beta difference required to save the EMH is just not there.
Speculative are an obvious anomaly, in that the market often appears to be driven by buyers operating on , who take little notice of underlying value. These bubbles are typically followed by an overreaction of frantic selling, allowing shrewd investors to buy stocks at bargain prices. Rational investors have difficulty profiting irrational bubbles because, as , "Markets can remain irrational longer than you can remain solvent."Sudden market crashes as happened on are mysterious from the perspective of efficient markets, but allowed as a rare statistical event under the Weak-form of EMH.
a well-known proponent of the general validity of EMH, has warned that certain emerging markets such as are not empirically efficient; that the and markets, unlike markets in United States, exhibit considerable serial correlation non-random walk, and evidence of manipulation.
Behavioral psychology approaches to stock market trading are among some of the more promising alternatives to EMH (and some investment strategies seek to exploit exactly such inefficiencies). But Nobel Laureate co-founder of the programme——announced his skepticism of investors beating the market: "They're [investors] just not going to do it [beat the market]. It's just not going to happen."has started a fund based on his research on cognitive biases. In a 2008 report he identified and the as central .

Popular reception

Despite the best efforts of EMH proponents such as , whose book achieved best-seller status, the EMH has not caught the public's imagination. Popular books and articles promoting various forms of , such as the books by commentator and former fund manager , have continued to press the more appealing notion that investors can "beat the market."
Many believe that EMH says that a security's price is a correct representation of the value of that business, as calculated by what the business's future returns will actually be. In other words, they believe that EMH says a stock's price correctly predicts the underlying company's future results. Since stock prices clearly do not reflect company future results in many cases, many people reject EMH as clearly wrong.
However, EMH makes no such statement. Rather, it says that a stock's price represents an aggregation of the probabilities of all future outcomes for the company, based on the best information available at the time. Whether that information turns out to have been correct is not something required by EMH. Put another way, EMH does not require a stock's price to reflect a company's future performance, just the best possible estimate or forecast of future performance that can be made with publicly available information. That estimate may still be grossly wrong without violating EMH.
Further empirical work has since highlighted the impact transaction costs have on the concept of market efficiency, with much evidence suggesting that any anomalies pertaining to market inefficiencies are the result of a cost benefit analysis made by those willing to incur the cost of acquiring the valuable information in order to trade on it. Additionally the concept of liquidity is a critical component to capturing "inefficiencies" in tests for abnormal returns. Any test of this proposition faces the joint hypothesis problem, where it is impossible to ever test for market efficiency, since to do so requires the use of a measuring stick against which abnormal returns are compared - one cannot know if the market is efficient if one does not know if a model correctly stipulates the required rate of return. Consequently, a situation arises where either the asset pricing model is incorrect or the market is inefficient, but one has no way of knowing which is the case.

How Trade CheckList

1. Economy

The first and the most important step in determining whether it is the perfect time to invest in stocks is to look at the economy. The reason why stock prices rise and fall in value lies in the company's ability to make a profit. If the economy is not in good shape it is because businesses which makes or breaks a country's economy are having a hard time to be efficient with their day to day operations. If company sales are slow it affects growth therefore investors would not be willing to pay more for a single share of a company's stock if they are not making a profit.Although there is always a bull market and a bear market somewhere, it is important to determine where the economy is going in general to help you decide which stocks you should trade long or short regardless of where the economy is heading. Going long or going short on stocks without first assessing the economy is like driving a car at night without headlights on.
Examples of economic indicators to keep a close eye on are the CPI, PPI, housing market data, currency data, non-farm payroll and interest rates. One good website that provides these data would be the national bureau of economic research

2. Pick a sector

A sector groups companies by the type of business they conduct on a daily basis. For info on which sector your stock falls into, one good destination would be yahoo finance A sector mirrors what area of the economy would be greatly affected.For example interest rate cycles that goes from very low to very high in a short period of time, chances are during the time when interest rates are so low it would be profitable for banks to lend out money to people but when interest rates spiked all of a sudden the amount people have to pay for the loan would increase, if the borrowers can't keep up there would be a credit crisis. At this time it is clear that the financial sector would be heavily hit. You would stay out of anything that provides financial services when you discovered that the economy's problems lies in the financial sector or go short on financial sector stocks if you can anticipate the problem looming ahead.

