Author : Steve SelengutThe Working Capital Model (WCM) looks at investment performance differently, less emotionally, and without a whole lot of concern for short-term market value movements Market value performance evaluation techniques are only used to analyze peak-to-peak market cycle movements over significant time periods

Security market values are used for buy and sell decision-making Working capital figures are used for asset allocation and diversification decision-making Portfolio working capital growth numbers are used to evaluate goal directed management decision-making over shorter periods of time

WCM tracking techniques help investors focus on long term growth engines like capital gains, dividends, and interest— the things that can keep the working capital line (see Part One) moving ever upward The “base income” and “cumulative realized capital gains” lines are the most important WCM growth engines

Please refer to the chart which appears in Chapter 7 of “The Brainwashing of the American Investor: The Book that Wall Street does not want YOU to Read”, or search Working Capital Model

The Base Income Line tracks the total dividends and interest received each year It will always move upward if you are managing your equity vs fixed income asset allocation properly Without adequate base income: (1) working capital will not grow normally during corrections and (2) there won’t be enough cash replenishment to take advantage of new investment opportunities

The earlier you start tracking your dependable base income, the sooner you will discover that your retirement comfort level has little to do with your portfolio market value

The “Net Realized Capital Gains” line reflects historical trading results, and is most important during the early years of portfolio building It will directly reflect both the security selection criteria you use, and the profit-taking rules you employ If you use investment grade value stocks and WCM buy/sell disciplines, you will rarely have a downturn in this important number

Any profit is always better than any loss and, unless your selection criteria is really too conservative, there will always be something out there worth buying with the proceeds Obviously, capital gains growth should accelerate in rising markets, and cost based asset allocation assures that such gains add directly to the future growth of base income

Note that an unrealized gain or loss is as meaningless as the quarter-to-quarter movement of a market index The WCM is a decision model, and good decisions should produce net realized income

One other important detail: no matter how conservative your selection criteria, a security or two is bound to become a loser Don’t judge this by Wall Street popularity indicators, tealeaves, or analyst opinions Let the fundamentals (profits, S & P rating, dividend action, etc ) send up the red flags Market Value just can’t be trusted for a bite-the-bullet decision— but it can help

The “Total Portfolio Market Value” line will follow an erratic path, constantly staying below Working Capital If you observe the chart after a market cycle or two, you will see that the Working Capital, Net Realized Capital Gains, and Base Income lines move steadily upward regardless of what the market value is doing!

You will also notice that the lows in market value begin to occur above earlier highs — but this may take several cycles to develop It’s comforting to know that, although market value movements are not controllable, the WCM growth engines are We can actively manage a portfolio to produce increasing base income levels, and we can conservatively select and monitor our equities to assure that all reasonable profits are brought to the bottom line

The market value line should never be above the working capital line, except occasionally in 100% income portfolios When it gets close, a greater movement upward in Net Realized Capital Gains should be expected If it hasn’t, you’ve become greedy— “let no profit go unrealized” must become your success mantra!

Studies show rather clearly that the vast majority of unrealized gains are eventually brought to the Schedule D as realized losses— and this includes potential profits on the boring securities housed in the income side of your portfolio

One other use for market value: When that line is at or near an all time high, look around for a security that has fallen from grace with the S & P rating system and bite that bullet Loss taking should be done slowly, and downgraded securities should be the first to go

What’s different about this approach, and why isn’t it more high tech? There is no mention of an index, an average, or comparisons with anything except valid expectations based on securities and market cycles It will get you where you want to be without the hype that encourages unproductive transactions, foolish speculations, and incurable dissatisfaction

In the WCM, market value is used as an expectation clarifier and an action indicator for the portfolio manager Most investors focus on market value and market indices out of habit Market values, realistically, are neither bad nor good You need to step outside the “market value vs something” box, and focus on the opportunities for growth that security price changes provide

All performance assessment lines need to be treated as learning tools instead of knuckle slappers, and they need to be looked at as inter-dependent pieces of the road map to goal achievement But there is one more line to add to the chart

The “net invested capital line” is the pulse of the investment plan and it should beat most rapidly in the early years of portfolio building Steady deposits assure that opportunities are not missed and that base income attains the levels needed many years in the future Most investors curtail their deposits in bad markets, a major error in judgment

The retirement phase of the investment plan should be based on a 70% or lower draw from base income In tax deferred plans, the 70% level includes Uncle Sam’s portion Gotcha! With that discipline in place, the base income line will continue to grow at a rate in excess of most recent inflation levels Steve Selengut
Sanco Services
Kiawah Golf Investment Seminars
Author: ‘The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read’ and ‘A Millionaire’s Secret Investment Strategy’.

