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Archive for Basics

Investing In Mutual Funds

The mutual fund is one of the most common investment vehicles in the United States.  Almost half of all U.S. Household have money invested in Mutual Funds, perhaps as part of a 401k or retirement planning.

The idea behind the creation of mutual funds over 20 years ago, was to form a company which will invest the money of the investors on their behalf.  If you invest in the mutual fund, you would actually be investing in the company; they would then take your money and invest it in an array of assets, stock, bonds or treasuries.

As an owner of a piece of the mutual fund, you will be able to earn money from potentially 3 revenue streams:

  • Income earned from the dividends paid on the assets the mutual fund owns should be distributed to the shareholders.
  • If the underlying assets (Net Asset Value-NAV) of the mutual fund increase this should be reflected in the worth of the fund.  The NAV should be calculated every day by the fund.
  • If the fund realized any gains from the sale of assets it owns, this capital gain can be passed on to the fund holder.

The advantages of mutual funds:

  • Diversification in the asset base of the fund should mean less risk in terms of spreading the capital amongst differing asset types
  • Economies of scale can be achieved as a larger fund will pay less in transaction costs for the assets it deals in.
  • Liquidity is another benefit as the shares in the fund can be cashed in at any point.


The disadvantages of mutual funds:

Cost of management, the overhead of paying for star fund managers and the management hierarchy of the company can increase the costs of owning mutual funds.

Success of the professional fund managers.  The majority of Fund Managers fail to beat the market.  This means that they fail to return more in returns that the underlying indices to which the assets belong.

Complicated Cost Structures.  The fees involved in owning a mutual fund can vary a lot depending on the costs of the business and the profit targets of the management team.  The costs presented to the customer can be difficult to understand and if they exceed a few percentage points can often wipe out the profits gains from the underlying assets.

For example: Your mutual fund made an annual return of 5% for 2012.  If the S&P500 Index made a return of 8%, then you could consider that your fund managers have not been successful.  Also if from the 5% you earned from the fund you had a 2% management fee, you could consider your net gain to be 3% which would have grossly underperformed the stock market.

Also compare your mutual funds performance against a standard index such as the Down Jones Industrials (DJ-30) or the Standard & Poors 500 (S&P500), over a period of 5 years to see which performed better.

There are other types of investments that seek to minimize the drawbacks of mutual funds whilst providing many of the benefits, such as exchange traded funds and index trackers.

What are dividends?

Of the 5800+ stocks currently available to purchase on the major U.S. indices circa 2800 companies currently offer a dividend payout.

A dividend is an offer from the company to payout a portion of its income (after tax profits) to its shareholders.

These companies tend to be well established with a stable income stream enabling them to offer a constant dividend.  The dividend is essentially a reward to the shareholder for holding the stock.

Types of Dividend

  • Regular Cash dividend, the most common type of dividend payment, usually released quarterly.
  • Extra dividend, a special dividend usually a large one off payment to shareholders
  • Liquidating dividends usually paid if there are any left-over or allocated funds during the company’s liquidation.

Dividend Payment

The dividend payment is usually expressed in dollars per share.  This means if I own 100 shares of a company whose stock price is $200, if the company pays out $5 per share then I will receive 100 X $5 = a $500 payment.  Usually this is distributed on a quarterly basis, meaning I will receive $125 per quarter.

Dividend Payment = Number of Shares X Payment per Share

Dividend Yield

Here is an example of the dividend Yield.  I own 1000 shares of ABC Company at a cost of $10 per share.  ABC pays out a regular dividend of $0.50 per share.  As a single share of the company is worth $10, $0.50 equates to a dividend yield of 5%.

Dividend Yield = Annual Dividend Paid / Stock Price

This 5% is essentially what you earn on your money regardless of stock price growth.  Of course if the stock price deteriorates during the period in which you hold the stock this may mean your net profit reduces.  For example, your make a 5% profit in terms of dividend yield, yet the stock price has depreciated 5%.  This means your net profit if you were to sell would be Zero.