3. Select stock

After determining which sector would be the most active at the current economic condition, it is time to pick the stock within the sector.It doesn’t matter which stock you pick. It could be the best performing in the sector at a time when the sector performs well or the worst performing onewhen the economy is not in favor with the sector.If you’re looking for a long position it is obvious to pick the top three best performing companies in the sector and have a side by side comparison.Shorting the worst performing stock on a bad performing sector gives you the profits in a reverse fashion. This step is an apples to apples comparison in which you pick several stocks in the sector and comparing it with the other ones using their income statements and basic metrics.

Trade Market Movers

We have covered the basic causes of stock price fluctuations based on supply and demand and the firm’s perspective. Companies have a given number of shares available for trading and the price is determined depending on the quality of the business and its stocks’ current supply in relation with the current demand for it. But what would be the pivotal point to which investors’ sentiments are shifted that influences the value of a given security?
It is common to hear from a hardcore economist or investor that the equities market is an efficient market, whereas, an event that occurred moments ago has already been priced long before you hear the news whether it is good or bad. You don’t have to be a psychic to determine an ultimate target price for a group of securities you are keeping a close eye on. Trading the news is effective, but most of the time those are just small inconsistencies from an already unfolded trend that occurred way back. Jumping right in front of it could be costly; you don’t want to be standing along side a group of bulls running in different directions it’s going to be crazy out there if you would! This is what they call the noise in the market whereas when viewed at a much wider and bigger perspective it cancels the noise and all that is left is a clear trend that identifies its motives. The market also is a self winding spiral to whichever direction it is headed. It can be described as a herd which follows a general and influential direction and reverses when a single unit in the herd tries to turn around because of some unknown interruption and others followed which when seen by more members in the herd would interpret it as a change in course signal. For more about this, see Elliot Wave Theory. Putting all these together, determining the general price direction for the stocks you are keeping an eye on lies on a more general economic scale.
When a group of securities goes south or the market as a whole, there was a chain of event that went down over which if identified in a timely manner, would give you light years ahead worth of warning or notice. Knowing what caused the failure or the advance down to its very root would give you a better chance at playing “psychic” on the equities market. The word magic depends on the viewer’s perspective, magic means something that can’t be explained or outside the realms of understanding of the audience. On the master’s perspective, or the performer, it could just be merely pulling a string on something that produces the effect known to the audience as “magic”. A new technology in the eyes of someone that had never seen it before would interpret it as magic, but as soon as the technology was revealed behind let’s say laser guided bombs, the God-like magical effect would vanish. Applying this to the market, researching down to the very root of possible causes allows you to draw a conclusion on which group of securities would be highly influenced based on the current economic standing of a country or international trade balances at a particular moment. This is like setting a spot light on an area to which the current economic condition would take its effect the most.

Trade Short Selling

Buying low and selling high has always been the primary objective of investors, but most of the time they end up doing the reverse by buying high and selling low. The market in general, trends in an upward direction, so buying a stock cheap and selling it higher would be the obvious thing to do. A growing economy would always equate to an increasing revenue for businesses so as their stock prices. On an uptrend market, stock prices steadily increase as long as their underlying company's profits hit the mark towards growth. Market directions are fueled by what is going on in the minds of investors. It is a common saying that reputation takes time to build but only seconds to destroy. Same thing happens to investors' confidence towards a company on their radar. It takes time for a stock to reach a mark but when bad fundamentals hit the company even just a small hint of it would cause the price to fall faster than it did rose to its previous price. In this scenario, an investor could profit from the decline by shorting the stock. When you buy a security and selling it higher, you are trading a long position, hoping the price would increase at a later date. When we see that a stock is overpriced for its current fundamentals and expect the price to drop at a later date, we assume a short position. Its like riding a time machine and jumping right at selling a stock at a high price without first buying it at a cheaper price and you don't even own the stock you're selling. Shorting is done by borrowing a stock from someone and immediately selling it at the current price. When the price drops, those borrowed shares are purchased at a lower price and finally returning it to whoever owns it. For example, you're shorting Archer broadcast company (ABC) and you borrowed 1 share of its stock from your sister. You sold that single share of Archer broadcast company as soon as you got a hold of it and got $10 from the sale. Three months had passed, the price of ABC fell to $5 a share, since you owe 1 share from your sister and sold it, you need to give it back. You then bought 1 share of Archer broadcast company at $5 and finally, you returned that single share to your sister, therefore you profited $5 from that activity since its cheaper to replace the share you borrowed and sold. But if the price of ABC never fell and instead rose to $15, it takes an extra $5 out of your pocket to replace that single share you owe.
Selling shares applies downward pressure on the stock, shorting can only be done when the stock is on an up tick meaning when the stock is trending up to prevent the share price to fall further. However, a stock that is constantly being shorted through time would definitely cause it to drop in value. That up tick rule by the SEC only prevents it from falling faster say, in a single day.