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Author : Matthew StantonThe understanding of the stock market is quite a very complicated component of the business sector In order to have an idea of how the stock market operates or runs, one has to analyze the functions of the stock market, the benefits an investor derives from the stock market, and how one can expand business through the stock market

Firstly, we must consider that in the stock market, bonds, stocks and certain goods, which we may simply refer to as stocks are offered for buy and sell to the public sector This in reality concerns with trading or exchange of stocks and money It needs a careful study for one to be involved in this kind of business One who finds it interesting to go into stock market needs understanding the stock market as a business An investor has to comprehend the win-and-loss concept of the business

Giant companies usually put their stocks in the trade or exchange business for interested buyers to purchase in forms of shares of stocks The buyer of the stocks in this case becomes a stockholder of the company where the stocks originated This new stockholder then may in turn offer his own stocks for sale This time, he is already investing his own shares of stocks in the market

Some investors make real good fortune in the stock market, and this has been their very means of living Other people make good money here by being a broker The broker is a middleman or an agent of an investor Thus, it is a must that broker and investor communicate well enough to follow what is the status of the stocks in the market When we say follow up, it entails a close monitoring of the ups and downs, meaning price hike or fluctuation of the market share and the prevailing prices of the commodities involved

It may be noteworthy to mention that a vivid idea of this colorful business of the trade market be given due importance This is a business of risk When we talk of risk, this connotes losses and gains Thus is the trade market or stock exchange business, the investor has to be fully aware beforehand that the investment in this sort of trade is not always amassing lots of wealth, but considerable loss is likewise inevitable Those individuals who contemplate on doing a venture on this business must equip themselves with ample knowledge and guidance as to how the business works A wise investor often hunts on presumably saleable stocks at a lower price and wait for the appropriate time to sell his stocks In this manner, said investor then gains tons of fortunes

As a beginner in the industry, it is suggested that one refers to the expert on this matter to be able to have the chance of fully understanding the stock market which can be a very manipulative venture Matthew Stanton writes an article about Understanding The Stock Market and how you can have a better view of what is happening in the stock market. Simply visit this site for information at http://www.tradestocksamerica.com/stock-market-education.php

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Author : Nick MesseOptions trading is different from the more widely understood practice of stock trading With stock trading the most commonly employed strategy is to buy low and sell high - the trader counts on the value of the stock increasing, so the skill involved basically boils down to predicting the movement of stock prices and timing buys and sells accordingly

With options trading it is potentially much more complex than this Even relatively simple call options can have subtle variations that determine whether you win or lose by purchasing a specific option

The call option is probably the simplest, most familiar, and easiest to understand type of option because it shares some of the thinking involved in stock trading For instance when you purchase a call option you are purchasing the right to buy a block of stock at a specific price some time before a set point in time - usually two or three months down the road

This bullish strategy is analogous to buying low and selling high That is because your ability to make money on the deal is based solely on the upward movement of the underlying stock price

When you buy what is called an “out of the money” call, you are buying the right to purchase a certain stock within a specified period of time The only reason you would purchase such an option is because you expect the underlying stock to move higher than the strike price These options are relatively cheap to buy, and that is why they are so attractive to inexperienced traders without a lot of imagination

For instance, say you spot a stock currently selling at $50, and you have good reason (you think) to expect the value of that stock to increase substantially over the next two or three months Say you expect it might go as high as $65

Based on that “information” you might purchase an option to buy that stock at a strike price of $55 some time in the next two months This is called buying an OTM (out of the money) option because the strike price is higher than the current market value of the stock

This is a relatively cautious way to go about trading options because the amount you can lose is limited to the premium you pay for contract If the contract cost you only $1 per share and you purchased a block of 100 shares, then your total outlay would only be $100 This is a fairly small amount compared to what you see as potentially large gains if the stock price should go as high as you anticipate it might

If it should go to $60 a share within your contract period you could exercise your option and buy it for just $55 That would be a profit of $5 per share minus the $1 premium you paid for the contract That sounds fairly painless because your risk is minimal - just $1 per share

But there is a reason this kind of contract is cheap and that is because the probability that the stock will behave as you anticipate is relatively low After all, these are seasoned options traders setting these probabilities and the chances are very good they know at least as much as you do about the future movement of stock prices

