Seminars
This is the text version of the three Seminars that you’ll find on the home page. The first is the Stock Market Crash, then Short Selling and last but not least is Penny stocks. If you would like to read the second or third report first, then just scroll down to that report. Happy reading and don’t forget to sign up for our free Newsletter and get the free report “Three Things You Must Do To Win In The Stock Market” This report along could save you thousands of dollars.
What Is A Stock Market Crash And How To avoid Losing Money In One?
A stock market crash is when you have a abrupt dramatic down-turn in the overall stock market that can drop as much as 22% in a single day “historically speaking”. As an example: the largest single day drop in the stock market history was on October 19, 1987 also known as Black Monday. That day the DJIA dropped form a high of 2247 to 1739, 508 points in one day or 22.68%. It not only affected the US economy but most of the world as well. All thou it was the largest one day drop, other crashes that had a much more devastating effect on the US and world economies.
The first stock market crashed happened in 1853 and it lost almost 45% of it’s value and one of the reasons was the collapse of the Ohio Life Insurance & Trust Company. The stock market crash of October 29, 1929 dropped 12% in one day, and most likely triggered the great depression, also known as Black Tuesday. It was a sad day indeed for a lot of folks, but there where people that also made money that day and other days during that time. By 1933 the stock market had lost over 80% of its original value from its high in 1929. 1933 was also the same year that it turned around and started going back up.
Most would tell you that the effects of that day is what caused the Great Depression and the devastating effect it had on the US and world economies until the beginning of 1939. That’s when the US became involved in WW2 and that lasted until 1946. The war played and important roll in providing jobs for the US population and helped kick start the economy. There have been numerous stock market crashes since the inception of the stock market and will continue to repeat them selves until eternity. This is a never ending cycle and those who stay informed and prepared will always do best.
What causes a crash?
There are a lot of factors that can cause a stock market crash. But the crash of 1929 was a result of the economic bubble that caused a speculative boom and a large number of people trading on up to 90% margin. Most traders thought that the stock market would go up forever but when the market started trading down, people started panicking, which resulted in the heavy selling of stocks and the dramatic fall of the stock mark.
Some similar factors may have contributed to the crash of October 2008. But the largest factor where the relaxed regulations of mortgages that resulted in lending to people who could not afford there homes (if you could fog a mirror you could get a loan). These types of loans where called subprime loans. Because of subprime lending, a large amount of foreclosures occurred in 2007 and 2008. The problem began when the real estate boom encouraged a lot of people to buy over-valued homes in 2005 and before. Most of these people where getting interest only loans that would adjust up in two years and when the vast majority of them come due in 2007 and they could no longer afford there payments. Real estate prices had also dropped from there peak in 2005 below what people owed on there homes. That left banks losing large sums of money.
During this same time companies like Bear Stearns where packaging subprime loans in the form of securities and a lot of these where being leverage on margin. As a result Bear Stearns would have gone belly-up but was saved by a merger with JPMorgan. Fannie May and Freddy Mac where also bailed out by the Federal Government. Bank failures and the big insurance company AIG would have gone under if the government had not stepped in and foot the bill, with a 700 billion bail out package, I think all hell would have broke lose. Only time will tell if the bail out work in the long term
Some of the other things that can cause a crash are:
• Depending to heavily on margin trading
• Lingering Bear market
• Overbought stocks that don’t have value
• Slowing economy
• Excessive economic optimism
• Price to earnings ratios that exceed long-term averages
• Sometimes when the price of gold starts going up, this is an impending sign.
• When people become greedy you will start seeing various scandals and scams at the corporate level, an example of this would be: A golden parachute… in other words, when people at the top start paying themselves multi-million dollar bonuses, even when the company is doing poorly.
• When people are pessimistic about the financial future of themselves and the country.
• There is a social Phenomenon called crowd behavior or mob mentality where everyone will start selling without thinking and taking a loss instead waiting it out.
• Another sign is near the end of a bull market you will see IPO’s and Companies releasing stocks to the to take advantage of the peak market to raise money before it starts heading down.
• Just watching the DJIA trends is a good way to keep tabs on what’s happening.
How do you avoid losing money in a stock market crash?