Dividend Payout Ratio

This is the proportion of the Earnings per Share (EPS) that is paid out in dividends.  For example if a company earns $2.50 in earning for every outstanding start, and it pays out $0.50 per share in dividends, then the dividend payout ratio is 20%.

Dividend Payout Ratio = Dividends per Share / Earnings per Share Read More→

Over the last 50 years we have been indoctrinated to hold professional people in high esteem, a job in banking was respected and working as an Financial Investment Adviser meant you understood how to invest money on behalf of your clients. But over the last two years we have seen this stripped away to reveal the truth, they are only human and humans have flaws, plenty of them!

Bankers once renowned and respected for being conservative with other people’s money were no longer conservative. They nearly lost it all. Money in the bank was supposed to be a safe haven, yet it had been completely risked. Searching for ever increasing profits they took risks with our money and never told us. Now they are too conservative, being too scared to lend money to the very businesses that keep our whole economy going. All this whilst having their profits bolstered by an extremely low cost of money (Fed Funds Rate, Bank of England base rate). They are getting the money at practically no cost while lending it out at still pre-crisis rates. You try getting a loan under 4%.  All this while they are starting to pay themselves big bonuses again.

Financial advisers who talked about risk management squarely to not understand risk.  Just before the Financial Crisis struck, record numbers of Newsletter writers, Hot Stock Tipsters, TV Pundits were all still bullish. Even when the crisis struck, if you had called your adviser he would have told you to “stay with your funds”, “do not do anything”, or if you really insisted you wanted to move to safety it is then you find out that you cannot as you are stuck in a fund for a “minimum period” and if you moved out there would be a “penalty”.   How is that managing risk?  Managing risk also should mean you have the ability to move funds quickly with no cost to avoid demolition to your retirement fund.

This exactly happened to my father, he was injured in a horrific workplace accident and had to retire handicapped early. He received a small award from the courts to compensate him for the pain (just enough to live on) .  I took him to see the most respected Financial Advisers in his area. With their fancy offices and rows of Audi’s in the car park, my father was quickly convinced these people would conservatively invest his money, to enable him to live out the rest of his life with less money worries.  He needed to focus on assisting my mother who also has health issues. Read More→

In this video I talk about getting started in trading and all the things a beginner needs to focus on.  There are key decisions to be made such as whether to trade online or offline, how to choose an online broker and what charting tools to use.  Read the full article here or watch the video below. I hope you enjoy it!

http://www.liberatedstocktrader.com/stock-market-guide/

Learn Stock Market Trading and Investing with FREE Education and Training on Stock Screening, Stock Charts, Candlesticks, Technical Analysis & Fundamental Analysis and Stock Chart Indicators, Trading Academy Membership is free register here.

Comments (0)

In this video I talk about getting started in trading and all the things a beginner needs to focus on. There are key decisions to be made such as how to screen for stocks, how to track your trades using a portfolio management system and also how to educate yourself further. I hope you enjoy it!

Read the full article here, or watch the Video below.

http://www.liberatedstocktrader.com/stock-market-guide/

Learn Stock Market Trading and Investing with FREE Education and Training on Stock Screening, Stock Charts, Candlesticks, Technical Analysis & Fundamental Analysis and Stock Chart Indicators, Trading Academy Membership is free register here.

Many people new to the stock market make some fundamental mistakes when it comes to stock selection and understanding the stock market.

1. The GURU Belief. People believe it will be easier to buy a stock advisory newsletter and follow what the guru’s say they should buy and sell. The problem is no one provides precise timing and results reports. They are often delayed, and also have a vested interest. The person providing the tips usually has bought the stock already. Also they will usually have sold this stock before they advise you to Sell it. They also will not be held accountable for any losses you may make. Most “Stock Picking Guru’s” are self proclaimed and often fail to beat the market.