So while your potential losses are relatively small, your chance of making any serious profit is also relatively small Not only does the stock price have to move in the direction you hope, but just as important, it has to do it within the time frame established in your contract Timing is much more important in options trading than it is in stock trading

As Brian Overby of TradeKing(dot)com says, ” buying OTM calls outright is one of the hardest ways to consistently make money in the options world If you limit yourself to this strategy you may find yourself losing consistently and not learning very much in the process ”

As an alternative strategy Overby suggests your try selling an OTM call (rather than buying one) on a stock you already own In other words, he is suggesting you turn the tables and play the very odds that work against the buyer of an OTM call

This is called a “covered call” It is covered because you already own the stock What you are saying is that you are prepared to sell the stock at the strike price - even if it is lower than the then-current market price - in exchange for a premium up front

If the stock actually goes up higher than the strike price, you will still have made a profit on the sale - just not as much as you would have if you were not holding the contract Plus you will already have the premium price in your pocket

If the stock does not go up and the option is not exercised, you simply keep the premium In that case the premium is pure profit And if the stock starts going south and you decide you want out you can just buy back the option and sell the stock

As you can see, this is a more imaginative approach which is also less speculative It allows you to profit from the miscalculations of others while risking very little yourself At the same time it gives you a better opportunity to learn how the options market works so you can move on to even more sophisticated strategies Join more than 130,000 other satisfied traders by opening an account with TradeKing.com, where options trading online is our specialty.

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Author : Matthew StantonIntraday trading refers to the opening and closing of a position in a trading day You can say that it is the best way by which you can capitalize on the small movements, that is the rise and fall, in the value of a security using leverage or margin or in simpler terms, borrowing of money

Basically, this is the buying and selling capitalizing on a potential rise in the securitys value and covering the potential drop in the value

Most of these traders accounts are allowed to an initial position of four times the original value though some get more leverage For example your initial account has $20,000 that will be allowed to four times more, that is up to $80,000, or more depending on the leverage This amount is for the purposes of the day trading only You are not allowed to hold it overnight Only about twice the value could be held over night

The basic strategy that you have to bear in mind is to always cut your loses and keep your profits run The leverage inherent allows small gains to yield meaningful profits

Perhaps you can compare this to a person who is only working for a day If that person will not use the right strategy, say he or she will decide not to work in his regular day job so he can sleep to work on the night job offered by a friend that will get him a better pay, two things will likely to happen First, he will be able to work their in the nigh job and get a good pay but still not be able to work the next day in the regular job that he has because of exhaustion or second, he will have to work the next day still very exhausted Either way, the sacrificing of his day job over the night job will make him exhausted and less active the next day

Though that is on the negative, the principle of intraday trading is much like that You can move about on a day to day basis It really depends on you if you will be moving buying stocks or selling some, get profit or lose some Still that will have to be worked on in the course of a day

Like the person in the example, you can be fifty percent wrong in your stake but still you can earn profit if you get into this The only thing that you have to really look into is that you cut on your losses, cover them up with your profits

There are many strategies associated with this day to day investing these are the scalping which is the taking of profits where small gaps expanded; trading rumors and news events which requires you to have connection to several news sources and move your way as to how the market would react to the news; channel or range trading which is assuming that the stock will move in a price range; contrarian trading which is prices that rise or fall in a momentum will reverse its course; and trend trading which is basically at that a rising price will continue to rise and prices that fall will continue to fall Matthew Stanton writes an article about Intraday Trading and how you can make the best out of this type of investment amidst the economic crisis we have these days. Simply visit this site for information at http://www.tradestocksamerica.com/day-trader.php

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Author : Matthew StantonNow that the world is faced in a big problem regarding the economic status of most countries, may people are in desperate need of some soul uplifting, the current problems may be taking it toll but then a simple and convenient way to solve that, like internet stock trading can be done to ease up the burden

There is no denying that people now are frantic about the situation of the economy There are just a lot to think about and consider Despite the efforts of many to stay calm in this situation, there is still a lot of pressure that pushes people into the edge of their patience Some sad to say, could not bear the problems but then the innovative ones and the ones who are feisty and always eager to fight can find their way through no matter what

It is not true that there are no ways that these problems could not be solved; of course there are countless ways by which you can do that It is not yet the end of the world and so long as you are eager and determined, you can always find your way out of the burning tower

There are many media that are available, many avenues by which you can find hope, a waning light against the dark alleys you are in right now, and the economic problem is not one thing that you should be on your knees about Well, why not use the internet?