Let me say this first, if you are in a crash and have lots of stocks that are going down, then the best thing to do is just wait it out. It will always go back up. But if you need the money because of retirement and the stock market has already hit bottom, only sell stocks as you need them don’t sell the whole thing off. You would be far better off if you can wait it out before selling. The best insurance you can have is YOU, What I mean is you need to take control of your investments and learn about the market if you are ever going to fair well in the long run. I’m not saying that you can not find a reliable Broker, because you can.
You need to be prepared before a crash shows its ugly face. Diversify your portfolio, do not have everything you own in stocks, especially if you’re older and close to retirement. When your 19 you can afford to be a lot riskier but some diversifying is still a good thing.
There are a lot of good investments you can consider besides stocks and they are Bonds, Treasury bills, Diversified mutual funds, CD’s, Real Estate, savings accounts, hard investments, foreign stocks and bonds and keep a good amount of cash at home in a very safe place so you can have some money when everything goes to pot
There are a number of things you can do to take advantage of a crash and make money from it. The first thing you should have been doing before the crash even starts is studying the market and watching for indicators leading up to a crash and small downturns. Again do your home work and take control of your investments.
This next suggestion is not for everyone but if you are a very brave sole and can handle risk and fine tuned your stock market skills and know what you are doing. You can sell stocks at the beginning of a down market and then sell short and take advantage of the falling market. Then when it hits bottom and stocks are undervalued and at bargain prices, it time to buy, buy, buy. We already know that the DJIA will go back up and it’s always just a mater of time.
So you say the last suggestion was way out of my league! And your right, it will not be for most people but your goal should be to get to the point so you have the same confidence to take that kind of action, not necessarily that bold but better than being luke warm. For most of us this is what we can do… If you know nothing first call your broker and let him know that you would like to take advantage of the down market when it hits bottom, that you would like to buy stocks that are undervalued and at bargain prices.
Another phenomenon that happens when stocks start to rise is Mutual Funds will attract the attention of a lot of people that lost money is stocks; they trying to find a more stable investments to keep there money in. Because of this Mutual Funds will start going up in price and make for a very good return. You know the old saying… buy low and sell high.
There are several things that we can learn from a stock market crash and the first is this, the stock market will always recover form a crash and the second is the stock market will crash again some time in the future. I know it sounds very simple but think about this, if it’s so simple why do people panic and start selling there stock, when they know they will be taking a huge loss. Why don’t they just wait it out and know it will return… Good question. Again if you can prepare your self mentality and not get caught up in mob mentality. You will much better off than most people.
Making stock market decisions with a gut feeling is a bad idea. It’s more important that you make your decisions based on research. Are we clear on this?
When the stock market is down, invest as much money as you can in your 401K plan allowed by the government. Now is the time to look at all of your investments and determine if you need to make any adjustments to enhance your portfolio, like replacing underperforming investments with one that did much better during the downturn.
Manage your own portfolio because only you will have your best interest at heart or should I say you money… The more you know the more you will profit when the next crash happens.
Find yourself an online discount broker so you can handle your own transactions at the click of a mouse.
Start reading every book about buying and selling stocks and how to profit in a down market that you can get your hands on. Use Google to do research on the web. You can subscribe to news letters that make recommendations that will teach you more in-depth information and keep you informed.
If you take the time to learn and just do it, I believe the rewards for you will be greater that you can imagine and the money will be there when you are ready to retire. It’s all up to you to take action and if you do that you will be far better off than 90% of the people. Good luck and take control of you future.
Short Selling Explained And Making Money Doing It!
Some other names you may hear are selling short and shorting. Basically this is when you make money on a declining stock. It’s going to give you the opportunity to make money when the stock market is heading down. Just another great tool you can use to grow your income.
In a declining market, stocks will fall like a bear thrown out a window. When the market is going up, it rises like a bull climbing up the stairs. If you take the time to learn the market, and get familiar with the up and down trends, you can learn to make money going long and short. first let me explain the concept of selling short so you understand how it works:
To begin with I’ll use this simple analogy so you can understand the concept much easier. Now picture this: You go to a local rancher and ask him if you can borrow 20 of his cows and will return them back to him in 2 weeks. (Of course you are doing this because you think the price of cows are going down and you can make money on them) So far so good. Now you sell the cows to another rancher for $500 each, for a total of $10,000. Lets say It’s 2 weeks later and you see the price of a cow is $350, now would be a good time to buy. So you buy back the cows from the rancher at $350 each or a total of $7000. So now you return the cows to the original rancher and you pocket the difference of a $3000 profit. Remember you sold them for $10,000 and bought them back for $7000 and you have $3000 left. Very interesting concept… right!
