How to read annual reports 2
We are back to our topic here on annual reports. Basically, when you look at a company’s financial statements inside the annual report, sales revenues and profits going up are good signs, and naturally if they go down, that’s bad. But there’s more to it than just that, of course.
More tips and notes here from US investors on reading annual reports (these tips are actually valid all the time, and actually regardless of geographical location; I just got them from US sources):
Read the footnotes; read all the footnotes. The dirty secrets will at least be mentioned in the footnotes. There are many chances for companies to exercise sleight of hand. For instance, a company can extend the number of years of depreciation on major assets (lowering current expenses), hereby resulting in an increase in earnings. This sleight of hand would be revealed in the “summary of significant accounting policies”. Also, for instance, stock options can be expensive for shareholders (mainly through dilution of shares), and not reflected in the earnings. The company must disclose in a footnote what earnings would have been, if options had been factored into the net earnings calculation.
Many believe that the number one figure to look at is the company’s sales in the income statement. This is important. If sales aren’t going up, you need to find out why. If sales are rising, but profit isn’t going up proportionately, look out. The company may be slashing prices out of desperation. If, however, a company’s earnings instead are now going up faster than sales, it might be due to creative accounting. Now really look out!
Take a look at net income to total capital from the balance sheet, called return on capital or ROC. This here is a really good gauge of earnings stability, and would make you a really good fundamental analyst. Operating cash flow is generally considered to be profits before interest, taxes, depreciation, and amortization (such as writing off leased assets) and is called EBITDA. This might be important to you.
You can get a good feel for where the income for the company came from, and where it went, using the statement of cash flow. Not all earnings come from a company’s every day sales. This is key. This statement will show activities such as investments or sales of fixed assets such as a plant.
You can see many things from the balance sheet, for instance, debt is the money that a company owes for long-term financing, either from traditional lenders or from the sale of corporate bonds. Compare debt to total capital (equity). Too much debt is risky, since a slowdown in sales could threaten a company’s ability to pay its obligations. But here, most importantly, you must actually look further to see what the debt has been used for. If the money was used for earnings-producing plant and equipment – that is actually good and poses no reason for concern. If it was used for corporate perks – that is bad and is a red flag.
What are some other things to look for? You can try asking yourself questions about the annual report. For instance, let me cite some here. Is the report well written, clear, concise and succinct? Is it honest and forthright? Are photos inside the annual report modelled/simulated or live? How well do they relate to the text of the report? Do they present an accurate picture? How clear are the company’s product plans? And also, how does the company compare with others in same industry? What else do I need to know? What can I ask? Who do I contact from the company if I have further questions?
You can ask yourself many other similar and related questions. Always ask! Perhaps it is important to also discover more on the Internet regarding how to dissect and analyse annual reports further.
How to read annual reports 2
How to read annual reports 1
How to read annual reports
There are many ways to read an annual report. How you actually read an annual report depends upon your purpose or goals. As an investor, your purpose may be to assess: profitability, survivability, growth, stability, dividends, problems, risks and other factors which may affect your investment in that particular company. Again, you come to read an annual report with your goals in mind.
Also, read annual reports often. Reviewing a company yearly is the minimum diligence required. The annual report provides a convenient way to do fundamental analysis of a company’s fundamentals. If you own shares in a company you should receive a copy in the mail that will come right here to your doorstep. Sometimes you can even get them online nowadays.
Annual reports are a corporate "work of art" and are not read like a normal book. It is actually a kind of "never ending story" as the entity progresses along, merges, closes or is acquired. A company’s financial statements inside the annual report will actually tell you what a company has (its assets), what it owes (its liabilities), its sales (revenue), and how much it made in the accounting period being reported (its profit or net earnings).
There are normally nine identifiable sections in most annual reports. Not all reports will have all the sections, or the same type of information. Here is an introduction. Here are the usual, basic sections and what to look for in each of them:
Chairman of the Board Letter
This should cover changing conditions, goals to achieve or have been achieved or missed, actions taken or not to be taken, and stuff like that. Is it well-written? What does it actually say and what does it actually mean? Reading between the lines is important here - what is being apologized for? Anything to worry about?
Sales and Marketing
This should cover what the company sells, how, where and when. Is it clear where the company makes most of its money presently? Is it understandable? Is the scope of product lines, divisions and operations clear?
Summary of Financial Figures
Is this included? How many years are presented (2 or 4 or 5 or 10)? What's the growth of profits and operating income?
