Wednesday, November 27, 2013

Warren Buffett: How to teach your children about money

Warren Buffett, Chairman of the Board and CEO of Berkshire Hathaway, says parents should start teaching children about the importance of money at an early age, even in preschool.

Warren Buffett
Warren Buffett is one of the most famous billionaires in the world. He also loves sharing his advice with kids as part of his Secret Millionaires Club. Here, he answers five questions, including what he thinks the biggest mistake is that parents make when teaching their kids about money and how he learned about money.

Do you think most parents do a good job teaching their kids about money?
Most parents know how important it is to teach kids about money and managing it properly. There was a study many years ago questioning how to predict business success later in life. The answer to the study was the age you started your first business impacted how successful you were later in life. Teaching kids sound financial habits at an early age gives kids the opportunity to be successful when they are an adult.

What do you think is the biggest mistake parents make when teaching their kids about money?
I think parents need to start teaching kids about the importance of managing money at an early age. Sometimes parents wait until their kids are in their teens before they start talking about managing money when they could be starting when their kids are in preschool.

What made you want to launch the Secret Millionaires Club? What do you hope kids get out of it?
There are a number of educational programs out there, but there are not many programs that teach about Financial Literacy at an early age. Secret Millionaires Club can help kids develop the right habits that will serve them well for the rest of their life. If this program can have some effect on youngsters and help them develop better habits on money, it can have a major impact on their life when they are older.

Where did you learn about money?
My dad was my greatest inspiration. He was my hero when I was six and he is still my hero now. He is an inspiration to me in every way. What I learned at an early age from him was to have the right habits early. Savings was an important lesson he taught. I had all kinds of small businesses when I was growing up. When I was six I started my first business. I bought a six pack of Coke for 25 cents and sold the cans for a nickel apiece. I also sold magazines and gum door to door.

What is the best lesson you've taught your own kids about money?
I taught all of my kids the lessons taught in Secret Millionaires Club. They are simple lessons that are meant for business and for life.

— By Warren Buffett

Warren Buffett is the chairman and CEO of Berkshire Hathaway. Follow him on Twitter@WarrenBuffett.
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Tuesday, November 26, 2013

Stock Market 101: Where To Start?

The stock market is not a simple math equation. Even seasoned players have lost big by taking the same gambles that originally made them successful investors. New to the stock market? Don't enter the murky waters of Wall Street without these tips.

Choose a Dependable Broker

Dependable Broker
Image via Flickr by socialwoodlands

Brokers play an essential role in the stock market. You give these firms your cash deposit and in turn, they offer you the tools that allow you to buy and sell stocks on the market. There are several stock brokers to choose from. The differences between services generally boils down to transaction fees as each company charges a specific amount per trade. What's most important is going with a broker that has a track record for providing a reliable service.  

Start Small

Start Small
Image via Flickr by puuikibeach

Go with the KISS Principle So you've set aside a budget that will be used exclusively for your investment endeavors. That's all fine and dandy, but how much are you willing to invest per trade? Whatever it is, hopefully it's something small. It would be a shame to blow the whole budget on a single bad trade. Starting small gives you an opportunity to understand the dynamics of trading stocks, essentially are allowing you to get some experience under your belt without putting your entire budget at risk.

The KISS principle tells us that any given system is at its most efficient when you "keep it simple stupid." This old school concept is one beginner investors should live by. The stock market offers a variety of ways to invest and make money. With that said, newcomers are best suited for the basic actions of buying and selling. Most brokers give you the ability to buy shares of specific companies and sell those shares later down the road. There is much more to learn, but many new investors have done  well taking the simple route.

Once you've mastered the basics, you'll be more comfortable with option trades, short-term trades, penny stocks and other advanced strategies. If you simply can't wait, check out the Peter Briger executive profile to learn how you can get expert help.

Monitor Stock Trends

Monitor Stock Trends Image via Flickr by 401(K) 2013

Rookie investors can learn a lot by monitoring trends in and around the stock market. For example, if you know that the share value of company A has been consistently dropping over its 52-week range, that is probably a sign that you should stay away. On the other hand, if you know that company B has released a hot selling product or recently announced huge quarterly revenue gains, their stock may be a worthy investment. Trend watching will call for some dedicated research on your part, but this is hard work that can pay off big in the end.