Now let’s talk about how it works with stocks. The first thing you really need to understand, is that you will not own the stock, you are borrowing them form a broker… so this is how it works:
First you will borrow the stock from a broker, and they will sell it, lets say 100 shares of ABC at $35 each, for a total of $3,500, that money is put in an account that belongs to you. Now you wait for the price to go down. Lets say it’s been three days and the price of the stock is $21 and you decide that it’s time to get out and take your profit. You will now buy back 100 shares of ABC at $21 each or a total of $2,100. This money will come from the $3,500 that you already have in your brokers account. OK let’s do the math: you had $3,500 and now you’re taking out $2,100 to buy back ABC stocks…let’s see, WOW you have $1,400 of profit left in your account. That’s how it works, very simple concept.
If the stock goes down, you make money and if the stock goes up you lose money. Just reverse that calculation and you would have lost $1,400 if it had went up.
Oh and don’t forget… just because you bought the stock it still goes back to the broker, remember you borrowed it, so now you have to give it back but keep the profit. Making money on something that you don’t even own… I like the sound of that. Who thought of this anyway?
To automate this you can tell your broker to issue a short sale order that will automatically kick in when it hits your target price. You should also have a stop loss in place to protect you, if the stock starts going up, this will help to minimize your losses. If you are working with an online broker, this can all be taken care of online.
You will also be required to open up a margin account for short selling. The broker will usually require a cash reserves of 50% or more. Another thing to be aware of, is the broker can call back the shares you borrowed at any time. But in most cases this won’t happen, just be sure to ask your broker about call backs.
Naked short selling is the practice of selling a stock short, without first borrowing the shares. The SEC rules require stocks be delivered within three-days of selling short. If sellers or broker fail to deliver the stock in the three day time period, you could be subject to penalties and or be banded from short selling. I would suggest you make sure that you don’t use a broker who is known for naked short selling. Go to the Security Exchange Commission’s website and read about it.
So how do you make money selling short? OK Good question…
There’s a good chance that someone you know is already short selling or they may know someone who is. Ask them how they got started and what books or friends they would recommend. Ask your friend if they could be your mentor until you get the hang of it.
Hear some of the indicators to help you predict a falling stock.
1. Bear markets are always good indicators.
2. Market vulnerability during scandals.
3. Shares that are over valued and one of the indicators is high P/E ratios, like 50 and above can also reflect earnings too weak to support their high prices
4. Market trend showing technically overbought levels.
5. look for changes in a company, that could trigger a downward trend. A lower than expected earnings report can result in a downtrend.
6. There are certain chart patterns that indicate possible declines. For instance, if you are familiar with the “cup with handle” chart pattern, this is a common technical chart signal that indicates a potential rise in stock price.
The opposite of this pattern, known as the “inverted cup with handle” or the “head and shoulders pattern” is a signal of a potential decrease in stock price. Many stocks have made substantial decrease showing this pattern.
Another chart pattern of a potentially declining stock is when the chart makes the letter M. When the price breaks below the previous bottom at the end of the M.
7. Stocks in troubled industries may also be prime candidates to fall once the markets has peaked.
8. Global market meltdown.
9. Seasonal market trends that show consistent up and down trends.
10. There is software that will automate the research process and save you a lot of time. Again ask around to see if anyone you know can make a suggestion for you.
11. You can join a web newsletter that will suggest stock. Most of them will charge a monthly fee.
The really important thing to remember here, there are a lot of market indicators for you to use. You really need to take the time to learn them until you feel confident that you under stand how to use them. If you do this the rewards can be great.