Trading Intro

Starting a business could be a major goal for some people, with a startup capital that is sufficient and efficient enough to run it and a well polished balance sheet you're good to go. The owner should have a good knowledge about the fundamentals of the business he or she is into otherwise it's just like a piece of free falling meteorite burning cash and disintegrate long before it hits ground instead of a hen laying golden eggs that it should have been.A startup business might take a while to get it running under its own steam, lets say, you might be uncertain if there is a strong market for your products or services. Other factors would include convenient access for your target market, visibility and current demand within an area. Buying a business that has been proven profitable is an easier option. In this case, It's a step ahead since we wouldn't have to worry about setting up everything and building a huge customer base. Since after thorough research about the business you're aiming at buying, it might just need a little tweaking to further boost profits. So what if it's not profitable? would we still want to buy a business that is not going to provide any return? Well, sometimes it all depends on who is at the helm of the company, how they conduct operations and resource allocation. So if you think you can run that business better than the current owner and you can see its real potential plus it is being sold at a price in which you consider it to be cheap, then, you have nailed a perfect business opportunity. That is if you have enough cash to purchase it entirely. But what if you only got just little over a half or even a quarter of the total amount? could we still be able to own that business and have control over its operations?

Trading stocks

Stock shares are fragments of the total value of a company. Each share represents a degree of ownership on a business by the holder. Stocks are a direct reflection of the performance or potential of a company, in other words its like a corporate report card graded by investors in the market from which it derives its value from. For businesses, it is one of the many ways they could raise cash without the burden of debt.

Types of stocks:

Common stocks as the name implies are ordinary types of shares that is widely available. When talking about buying stocks of a company it is usually common stocks that are being traded. Each share of a common stock represents a single vote for matters concerning the company. In the event of company liquidation, common stock holders are at the end of the line to receive payments over preferred stock holders and creditors.
Preferred Stocks represents a higher degree of ownership over common share holders. Holders of preferred shares receive fixed dividends and are paid with assets before common stock holders in an event of a liquidation. Voting rights on this type of stock depends on the company if they would give the option to its holders, but once it does, preferred stocks have greater voting rights over common share holders. Companies have the option to redeem outstanding shares of its preferred stocks from its share holders at a higher price. Preferred shares can be converted to common shares.

Tips For Trading

I was one among the common man who was watching the market silently but sounds from media and analyst’s everyday crossing decibels. Let me also contribute to that since I have some regular visitors to my site.
Remember it is market psychology that drives the market now and not rationals. When we are emotional we don’t think about what we do and simply utter words and the market is behaving in the same way.
As I always said don’t be a herd in the market. Have your own taste of success or failure in the stock market. If you really study the fundamentals of the company not by Ratios or High funda financial terms but by common knowledge it will form the basis first in most of the times.
First let me put my views on the market.

What’s the reason for Bull Run till now?

It’s simple. The value of Indian companies were reaching heights because we hadinvestorsbuying from outside.We have to agree that it was over valued to a certain extent because of the bullish mentality of FIIs and the credit availability terms they had like less interest rates etc.

What happened suddenly and markets became bearish?

When credit was tightened and interest rates were hiked in US most of the mortgage loans were on floating rate and many people defaulted.This led to liquidity crises for lenders.
There arouse a demand for money in US market. FIIs so who needed money started to sell their investments in India to get back money for their livelihood and hence notional value of Indian stocks are going done. Indian economy is certainly insulated. Indian economy in terms of imports is not much dependent on US. The good part of the story is that unlike China, which had an export oriented economy, the Indian economy was based on the domestic market. The India’s trade theory is changing a lot as it is turning out to be more of a manufacturing export oriented country. The net trade of services done by India accounts to about just 22% just reflecting the risk on trade services is tried to be minimized. Also in the current scenario the trade practices of India with US has decreased and on the other hand has relatively increased with China reflecting out that the risk of US recession has been deflected.Also recent crisel research indicatesIndian banks have limited vulnerability. (CRISIL RESEARCH). Indian banks’ global exposure is relatively small. nternational assets at about 6% of total assets. Even banks with international operations have less than 11% of their total assets outside India. The reported investment exposure of Indian banks to troubled international financial institutions of about $1 billion is also very small.

