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There have been a lot of books written on how to be a smart investor and how to time the market. In fact, many people make a living on developing a “system” to time the market and then sell that system to other people. While there are a lot of indicators that can tell you when to invest and when to get out, one excellent way to invest is to be a “contrarian investor.”

A contrarian investor means that you are doing the opposite of what other people are doing. It takes a certain amount of finesse and “chutzpah” to be a contrarian investor but it can help you make money, and it can keep you from losing money.

Contrarian investing means that you need to buy when other people are selling and sell when other people are buying. For example, during the tech boom in 2000, the person who made money was the person who sold their tech stocks when everyone else was feverishly buying. Likewise, the person who bought Asian stocks during the Asian flu is seeing — and will see — an appreciation in that investment because they’ve bought what other people are selling.

People buy and sell every day, so how do you know what to buy and what to sell? The answer to this question is to go and look at the cover of investing and stock market magazines at your local magazine store. On the cover, you will see the popular industries that people are snapping up like crazy or dumping as quickly as possible. If you own the popular ones, get out. If you don’t own the unpopular ones, get in. The popular ones may go up some more, but it will go down because that’s what stocks do: they go up and they go down.

By selling when others are buying you are taking profits easily. By buying when others are selling you are snapping up opportunities at a discount. The concept seems crazy, but it works. Why? Because of the herd mentality. Many investors are undereducated when it comes to investing so they simply follow the crowd. Willingly, they buy and buy stocks that go up in price and are shocked when it comes crashing down because they followed the herd and didn’t realize that stocks fluctuate.

Is contrarian investing foolproof? No. And no investing philosophy is foolproof. Contrarian investing is not meant to replace quality research and carefully considered transactions. What contrarian investing is meant to do is to help you take profits when they’re available and buy cheap stocks when they’re available. It’s true that some stocks plummet for a reason but if you combine contrarian investing with some research, you’ll be able to buy stocks when they are unpopular and ride them back to the top!

Jeff Lakie is the founder of Investing Information a website providing information on Investing

[tags]finance[/tags]

Over the last few decades, smaller stocks called “penny stocks” have slowly gained a bad reputation. While there are hundreds of fly-by-night companies and shell companies that many unscrupulous business people have used to make money off of the uninitiated, there are thousands of great, small companies that qualify under the label “penny stocks”.

The current term “penny stock” usually denotes any publicly traded stock that is currently trading under $5 per share. A majority of these are traded either on the OTC Bulletin Board, Nasdaq or the Pink Sheets. Most investors are familiar with Nasdaq. The Bulletin Board and Pink Sheet markets are “Over-The-Counter” (OTC) quotation systems which brokers use to trade stocks between themselves and for their clients. The old term “Over-The-Counter” is just a traditional way of describing trading that is not done on a major exchange and is traded between individuals connected by telephone or computer networks.

There are three main reasons why companies will be listed on these OTC markets:

1. The company is new or small and unable to meet the initial listing requirements of the Nasdaq or NYSE. In many cases, companies will decide to have their stock traded here as a way to advance to the larger markets later.

2. The company has been delisted from a major exchange. Sometimes, companies cannot meet the filing requirements, run into financial trouble, or are near bankruptcy.

3. The company has decided that it is not worth the time, effort and expense to join a major exchange. One of the most familiar examples is Nestle. While it is listed overseas, Nestle has decided that it is not worth the expense to join an exchange like the NYSE.

As you can see from the last example, not being listed on a major exchange does not mean that a company traded OTC is any less worthy of your consideration. Several very large companies, including JDS Uniphase are considered “penny stocks”, but almost no one would call them small or fly-by-night.

These smaller stocks tend to be more volatile than their bigger brothers. As they are smaller companies, the growth rates tend to be higher, and the stocks themselves tend to move at a faster pace. In fact, for many years now, smaller stocks have out gained the larger companies in performance.

To take advantage of good companies in this arena, you will need information. As these stocks are not usually followed by more than a few research firms, and may not have the finances to hire an investor relations firm, information is key to finding these stocks before everyone else does.