2. The hit and hope. People fail to realise that you cannot simply buy any stock and hold it and hope for it to go up. Market timing is critical, only buy when the market in general is going up, because as we know even the best stock in the world will go down if the whole market is plunging.

3. This is not rocket science, its easy to buy stocks. It is easy to buy stocks, but it takes discipline, and an understanding of Market and Stock fundamentals and technical analysis to buy the right stock, at the right time for the right price. You will need to learn how the market works, what technical analysis is and how to apply the principles.

4. Trading using free online stock charts. Using free online charts is better than using none at all, however paid for premium products are really advantageous when it comes to making a profit in the market. For US stocks I recommend telechart 2007.

5. Automated Stock Systems. Automated stock systems mostly use very simple techniques such as moving averages and Open High Low Close on prices. These techniques are very simple to learn for yourself, and enable you to make your own decisions.  I would strongly advise never to take the decision making process out of your own hands.

It is extremely important that you own your own decisions and really learn how to trade. With just 30 minutes per day and the right tools you can begin to trade like a professional.  Try out our Trading Academy for a start.

You need to find the right resources to help you on this quest. There are a lot of websites that claim to provide these services, but end up providing supposed “hot tips newsletters”. You need to seek out a provider that bases learning on openness, honesty and empowerment. You also need a service that will help you understand how to Screen for Winning Stocks and evaluate market direction.

Also a picture can be worth a thousand words, and a movie can be worth a thousand pictures, look for a training provider that can provide you the relevant training in a multimedia format to suit you. I tunes, youtube, video, DVD.

To your success.

Learn Stock Market Trading and Investing with FREE Education and Training on Stock Screening, Stock Charts, Candlesticks, Technical Analysis & Fundamental Analysis and Stock Chart Indicators, Trading Academy Membership is free register here.

Apr
29

Why Liberated Stock Trader

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Dear Reader

Here at Liberatedstocktrader.com, I hope to enable “YOU” to understand core concepts of the stock market, and enable “YOU” to always make informed decisions about where your money will go. Everyone who gives you advice on the stock market or investments, has a vested interest in what you do.

But none more so than “YOU”

This site and its information will be based on the following principles.

  • Honesty
  • Openness
  • Empowerment

I will provide honest opinion, and it is only opinion I will say so. When something is fact we will always provide the supporting evidence.

I want to empower you with the knowledge to make your own investment decisions based upon industry leading facts and figures.

The Learning experience will be based upon the following elements.

Big Picture Small Picture – What is happening in the world
Fundamentals – Learning to read the numbers
Charts – Learning to read Charts
Timing – the art of timing
Strategies – investment strategies
Advanced Techniques
Web Resources – best trading resources on the web.

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As a beginner to the world of trading it is handy to understand some key phrases.

Are you talking Bull ?
A bull market is a market that has it primary trend as going upward. This means in general the key Indexes are rising. Why is it called a Bull, no one really knows the true origin, however what is important is how to remember what a bull market means.

Imagine if you will, you are being attacked by a bull, the bull would charge towards you with its head down and then attack with its horns surging upwards. This is the same a a Bull Market, attacking in a strong upward move. The same analogy applies to being Bullish on a stock, or in general being a “Bull” means you are optimistic.


Although this cute picture of a bear cub is charming, “Bear Markets” are anything but restful, especially for someone invested in the Stock Market. A bear market means Indexes are in general in a downward trend.
The simplest way to remember this, is to envision a bear attacking you. It would be standing on its hind legs towering above you, and reaching out a clawed paw, it would take a mammoth swipe down at you.
Down is the direction of the bear, and people who have turned bearish on a stock are also holding the pessimistic view that the stock will be moving downwards in price.



Learn Stock Market Trading and Investing with FREE Education and Training on Stock Screening, Stock Charts, Candlesticks, Technical Analysis & Fundamental Analysis and Stock Chart Indicators, Trading Academy Membership is free register here.