What’s Behind Indian Companies?

Indian companies’ notional value of its share prices has gone down but nothing like mortgage crises in US.They are strong on the asset base and in terms of fundamentals.
Just take a company like HERO HONDA. Just let’s look from layman point of view. I had invested two years back and it never went up and it is going up now. In an average Indian mindset this bike is something very common. The availability of credit will impact the sales but it won’t have a drastic impact since it is almost a necessity as far as Indian market is concerned when compared to other industry. I am not saying blindly buy by this. Take this as core then do all fundamental and technical analysis and ponder on it.Indian companies’ debt equity ratios are decent. Nothing like there is an internal failure in terms of technology or accounting malpractice.
Only thing is companies in IT sector got projects from US and when their economy is down no projects and hence no profit and its effect will be there in other industry as well.So the basic thing is that there is money problem which Indian investors thought that their investments will go up but no one to buy their portfolios. Others who has gained some profit turned towards safer side seeing the risk in the market.RBI measures will benefit banks on short run and companies on short run but the pumped in 1.4 lakh crores by CRR cut and others will be useful for stabilization if the companies gain back their money which they have as inventories before the money pumped by RBI is eroded as working capital.This is a slow process and it will take nearly a year for the positive sentiment to gain back in the market but our companies are fundamentally strong with less overseas exposure in their investments in the collapsed financial institutions.

INTRODUCING CASSANDRA RAE

Cassandra has joined forces with AFW as a Beauty Editor. She will offer advice and reveal trade secrets in her monthly articles on Makeup Application, featured here on AFW. Cassandra Rae Ferguson is a Freelance Makeup Artist of over 8 years.
With a wealth of knowledge and experience in the Fashion, Film and Television industries, Cassandra has worked alongside many of Australia’s best photographers, fashion designers, stylists and cinematographers.
Cassandra is well-versed in Makeup Artistry and her accomplishments extend the Makeup industry. Since gaining qualifications in 1999, Cassandra has built a career from experience in Sydney and in Perth. She has worked on television programs, commercials, films and catwalk events such as Fashion Week and the Perth Fashion Festival. Her makeup design has featured in catalogues, magazines and calenders nationally. In addition to this, Cassandra’s roles include Makeup Instruction and Styling for Australia’s top model and casting agencies, as well as Beauty Editor and Columnist for various online Bridal and Fashion Magazines.
Cassandra currently resides in Sydney, specialising in Bridal Makeup, having gained a high profile in the Bridal Industry over the past 8 years. She is always happy to share trade tips and secrets with her clients. With the belief that makeup application should be fun, Cassandra aims to cut out the myth and mystery, without being dictatorial.
Therefore, Cassandra is delighted to offer beauty advice on All For Women. Cassandra will provide advice on all aspects of makeup application. Learn how to achieve different looks, use products/equipment and get great makeup looks on a budget.
Are you stuck in a makeup rut and need some expert advice, or would simply love to learn some insider tricks? Ask Cassandra!

CFD/Share Trading

CFD Trading with GCI is an efficient, commission-free way to trade shares, global equity indices, currencies and commodities. Benefits include lower costs, low margin requirements, and state-of-the-art online software. Download a Free Practice Account!

Available products include:

CFD Products
(Partial List)
Stock Market Indices
S&P500
NASDAQ 100
Dow Jones Industrials
DAX 30
CAC 40
FTSE100
Nikkei 225
SPI 200
Hang Seng
DJ EuroStoxx
Commodities
Crude Oil
U.S. 10 Year Note
Gold
Silver
Soy Beans
Individual Shares
Microsoft
Vodafone
Barclays
I.B.M.
Nokia
Pfizer
eBay
...and many other European and North American Shares

Foreign Exchange

EUR/USD
USD/JPY
GBP/USD
USD/CHF
USD/CAD
AUD/USD
EUR/JPY

CFD Trading Details:

Account Opening Minimum: $2,000, or € 2,000

Lot Size: 100 shares. Click here for details on other CFD products

Margin Requirement: 5% on individual shares, 1% or less on other products

Spreads: Click here for spreads in all products.

