Category Archives: Investment Ideas
Stock investment is regarded as one of the most lucrative investment tool to meet one’s long-term financial target. People think of investing in the equity driven market to increase their cash flow to purchase a big ticket item like a house or to pay off their child’s student loan. Therefore, stocks are said to be a great avenue to utilize one’s money. However, like all the asset classes, stocks investments can some times become nerve-racking and result in an utter loss.
People pondering to become stocks investors should learn the basics of the trade, before foraying into the investment business.
Stock investment tips for the beginners
Stock trading is performed in a highly volatile market and there is high correlation with other equity based investment tools. For that reason the following steps will guide a person to create a successful investment career for himself:
Perseverance – People who are new to the world of stocks should learn to develop patience and observe perseverance, in order to reap better results. Stocks are volatile in return and their prices change randomly, when they are traded within a short span of time. Not a single person can predict the future performance of a stock. Therefore, people are advised to be tolerant and stay dedicated towards a company’s basic business performance. There are stocks price appreciations over a certain period of time and the investment will return great profits.
Practicality – There is no quick and easy way to earn huge money through stock investments. Usually, earning astronomical figures through stocks is not possible unless a person takes a lot of undue risks. However, according to the conventional procedure stocks can be a great money-spinner, but they give a maximum return of around 10-12%. Moreover, these returns have been received after dealing with high level of market volatility. Therefore, one should never foray into stocks without understanding the rate of return and the level of its volatility.
Simplicity – It is very good to follow a simple investment strategy since too much trading within a short span of time turns the management of the trades into a complex task. As a result of this complexity, there is an increased chance of committing mistakes that in return will spell trouble for one’s finances. Simplicity in investment means to study blue chip companies in order to select the most reliable stocks for purchase. This will help in the long run to weed out the possibilities of an investment loss.
Confidence – Investors should never care about the huge number of market rumors and try to concentrate on their own stocks. This will give them the confidence to stick to their investment plan and perform better. However, they need to keep their investments at a steady rate so that they gain more experience and become a master of the trade over time.
Last but not the least, emerging stock investors should take keen interest with the developments in the companies they have invested. They should act like any other business partner in the company and take part in their business activities, and make their voices heard to the board of directors.
Posted by Ryan Jones at http://www.yourpersonalfinance101.com/
As China’s economy begins to cool from blistering 10%-12% annual growth rates down to 6%-8% growth rates, commodities have lagged the broader market. Last week, I took a look at the bearish nature of the gold market based on a technical thesis with a rising US dollar. Today, I effort to pose an investment thesis for copper over the coming 3-4 months.
Copper is typically deemed as the only commodity to have a degree in economics because it historically has been the best indicator of future economic growth around the world. For this reason, those who are bearish on the global economy as a whole can use copper as an investment vehicle. Copper has shown little long term effect from quantitative easing from central banks around the world. Where stocks can rise in the face of economic turmoil due to outside stimulus, copper is more likely to accurately reflect the state of the global economy. Below are my top 3 reasons why copper is set to go lower over the coming month.
Reason #1: One of the most solid bearish arguments for copper can be made on the thesis that China’s economy is cooling as is not likely to see the 10%-12% annual growth numbers again. Donald Straszheim, Senior Managing Director of China Research with ISI Group, said, “The boom days (in China) are almost certainly over. I think China’s growth rate is slowing and slowing a lot. And the old era of 10 percent growth is going to become the new era of 6 percent growth. So the world is going to begin to absorb the idea that there’s going to be weaker demand for a lot of these commodities for a long time to come.”
Mr Straszheim’s argument is very fundamental in nature but is echoed from many around the world. Below are some of comments being made collected by Andrew Gordon in his article, ‘Can you handle the truth about China’.
- Average Chinese GDP growth this decade will not exceed 3% (Peking University Economics professor Michael Pettis)
- “A one-in-three probability” that China will experience a hard economic landing before the end of 2014. (Nomura, the Japanese financial services firm)
- “Some argue that China might already be in recession…” (Foreign Policy magazine article called “Five Signs of the Chinese Economic Apocalypse”)
- A “ghost fleet” of Chinese shippers plying the open waters in search of freight to transport, as if “out of the shadows.” (Evan Osnos, The New Yorker)
- China headed for a “hard landing of epic proportions.” (Jim Chanos, hedge fund manager)
- “China has all the earmarks of a classic mania that will end badly…” (Edward Chancellor from GMO)
- “Huge downward pressure” from slowing consumer demand in Europe and real estate speculation at home. (Prime Minister Wen Jiabao)
While China’s economy may or may not be headed for an epic crash, the days of supersonic growth are behind it. A major growth engine for the price of copper is drying up.
