Stock Market Investing 101 http://www.stockmarketinvesting101.com Winning in the Stock Market Mon, 15 Jun 2015 09:36:55 +0000 en-US hourly 1 https://wordpress.org/?v=4.4.2 Value Investing Summit 2012 http://www.stockmarketinvesting101.com/value-investing-summit-2012/ http://www.stockmarketinvesting101.com/value-investing-summit-2012/#comments Wed, 23 Nov 2011 09:16:09 +0000 http://www.stockmarketinvesting101.com/?p=335

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Are you read for the biggest mega event to kick start your new year ?

Don’t miss the upcoming Value Investing Summit that will be held in Singapore in February 2012.

Value Investing Summit has lined up a group of speakers who have, in total, control a US$1.1 BILLION worth of investments.

Yes, a BILLION… the one with the capital B.

If you want to pick up the art of investing… especially if you are a fan of Warren Buffett, then you may not want to miss this mega event of the year.

More details about the event can be found on the website itself, including the speaker profile, what the event is about and the topics, strategies and secrets that will be disclose and revealed in this 2 day mega event.

But you need to be fast, because this event is only limited to 500 seats… and once its gone, its gone.

The economy is gloomy… and opportunity is presenting itself in front of you. In 2008, 19,897 new millionaires emerged from the crisis… and more will make their million dollar mark this coming one.

There couldn’t be a better time to learn about how you can take advantage of the economy and buy low… sell high…

Click the link to read more —- Value Investing Summit 2012

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The Wisdom in Value Investing http://www.stockmarketinvesting101.com/the-wisdom-in-value-investing/ http://www.stockmarketinvesting101.com/the-wisdom-in-value-investing/#respond Thu, 17 Nov 2011 03:07:31 +0000 http://www.stockmarketinvesting101.com/?p=325

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The investment strategy that proves most effective in the market is value investing. It has become widespread because of the successes Warren Buffett achieved using this. The founder of Berkshire Hathaway reaped billions because he adheres to the principle made popular by Benjamin Graham; to buy stocks when they are discounted from their true intrinsic value.

Value investing singles out stocks or bonds undervalued greatly by the stock market. However, this is entirely different from a cheap investment. An undervalued investment, although bought at a lower price, still contains a high value because of its selling potential.

Many value investors make use of blue chip stocks as their key tool in value investing. According to the New York Stock Exchange, a blue-chip stock is a stock with a reputation for reliability, quality, and has the ability to work profitably well in good and bad situations. It becomes the ultimate embodiment of a value investing strategy. The investors eye these companies when the stock prices fall greatly to make it a undervalued.

Investors have more chances of success when they focus on companies trading at low prices but with high intrinsic value over those whose sole focus are on high-growth stocks.

However simple this strategy may seem, there are things that investors should always be wary about to maximize the potential of value investing.

1. Value for time. Patience is a good market strategy because trades that are well-executed have time invested. It is known that value increases over time, and when an investment is given much time to grow then an investor will definitely have a huge return. No one can expect an overnight return of investment, but playing the stocks patiently will definitely produce profitable outcomes.

2. Safe market. There is little risk to value investing since investors don’t wait for the right time to sell or buy stocks. Investors are only concerned with how cheap or expensive an item is, such that changes in the market will not influence inappropriate decisions. The good thing about value investing is that it is a safe ground for reluctant players, or to those who just want to be safe.

3. No technical analysis. There is no need to delve on the companies and how their stock prices move in the market. Value investing involves fundamental analysis instead – doing proper research and due diligence into the discovering the true intrinsic value of a company.

When used properly, value investing provides a simple yet effective method to manage risks and improve return. No one knows who will become the next Mr. Buffett, but before becoming one, it is wise to get familiar with all the risks and benefits of this certain strategy. It is always the educated investors who will reap good returns in the end.

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Financial Ratios Warren Buffett Uses When Analyzing Companies http://www.stockmarketinvesting101.com/financial-ratios-warren-buffett-uses-when-analyzing-companies/ http://www.stockmarketinvesting101.com/financial-ratios-warren-buffett-uses-when-analyzing-companies/#comments Sun, 02 Oct 2011 07:12:11 +0000 http://www.stockmarketinvesting101.com/?p=131

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Warren Buffet is one of the most successful investors in the United States and is also considered to be among the most successful business man in the world. When analyzing companies, Warren Buffett (in view of how he selects his business) uses the following financial ratios.