Seasoned investors will tell you that the stock market doesn't make any promises. There are no guarantees regardless of how much money you invest. If there is one silver lining, it would lay in the more you know the less likely you are to make critical mistakes. 

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Sunday, November 24, 2013

From super yachts to cruise liners: the water vessels that are worth their weight in gold

When it comes to blatant examples of displaying super wealth, cars and even mansions are left in the shade by the trend for the world’s richest to splash out on a luxury sea vessel. So called 'super yachts' are now firmly established as the favourite plaything for those for whom money really is no object, according to Lloyd’s news and insight section demand for the extravagantly designed ships is getting bigger, as indeed are the vessels themselves.

Whether or not it is the appeal of high levels of privacy or the ability to spend time anywhere in the world with a relatively good amount of discretion as to actual movements, the fact that the yachts themselves are some of the most publicity attracting forms of transport in the world can cancel out any other advantages of anonymity.

Mark Feltham, executive director of insurance broker Willis Marine and Super Yachts commented: “Super yachts are now much bigger and more sophisticated than ever before –today a yacht would need to be 80 metres or more to get into the top 100."

Most of this class of vessel are built to order by special commission, meaning that customisation is included at all levels and ultra-high-net-worth owners can create a waterborne environment to their exact specifications.
Boys-toys additions don't just mean high end sound systems or cinemas. The current hot trends are onboard helicopters and submarines. Of course, this is where insurers such as Feltham's firm enter the picture.

“This demands specialist underwriting and broking to understand the unique operation and service levels required by these incredible craft. In our experience, the Lloyd’s and the London company markets show a deeper understanding of what’s expected both in terms of coverage levels and top-notch claims service,” explained Feltham.

Of course this isn't entirely a new development as the super-rich have long favoured large yachts as both a getaway and a symbol of status. The Rising Sun cost $200 Million and was originally owned by Larry Ellison the CEO of computer firm Oracle. Now owned by music and film mogul David Geffen the 'floating mansion' boasts a basketball court that doubles as a helicopter pad and has five floors with a total of 82 rooms.

USA film giant Steven Spielberg has a $200 Million vessel called Seven Seas which was constructed by the Dutch shipyard Oceano. His own specifications meant inclusions for an infinity pool with a 15 foot glass surface that can be also be used to screen films.
These are examples of bigger vessels and certainly not the most expensive either, but a more run of the mill super yacht will cost around 20 to 40 million Euros according to Paul Miller, an underwriter at R&Q Marine.

A movable asset such as a super yacht can literally go anywhere in the world, but for many years the traditional places were moorings in the south of France or voyages around the Mediterranean or Caribbean.

However, a new generation of owners are looking further afield and not only to Asia and the Pacific. James May, Deputy Marine Hull Underwriter, commented on the increasing number of owners who are taking their yachts to the Antarctic Peninsula.

“Not only does this present increased environmental hazards for the yacht, but there are other factors for the insurer to consider such as lack of emergency assistance or repair facilities in the area,” he said.

With the high values involved, risk assessments can be a difficult process as claims in the super-yacht insurance market are relatively low. Advanced cutting edge onboard technology and top quality crews make super yachts a relatively good risk. “Standards for super yachts are phenomenally high, whether it is the quality of professional crew, levels of maintenance or regulation. They hire the best crew and there is no question of cutting corners.” said Willis Marine and Super Yachts' Feltham.

The biggest risk to a super yacht is fire as even the smallest incident can cause serious damage. Faulty wiring causes most fires whilst most explosions which cause subsequent fires result from fuelling problems.
Grounding is a risk for any water based vessel and can cause a total loss. Collisions can also happen through manual error or equipment failure but encounters with docks, pilings, and other stationary objects are less dangerous than when two ships collide.

The most serious risks really are beyond control though, as the weather means it is hard to avoid damage even when fully docked in harbour. The major hurricanes to hit the US between 2008 and 2012, Ike, Irene, and Sandy, caused significant damage to shipping of all classes, including high end vessels.