Management Discussion/Analysis
Is there a clear discussion here of significant financial trends over, say, the past two years? How candid, forthright, clear and how accurate is it?
Opinion Letter by Auditor
This here is written by an accounting firm as an opinion on the company's financials. The important thing to look for here is what the qualifications are. What do they say?
Financial Statements (important!)
Check sales, profits, R&D spending, inventory and debt levels over time. This is really important. Read the footnotes to ferret out other information. Look around this website for more valuable tips on how to do that.
Subsidiaries, Brands, and the like
Where is the headquarters? Is it clear what lines, brand names the company has and what the overseas distribution network is?
List of Directors
This one is always present in every annual report. How many outside directors and how many inside directors? Are the directors well known and respected? Are there less than 5 or more than 12 directors?
Stock Price History
This one is not always present, and may not be of great importance. General trend of price over time: up or down? Which exchange is company traded/listed? Stock symbol? Bonus/dividend history?
In addition, according to my research, there are 3 statements that the SEC in the US requires corporations to file on a quarterly basis:
Balance Sheet
Income Statement
Statement of Cash Flow
The Balance Sheet is divided into:
Assets
Liabilities
Capitalization/ Net Worth (assets less liabilities)
The Income Statement is divided into:
Income (sales/revenue)
Cost of goods sold (producing inventory)
Gross profit (earnings before expenses)
Reserve for taxes
Expenses (overheads)
Net profit/earnings after all expenses
The Cash Flow Statement is divided into:
Adjustments to income
Changes in assets and liabilities
Financing activities such as sale of stock or bonds
Cash flow from non-operating activities
Net change in cash and cash equivalents
… more to come here in the following blog post on this website.
Fundamental Analysis basics 2
How to do a sample fundamental analysis
Even though there is no one clear-cut method to fundamental analysis, here is one suggestion by Stock Charts, which I like very much. It is methodical, standard, and accounts for most of the variables that we need to know. At the same time, it is important to try to develop some system that works for you, and also, it is good to keep in mind that we may want to see how Warren Buffett does his approach as well, to gather more perspectives on investment and how to make money.
This fundamental analysis method (it is only a suggestion of how you could possibly do this analysis) employs a methodical, top-down approach that starts with the overall economy, and then works down to specific industry groups, and finally to specific companies. Industry groups are compared against other industry groups and companies against other companies to ensure a fair comparison, and usually, companies are compared with others in the same group.
First and of highest importance in a top-down approach would be an overall evaluation of the general economy. Basically, it is common knowledge that when the economy expands and grows, most industry groups and companies will also benefit and grow accordingly. Correspondingly, when the economy declines, most sectors and companies usually suffer accordingly as well. A rising tide lifts all boats and a tide that is going down brings down those boats as well. Many economists link economic expansion and contraction to the level of interest rates, where interest rates are seen as a leading indicator for the stock market as well. A correlation between stock prices and interest rates thus seems to exist, so you might want to take note of that here. Once a feel for the overall economy has been made, an investor can then start to divide the economy into its various industry groups.
If the prognosis is for an expanding economy, then certain industrial groups are likely to benefit more than others. This is important. An investor can narrow the field to those groups that are best-suited to benefit from current or future economic environments. If most companies are expected to benefit from an expansion in the economy, then risk in equities would be relatively low and an aggressive growth-oriented strategy (i.e. a portfolio full of stocks) might be advisable. A growth strategy here might involve the heavy purchase of technology, biotech, and even cyclical stocks. That is the best strategy to make money.
If, however, the economy is forecasted to contract, an investor may opt for a more conservative strategy and seek out stable income-oriented companies. A defensive strategy might involve the purchase of companies that give out dividends instead of focusing on growth, consumer staples, utilities and energy-related stocks, for instance.
To assess an industry group's potential, an investor would want to consider the overall growth rate, market size, and importance of this particular group to the economy. While the individual company is important, its industry group is likely to exert as much, or more, influence on the stock price. When stocks move, apparently they usually move as groups. Many times, it is more important to be in the right industry than in the right stock if you want to make a lot of money!
