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Save Money (and Make Big Money) with Free Investment Help
In today's wild business climate of corporate downsizing, hostile takeovers,
rising and falling interest rates, and a stock market ever on an
inexplicable spiral, you really need the help of an expensive brokerage
house to help you make sense of it all, right? Not so fast! Here are
some things you should consider before handing over your money to the hands
of strangers.
Most brokerage houses are honest businesses, but many are not above playing
fast and loose with your funds. Do a lot of people lose money when they
hire a brokerage firm that handles their money? Yes, and a lot more often
than you think.
Furthermore, think about this: that piece of paper full of fine print you
sign when you give your money into their care basically ties your hands.
Once you sign, they have the power to control your money. If you don't
like what they do, you may have to accept the decision of an arbitrator,
unless you take your complaint to a federal district court, or insert
language into the original contract which protects your rights. Either
way, the hassle can be enormous, and costly.
Brokerage firms offer advice on how to invest your money, but sometimes you
can run into serious trouble with a stockbroker if you are not paying
attention. Stockbrokers have many ways of getting extra money from you.
The most common problem is negligence, whereby the stockbroker fails to
comply with an order. Another problem arises from a situation called
"churning." When a stockbroker churns your account, he advises you to make
a transaction which creates commissions for him instead of profits for you.
Finally, and in conjunction with churning, a stockbroker can misrepresent
an investment, with his own interests in mind instead of yours.
Despite the big bucks spent by brokerage firms designed to convince you
that you need them, the truth is that you don't. All it takes is a bit of
homework, and an ability to take advantage of free or cheap information
available to you in any library or on any bookshelf.
There is nothing wrong with using a reputable brokerage firm to handle your
market transactions, but don't be dazzled by the puported "knowledge" of
your assigned stockbroker. They're not much smarter than you, and they'll
charge you a hefty price for their services.
Several ways exist for you to cash in on markets and funds, and a number of
free or reasonably-priced information sources are available to help you
along the way.
Since no one wants your money to increase faster than you do, why not take
responsibility of your own future and educate yourself on investing?
Small Stockholders Can Profit
Even if you don't own a great deal of stock in a company, you can
occasionally make a 10 percent profit from them. Once in a while, a company
offers to buy the stock of its small investors at a 10 percent profit just
to save money on having to serve small stockholders. If you are offered
such a deal, study the market, see where the stock is going, and then
perhaps take the premium and roll it over into another kind of stock.
The nice thing about this kind of transaction is you can deal directly with
the company, instead of paying an extra fee to your stockbroker for
transacting the business.
Become Your Own Securities Analyst
You don't have to be a big-time investor to do the same kind of
investigating top security analysts do. A security analyst gleans
information from the financial statements of major companies around the
world. As a smaller, individual stockholder, there is nothing to keep you
from taking advantage of this source of public information.
Some of the important information located on financial statements include:
* Deviations and inconsistencies
Look for any areas where the company broke away from trends or otherwise
acted unusual. Especially compare the information presented in stockholders
reports with the material filed with the Securities and Exchange Commission
(SEC). These sources might be able to show you places where taxes were
deferred, depletion allowances, and different tax credits.
* Inventory figures
These figures are the company's heart and soul. They can tell you whether
the raw materials on hand match the finished products being shipped out,
and whether work in progress is keeping up with production.
* Accounts receivable
These can show you a company's policy on handling allowances for doubtful
accounts. If the ratio to receivables is down, the company is
manufacturing false earnings. If it is up, they might be heading into
trouble. An accounts receivable can also let you compare this year's
receivables' activity to previous years.
* Accounts payable
You can spot potential cash problems in a company by investigating the
accounts payable section of the financial statement. If the company pays
its bills on time in one lump sum, it is in good financial condition. If
you notice that bill payments are getting stretched out, the company might
be having cash flow problems.
Investment Newsletters
Another source for information is an investment newsletter. There are
dozens of them on the market today, and the trick is to find the one that
best deals with your interests and needs.
No investment newsletter is going to be 100 percent, or even 75 percent
accurate on its choices. You need to view a newsletter as a springboard for
your own investment ideas and research. Avoid newsletters full of hype and
adjectives like "stupendous" or "once in a lifetime chance." Try to locate
a newsletter that is full of restraint, and explains its choices in a
logical manner. It also helps if the newsletter you choose has a consistent
record of picking the good stocks.