For help with penny stocks, you may want to check out FalconStocks.com. Sites like these can help you gather the information you need to make winning stock picks.

Shane Sokol is one of the leading internet investment coaches and information gurus. He has helped thousands of investors across the entire globe with their investing decisions. His success in picking money-making penny and small-cap stocks has created a loyal following who subscribe to his website.

[tags]penny stock, small-cap, investing, micro-cap[/tags]

Do you sometimes feel that trading stocks isn’t going the way you think it should?

Just when you think you’re getting the hang of it, the market comes along and bodyslams you back to reality. It’s enough to make you think the market’s primary function is to make a fool of traders.

We’ve all been there. We make a buck here and give back a few bucks there. Then, all of a sudden, we give back several. The market did it again…it had its way with us.
It’s just not fair.

Or is it?

It’s always easy to rationalize our losses. The market did something unusual…the specialist ripped us off…only the big boys make money…

But consider this…all traders take losses…it’s part of trading. However, good traders make money. Sure they have losses but they don’t go back to square one wondering what happened. They expect to take losses.

And, if they make money, it’s because they know what they’re doing. But they know something many of us never think about. They understand something so basic it often escapes attention.

No, it’s not a new trading system…or indicator…or chart pattern. And it’s not anything your computer can crank out. And it’s not anything your broker will tell you. But it is a basic truth that has always been with us.

Let me tell you what I’m talking about…

I believe John Carter, author of MASTERING THE TRADE, said it best, “The financial markets are naturally set up to take advantage of and prey upon human nature. As a result, markets initiate major intraday and swing moves with as few traders participating as possible. A trader who does not understand how this works is destined to lose money.”

Think about this for a minute…

It may go a long way to explaining why many traders don’t make money. And to understand it is to realize we are often our own worst enemy where trading stocks is concerned.

Imagine…your own human nature is holding you back. Many of the things that make you what you are….your emotions…your behavioral patterns…your biases…are the very things that conspire to deplete your bank account.

They are what the market preys on to take advantage of our very nature. What’s more natural than fear and greed. And what’s more detrimental to trading than decisions based on these two emotions…you’re own silent saboteurs.

It’s easy to deceive yourself when buying a stock. It’s even easier to deceive yourself when you own the stock. Human nature goes into action to override decisions that are in your best interest.

Astute traders have said for a long time that the market works diligently at creating the most pain for the most people. It means the same thing. This is not a new concept. Winning traders have understood it forever.

So, if you’re interested in trading stocks, why not step back and take a good hard look at at this statement. In itself, understanding Carter’s statement is not the end all to trading success. But it is a good beginning because it involves a basic concept.

When you understand this statement, trading suddenly makes more sense. It’s not the haphazard affair that some people create. You don’t just throw money at the market and hope good things happen.

You begin to understand that trading stocks with a plan is the way to overcome emotions and habits that work against you.

It becomes easier to see why most traders often do the wrong thing… they’re fearful when they should be aggressive…and they’re aggressive when they should be fearful. It’s called trading on your emotions. It’s also called following the crowd. And it’s why the train leaves without you.

But it doesn’t have to…

Good things happen when you begin to understand how the market preys on human nature.

Thomas McNatt trades full time. His website,
trading-stocks-profits.com, is a valuable source of information and resources for new and struggling traders.

[tags]trading stocks, trading, stock market[/tags]

An options strategy called Covered Call Writing is a conservative strategy designed to reduce risk and increase income when investing in stocks. Briefly stated, stock options are contracts in which you buy or sell the right to buy or sell. Although there are eight types of options contracts, we’re interested here in low-risk “Covered Call Writing.”

Here’s how it works: Say it’s August and you buy 300 shares of XYZ stock at the price of $48 per share. XYZ pays a quarterly dividend of 50 cents per share. Therefore, if the price never moves, you’ll earn 4.2% per year.

At the same time, you would participate in Covered Call Writing. To do so, you, you would “write three January 50 Calls.” This means you are selling (”writing”) the right for someone else to buy the stock from you (they “call” it away) between now and the third Friday of January at the specified price of $50. (All contracts expire the third Friday of the month.)