Cruise liners
Of course there is one class of sea vessel that is even more expensive than a super yacht, and strangely it is also one that most of us could choose to have access to.

Cruise ships come in all sizes, but the biggest ocean liners are vastly more impressive than the most costly yacht. Allure of the Seas is the most expensive cruise ship currently in operation. It is the latest cruise ship in the Oasis class, owned by Royal Caribbean International and cost around $1.4 billion to build. It is the largest passenger ship ever constructed and accommodates 6,296 guests as well as 2,384 crew members.

Of course disasters happen to massive vessels too, with the sinking of the Titanic in April 1912 still resonating in popular culture. More recently the grounding of the luxury cruise liner the Costa Concordia off the coast of Tuscany brought matters home, causing fatalities, injuries and the evacuation of 4,200 people.
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Saturday, November 23, 2013

Pending House Sales Slow

The US housing market has shown a robust recovery since the depths of the Great Recession, but there are some worrying signs that the surge is starting to show weakness. According to the National Association of Realtors, their seasonally adjusted pending home sales index fell in September to lows not seen since December last year.

Image source:

In September, the index fell to 101.6, a decline of approximately 5.6% in a single month. That precipitous fall follows a decline from around 112 back in May to just above 107 in August. In fact, the index is now lower than it was in September 2012, the first time that the index has fallen year over year in nearly 2½ years. While most analysts who track the housing market believe that sales will continue to recover, the rate of recovery is likely to be significantly lower in coming months.

The underlying reasons for this may be a combination of higher mortgage rates and home prices, which once again have started to make accommodation increasingly unaffordable. Mortgage rates climbed to a two-year high in August and remained at high levels in September, although they are still relatively low on a historical basis. There has been some relief in October, but it is unclear how long this will last.

Against this background, what can homeowners and developers do to ensure that they sell their properties?

First of all, getting the price right is essential. Before listing a property, sellers should survey the selling price of similar properties in the area, and look at what the trend has been for the past several months. While dropping prices to bargain-basement levels is not the right thing to do, it is also important not to price properties out of the market. Generally, if the price of the property is 5% or less above the target selling price, then buyers will be willing to make an offer. However, anything higher may well scare them off.

Second, it is important to get a good realtor to promote the property. Sellers should choose a realtor who has a track record of closing sales in their area, and should check that they advertise the property widely – including online and in local media. Open houses are also a good idea, provided that they are promoted visibly and well in advance. For example, placing banners in the surrounding area that direct people to the open house can generate significant interest. 

Image source:

Finally, when buyers look at a property, they think about the total cost to them, including any work that needs to be done. Therefore, it is critical that the property is presented in good order. It should also be “neutral” – it needs to be a blank canvas for the prospective buyer, rather than a reflection of the current owner’s personal tastes. For example, the walls should be painted neutral colors, flooring should be unobtrusive, and furniture should be positioned to provide easy flow throughout the home.
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Friday, November 22, 2013

Stock Market Explained in Simple Infographic

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Thursday, November 21, 2013

Anyoption : The Leading Binary Options Broker

If you are looking for a trustworthy, legitimate online broker of binary options, look no further than Anyoption. I haven't been able to find another binary options broker site that is as accessible and professional. Trust me, I've tried. Not only is your money guaranteed safe, the customer service is better than any other that I've come across.

Binary options is a growing market for investing, and it's not without good reason. One of the best features about binary options trading is that it's very straightforward. You know precisely the risks and potential rewards upfront so you can make an informed decision. While this type of speculative trading requires a certain level of know-how and a perspective on markets, there are no surprises. You can calculate the risk down to the penny.

The types of trades you can make are virtually endless, too. Whether you like to trade in commodities, currencies or stocks, it's all there. According to the site, there are over 200 markets to choose from.

Anyoption also allows trading on Bitcoin options. This is interesting, because Bitcoin is a crypto-currency that has seemingly exploded out of the woodwork as of late. This once obscure option with a cult following has now become relevant and something for everyone to look into, in my opinion. Anyoption has an entire tab devoted to it.

There are a lot of benefits to trading with Anyoption. For one, you can do it anytime, day or night, weekday or weekend. Also, being online, you can do it from the comfort of your home. Trades are only clicks away.