Once the industry group is chosen, an investor would need to narrow the list of companies before proceeding to a more detailed analysis. Investors are usually interested in finding the leaders and the innovators in a group. The first task is to identify the current business and competitive environment in a group as well as future trends. One needs to look at market share, product position and competitive advantage? What are the barriers to entry? Who is the current leader and how will changes within the sector affect the current balance of power? Success depends on an edge, be it marketing, market share, technology or innovation. A analysis of the competition within a sector will help identify companies with a key competitive edge and most likely to keep it. An investor might analyze the resources and capabilities within each company to identify those companies that are capable of creating and maintaining a competitive advantage. The analysis could focus on selecting companies with a sensible business plan, solid management and sound financials (which we will look at in the next post on financial reports).
The business plan forms the basis for analysis. If the plan, model or concepts are poor, there is little hope here for the business. For a new business, the questions may be these here: Does its business make sense? Is there a market? Can a profit be made? Or more obviously, can the company make a lot of money or not? For an established business, the questions may be: Is the company's direction clearly defined? Is the company a leader in the market? Can the company maintain leadership?
In order to execute a business plan, again here a company requires top-quality management. Investors might look at management to assess their capabilities, strengths and weaknesses here. Even the best ideas and plans in the most dynamic industries can go to waste with bad management. Alternatively, even strong management can make for extraordinary success in a mature industry. Again, here some of the questions to ask might include: How talented is the management team? Do they have a track record? Can management deliver on its promises? If management is a problem, here it is best not to buy such stocks.
The final step to this analysis process would be to take apart the financial statements and come up with a means of valuation. In another section, in this blog, I will try to discuss and give ideas on how to read and analyse annual reports.
After all is said and done, again an investor will be left with a handful of companies that stand out from the pack. Over the course of the fundamental analysis, some companies will definitely stand out as potential leaders and innovators here. In addition, other companies would be considered laggards, poor companies, and very unpredictable. The final step of the fundamental analysis process is to synthesize all the available data, analysis and understanding into actual stock picks, and buy accordingly.
It is important to note that fundamental analysis is very valuable, but it should be approached with caution. We all have personal biases, and every analyst who writes reports on companies has some sort of bias. There is nothing wrong with this, and the research can still be of great value, but it is something that you should be aware of. Learn what the ratings actually mean and the track record of an analyst before investing your hard-earned money. Remember the ultimate goal is to make money. Corporate statements and press releases offer good information, but they should be read with a healthy degree of skepticism to separate the facts from the spin. Press releases don't happen by accident; they are an important PR tool for companies. Reading press releases, annual reports, investment books are all important! Investors should become skilled readers to weed out the important information and ignore the hype. In other posts on this blog, we will examine the basics on how to read and analyse annual reports, as they are integral to investment. Stay tuned for further posts!
Fundamental Analysis basics 1
Introduction to Fundamental Analysis (Basics)
To conduct value investment, fundamental analysis of any particular company must be done. Here we examine the basics. Fundamental analysis is the examination of the important underlying forces that affect the well-being of the economy, industry groups, and companies. When done well, it will potentially maximise your stock returns and probably make you a lot of money.
The goal of fundamental analysis is to derive a look around and into a company’s fundamentals and, hence, forecast and profit from potential future price movements. At company level, fundamental analysis may involve examination of financial data, management, business concepts and competition. At industry level, there might be an examination of supply and demand forces for the products offered, or there might be an examination of where the good is in the product cycle, for instance. For the national economy, analysis focuses on economic data to assess the present and future growth of the whole national macroeconomy. Thus, to hereby forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value. If this calculated and estimated fair value is not equal or close to the current stock price, fundamental analysts believe that the stock is either over- or under-valued and the market price will ultimately eventually gravitate towards fair value gradually.
Some people, however, subscribe to a "random walk theory". They basically believe that the market is efficient and hence the prices reflect all available information. Fundamental analysts do not heed these "random walkers" and believe that markets are weak-form efficient. By believing that prices do not accurately reflect all available information, fundamental analysts therefore look to capitalize on perceived price discrepancies. That is where the money is made.
To use the Mr Market analogy, Mr Market has mood swings and is not rational, and hence turns up at your door to give you different price quotations, from which you may profit or lose. Here on this website, we will see how to conduct a basic fundamental analysis using models and ideas provided by Stock Charts.
Later to come on this website:
1) how to conduct a basic fundamental analysis
2) how to read annual reports
3) Warren Buffett as a case study (since it's easier to model and imitate someone successful, and we all know that it can be done his way successfully)
What is value investing?
What is value investing?