Commissions: Zero (commission-free)


CFDs Explained

The "CFD", or "Contract for Difference", was developed to allow clients to receive all the benefits of owning a stock without having to physically own the stock itself. For example, instead of purchasing 1,000 shares of Microsoft from a stock broker, a client could instead buy a 10 lots of Microsoft on the GCI CFD trading platform. A $5 per share rise in the price of Microsoft would confer to the client a $5,000 profit, just as if he had purchased the actual shares that are traded on the exchange. A major difference is that there are no exchange fees and many of the inefficiencies of trading the underlying shares on the exchange are eliminated. GCI can therefore offer CFDs with zero commissions and very attractive margin requirements. CFDs have grown in popularity dramatically over the past few years, and we believe that this will increasingly be the preferred way to trade the financial markets.

The other major benefit of trading a CFD is the fact that the client can trade on margin. CFD trading means clients can trade a full portfolio of Shares, indices, or commodities without having to tie up large amounts of capital. Using the example above, a client purchasing $50,000 worth of CFD Shares will only be asked for $2,500 margin.

CFD Performance

As with Shares, CFD investors benefit from normal market movements. Clients' open positions are valued in real time, with every tick of the market. Profits or losses similarly are credited to or debited from the clients account equity in real time.

Margin

Unlike physically purchasing stocks, clients only have to deposit approximately 5% of the value of the Shares. So if you want to buy $50,000 worth of Shares, you only need to have $2,500 on deposit with GCI.

What is share trading?

Before getting to know share/stock trading you must know what share is. A Share is the smallest unit of ownership in a joint stock company. The ownership of a share gives the owner the right to have a say in the management of the company.Only public limited companies (PLC) can issue shares to the general public. They issue shares in order to raise capital. The first issue is known as Initial Public Offering (IPO).Once people own shares by means of subscribing to IPO, they may need to have a liquidity ie selling these certificates of ownership in order to redeem their money. For this purpose secondary market has been created.

These secondary markets are known as stock market or share markets. This is the place where shares are bought and sold freely which of course is governed by the universal law of supply and demand. The shares that are more in demand goes up in price and those that are low in demand goes down.The investors in the share/stock market make money by the principle of buying low and selling high.

Share Trading Risks in Short Term Stock Trading

Regardless of time scale, a stock's price direction is always determined by supply and demand. Long term supply and demand are driven by fundamentals - company earnings, return on equity, dividends, etc. Short term supply and demand are more readily manipulated. For example a guru in a large circulation newspaper might tip a stock at the weekend. On Monday, propelled by demand from eager newspaper readers, the stock's price rises. A slightly different scenario that experienced investors will be aware of is when the stock's price does not rise on Monday, despite an army of small investors buying shares. It turns out the "guru" was helping friends who wanted to sell large shareholdings. A neat way of doing this without driving the stock's price down was to create artificial demand amongst small investors. It is much easier to artificially influence a stock's price in the short term than the long term. Benjamin Graham once said, "In the short term the stock-market acts like a voting machine, in the long term it's more like a weighing machine." In other words, supply and demand on any given day can be driven by all sorts of factors - some stranger than you might imagine. BUT, taking a long-term view, trivial factors are discarded in favor of the weight of cash the company has delivered to its shareholders and can be reasonably expected to deliver in future. Big market traders play games of bluff and double bluff on an hourly and daily basis. If someone has sufficient funds - and banks and investment houses do have the funds - it's easy to move a stock's price through large-scale buying or short-selling. Having moved the price enough to trigger short-term buy or sell signals to technical analysts, the idea is that these technical analysts will trade in the direction of the technical signals. This generates increased trading in the stock and the price moves even further in the direction that the "big players" intended. The big players then dispose of their position in the stock. The trend comes to an end and the traders who entered it late lose money. The big players, though, have profited handsomely. If you want to trade short-term, your opponents will almost certainly be better equipped, better funded and more experienced than you. 85 to 95 percent of people who try to become short-term traders fail.

Stock trading is done by a wide range of investors and this line of investing consists of individual stock investors, stock trading companies, and all the individuals and companies used to recruit professionals who carry out the trading on behalf of the recruiters. The term stock means shares. Different companies sell a part of their shares in the stock market and the buyers purchase these shares and becomes a partner in the company's profit. This profit making is the main purpose behind buying and selling of stocks. There is another form of investment and profit making which is known as a bond. The stocks and bond market are different, but they are jointly known as the securities market.