The best thing about trading in binary options online is that you are fully in charge. Without a middleman, you save on commissions and get to keep what you earn. The beauty is that anyone can sign up; investing in binary options doesn't require belonging to an elite club of millionaires who can afford to hire top-name Wall Street stockbrokers. Your financial future is at your fingertips.

Anyoption quells one of the biggest reservations some have about binary options: it's regulated. The site touts the world's top security standards and has a 100 percent guarantee against fraud. That is not true of every site, so beware of over the counter markets that are not regulated. Why take unnecessary risk?

I highly recommend Anyoption for those interested in playing the field of binary options. In my opinion, this type of speculative trading is the future. It's open to virtually anyone, all online and is becoming increasingly regulated to ensure safety for investors who may be otherwise unprotected from the daunting world of investing. Go with the pioneers of the industry.
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Monday, November 18, 2013

Pros and Cons of Private Investing

Private investing is another option for people who want their money to grow over a period of time. A lot of the investment opportunities available in this area involve ideas for start-up companies that financial institutions are not willing to give a chance to.

This is why private investors are also called Angel Investors because they help those budding entrepreneurs to realize their business goals. It's quite risky considering that you are investing in a start-up company and that you would have to help develop it and sometimes take an active management role to ensure a good return on investment. Surely, this type of investment is not for the faint of heart, but it can really give you good returns if you choose the right company to help and invest in.

Advantages and Disadvantages of Private Investing
Private investing has its own pros and cons. The obvious disadvantage is the risk you should be willing to take when investing in a start-up company. Unlike investing in stocks of an established company or corporation, you will have to deal with the growing pains of building the business up from scratch and this may mean losing money in the process. This type of investment also requires you to play an active role in the business, so if you're looking to sit back and wait for your money to grow like stock market investments, this may not be a good option for you. The advantage to private investing can outweigh the negative aspects if it's done properly. As a private or angel investor, you are helping people who need someone to believe in their business plan and give them the financial support they need. As mentioned earlier, this is a hands-on investment option, which can be a good thing if you have business experience and you want more control of what the company does with your money. Since it's your money that the company is using for its operations, your input is valuable during the decision making process and you can even take a more active management role if necessary.
As a private investor, the return on investment you get will depend on the decisions you make and how you handle your share of the business responsibilities. Investments like these can work for or against you depending on the choices that you make from selecting the right company to invest in to making sound business and financial decisions for the good of the company. Private investing may be a big risk, but it can be very rewarding if you know what you're doing.

By Stephen Waller
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Sunday, November 17, 2013

Want to be a Small Cap Investor Then You Need to Know All This

Knowledge is power to grow in the world of penny stocks, a world where you can make big money from small. Sitting on the sofa and thinking of making big will not work. You will have to make a beginning from somewhere to make it big, and that somewhere would be to educate yourself on what is small cap and penny stocks and how you can become a successful small cap investor.

To become a small cap investor is not easy. You need guts to bear the losses if in case they happen, be positive in all situations, put in lot of time to know how everything works and believe in yourself that you can be a profiting small cap investor. When you have all this only then it will be possible for you to get what you want from your penny stocks after all success is never certain here.

Exactly what are penny stocks? Penny stocks are shares which are traded under much lower value may be below $1, $5 or $10 and are traded on OTCBB market. Small cap investor can also trade them through the pink sheet electronic quotation service. Thus they are perceived as beginner’s area where risk is lower and failure would not be disastrous unless you have put in limited funds.

Let us take an example to get a better idea of penny stocks. For example if you have $20 in spare and want to invest in big cap stocks then you will able to buy only one share but if you invest the same money in small cap then it is possible for you to have 100 shares at $0.20 cents. That is a huge difference isn’t it?

As a small cap investor you should know that small cap and penny stocks experience frequent changes as much as 400% in one single day. This growth rate is very lucrative but very dangerous at the same time because it has the tendency to fall at the same rate. small cap and penny stocks can be hugely beneficial only if you can anticipate the risks in advance and make the right decision at the right time. public relations consultants can use different tools to help them make the right choice.