Each contract represents 100 shares, hence three contracts. The buyers pay you a fee (called a “premium”) of $3.5 per share, or $1,050. (The premium is based on the amount of time until expiration and the spread between the current price and the “strike price,” in this case $50. Therefore, the premium changes constantly.)

Assuming you don’t cancel, only two things can happen next: The contract will get exercised or it will expire worthless in January. Either way, you keep the $1,050. Clearly, this strategy can yield big rewards. Among the advantages are:

1. You are establishing a profitable sell price the day you buy the stock. If exercised, you are guaranteed a profit;

2. You reduce risk because premium in effect reduces the price you paid for the stock;

3. Your annual yield is boosted far above that of the dividend alone.

However, there are other considerations. For one, you are limiting your potential profits. No matter how high the stock rises, you won’t sell for more than $50. You can solve this problem by buying your option back, in effect canceling it out. You would do this if you later think the stock will dramatically rise and you don’t want to miss the gains to be made.

Also, you have not reduced the risk that your stock may drop in price. The only certainty is, should XYZ drop $25, your option will not be exercised – a small consolation. To protect yourself, you may “buy a January 45 put” giving you the right to sell your stock for $45. This is the opposite of what we’ve reviewed here, and is designed to minimize losses, rather than protect gains.

Because of the potential for price drops, you should choose a high quality, blue-chip stock that fits your budget, an which offers a stable trading range, solid fundamental, high dividends, and good growth potential.

Covered Call Writing is not a reason to own stocks, but the strategy might be of help if you already own them. Prior to opening an account, you must receive and urged to read “Characteristics and Risk of Standardized Options,” which is published by the Options Clearing Corporation in cooperation with NASD and all major U.S. stock exchanges. The booklet is available from any broker or financial advisor.

About the author: Tony Reed is the author of ” How to boost your stock returns while lowering your risk”, please visit his website Mutual Funds & Stock Trading for more information.

This article is free for republishing as long as you leave the article title, author name, body and resource box intact (means NO changes) with the links made active.

[tags]Covered Call Writing, stock returns[/tags]

Years ago (pre bubble days) a stock split was still something special. Although the idea of giving someone twice as much stock for half the price is statistically insignificant, the fact is an entire psychology sprung up around them. In fact, a book called the the Anatomy of a stocks split was written, and many sites sprang up focusing on stock splits and how to play them.

So what is it about stock splits that makes them work as winning plays? Well, several things, although if the bear market taught you anything it taught you that when the bear is in charge, even splits don’t work well. But in a flat to rising market, I think it all boils down to one thing, “price”. As a split approaches, people buy into the stock because they are going to get twice as much of it, and after the split takes place, give it a few weeks and everyone simply considers the stock to be “cheap” again.

Look at MMM. They did a 2 for 1 split on September 30, 2003. At the time the stock was 140 dollars per share.Well that certainly seems pretty expensive, and it was struggling a bit at that price. So, when it did a 2 for 1, it became a 70 dollar stock. Hey, not so bad! So, all the people that wanted MMM at 140 but couldn’t afford it or justify it, jumped on it at 70. Well, now it’s 84. That would be 168 pre split.

The fact is that MMM has split 3 times in the past, and all of them were two for 1 splits. If they hadn’t done them, MMM would be 700 dollars per share! So, investors look back over history and see that most of the time a good company will reach a “high” split and reach that high again. Some can do it over and over. Look at MSFT. It’s split 2 for 1, 9 times, and except for this last one, has run up to it’s “highs” within a couple years of doing it’s split. This is how so many secretaries at MSFT have become millionaires.

Let’s suppose you worked at MSFT back in 96, and they gave you just 1000 shares as a bonus. then the stock hit 50 and they did a 2 for 1. Now you had 2000 shares but at 25 per share. A year and a half later, they had run back up and they split again, giving you 4000 shares, once again at 25. Another year, another run up and “boom” they split again. Now you have 8,000 shares. but notice, we are only on split 3! then as the years went on, your 8000 became 16,000 , then 32000, then 64,000, then 128,000, then 256,000, and finally 512,000 shares. Even at today’s “low” price, you are a multi millionaire.