Value investing is an important investment paradigm that comes from investment ideas that Benjamin Graham preached. Value investing generally involves buying stocks which appear underpriced by some form of fundamental analysis, i.e. an analysis of the fundamentals of a company. For instance, one might look for indicators of an excellent company (or stock) such as discounts to book value, net asset value, dividend returns, low price-earning ratios (PE ratios), or the like.
Proponents of value investing, especially my favourite Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value. This discount of market price to value is called the "margin of safety". Simply put, the price is right if what you pay is lower than the value that you are getting for that price. Margin of safety has to do with both price and value, and that difference is the margin; the bigger the margin of safety, the better.
However, fundamental analysis is not as simple as it seems. Again, Buffett has taken the value investing concept even further and his focus has been basically on "finding an outstanding company at a sensible price". He has made a lot of money using value investing, becoming a billionaire in his outstanding career. I am a fan of Buffett and will be revisiting him in later posts here in this blog, as I consider him a role model.
Investment: Technical Analysis basics 6
Pattern Analysis
Note:
This here is the last instalment of technical analysis basics, then after that we can move on to other financial topics :)
Also, thanks to Richard Schabacker (1932 Technical Analysis and Stock Market Profits), Edwards and Magee, and John Murphy.
There are thousands of market participants selling and buying securities for many reasons, motives and positions: love of return, hope of gain, fear of loss, short-covering, hedging, stop-loss triggers, price target triggers, fundamental analysis, technical analysis, broker recommendations, and more. Trying to figure out here why participants are buying and selling can be daunting. Chart patterns place buying and selling into perspective by consolidating supply and demand into a concise picture. As a complete visual record of trading, chart patterns provide a framework to analyze the “bulls and bears”, to analyze prices. Hence chart patterns and technical analysis together can help us determine the true picture. In many ways, chart patterns are more complex trend lines.
Chart pattern analysis can be used to make short-term or long-term forecasts. The data can be intraday, daily, weekly or monthly and the patterns can be, again, as short as one day or as long as many years. Gaps and outside reversals may form in one single trading session, while broadening tops and dormant bottoms may take months to form.
Technical analysis can at times be science and, then again at other times, more art. In addition, price pattern recognition is open to interpretation, which is subject to personal bias. To defend against bias and confirm pattern interpretations, other aspects of technical analysis should be employed to verify or refute the conclusions once again. While many price patterns may seem similar, no two patterns are exactly alike. False breakouts and exceptions are all part of the game here. Hence, careful constant study is required here for successful chart analysis.
Two basic tenets of technical analysis are that prices trend and that history repeats itself. An uptrend indicates that demand is in control here, and a downtrend that supply is in control. As the balance shifts, a pattern emerges. The vast majority of chart patterns fall into two main groups: reversal and continuation.
Reversal patterns indicate a change of trend. Continuation patterns indicate a pause in trend and indicate that the previous direction will resume after a while. However, just because a pattern forms after a significant advance or decline does not mean it is a reversal pattern. Many patterns can be classified as either reversal or continuation. Much depends on the previous price action, volume, and more, as the pattern evolves. This is where the science of technical analysis becomes an art.
In summary, for technical analysis, the keys to successful chart pattern analysis are dedication (learn, learn, learn), focus (limit charts, indicators and methods to those you know well), and consistency (maintain your charts regularly and study them often).
In conclusion, a paragraph from Schabacker:
“The science of chart reading, however, is not as easy as the mere memorizing of certain patterns and pictures and recalling what they generally forecast. Any general stock chart is a combination of countless different patterns and its accurate analysis depends upon constant study, long experience and knowledge of all the fine points, both technical and fundamental, and, above all, the ability to weigh opposing indications against each other, to appraise the entire picture in the light of its most minute and composite details as well as in the recognition of any certain and memorized formula.”
Investment: Technical Analysis basics 5
Introduction to Trends
Technical analysis is based on the assumption that prices follow a trend. Trend lines are hereby important for trend identification and confirmation. A trend line is a straight line that connects two or more price points and extends into the future to act as a line of support or resistance.
An uptrend line has a positive gradient and is formed by connecting two or more low points. Uptrend lines act as support and indicate that net demand is increasing even as the price rises. A rising price combined with increasing demand is very bullish, and shows strong determination on the part of buyers. As long as prices remain above the trend line, the uptrend is considered intact. A break below the uptrend line indicates that net demand has weakened and a change in trend could be imminent.