It is really important that you keep your emotions out of the stock market… Let me say that again
“PLEASE KEEP YOUR EMOTIONS OUT OF THE STOCK MARKET”
Buying a stock just because you have a gut feeling can be a huge mistake. Listen don’t get me wrong, you could get lucky with your gut feeling and make some money, but take that chance. It’s almost like throwing a rock in water and hoping you hit a fish… you think that will make you money… I think not.
Your investment decision should be made on your learned skills, market indicators and most importantly lots of research. You’ve heard the old saying when buying a home, make sure you find a home that has a great location, location, location. Your new motto, when short selling should be “Research, research, research”. If you are not willing to put the time into your research. Then you would be far better off staying out of this kind of investing.
Another thing that drives me crazy is stock tips, someone tells you they know about a stock that will drop in price. I would say that 9 times out of 10 your friend will have no clue what there talking about. I am not saying that all people will be wrong, because there are some really smart people out there that you should listen to.
Take Warren Buffet for example… I think I would listen to what he had to say, for gods sakes the guy is a billionaire 50 times over because of stocks.
But remember this… do you recall Martha Stewart spending time in prison and then being confined to her home wearing those lovely ankle braces… I think they call this insider trading, you know the one the Government would love to lock you up for and through away the key… OK get the point.
My point here is to use knowledge and research and not you gut feeling or stock tips. Any fool can have a gut feeling but a learned person can make an informed decision.
Ok before I move on, I want to give you another example why you should not listen to stocks tips. This is something that happed to me. A friend of mine told me he was investing in a stock and he was told it would be going through the roof. On his advice I bought $5,000 of stock and all it did was fall, fall, fall. When I finely cashed out all I had left was $136 after waiting for five years hoping it would go back up, that was a bad mistake. If I had done my research, I would have seen the down trend. Should have sold short on that one.
You should really manage your own stock portfolio because only you will have your best interest at heart, or should I say your money… Just make sure that you can put the time in when you start investing so you’ll be ready for the next opportunity.
Find yourself a online discount broker that operates in real time so you can handle your own transactions at the click of a mouse. There are some brokers that have practice accounts that you can learn from, that’s a good way to start. Keep a diversified list of stocks and be ready for market trends that will trigger when to sell short.
But before you put money into any stock. Start reading every book about buying and selling stocks and short selling that has a good reviews, that you can get your hands on. Get onto Google and research information about short selling, stock picks and what other well known people are recommending.
This can be a lot of fun making money from your home or anywhere else in the world you choose to be. It can be a very powerful experience knowing that you can make money just by pressing a few keys on your computer. Some people make a full time income doing this. Wouldn’t it be nice to tell your boss to jump in a lake. How about watching a movie in the middle of the day when everyone else is at work. Take a trip to a warm resort in the tropics to get away from the cold winter anytime you like.
Bottom line here is this, its all up to you to put the time into learning how to sell short. The only thing holding back most people is taking action. Most people never make that first step and keep doing the same old thing and keep regretting it. If you take this information I have told you and use it… you will already know more than 90% of the people. Good luck and happy shorting to dollars… remember just do it.
Penny Stocks, Yes You Can Make Money With Them!
Penny stocks are basically inexpensive stocks offered by small or new start-up companies. It is not uncommon for you to find penny stocks offered for $1 or less, though sometimes as much as $5 or higher.
Another name for penny stocks, are small-cap stocks, micro-cap stock, or nano stock. These four terms are interchangeable but penny stock is the most commonly used.
Penny stocks are not traded on a major exchange such as the NYSE, NSADAQ or AMEX. They traded in over-the-counter quotation services like the OTCBB and Pink Sheet.
People are mostly interested in penny stocks because of the low investment price which makes them more attractive. On average penny stocks go up 33% a year while large cap stocks go up only about 10% a year. All stocks have risk and buying penny stocks is no different but, it has the potential for a larger gain?
Some traders will tell you not to hold penny stocks for the long term but instead day trade them. One of the keys when day trading is not to get greedy, and sell when you’ve made a good profit. When penny stocks are on the move they go up fast and come down just as quick.
Research is the key here on your part. But once you get a system down, it will be much easier. It’s like anything you do the more you do it, the better you get. You just need to stick with it and do it.