Return on Equity (ROE)

ROE measures the rate of return on the ownership interest (shareholders’ equity) of the common stock owners. It measures a firm’s efficiency at generating profits from every unit of shareholders’ equity (also known as net assets or assets minus liabilities). ROE shows how good a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are considered desirable. The formula represents the fiscal year’s net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage.

Intrinsic Value

Intrinsic Value is the actual value of a company in terms of both tangible and intangible factors, based on assets, on an underlying perception of its true value including all aspects of the business. This can be much different from what the market value is. Warren Buffett hasn’t exactly published his formula for what he calls the intrinsic value of a company, but he has dropped a number of hints.

Analysts agree he probably multiplies the estimated future earnings by a confidence margin between zero and a hundred. He uses there probable earnings and compares it to something he has total confidence in, by using a U.S. treasury yield as the rate (discounted).

Retained Earnings

The percentage of net earnings (not paid outÊas dividends to shareholders,) but retained by the company to be reinvested in its core business or to pay debt.

The formula calculates retained earnings by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders:

Also known as the “retention ratio” or “retained surplus”. Warren Buffett, determines that the management of a company is competent, when they can use the retained earnings well. If the management uses them foolishly, then Buffet would rather go with companies who give shareholders full dividends.

Profit Margins

Profit margin is simply profit divided by sales. This means that there are as many measures of profit margin as there are measures of profit. Buffett looks for companies with above-average profit margins. Net profit margin equals to the total net income divided by total sales for the same period.

For instance, a company would have a 20% net profit margin if it earned $20 million on sales of $100 million ($20 million divided by $100 million).

The higher the net profit margin, then a higher profitability can be expected from the company.

Owner’s Earnings

Warren Buffett uses a calculation called Owner’s Earnings which determines how much actual cash a company can produce for a true owner. Things like goodwill, depreciation, or huge pension returns make up these factors. These are good ÒbuyÓ signals for companies with consistent growth. The discounts means very little for inconsistent growers and heavily cyclical companies. He has referred to the owner earnings of a company as the true measure of earnings. He has defined Ôowner earning’s as: Reported earnings + depreciation, amortization, other non-cash items – average annual amount of capitalized spending on plant, machinery, equipment (and presumably research and development).

All in all, these are just some of the top five ratios and considerations Warren Buffett uses to analyze companies and where to invest.

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3 Tips From Warren Buffett To Avoid The Next High Tech Massacre http://www.stockmarketinvesting101.com/3-tips-from-warren-buffett-to-avoid-the-next-high-tech-massacre/ http://www.stockmarketinvesting101.com/3-tips-from-warren-buffett-to-avoid-the-next-high-tech-massacre/#respond Sun, 02 Oct 2011 03:57:05 +0000 http://www.stockmarketinvesting101.com/?p=100

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The technology rally that began in the mid-1990s was characterized by a large number of internet-based startups and other technology companies trading at obnoxiously high earnings multiples. In most cases, these newly listed technology companies commanded crazy valuations in spite of never making a profit.

Legendary value investor Warren Buffett kept away from the tech rally and his company Berkshire Hathaway was the only major financial institution which did not invest in a single tech stock. On being asked about his aversion to tech companies, Buffett clearly replied that while he had nothing against tech companies, he was unable to understand their business models and predict their future earnings and this made him stay away from the technology sector as a whole.

A number of financial “analysts” and “experts” criticized Buffett and many even called him a “dinosaur” for not investing in tech stocks. Surprisingly, when the tech bubble burst a few years later in 2000, the above-mentioned analysts had lost their clients billions of dollars while Buffett emerged unscathed and relatively richer.

So what “secret weapon” does Buffett use to spot speculative bubbles and stay away from them? Let’s find out.

1. Invest in businesses you can understand

“There are all kinds of businesses that Charlie and I don’t understand, but that doesn’t cause us to stay up at night. It just means we go on to the next one, and that’s what the individual investor should do.”

The above Buffett quote illustrates the fact that Buffett and others at Berkshire Hathaway have always followed this rule thoroughly. This rule kept him away from the tech bubble in the 1990s and the real estate bubble in the 2000s. Buffett prefers stocks with a solid track record and businesses that are easy to understand and assess. As retail investors, we too can use this rule to stay away from risky investments that can lead to massive losses later on.