Benefits of small cap and penny stocks are sue to lure in public relations consultants. First you need very less investment to start earning, second you can see growth in upwards of 200% in one single day that is you have the potential to earn big in a small period of time and the loss is minimum if in case you lose. In times of tight financial situations they come as an easy option out to help you add some extra income to the family.

Now that you are sure you want to be a small cap investor here are a few tips become one :

1) Open a brokerage account with a reputed broker and add some fund to it. Small cap investors are able to use it as a regular bank account.

2) Use your stop losses option to the maximum to ensure you make smaller losses.

3) Remember buying back is always an option.

4) Believe in hard work and research because it is only through these that you will be able to find the best penny stocks option.

5) Ask for level 2 quotes and real time data.

Author: John Catherin
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Saturday, November 16, 2013

6 Trader Strategies You’ll Be Thankful For This Holiday Season

The market continues to trend up while we’re just weeks away from the holiday rush. In 2013 we’ve seen a market that’s treated many of us quite well and given us plenty to be thankful for. Many of you road Telsa to the bank, got on board the Yahoo bandwagon, or enjoyed watching Netflix for other reasons than movie marathons.

In hindsight the year was incredible, but it didn’t always feel that way. With eleven months behind us, we approach the home stretch and there are still many uncertainties keeping traders up at night.

When will the market top?

How will everything play out with the FED?

What’s going to happen with China?

Is this Bitcoin thing the real deal or just another Beanie Baby?

No one can confidently answer these questions. Some traders will comb through as much research as possible, make an educated prediction, and trade or invest accordingly. Most traders will predict wrong and most traders will lose money.

Successful fund managers and veteran traders avoid these risks all together. They’re equipped with tools and strategies that are rarely affected by the majority of market issues.

Regardless if you’re an options trader, equities traders, swing trader or day trader, there’s always a way to profit in the market. You just have to find it and stick to it.
On November 20th and 21st, you’ll have the chance to find six of these strategies as Marketfy hosts their first ever Holiday Trading Summit.

Over the course of two days, six different equities and options traders will come together and reveal the strategies that have kept them secure in all types of market conditions.
In the spirit of the holidays, will also be donating a holiday meal to City Harvest, for every person who signs up to this free event. 

If you trade options or equities, one of these six strategies will fit your trading style.
Candlestick guru, Stephen Bigalow, will be revealing the early warning signals for reversal alerts. Bigalow has spent the last thirty years applying his Business & Economics degree from Cornell University to the investment and trading world. He’s authored three top selling investment books and is an active member of AAPTA - the American Association of Professional Traders.

RealMoney ( experts, Timothy Collins and Bob Byrne will be showing you how to profit from volume profiling and weekly options. Collins' experience in the market ranges from helping individuals with portfolio customization to managing multiple hedge funds. Byne, a full-time private day-trader has ten years of experience using technical analysis and using a proprietary volume profiling technique.

Options tape reader, Anand Sangvhi (“Sang”) will teach you a five-point checklist for exiting your trades at the right time. Sang, a former corporate grinder, quickly learned in 2006 that trading options using time tape reading was more profitable than a boring 9 to 5 job. Since then, his company SangLucci has become one of the leading experts in options tape reading.

Credit Spread master and former financial CFO, Nic Chahine, will show you how to master credit spreads in any market condition. Chahine began mastering options spreads after an internet venture left him plenty of money and time to pursue his passion of the markets. Since then, he’s launched his own successful fund and honed the skill of gauging risk and maximizing potential.

Swing trading veteran, Serge Berger, will explain how to combine candlesticks with swing trading. Berger has been an active trader since 1998 while spending time at JP Morgan and an equity, options, and futures proprietary firm. His methods of dividing the markets into separate time frames and characters allows him to remove emotion from the decision making process.

Trader and entrepreneur, Hubert Senters, will provide a strategy that allows you to risk $156 to potentially make $1,000. Senters has built his trading skills and companies on the philosophy that, “if you need to accomplish something in life, find someone who is passionate about the topic of your interest and learn everything they know about it.” Senters and his companies have been featured on Bloomberg, CNN, CNBC, and the Trading Expo.