The multiplier effect is what causes stock split plays to be profitable. Then of course there is the trading aspect, as traders learned that stocks tend to rise into a split, so they hopped on board and made it even more self fulfilling. We have advocated several ways to playing stock splits, first, the “pre announcement” where we’d try and find who might be announcing a split, then the “announcement pop” where we’d play the announcement. Then it was the “pre split run” where we’d try and get in for the split run up. Then we’d sell the actual split, and come back in for a post split run. Was it profitable? In the bubble days of 98 -2000, there was nothing stronger on earth than a stock split. Nortel split and ran up to it’s highs and split again 2 more times in 18 months. It was insane and it was unbelievable, but it happened.

For a FREE report on HOW TO TRADE FAST, enter your email address at:

http://lb.bcentral.com/ex/manage/subscriberprefs?customerid=12826

[tags]trading,stock,investing,options,stocks,trade,daytrade,invest,daytrader,option,daytrading,profits[/tags]

Many people believe that the stock market can make you rich one day, but also make you bankrupt the next. Well, how eould you like to know about a method of stock trading that completely saves you from unlimited loss, but still leaves the door open for unlimited profit? That method is buying and selling stock options. How to trade stock options would best be explained using the following example.

Lets say a person who thought that a stock selling in the market at 50 would decline to possibly 30, that person could buy a Put stock option. Not, however, that in buying a stock options, one should have some idea to what extent the stock might move.

In inquiring what a Put stock option would cost, the person might receive a nominal quote of, say, $350 for a Put at the market for 90 days. Most options are negotiated “at the market,” which means at “the current market,” when the option can be obtained by the option-dealer.

Suppose that the stock is selling at 50 and the quoted price of $350 is satisfactory to you. You enter your order: “Buy a 90-day Put on 100 XYZ [the name of the stock] for $350.” If you are trading through your stock-exchange broker, the broker will give your order to an option-dealer who will contact one of their clients who sells options on that stock and will attempt to buy the option for you.

When, after this contact or several others, the dealer has obtained the Put option for you, the dealer reports to the stock-exchange broker who gave him the order, and the broker in turn reports to the customer: “Bought Put 100 XYZ at 50 expires December 30 for $350.” Let us say that the person who bought the Put option, expecting a decline in the stock, was wrong, and that the stock, instead of going to 30 (as expected), advanced to 70 and was selling when his option expired. The person would have lost the $350 that they paid for the Put option.

Bear in mind that the limit of the person’s loss was the cost of the Put option, or $350, no matter how high the stock rose and no matter how wrong the person was, and that the person would draw on the equity in the account to that extent only. Suppose, on the other hand, the person had sold the stock short in the market. The loss would have been 20 points and still no knowledge as to the possible extent of loss until the person covered the short sale. But in the purchase of the Put option the account would read:

Bought Put on XYZ at 50 for 90 days: Loss $350

Remember, too, that no trade has been made in the stock, so no stock-exchange commission has been paid. A regular stock-exchange commission is charged by your broker only if a transfer of stock is made in connection with the option.

On the other hand, suppose the person’s judgment was correct and the stock declined to 30. If the person had instructed the stockbroker to buy 100 shares at 30 and exercise the Put option, the account would look like this:

Sold 100 shares at 50 (through exercise of Put) $5,000

Total Receipts $5,000

Bought 100 shares in market at 30 3,000

Bought Put at 50

Cost 350

Total Cost 3,350

Profit on trade $1,650

The profit then would be almost 500 percent of the cost of the Put contract. The profit is the difference between the cost of the stock plus the cost of the Put option and the proceeds of the Put that was exercised.

In all of these examples showing the use of options, the commission cost has been ignored. But at no time could the loss have been more than the cost of the option – $350 – and any stock-exchange commissions would have been paid out of profit or out of possible recovery of part of the premium which was paid.

For more FREE information and articles on how to correctly buy stock options, when to trade, when to not trade, tips, tricks and advice — visit http://www.UnderstandingStockOptions.com.

[tags]stocks, stock options, stock trading, trade stocks, learn stock trading, stock market, investing[/tags]