Before taking any investment newsletter, decide if you are a long term
investor-willing to take a loss at times and in the investment for the long
haul-or short term investor in need of immediate information for today's
stock market. There are newsletters available for both kinds of investors.
On the surface, newsletters can seem expensive, with a $45 to a whopping
$7,000 per year subscription price, but compared to what you would pay for
a money manager, you can end up saving in the long run. Whether you use a
broker or not, remember that the information in these newsletters is
up-to-the-minute in many cases. If you act on it too late, it can cost you.
Here are some of the best investing newsletters:
Astro Geometrics Journal
$282 per year for 12 issues
To subscribe, call: 312-559-5500
Astro Investor
$45 per year for 12 issues
To subscribe, call: 317-357-6855
Crawford Perspectives
$250 per year for 12 issues
To subscribe, call: 212-535-6202
Cash in on Chaos
$250 per year for 12 issues
To subscribe, call: 303-452-5566
Market Systems
$366 per year for 12 issues
To subscribe, call: 818-509-1133
Be Your Own Broker
If you enjoy investing in government securities, you can cut out the
broker's price by buying you own Treasury notes and bonds directly from the
Federal Reserve Bank.
Simply write a letter to the Bank or one of its branches, stating the
securities to be bought, and the name under which any notes or bonds will
be registered. Enclose a check for the face value of the securities
($10,000 minimum for bills, $5,000 for short-term notes, and $1,000 for
bonds). Make sure your letter is postmarked by midnight the day before the
next securities auction. The government will send you a receipt along with
a refund for the discount determined at the auction.
Do Your Own Forecasting Through Technical Analysis
Technical analysis is the fine art of predicting the major trends of a
particular stock by studying its price pattern. It can work very much in
your favor, because the price of stocks is set by what others think it is
worth, not by what it is actually worth. Since stockholders tend to stay in
love with a stock for a period of time, you may be able to cash in on this
without using any inside information or top research analysts.
The technical analysis of price patterns can show you how big of a move to
expect from a particular stock, but it can also get you into trouble if you
become too impatient and buy or sell before the signal for it actually
happens. The result can be disastrous for you.
One way to tell when the market is ripe for a breakthrough is to watch the
Dow. If you see, interest rates peaking and heading down, a large number of
stocks hitting the new high list, volumes in excess of 60 million shares a
day, and strong moves in the transportation and utility averages. This is
the time to put your knowledge to work for you.
Watch Other Indicators Besides the Dow
Although trends on the Dow Jones Industrial Average are reliable sources of
market information, it is not the only method for predicting market
movements. Some of the other indicators to use in conjunction with the Dow
are:
*The Quotron Change
This indicator is especially effective if you have mutual funds, because
funds track more closely to Quotron than to the Dow. Quotron lets you know
what the market is doing in broad term, on both the New York and American
Stock Exchanges.
* The Over-the-Counter Composite Index
This index shows the cumulative performance of over-the-counter issues. If
you see it outpacing the Dow, get ready for a bull market. If the index is
weaker than the Dow, plan for a bear market.
* The Dow Jones Transportation Average
This indicator tracks intermediate trends between bull and bear markets.
* The Dow Jones Utilities Average
This long-term lead indicator shows the condition of sensitive income and
interest stocks.
* TRIN (Trading Index)
This indicator tracks the volume of rising and declining issues. When you
have a bull market, TRIN falls from above 1.20 to below .70 during one
trading day. When the market is bearish, TRIN goes from below .70 to above
1.20. If TRIN registers 1.00, this means there is an even relationship
between declining and advancing stocks.
Ask the Investor Relations Officer
When all else fails, you can ask a company's investor relations officer
(IRS) for information about a corporation's status. Before you turn to this
source, do your homework and see if your questions cannot be answered in
some other way. When you call the IRS, have a written set of questions in
front of you that you want specifically answered.
It is the company's right to not answer any of your questions. In fact, the
IRS is limited to information like the company's future plans, media
announcements, or figures which have already been made public. But the IRS
can discuss pertinent information, such as labor relations and competitors,
which may influence the actions of your stock.
As you can see, you are not limited to information given to you by your
stock broker. The more you learn about corporations and the stock market,
the more wise you will be with your money. If possible, take a couple of
investment courses at your local college. If not, read all the information
you can find on the subject. It's your money. You are the one who can take
care of it like no one else.
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