Reason #2: Long-term charts for copper are looking very suspect to further decline. The 1st chart below is a chart of JJC, the copper etn. Since the reflation of the markets in 2009, copper has failed to achieve gains. While bobbing up and down, the pattern is very clear. Most market technicians refer to it as a head a shoulders reversal pattern. A head and shoulders pattern is an rather accurate pattern seen ahead of a major reversal. The present head and shoulders pattern has not yet confirmed a breakdown, but another 1%-2% decline would break major support levels and signal a 12%-15% further decline in the coming months. The longer term implications of the pattern put the JJC below 30.
While the head and shoulders pattern is considered by many to be a voodoo like interpretation of a chart, an ABC correction pattern is more accepted in technical circles. An ABC corrective pattern typically happens after a long term rally. The ‘A’ part of the move is the initial selling or profit taking seen in the 1st half of 2011. The ‘B’ move is where buyers step back in as they feel the stock or commodity is oversold as seen in the latter half of 2011. At present, copper is in the midst of a ‘C’ move. The ‘C’ move can be the longest, most drawn out move that typically retraces the long term rally by 62%. If copper keeps with its present ABC corrective pattern, the price target is around $35, similar to the head and shoulders target seen above.
Reason #3: The US dollar and Copper are negatively correlated. A negative correlation suggests that when one thing rises, another falls. This is the case with the US dollar and copper. Historically, when the dollar rises copper falls and vice verse. There are many technical signs suggesting a rising dollar which naturally suggests falling copper. In the chart below, the negative correlation is evident but with 3 key exceptions. All 3 exceptions revolve around quantitative easing programs by the US Fed. When the easing programs were put into play, the correlation between copper and the dollar became very little but when the programs effects wore off the negative correlation returned. Given the presidential election in the US is only a few months away, I doubt the US fed is going to enact anymore QE programs for fear of being deemed as influencing the elections. (more to come on this topic)
The Trade: Given the bearish arguments for copper, what is the trade? There are several options.
- Buy the 2x inverse etf for copper, SCPR. It will rise as copper falls at approximately twice the rate.
- Buy put options on JJC. The spreads on these puts are large so I would suggest deep in the money puts at limit prices where the spread is reduced. For example, the DEC 12 60 puts for $17-$17.50.
- Put options on copper miners. These can be a bit more tricky in a rising stock market but pay off big if stocks and copper fall together. FCX and SCCO are solid candidates.
Technical confirmation of a downside trade is had with a move below $41.50 on the JJC. The bearish technical thesis on copper is severely compromised if copper moves above $3.55 or $45.5 on the JJC. These levels can be used as stopping points to minimize risk. With 12-15% reward potential on the downside and 4-5% risk, the 3:1 reward to risk ratio makes for a solid trade.
As Disney’s (DIS) stock tops the $50 mark this month, it is not only making a 52-week high but rather an all-time high. This growth is likely to continue for 3 fundamental reasons.
- ESPN: The ESPN networks represent 45% of Disney’s value. Consisting of a myriad of cable channels, radio, and website functions, ESPN continues to refine its products and grow. Subscription fees are on the rise and ad revenues continue to jump. The growth of the NFL and NCAA football have contributed to much of the success and these sports are only getting stronger. ESPN has been smart to stay clear of overpriced NHL and MLB contracts while still giving their views talk and perspective on the sports. Last quarter, the ESPN segment of Disney missed its revenue targets due to some revenue recognition timing but full year outlooks remained strong.
- Avengers: With the Avengers, the income of Disney’s film studio unit grew from $49 million the year prior to $313 million. Disney will continue to monetize the Avenger craze as they signed Joss Whedon (writer of Avengers) to write a second Avengers movie. To go with it, a new ABC (who is owned by Disney) series based on the Marvel comics characters is also being created. I have yet to mention the deals made to create 4 addition movies over the next 2 years like IronMan 3 and Thor: The Dark World. To further capitalize on the viewership of the Avengers craze, Disney is adding the Marvel characters to its theme parks. Through various channels, Disney will be able to cash in on Avengers for years to come.
- Bob Iger: When Mr. Iger took over as president and CEO of Disney, the Disney brand was struggling. He showed up to his 1st board meeting with a plan to buy PIXAR and Disney has not looked back. Iger is also responsible for the Disney acquisition of Marvel which is the reason for the Avengers craze mentioned in #2. Not only that, but Iger has increased the global exposure for Disney. The Disney channel is now broadcast in 167 countries and a foothold into China is just beginning. Maybe the only negative that Iger brings to the table is that he will resign as president in March of 2015.
With these 3 tailwinds behind Disney, the stock should continue to grow in the years to come. For a comprehensive rundown of Disney Q3 numbers check out Zacks research.