2. Buy value

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

This popular Buffett quote indicates that investors are better off buying low priced value stocks instead of getting into hot growth stocks which tend to be very expensive and richly valued. This protects your investment even if the market crashes and is a sure-shot way to survive any equity bubble.

3. Stay away from the latest fad

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

This Buffett quote advises people to stay away from popular stocks and the latest investment fads. Most popular investment ideas generally attract a lot of public participation and when the whole mob gets in, the stock in question tends to top out sooner than later. The same thing is true for entire business sectors; the tech sector bust in the 1990s and the real estate sector crash in the late 2000s are glaring examples of what happens after most buying frenzies.

Use the above-mentioned advice to stay away from the next equity bubble. Instead, use your time and money to create a long-term portfolio of value stocks. Value investing is the only time-tested and proven method that allows you to consistently make money in the equity markets. Learn the basics of value investing by signing up for the Millionaire Investor Program 2-Hour Seminar. It’s totally free of charge!

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12 Helpful Strategies For Investors http://www.stockmarketinvesting101.com/12-helpful-strategies-for-investors/ http://www.stockmarketinvesting101.com/12-helpful-strategies-for-investors/#comments Wed, 28 Sep 2011 08:04:49 +0000 http://www.stockmarketinvesting101.com/?p=149

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An investment marketplace is a market which generally benefits by supplying recommendations to people.

You will frequently get electronic mails from so-called investment professionals that supply you investment guidance, but in actuality is often a marketing and advertising scheme to purchase their investment publication:

This might seem an everyday staple in your electronic mails:

“Shop for gold – double your hard earned cash within 14 days!”

“I located this secret gem corporation – however, you need to sign up before I say to you just what it is.”

“I have acquired 250% not too long ago by just making an investment in these firms.”

Though stock market trading is a hard job for novice investors, these guidelines can supply a map for investors:

1. Keep in mind that the individual investor has edge over institutions. The chief edge is the fact that capability of investors to keep funds even though huge financial resources are dictated to be almost absolutely dedicated to almost any markets. The benefit of owning funds is to hold funds whenever the marketplace is heating up and use the funds if there will be bargain chances.

2. To actually reduce your drawback, be protected completely. Protecting one’s drawback is usually essential for investors. The main aim of an investor is not really to earn so much wealth, but instead retaining one’s wealth.

3. Work in accordance with your decision, not the general point of view. Anytime purchasing a stock, never wait for affirmation from the so-called pros. Most of the time, specialists agree on the overall appeal of a stock after it has actually multiplied in price.

4. Purchase an enterprise that you fully understand. If you don’t fully understand something, don’t engage in it. Warren Buffett would generally feature that the rationale he stands to companies he recognize is that he can come with an analytical edge on the particular person on the reverse side of the trade.

5. Always be accountable for your personal judgments. You can’t blame others if you ever made an investment error. Your decision to get or sell a stock has to be yours alone – irrespective of whether an agent furnished you a report or not. Admitting your investment errors is one key to establishing your decision-making abilities.

6. If scrutinizing companies, consider both previous and future. In studying companies, the investor need to check out regardless of whether there is some regularity in earlier overall performance. Thereafter, he might possibly check out the Chairman’s message to find out any alteration of the company’s technique or strategies. The fundamental target is how earlier general performance and perspective can affect success.

7. It is actually essential to examine management. Warren Buffett has placed a great relevance in assessing management. Get companies with management that allots capital proficiently. These businesses often times have returns on capital which are far better as compared to their counterparts on their industry. Additionally, it is also critical that management’s interests are in-line with its investors.

8. Center on the following facets on the yearly reviews:

a. Firm press releases, news as well as reviews

b. Management’s previous operation and programs in the future

c. Take a look at non-recurring gains or losses

d. Assess the general performance of the company’s products and solutions and markets the corporation serves.

e. Pinpoint the return on assets applied, net gain margin and revenue to assets percentages.

f. Take notice of operating and non-operating factors of the net profit file

9. Diversify – however, not excessively. Although it is best to diversify to guard you from unforeseen incidents, it’s not a good idea to diversity excessively. Because of a lot of stocks in your portfolio, you’ll find a difficult time checking up on news and updates of the business.

10. Be mindful with expert (broker’s) report. Utilize the analysis reviews of investment houses as the lead for your investment conclusions. Tend not to follow them without consideration. These professionals are less likely to post anything bad and possibly too useful to the companies they covered.