Apr
26

Stock Market Guide – The Traders Checklist 1

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in order to get started with trading in the stock market there are number of decisions you need to make. Below you will find a “Getting Started in the Stock Market Guide” which will outline the potential decisions to make and notes on the positives and negatives of the various options. This should lay the ground work for a comprehensive approach to your trading.

  • Internet connected or offline trading
  • Choosing an online broker
  • Using a stock screener
  • Charting Tools
  • Using a portfolio management system
  • Educate yourself

1. Internet Connected Trading or Offline Trading
There are two way to operate a portfolio.

Offline trading. This means reading newspapers, journals company accounts, and calling a broker by telephone to place orders. This is very much the old style of operation with some severe limitations in terms of :

  1. Cost: placing telephone trades with brokers is expensive(can be more than 3 times more expensive than online trading), and has a time lag (picking up the phone dialing, speaking etc.
  2. Limitation of News: although there are many excellent quality publications (Investor’s Business Daily for example) you would need to archive all the papers to enable any back research required.
  3. Information is not searchable; meaning back research for a particular stock is not easy and is very time consuming.
  4. No real time charting, back testing, or screening.

Internet Connected Trading.

This means you will require

  • A computer (medium specification)
  • Internet Connection (ideally Broadband with flat rate)
  • Internet Service Provider

Although the initial setup costs may be higher, with a few trades this money with easily be paid back.

There are huge benefits to online trading

  1. News from across the world available instantly·
  2. News is fully indexed and searchable
  3. Access to newsgroups, bulletin boards, communities and blogs.
  4. Free Charting Software
  5. Free Stock Screeners
  6. Free portfolio Management Applications
  7. Free real-times streaming charts and prices*
  8. Free streaming news *
  9. Lower cost per trader (very important)

* normally available through your online broker

The benefits are clear that successful traders today trade online, and learn to utilize the rich array of tools and resources available online. The rest of the checklist assumes you will be trading ONLINE.


2. Choosing an Online Broker.

There is a lot of competition out there today in the online broker space and the commissions and services offered changed regularly. Here we will detail some of the key things to look for.
  • Commission Charges – ensure that your broker is competitive (under $10 per trade)
  • Real-Time Charting (should be free in the base package)
  • Access to news (preferably streaming news)
  • Access to level II quotes.
  • Stop Losses and Rules to enable you to place alerts and automated actions when you are away from the Office.
  • Original Market Research and Valuations
  • Compare the interest rate on the Cash Account.
  • Customer Service read online reviews of customers.

3. Charting Tools

Charting tools enable you to view the history of a stock using mathematical visualizations of the Price / volume and various indicators. Choosing the right Charting software for you can be very time consuming, but is well worth the time invested.

To fast track this decision making process, the LiberatedStocktrader.com has completed an in-depth analysis of the best free internet stock charting software available, and organized this in a side by side comparison. This is invaluable information and enables you to see what is important in a Charting package.

The key choice for you is whether to use free Internet stock charting packages or paid for subscription based software.

Free internet charting – Positives

  1. No Costs
  2. Huge Choice
  3. All indicators Covered
  4. Some connect to portfolio management software
  5. Connect to news and plot news on charts

Free internet charting – Negatives

  1. Few offer real-time streaming charts
  2. Can be slower to use
  3. Lack detailed screen resolution / full screen options
  4. Lack ability to track your notes / thoughts on a chart
  5. Few offer trend lines capabilities

Subscription Based Charting tools – Positives

  1. Real-time Streaming Charts
  2. Ability to plot own indicators*
  3. Built in screening*
  4. Ability to track chart notes*
  5. Built in communities*
  6. Flexibility and Usability*
*depends on provider and package

Subscription Based Charting tools – Negatives

  1. Small Portfolios – if you have a small portfolio, circa $1000, the cost of charting packages can represent across a whole year a significant investment
  2. There are many packages that are not established, badly written or do not provide a market advantage.