A downtrend line has a negative gradient and is formed by connecting two or more high price points. Downtrend lines act as resistance, and indicate that net supply is increasing even as the price declines. A declining price combined with increasing supply is very bearish, and shows strong resolve of sellers. As long as prices remain below the downtrend line, the downtrend is intact. A break above the downtrend line indicates that net supply is decreasing and that a change of trend could be imminent.
Again, it takes two or more points to draw a trend line. The more points used to draw the trend line, the more validity attached to the support or resistance level represented by the trend line. Even though trend lines are important to technical analysis, occasionally it is not always possible to draw trend lines on a given price chart. Sometimes the lows or highs do not match up. The general rule in technical analysis is: it takes two points to draw a trend line and a third to confirm its validity.
As the steepness of a trend line increases, the validity of the support or resistance level decreases. A steep trend line comes from either a sharp advance or decline of price over a short period of time. The angle of a trend line created from such a sharp move is unlikely to offer any meaningful interpretations. Even if the trend line is formed with three seemingly valid points, attempting to play a trend line break or to use the support and resistance level established will often prove difficult.
Sometimes there appears to be the possibility for drawing a trend line, but the exact points do not match up cleanly. The price highs or lows might be “off”, the angle might be too steep, or the points too close. If one or two points could be ignored, then a fitted trend line could be formed. With volatility present in the market, prices can over-react and produce spikes that distort highs and lows. One method for dealing with over-reactions is to draw internal trend lines, as an internal trend line ignores price spikes.
Trend lines can offer insight, but if used improperly may also produce false signals. Then again, other analyses can be employed to validate trend line breaks. While trend lines have become very popular again, they are merely one tool for establishing and confirming a trend. Trend lines should not be final, but should serve merely as a warning for changes in price trends. By using trend line breaks as warnings, investors can pay closer attention to other confirming signals.
Investment: Technical Analysis basics 4
Introduction to Trading ranges
Trading ranges are important in determining support and resistance as either turning points or continuation patterns. A trading range is a period when prices move within a relatively tight range. This signals that supply and demand are evenly balanced. When the price breaks out of the trading range, this signals that a winner has emerged here, where a break above is a victory for the “bulls” and a break below is a victory for the “bears”.
It is sometimes useful to create support and resistance zones. Each security has its own characteristics; analysis should reflect the securities’ intricacies. Sometimes exact support and resistance levels are best, and sometimes zones are better. Again, the tighter the range, the more exact the level. If the trading price range spans less than, say, 2 months and the price range is tight, more exact support and resistance levels are best. If a trading range spans months and the price range is relatively large, it is best to use support and resistance zones.
Identification of key support and resistance levels is essential to technical analysis. It is difficult to establish exact support and resistance levels. However, being aware of their existence and location enhances analysis and forecasting. If a security is approaching a support level, it comes to remind us to look for signs of increased buying pressure and a potential reversal of price. If a security is approaching a resistance level, it can tell us to look for signs of increased selling pressure and potential reversal of the price. If a support or resistance level is broken, the relationship between supply and demand has changed again. A resistance breakout signals that demand has won; conversely, a support break signals that supply has won.
Investment: Technical Analysis basics 3
Introduction to Support and Resistance
Thanks to http://stockcharts.com/
Support and resistance are important parts of technical analysis, where supply and demand meet. Prices are driven by excessive supply and demand. Supply is synonymous with “bears” and selling. Demand is synonymous with “bulls” and buying. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways.
Support is the price level at which demand is strong enough to prevent the price from declining further. As the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches support, demand will overcome supply and prevent the price from falling below support.
Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing to sell at even lower prices. Buyers cannot be coerced into buying until prices decline below support or below the previous low. Once support is broken, another support level will have to be established at a lower level.
Support levels are usually below the current price, but it is not uncommon for a security to trade at or near support. In addition, price movements can be volatile and dip below support briefly. For this reason, some traders and investors establish support zones.
Resistance is the price level at which selling is strong enough to prevent the price from rising further. As the price advances towards resistance, sellers want to sell and buyers become disinclined to buy. By the time the price reaches resistance, supply will overcome demand and prevent the price from rising above resistance.
Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers cannot be forced into selling until prices rise above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.
Resistance levels are usually above the current price, but it is not uncommon for a security to trade at or near resistance. Also, price movements can be volatile and rise above resistance briefly; therefore, some traders establish resistance zones.