11. Free Cash flow is king. Pay attention to the funds flows generated by the business. An indicator of an excellent corporation is usually that it regularly makes impressive money flows year in and out.

12. The optimum time to get blue chips is soon after a market freeze as well as early phases of retrieval. Normally with this investment phase, institutions acquire good and also solid large caps first before purchasing other things. When these blue chips obtain acceptable values, the market will turn its focus to small caps stocks with positive revenue possibilities.

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Invest In Business Ideas Which Are Worth Your Time http://www.stockmarketinvesting101.com/invest-in-business-ideas-which-are-worth-your-time/ http://www.stockmarketinvesting101.com/invest-in-business-ideas-which-are-worth-your-time/#respond Mon, 26 Sep 2011 03:32:53 +0000 http://www.stockmarketinvesting101.com/?p=91

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If you believe investing wisely, you should choose to invest in business plans which provide you with maximum returns. Very often investors run behind the term value investing without understanding the underlying meanings. Seek professional help if required.

Getting proper and adequate information about value investing is very essential. Smart stock market investing calls for asking the right kind of questions that will determine the quality of business and its long-term returns. Having appropriate information is more likely to help you invest in business plans that will build your wealth portfolio.

Here are some tips that will help you identify excellent businesses:

Durable competitive advantage: Competitive businesses provide its investors with things that its competitors are not able to provide. This property is called as the durable competitive advantage. These benefits may be spotted easily unless they are buried deep. To obtain returns out of stock market investing plans, you must identify and invest in business plans that have durable competitive properties. It must have capacities to withstand market and competitor attacks.

Good returns without any debt: Purchasing assets like bonds, stocks, mutual funds, etc., that focus at value investing, without any debts, is an excellent way to identify worthy businesses. However, the chief deficiency of this idea is that the assets which are purchased at cheaper costs should be sold out only when its intrinsic value is reached but for an excellent idea, you may make an exception.

All excellent businesses are scalable: If a business is very successful; a key ingredient is its scalability. It is proven that all successful businesses rule as they have products and services which can be reproduced quite rapidly. For instance, McDonald’s in Chicago is quite alike the McDonald’s in Hong Kong. The crux is that designing such layouts, menus, technologies, and fixtures that could be rapidly rolled out. For example, the McDonald’s that originated in the United States, is now present all around the globe. Its comparatively high returns on capital makes it a business which is worth your money.

Excellent businesses are still quite cheap: During 1960’s-1970’s many investors paid nearly seventy to eighty times for buying so called good businesses. This was a ridiculous phase in the race of earning profits and buying excellent businesses. Those days proved the theory of ‘price is right’ in the markets. Even if someone purchased a business which was entirely cracked up, people would not think about the price before purchasing it. However, it would be all most impossible to obtain somewhat satisfactory and substantially long-term profits. The main thing is that investing in business plans which have comparatively lesser costs may actually lead to higher success and return rates in comparison with the ones that demand huge capital investments. Identifying the business’ correct price for the sake of investment is the key towards making long term profits. One must not get into very high paying stock market investing plans that may never pay off very well.

These are only some of the pointers. Using these will surely prove to be helpful in making choices when you are looking for excellent businesses that are worth investing in.

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6 Ways To Identify A Company with Economic Moat For Stock Marketing Investing http://www.stockmarketinvesting101.com/6-ways-to-identify-a-company-with-economic-moat-for-stock-marketing-investing/ http://www.stockmarketinvesting101.com/6-ways-to-identify-a-company-with-economic-moat-for-stock-marketing-investing/#comments Sun, 25 Sep 2011 07:26:13 +0000 http://www.stockmarketinvesting101.com/?p=133

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What if someone told you that he has a formula for generating above-average returns in the stock market for a long period of time?

How much would you pay for that formula?

Here’s the good news: You don’t have to pay for it. And the best part is, you don’t have to look anywhere to find it.

The secret to generating above-average returns is from Warren Buffett himself. According to Warren Buffett, the key to successful investing is finding companies that possess a durable economic moat.

Defining Economic Moat

A moat is a broad ditch filled with water that surrounds the castle. The primary purpose of the moat is to make it difficult for enemies to attack the castle. In an analogy, a company possessing a wide economic moat stops its competitors from attacking the company’s competitive position.

Got Moat?