With training, you can work wonders There are training courses available that will make you a stock market wizard in hours and with internet stock trading, everything is possible Now who says the only way out is by jumping out of the burning tower? The internet is readily available and with the sufficient knowledge that you can get through trainings and courses you can save your self

There are numerous ways by which the internet can save you This way you can just forget about your woes By buying and selling stocks you can earn money Now you need not be an economist to understand that the stock market is a place where most transactions such as buying a folio of stocks happen When you have stocks, you have a claim to a certain company and you can earn money by keeping, buying or selling those stocks that you have And with the internet as a medium what else can go wrong?

After going through the processes of acquiring such folio of stocks and submitting your self to the necessary processes, the way to earning is just easy The internet as a medium of this exchange is very convenient With millions of people all over the world using the internet and the availability and accessibility of the internet, there certainly is nothing else to hinder you

Investing is always a risk; you should remember that this is not a one time big time kind of thing Despite the future promised by internet stock trading you should still be very careful There is no way you would want to lose whatever things you have gained The only thing you have to remember is that you need to keep a good strategy and everything else will follow Matthew Stanton writes an article about Internet Stock Trading and how this type of investment can help you amidst the economic crisis we have these days. Simply visit this site for information at http://www.tradestocksamerica.com/stock-trading-course.php

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Author : Nick MesseOptions trading has been around since 1973 but really didn’t take off until the last 10 years or so During that period the number of options contracts traded on U S exchanges increased by more than 600% What accounts for this increase in the popularity of options trading?

One major factor is that options are now understood better than they previously were Because options have many variations it is quite easy to misunderstand how they work, and as a result many investors - or their brokers - had bad experiences when they first tried them

The influence of the internet has also been a significant factor Not only has the internet provided the means for low cost options trading, but it has been a tremendous source of valuable information

This has served to demystify the options trading process to a great degree Prospective options traders can draw on the experience and advice of countless numbers of people who have successfully engaged in trading, learned its ins and outs, and developed a sophisticated understanding of the activity

One commonly held view about options trading is that it is risky - mostly because it is relatively difficult to understand and the new investor will usually be uncertain about the best strategy to employ

One of the simplest strategies to understand, and one that can actually be used to reduce risk is the use of a put option as a hedge against dramatic declines in a stock’s market value

The traditional way stock traders protect themselves against such losses is to place a “stop-loss order” on a particular stock they hold When it trades at or below the limit specified in the stop-loss order, the stop-loss order automatically becomes a market order to sell

This procedure has some serious shortcomings When a stock starts fluctuating in price a stop-loss order virtually guarantees that it will be sold for a loss because it will be sold as soon as it dips to or below the stop order price

More importantly when a stock worth, say, $50 at closing opens in the morning at $30 it will automatically be sold at that price This serves to lock in some pretty significant losses

Purchasing a put option, on the other hand, lets you purchase the right to sell a specific stock at a predetermined price (the “strike price”) for a specified period of time So if you suspect a certain stock is going to decline in value you can purchase a put option for a quantity of that stock If its market price goes below the predetermined strike price you have the option of selling it at the strike price

For example, let’s say XYZ stock is trading at $50 today, but you suspect it might go down quite a bit in value over the next two or three months You might purchase a put option for 200 shares of XYZ stock at a strike price of $42 for a period of three months

What this means is that you can sell 200 shares of XYZ at $42 per share any time within that time period - even if the market price of the stock should go to $30 In other words you are paying a price to lock in a guaranteed value for a limited period of time

This contract would cost you a “premium” - say it is $3 per share If the stock price does not go down during the period of your contract you can simply let the option expire and forfeit your premium Of if it does go down you can sell your stock if you actually own some and take less of a loss than you otherwise would have

Or even better, if you don’t actually own any of the stock you could buy some at the current price and sell it at the strike price predetermined in your option contract

The bottom line is that options trading can be fairly simple like this example and can be used to reduce risk rather than increase it On the other hand, some strategies used by options traders are very complicated and carry considerable risk

Anyone considering getting involved in options trading should take it one step at a time Find a good online trading site that specializes in options trading and has low fees Then learn as much as you possibly can about options trading strategies before you try anything too adventurous Join more than 130,000 other satisfied traders by opening an account with TradeKing.com, where options trading online is our specialty.

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