It is possible that support can turn into resistance and visa versa. Once the price breaks below a support level, the broken support can turn into resistance. The break of support signals that supply has overcome the demand. Therefore, if the price returns to this level, there is likely to be an increase in supply, and hence resistance. The other situation is resistance turning into support. As the price advances above resistance, the breakout above resistance proves that the demand has overwhelmed the forces of supply. If the price returns to this level, there is an increase in demand and support will be found.
Investment: Technical Analysis basics 2
Introduction to technical analysis (for beginners)
Thanks to http://stockcharts.com/
Introduction to Charts
Technical analysts use charts to analyze securities and forecast price movements. For beginners, “securities” refers to any tradable financial instrument or index such as stocks, bonds, commodities, futures or market indices. Any security with price data over a period of time can be used to form charts for analysis. Because charts provide a graphical representation of a security's price movement over a specific time period, they can also be of great useful benefit to fundamental analysts, not just technical analysts. A graphical historical record makes it easy to hereby spot the effects of key events on a security's price, its performance over a time period and if it is trading near its highs, lows, or in-between. The time frame used depends on the compression of the data: intraday, daily, weekly, monthly, quarterly or annual data are the major time frames.
Daily data is made up of intraday data that has been compressed to show each day as a single data point, or period. Weekly data is made up of daily data that has been compressed to show each week as a single point. Traders usually concentrate on charts made up of daily and intraday data to forecast short-term price movements. The shorter the time frame and the less compressed the data is, the more detail that is available. Short-term charts can thus be volatile and contain a lot of noise. Large sudden price movements, wide high-low ranges and price gaps can affect volatility, which can distort the big picture.
Investors usually focus on weekly and monthly charts to spot long-term trends and forecast long-term price movements. Because long-term charts, typically 1-4 years, cover a longer time frame, price movements do not appear as extreme here and there is often less noise.
Some use a combination of long-term and short-term charts. Long-term charts are good for analyzing the larger big picture to get a broad perspective of historical price action. Once the general picture is analyzed, a daily chart can be used to zoom in on the last few months, and can thus provide perspective.
It seems that the most popular charting method is the bar chart. The high, low and close are required to form the price plot for each period of a bar chart. Bar charts can be displayed using the open, high, low and close. Bar charts can be effective for displaying a large amount of data. For instance, line charts show less clutter, but do not offer as much detail. The individual bars that make up the bar chart are relatively skinny, which allows users the ability to fit more bars. If you are not interested in the opening price, bar charts are an ideal and useful method for analyzing the close, relative to the high and low. In addition, bar charts that include the open will tend to get cluttered quicker.
If you are interested in opening price, candlestick charts offer a better alternative. Candlestick charts are quite popular nowadays. For a candlestick chart, the open, high, low and close are all presented here. Many traders and investors believe that candlestick charts are easy to read, especially the relationship between the open and close.
The beauty of point and figure charts is their simplicity. Little or no price movement is irrelevant and not duplicated. Only price movements that exceed specified levels are recorded here. This focus on price movement makes it easier to identify “support’ and “resistance” levels, “breakouts” and “breakdowns”, which will be dealt with in later posts in this blog on technical analysis.
“There are two methods for displaying the price scale along the y-axis: arithmetic and logarithmic. An arithmetic scale displays 10 points as the same vertical distance no matter the price level. Each unit of measure is the same throughout the entire scale. If a stock advances from 10 to 80 over a 6-month period, the move from 10 to 20 will appear to be the same distance as the move from 70 to 80.”
“A logarithmic scale measures price movements in percentage terms. An advance from 10 to 20 would represent an increase of 100%. An advance from 20 to 40 would also be 100%, as would an advance from 40 to 80. All three of these advances would appear as the same vertical distance on a logarithmic scale.”
Key points on the benefits of arithmetic and semi-log scales here:
Arithmetic scales are useful when the price range is confined within a relatively tight range. Arithmetic scales are useful for short-term trading. Price movements are shown in absolute dollar terms and reflect movements dollar for dollar.
Semi-log scales are useful when the price has moved significantly, be it over a short or extended time frame. Semi-log scales are useful for long-term charts to gauge the percentage movements over a long period of time. Large movements are put into perspective.
Stocks and many other securities are judged in relative terms through the use of ratios such as PE, Price/Revenues and Price/Book, hence it makes sense to analyze price movements in percentage terms.