The liberated Stock Trader recommends a “Subscription based” software package called “Telechart 2007” by Worden Brothers Incorporated, and has many advantages over the Free internet Charting packages. This software however only covers all the US Markets.

Follow this link for the Top Ten Best Free internet Charting Packages Review.

4. Using a Stock Screener

Stock screeners enable you to filter all stocks by your requirements, such as Earning Per Share or Profit Margins etc. Finding the right Screener is an essential building block to successful trading.

The liberated Stock Trader conducted a 2009 Review of the best Free Internet Stock Screeners available and performed a head to head comparison. This will save you a lot of time and effort in selecting one that is right for you. There are also Stock Screening and filtering options in “subscription based” Charting Software Packages. For example Telechart offers extremely powerful screening capabilities.

Click this link for your Free Internet Stock Screeners Review

5. Using a Portfolio Management System
Portfolio Management System’s enable you to enter a Stock and a bought price and sold price. This will enable you to have the %gain and $ gain automatically calculated for you.

You have essentially 3 options to choose from.

  1. Free Portfolio Management Tools
  2. Online Brokers Portfolio Management Tools
  3. Tracking Manually with a Spreadsheet.

Free Portfolio Management Tools Positives

  • Free
  • Easy to use and setup
  • Great for paper trading & Watch list tracking
  • Usually linked to Charting and news services

Free Portfolio Management Tools Negatives

  • Not connected to trading platform
  • Usually 20 minute delay in stock quotes
  • Not secure information
  • Unable to track personal notes in the portfolio
  • Unable to track trading history

Online Brokers Portfolio Management Tools – positives

  • Secure information
  • Integrated with trading system (1 click buying)
  • Real-time Bid and Ask
  • Linked to research and news

Online Brokers Portfolio Management Tools – Negatives

  • No ability to track personal comments
  • Few options to review performance Year to Date
  • Historical track record not available (only with your trading statements)

Tracking Manually with a Spreadsheet – Positives

  • Completely flexible
  • Simple calculations easy to create
  • Secure
  • Ability to track personal notes comments

Tracking Manually with a Spreadsheet – Negatives

  • Not linked to stock prices
  • Not linked to trading software
  • Some knowledge of equations / calculations and spreadsheets required

The liberated stock trader uses a mix of Online Broker Management tools and a Spreadsheet. The spreadsheet enables you to have complete control, and used wisely is a completely invaluable asset.

6. Educate Yourself

The power of knowledge should never be under-estimated. There are various options to educate yourself.

  1. No Cost : Follow the Trading School Structure at www.liberated stocktrader.com
  2. Low Cost : Books – please see here for the Liberated Stock Traders Recommended reading list.
  3. Medium Cost : Self Study Training DVD’s / CD’s
  4. High Cost : Training Courses Live Seminars

Summary

We have covered all the core essentials you need to set yourself up as a Stock Trader. The most important by far is to educate yourself and always think for yourself, and be responsible for your own decisions.

Learn Stock Market Trading and Investing with FREE Education and Training on Stock Screening, Stock Charts, Candlesticks, Technical Analysis & Fundamental Analysis and Stock Chart Indicators, Trading Academy Membership is free register here.

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Liberated Stock Trader is here to help you do the following.

  • Learn how to invest in the stock market successfully (focusing in the US, however techniques are globally valid)
  • Learn how to interpret global events, and what they mean to your investments
  • Learn how to read fundamentals (the numbers) easily, with no rocket science required
  • Learn how to read a chart, easily, and with no pain
  • Learn how to time your investment
  • Mostly Learn how to Find the Very best Stocks, which will increase your chances of making serious money.

Liberated Stock Trader is not here to

  • try to tell you what stocks to buy
  • take liability for your actions – we try to teach you to take responsibility for your future

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