Stock exchanges are the places where the stock trading takes place. These places are designed to bring the stock sellers and the stock buyers onto the same platform and boost the business of stock trading. There are different types of stock exchanges like a physical type, a virtual type, etc., and stock trading follows different methods depending upon the market type. In the physical location, the stock is done through a method which is known as 'open outcry'. The trading in this type of exchange is done on the trading floor, and the traders put forward the bids and offers verbally. This method is the traditional method of stock trading, but it is becoming outdated in the modern market. Virtual stock exchanges are much more sophisticated than the traditional physical one. These exchanges use modern technology like computers and other gadgets to carry out the trading. Instead of crying loudly and putting forward rates and offers, the traders in virtual exchange use their computer terminals and the trading is done electronically. Stock trading is like an auction market. In the auction market there are several sellers and at the same time, there are several buyers. The buyer asks a price for the commodity and the seller quotes a price to buy the commodity. When the seller's price and the buyer's price match each other, the deal is confirmed. In the stock exchanges, this kind of selling and buying exists and is done on an early-bird basis.

Share Tips

The share market is a place where fortunes can take turn in just a few seconds. Because of this reason, several people have tried their luck in the market but all of them have not performed well. There are several share tips, which can help ones fortune to take the right turn. An investor should always complete a proper research about the market before he enters the stock market. A proper homework can reduce some amount of risk from the trading process. Before purchasing any share, one should know the history of the respective company.

The movement record of at least 52 weeks of the particular share should also be analyzed. At the same time the financial record of the company is also very essential. For the purpose, one can consult several newspaper, journals and can also check the various portals. There are several situations on which the movements of the share depend. One should understand these properly. The demand of a particular share determines the exact price of the share. When the demand rises, the cost rises and with the fall in the demand, the price also reduces. At the same time if there is any kind of political instability that is also going to influence the share price.

Again, if there is any kind of scam that has taken place in the market, the market is obviously going to decline. There are ample examples of this kind of decline of the market. At the same time, if any nation is involved in any kind of war, that is going to influence the stock market of that particular nation. Some news regarding the merger and change in the management of the respective company may also have an impact on the share movement in either way. These are the primary things, which one is expected to take care if he or she is interested in the stock market. The next thing is to know about the different kind of stocks in the market. There are blue chip shares, technology shares, growth shares, speculative shares, common and preferred shares, etc. All these shares are of different nature and the growth prospects are also different. At the same time the risk factors are also different.

These should be studied well before investing. There are certain methods and strategies of share trading. Among these are the option trading which helps the investor to manage or at least reduce the loss. There are different types of options, which are available in the market. The main factor is that the knowledge of the market is not only needed to make profit but it is also needed to learn to manage the risk factors. If the investor is new in the market, then he or she should take help of a reputed broker. The share brokers are an important factor of the stock market. These people or firm can provide each and every type of information to the investor. At the same time, the brokers are also involved in providing worthy suggestions and assistance to the investors. Share tips are essential for all buyers and sellers operating in the share markets.

Definition of Share

According to financial terminology the share is regarded as a unit of account that can represent several monetary instruments, such as stocks, REITs, mutual funds, or limited partnerships. In Great Britain the term "shares" usually refers to stocks. In the United States, the term stocks are used to refer to the shares or even the stock certificates that may be provided by a particular company. However, as per the conventional use, the term stocks usually refers to shares.

Shareholder

The people who have ownership over a share are called the shareholders. The shareholder could be an individual or an organization.

Dividend

The earning that the holder of a share makes from his or her shares is called the dividend. Dividends are actually part of the profits of the company whose shares may be held by the respective holder. These are non-reinvested profits.

Concept of Share

In practical terms, shares are individual pieces representing an equal stake in the capital of a business organization. The number of shares make the respective holder eligible to receive a certain part of the profits made by that company. The shares also help the respective holders to be able to lay claim to a part of the worth of the specific company. This is applicable, however, only when there is liquidation.

Voting and Non Voting Shares

There are two kinds of shares in operation: voting and non voting shares. The owners of the voting shares are eligible to vote on the board of directors or on corporate policies, while the owners of the non-voting shares may not. Whether shares are voting or non-voting often influences their price. These shares are also called Class A and B shares