Conclusions
Even though many different charting techniques are available, one method is not necessarily better than another. The data is the same but you can see that each method will provide its own interpretation, with its own particular benefits and drawbacks. Again, the data is the same and price action is what matters. It is the analysis of the price action that separates successful technical analysts from unsuccessful ones. The choice of which charting method to use will depend again on personal preferences and trading/investing styles. Once you have chosen a particular charting methodology, it is best to stick with it and learn how best to read the signals. Switching back and forth may cause confusion and undermine the focus of your analysis, giving rise to faulty analyses.
Investment: Technical Analysis basics 1
Investment: Technical Analysis basics 1
There are two common approaches when investigating any investment: fundamental and technical analysis. Fundamental analysis focuses on the company, looking at things like balance sheets, book value and price earnings ratios, and is used to determine if the stock being considered is a good long-term investment. Technical analysis focuses almost entirely on the stock price and its concomitant patterns. The fundamental assumption with fundamental analysis is that the stock price will reflect the company’s profitability. The more profitable the company is, the higher the stock price will be. Investors using fundamental analysis are certain that one follows the other.
Technical analysis, on the other hand, also called chart analysis, is based on completely different assumptions. The premise is that the market is made up of a large group of people behaving in predictable patterns. The challenge for technical analysts is to therefore find these patterns in the price movements. The patterns tend to become obscured in the price trends, since outside events tend to influence the movement of the price. These outside events tend to add noise that mask or change the price patterns of the stock. Technical analysis uses many tools or techniques. However, the goal is always to predict the price movement of the stock. If the prediction is correct, then a profit is made.
Fundamental analysis is considered more conservative than a technical analysis approach. There is far less agreement as to the soundness of technical analysis, but the appeal of technical analysis is the perception that one can make a profit more quickly than with a buy-and-hold approach, the typical result of fundamental analysis. The returns and payoffs differ from person to person.
So in short: What is Technical Analysis?
"Technical analysis is the practice of studying a stock’s past prices and trends in an attempt to determine its future prices and trends. People who utilize technical analysis often study charts and graphs of a particular stock, industry, or sector to find patterns."
I think this here is the best and simplest explanation that I've found!
Investing in the Stock Market to Make Money
Investing in the Stock Market
Assuming that you have some money capital, and want to become rich, there is the stock market. The stock market is one of the most consistent ways of making money if one knows how. This post will attempt to discuss how to invest in the stock market and make money, from the point of view of the Singapore stock exchange. Nonetheless, the lessons learnt are from great investors worldwide, and the lessons can be applied to every single country's exchange, with minor adapations. I myself am a fan of Warren Buffett's method of investment. Nonetheless, again, I think it's important for one to make up one's own mind and choose the approach suitable for oneself, when it comes to investing. True enough, modelling some famous investor could be useful, but "a poll is no substitute for thought"... if I remember Buffett correctly.
There are technical investors, fundamental (value) investors (of which Warren Buffett is the most famous exponent, along with his teacher Benjamin Graham), speculators, fund managers, etc. In this post and the next few, our point of focus will be on general education or ideas with respect to investment and capital appreciation. I will also recommend various models and various investors to learn from and to emulate; I'm not influencing your decisions in any way.
Anyways, these are my two recommended sites for Singaporean investors:
http://www.ses.com.sg/
http://www.poems.com.sg/
One leads to the Singapore stock exchange, and the other leads to POEMS, which is an online investment portal. Now due to modern technology, stock exchanges have gone online.
For American investors, the websites to know are:
http://www.amex.com/
http://www.nasdaq.com/
and the famous Standard and Poor's:
http://www2.standardandpoors.com/portal/site/sp/en/us/page.home/home/0,0,0,0,0,0,0,0,0,0,0,0,0,0,0,0.html
More posts here to come regarding the stock market and investment principles and ideas! Once again, stay tuned...
Top Paying Jobs
Top Paying Jobs in Singapore, the USA and the UK
I was rather curious about the top paying jobs worldwide. I guess most people who are interested in earning more money or who would like to get higher paying jobs would also be interested to know about such things. I am from Singapore, and naturally the first thing I wanted to know was "what are the top-paying jobs in Singapore"?