To give you an example of penny stock vs. large cap stocks, let’s do a comparison. If you invest $1000 in a stock and pay $50 per share and it increases by $1 per share, you’ll have made only $20. On the other hand, if you invested $1000 in a penny stock that sold for $1 per share and it increases by $1 per share, you’ll make $1000!
Penny stocks are not the kind of investments you should consider if you want stocks with slower growth. If that’s you then you would be better off in large cap stocks or investment funds for the long haul. That does not mean that penny stocks won’t grow over the long run because some of them will. The majority of the big name companies started off as penny stocks, Microsoft being one of them. Warren Buffett made investors gains of 10,000% from 1977 to 1992. But between 1992 and 2007, he only made them a gain of 1,200%.
Why do you think he do so much better in the first 15-year period over the second 15-year period? The answer is small caps… You see, back in 1977, He was a much smaller company, with a lot less money to invest. So Buffett was investing in smaller companies at the time, including American Express, Disney, and the Washington Post. Despite what some stockbrokers might tell you, the potential for penny stocks is there, for those who do there home work.
The most important thing to remember here is do your research and never buy from your gut feeling and be very leery of friends or brokers giving you buying tips for stock. If you feel the need to act on a buying tip, do your research first and make sure it make since.
Research is what separates successfully buyers from those who will very seldom make money buying penny stocks. If you do your research you will be a far better investor than 95% of the people just starting out.
So what kind of research does one need to do?
• The first thing you need to do is look at the trends, is it moving up or down.
• Do you see any patterns that you can take advantage of, is there a spike upwards shortly before a quarterly report or other events.
• Are there market conditions that trigger a stock to go up?
• What is the overall condition of the stock market and economy?
• Just make sure to look at the full history, to get the complete idea of what the stock has been doing. Studying the trend will give you a great deal of information and keep you from losing a lot of money.
What’s the company’s P/E ratio?
The P/E ratio can also be calculated by dividing the company’s market capitalization by its total annual earnings. You can use the P/E ratio to compare the value of stocks.
• What is the market potential for their product, find out who the competition is and list the challenges that they are facing in getting the product to market
• What do their balance sheets look like?
• How’s their cash flow?
• Is the industry they’re in thriving?
• Who are their competitors?
• Is the company over or undervalued?
• Are there any long-term deals with other larger companies that will bring in income potential?
• Are there any upcoming market changes that could affect the company?
Something else I won’t to tell you about, there are sham companies run by dishonest stock promoters who do nothing except hype their stock and often manipulate their stock price. But because there is no real company behind their claims, the spike in price seldom lasts more than a single trading session. So be careful when a stock first hits the market and make sure it’s from a legit company or broker.
I think it’s important you manage your own penny stocks, because only you will have your best interest at mind or should I say you money… Just make sure that you can put the time in when you start investing because when the stock makes a move you need to be ready to take action.
If I where you I would use an online discount broker, so you can save money and take care of your own transactions at the click of a mouse. Keep a diversified list of stocks and be ready for market trends that will trigger a buying signal from your list of stocks you researched.
Start reading every book about buying and selling penny stocks that can get your hands on. Get onto Google and research information about penny stocks and stock picks. You can subscribe to online newsletters that make recommendations and will teach you more in-depth information.
When you decide to start investing your money, don’t expect that you will make money the first time out and only invest a small amount the first time. Better yet, get yourself a practice account that a lot of brokers have for free and treat it like it’s real money. The more you practice you get the better you’ll be.
Let me just say this again… “You really need to do your research and learn to read indicators so you can spot the right buying and selling trends” then and only then should you get started.
This can be a lot of fun making money with penny stocks from your home or any where else in the world you choose to be. It can be a very powerful experience knowing that you can make money just by pressing a few keys on your computer.
Bottom line is this, it’s all up to you to put the time into learning how to invest in penny stocks, but you need to take action. If you take this information I have told you and use it… you will already be ahead of the pack. Remember for this to work you need to take action if anything is going to happen so go out and do it.
Good luck and happy penny stocking to dollars!
Please leave your comments or use the contact form to make suggestion on what you would like to learn more about, thoughts or ideas you have. Looking forward to hearing for you.
To your successful investment future,
Mike Farris
Technorati Tags: stock market crash, stock trading interviews, stock trading, penny stocks, short selling