To join Marketfy’s first ever Holiday Trading Summit, register for free at the link provided below. Your registration will result in a holiday meal donation to City Harvest, for a child in need.

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Tuesday, November 12, 2013

Price to Sales (P/S) Ratio

The most basic ratio of all is the Price to Sales ratio, which is the current price of the stock divided by sales per share. The nice thing about the P/S ratio is that sales are typically cleaner than reported earnings because companies that use accounting tricks usually seek to boost earnings. In addition sales are not as volatile as earnings –one time charges can depress earnings temporarily, and the bottom line of economically cyclical companies can vary significantly from year to year.

price to sales ratio

This relative smoothness of sales makes the P/S ratio useful for quickly valuing companies with highly variable earnings, by comparing the current P/S ratio with historical P/S ratios.
However the P/S ratio has one big flaw. Sales may be worth a little or a lot, depending on a company’s profitability. If a company is posting billions , but it is losing money on every transaction, we would have a hard time pinning an appropriate P/S ratio, because we have no idea what level (if any) profits the company will generate.

Therefore, although the P/S ratio might be useful if you are looking at a firm with highly variable earnings –because you can compare today’s P/S with a historical P/S ratio – it’s not something you want to rely on very much. In particular don’t compare companies in different industries on a price-to-sales basis, unless the two industries have very similar levels of profitability. 
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Monday, November 11, 2013

Keep an Eye on Your Portfolio Manager!

Like stocks, you should research your mutual fund before you decide to trust them with your hard-earned cash. If you have plans to invest in a mutual fund, there is one more area to research besides the usual aspects of the mutual fund: the portfolio manager(s).

It makes complete sense. After all, you're trusting this person(s) with your money. And that's the key If they make some bad decisions then you, the investor, are the one who pays for it.

Of course, when you invest in a mutual fund, there is always a chance that you can lose money. That isn't always the portfolio manager's fault. Even the best portfolio managers sometimes cannot keep their mutual fund in positive territory. You need to trust the portfolio manager in their stock picking decisions but you also need to trust them with how they handle the stocks.

Before we get into how important it is to trust the portfolio manager's ability to handle the stocks, you might need a brief explanation of capital gains. When a stock goes up in price and you sell it, the difference in the price you paid for it and the price you sold it for is the amount of capital gains you received. It's always nice to make money in a stock or mutual fund but the IRS (Internal Revenue Service) taxes you on your capital gains based on your current income tax bracket.

Did you know that you can receive a huge tax bill from the IRS for capital gains even if you never sold a single share of the fund? It's true, and in fact, the fund's NAV (Net Asset Value) doesn't even have to go up that year! So, technically, the fund can be losing money but you are still charged for taxes. This happens when a portfolio manager sells the stocks in the portfolio that have gone up but they haven't sold the stocks that have declined.

A good portfolio manager can and will usually prevent this from happening. He can reduce the amount of capital gains that are paid out by offsetting the gains with the losses. He does this by selling both stocks that have gone up and stocks that have gone down that year. By doing this, the portfolio manager helps to lessen the burden that shareholders feel when it comes to tax season.

If you are unsure about a certain portfolio manager's ability to handle capital gains, you can check in their prospectus and it will usually tell you how much money in capital gains is paid out each year to shareholders. You can use this to judge if you want to pay that much in taxes. Also, prospectuses often have information about the portfolio manager himself.

If you feel that you are being taken advantage of when it comes to the portfolio's ability to handle the capital gains, you can contact the mutual fund family and speak to a fund representative. If you still feel uneasy and you cannot trust your portfolio manager it would probably be wise to take your money out and put it into a mutual fund that you have more confidence in. After all, you don't want to give your money to someone that you don't have confidence and trust in.

This article wasn't meant to scare you away from investing in mutual funds. Most portfolio managers are good at managing the stocks but every once in a while a fund manager makes a couple bad decisions that hurt the investors. So if you are planning to invest in a mutual fund or are already invested in one, it is important to understand how your fund manager manages your money.