TOP TEN JOBS IN SINGAPORE
(income in Singapore dollars per month)
Managing director - $20,000
Commodities futures broker - $17,084
Financial futures dealer and broker - $16,667
General Manager - $15,417
Foreign exchange dealer and broker - $13,024
Company director - $12,680
Securities dealer and broker - $12,500
Specialised surgeon - $12,000
Risk management manager - $10,800
Creative director (Advertising) - $10,800
(August 5th 2007, from http://www.salary.sg/2007/top-100-jobs-in-singapore-2007/)
At the same time I also looked around for the top jobs in the USA:
TOP TWENTY JOBS IN THE USA
(income in US dollars per year)
1. Surgeon - $180,000
2. Anesthesiologists - $175,000
3. Obstetrician & Gynecologists - $171,000
4. Orthodontists - $163,500
5. Oral and Maxillofacial Surgeons - $160,500
6. Internists, General - $156,550
7. Psychiatrists - $146,150
8. Prosthodontists - $146,080
9. Family and General Practitioners - $140,370
10. Chief Executives - $139,810
11. Pediatricians, General - $139,230
12. Airline Pilots, Copilots, and Flight Engineers - $135,040
13. Dentists, General - $133,680
14. Podiatrists - $111,250
15. Lawyers - $110,520
16. Air Traffic Controllers - $105,820
17. Engineering Managers - $105,470
18. Computer and Information Systems Managers - $102,360
19. Marketing Managers - $101,990
20. Astronomers - $101,360
(March 2008, from http://www.associatedcontent.com/article/676287/top_paying_jobs_in_the_usa.html)
And of course since I am currently based in the UK ... here are the top UK jobs...
TOP TEN JOBS IN THE UK
(income in pounds per year)
Investment banking £36,000
Legal work £31,000
Consulting £28,500
Actuarial work £25,750
Accountancy £23,000
Financial management £25,000
IT £28,000
Mechanical engineering £21,800
Marketing £22,000
Manufacturing engineering £22,000
(July 2007, from http://www.allanbrisbane.com/weblog/worklife/highest-paid-uk-jobs/)
See also: http://www.careerbuilder.co.uk/UK/JobSeeker/CareerAdvice/ViewArticle.aspx?articleid=27&cbRecursionCnt=1&cbsid=9e2b072346704c0aa4916a265a4b2010-255521540-JG-5
Might be worth a try aiming for those kinds of jobs if you want to earn that kind of salary! One way of becoming incredibly rich and wealthy is to get a high paying job, of course. In any case, I shall try to compile these kinds of lists here every year, revisiting them, and I will make comparisons if the jobs change drastically, or if they have some common trends, etc. If you're interested, I would strongly recommend forbes.com for US salaries, so you can see how salaries increase or decrease according to trends and years, etc.
Cheers!
How to get rich, the Nido Qubein mentality way...
Let's get started :)
Anyways, as this blog is all about how to become rich and making money, regardless of age, current occupation, inclination, etc... and I intend to cover every possible angle from small business ideas to NLP to investment principles, especially making case studies of the rich and famous, and let you make up your own mind as to the correct approach for you, it doesn't really matter where I begin.
I'm introducing Nido Qubein today...
http://www.nidoqubein.com/index.cfm
I was watching youtube today when I came across this motivational speaker, Nido Qubein. I honestly think what he says is very interesting, positive and has the ability to change people's lives.
First: making money has to do with a mentality and a mindset, and here, he gives us a taste of how to have the right mindet, mentality and how to set goals, persuade, and so on. The ultimate goal is how to make money, and to do that we need to learn the intermediate skills of persuasion and negotiation and mentality, and the like.
I'm not paid by him or anything, but I was truly inspired by his ideas. Hence, here are some nuggets of wisdom regarding persuasion:
Ten Secrets of Persuasion
Let's look at the way skilled professionals put power into their ability to persuade.
(1) Be positive.
(2) Prospect.
(3) Prepare.
(4) Perform.
(5) Be perceptive.
(6) Probe.
(7) Personalize.
(8) Please (make them happy).
(9) Prove.
(10) Persist.
And also:
Solid Strategies = Solid Success
Success results from a solid strategy.
The first step is to translate your vision into measurable and achievable goals.
You decide specifically what you want to accomplish during the next five to ten years - those are your long range goals.
Next, you break those goals down into intermediate goals - things you wish to accomplish during the next six months or year.
The second step is to break your goals down into achievable objectives.
Objectives add purpose and direction to all your activities.
The third step is to set up your strategies for accomplishing your objectives.
Fourth, you choose each task you must complete each day to achieve your goals.
All these great ideas of his are available on his website and on youtube.
Worth taking a long hard look :)
How to become rich!