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Thursday, November 7, 2013

20 Funny Stock Market Quotes

Sometimes upbeat is in the news, sometimes downbeat makes headlines; Sometimes bull roars on wall street; sometimes bear shows their mettle. Hardly there will be someone who haven't heard about stock market. With a recession currently going on worldwide, its hard to say if someone is not affected. Amid the bull and bear phases, some investor gags over stock market with their funny quotes. Below, I have compiled some 20 funny stock market quotes by some great and well known personalities of investment world.

1. "Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway." - Warren Buffett.
2. "Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it." - Peter Lynch.
3. "I made a killing in the stock market. My broker lost all my money, so I killed him." - Jim Loy.
4. "Every day, self-proclaimed stock market "experts" tell us why the market just went up or down, as if they really knew. So where were they yesterday?" - Anonymous.
5. "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years." - Warren Buffett.
6. "One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute." - William Feather.
7. "If stock market experts were so expert, they would be buying stock, not selling advice." - Norman R. Augustine.
8. "Experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you're generally better off sticking with what you know. And the third is that sometimes your best investments are the ones you don't make." - Donald Trump.
9. "If you don't follow the stock market, you are missing some amazing drama." - Mark Cuban.
10. "Derivatives are financial weapons of mass destruction." - Warren Buffett.
11. "The worst possible outcome for the stock market is that it takes a month to decide the election," - Jason Schenker.
12. "Do you have any idea how cheap stocks are now? Wall Street is now being called Wal-Mart Street." - Jay Leno.
13. "The United States have developed a new weapon that destroys people but it leaves buildings standing. It's called the stock market." - Jay Leno.
14. "Money can't buy you happiness but it does bring you a more pleasant form of misery." - Spike Milligan.
15. "In the business world, the rearview mirror is always clearer than the windshield." - Warren Buffett.
16. "Wall Street is one big turf war.. by benefiting one person you are disadvantaging another person." - Bernard Madoff.
17. "Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it." - Peter Lynch.
18. "Sell to the sleeping point.-if you are troubled by an investment but still desire to hang onto it,sell just enough so that you can feel that you've 'dealt' with the anxiety and can calmly sleep at night, but you've kept enough to feel comfortable with what you have left." - Anonymous.
19. "Sometimes your best investments are the ones you don't make." - Donald Trump.
20. "There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor -the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know." - Bernstein, William.
Author: Dinesh Yadav.
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Friday, November 1, 2013

Arbitrage Trading

Arbitrage trading occurs on all markets every day that the exchange is open for trading, most of us just aren't aware of these unique opportunities. Arbitrage opportunities are not available for long, often only seconds but they allow the trader the opportunity, if speaking of arbitrage in its purest form, to make a riskless profit by simultaneously buying and selling the same or similar securities. Identifying these opportunities in order to take advantage of them is the challenge.

Arbitrage trading opportunities become available when the price of a security is different from the same or similar security on another market. For example a stock may react to news resulting in a price increase per share, at the same time there may be call options available on the stock that have not been repriced yet. The trader would sell the higher priced stock and purchase the call options, this allows the trader a risk free profit of the amount between the sell price and the buy price.

Another example of a common arbitrage trading opportunity is between the S&P 500 stocks and S&P 500 futures. Often there is a disparity in the price between the two as the stocks trade on the NASDAQ and NYSE while the futures trade on the CME. If the S&P500 stocks get ahead of the futures the trader will sell the stocks and buy the futures, again making a risk free profit. These opportunities usually only last a few seconds.

In order for one of the above two arbitrage trading opportunities above to become available one of the below conditions must be violated: 
1. The same security must trade at the same price on all markets. 
2. Two securities with identical cash flows must trade at the same price. 
3. A security with a known price in the future (via a futures contract) must trade today at that price discounted by the risk-free rate.

As you can see arbitrage trading opportunities are quite straight forward but discovering an opportunity is much more complex. This often results in riskless arbitrage not being available to the average retail investor. Also although these strategies seem easy to identify in theory executing them in the real world is very difficult. Many institutions possess complex and expensive trading software that allows them to take advantage of these types of opportunities. There are however several risk arbitrage opportunities that offer the trader the potential for profit. Good luck in your pursuit for risk free profits!

Author:  Andi Sachs
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