Here are 6 ways how to find companies with durable economic moats:

1.    Identifiable brand.  It’s easy to spot a company with an economic moat. Start with a famous brand. Think of Coca-cola, McDonald’s, Mercedes Benz, Starbucks, Disney and Apple. A strong brand sticks to the consumer’s mind. When you think of Disney, you associate to happiness. No wonder Disney is one of the most profitable companies in the world.

2.    Intangible Assets like exclusive rights or patents.  A patent or copyright suggests that the company has the exclusive right to manufacture or sell the products. For example, a pharmaceutical company that manufactures and sells profitable drugs is protected from patent and rights. That is why when a patent is set to expire, investors of a pharmaceutical company usually is worried about the future outlook.

3.    Focus on long-term profitability. A company that focuses on long-term profitability creates an advantage from anticipating unforeseen events in the future. This exercise will also guarantee that the company will make strategies that will have impact on future growth.

4.    High Switching Costs. Companies that have products that have high switching costs usually have an advantage. Think of a very long time Microsoft user. It would take him several months before getting used to an Apple Computer so he’d probably decide to ditch the idea of getting one.

5.    High barriers to entry from High Capital Requirements. There are industries that require high capital to enter. This creates a natural economic moat. This also limits future competition. A good example of this is a telecommunications company. For a new entrant to go head to head with an incumbent, it will require huge capital investment.

6.    Low cost producer.  A low cost producer creates a moat as it sells lower priced goods to its customers. The source of cost advantage can be learning curve, a patented technology that can lower manufacturing costs or location that produces overall lower cost of production. Competitors could not lower their prices as it would cause margin compression.

The best part of the search process is that these companies are everywhere. You don’t have to be a genius to figure out that the company has an economic moat.

Here’s a practical suggestion: Go to a supermarket and notice what products people are buying. More often than not, these brands are produced by companies that possess economic moat.

What’s the formula to above-average returns in stock marketing investing?

Two words – Economic Moat

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Stock Market Investing – How Warren Buffett Discovered Coca Cola http://www.stockmarketinvesting101.com/stock-market-investing-how-warren-buffett-discovered-coca-cola/ http://www.stockmarketinvesting101.com/stock-market-investing-how-warren-buffett-discovered-coca-cola/#respond Sat, 24 Sep 2011 03:27:01 +0000 http://www.stockmarketinvesting101.com/?p=88

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As a child, Warren Buffett already had the gift of an amazing aptitude for both money and business.  At only six years old, he purchased 6-packs of Coca Cola from his grandfather’s grocery store for twenty-five cents and resold each bottle for a nickel, pocketing for himself a five-cent profit.  This may have very well been a sign of bigger things to come for him, such as stock market investing.

The Miracle of Coca Cola

The Coca Cola Company, makers of Coke (with the stock symbol of KO NYSE) is the world’s largest manufacturer, marketer, and distributor of carbonated drink concentrates and syrups to date.  This began in 1886 and is now being sold in more than 200 countries worldwide.

Warren Buffett’s Stock Market Investing Style

Due to Warren Buffett’s business successes, many books have been written about Buffett’s investment style.  On the whole, his investment philosophy is actually fairly easy to understand.  It basically just takes common sense.  His genius though lies in how he uses these principles to identify investment opportunities with resounding success.

Let us have a closer look into the factors that Buffett would take into consideration before buying stocks of a particular company:

Circle of competence

Buffett confines himself to businesses he can analyze and understand.  He calls these businesses as those which are within his “circle of competence.” For you to predict how a business will perform in the future, you have to know it intimately.  Buffet’s circle of competence are exactly those that his Berkshire Hathaway has purchased; and this shows a trend — banking, insurance and consumer goods.

Quality of Management

Buffett looks at how rational the company management behaves, how good it is in generating shareholder value.  He also looks at the management’s honesty to its shareholders.  Finally, he looks for companies where the management thinks for itself and does not blindly follow its competitors.

Financial Condition

Buffett always looks for what he calls “wide moat” companies. These are businesses with a distinct edge from their competitors; these are those who have built a moat around them which keeps others far away. The wide moat is reflected in the company’s strong financial position.

Value

Buffett values companies based on a projection of how much free cash flow they will generate in the future. Once he arrives at their instrinsic value, as what his mentor Benjamin Graham has taught him, he then applies a margin of safety to calculate a price he thinks is reasonable.

So after careful evaluation, once Buffett finds a company which meets all these requirements, he then purchases a significant amount of stock in that company, which is actually a focused stock market investing approach that puts meaningful amounts of money in a few companies.

The Shock That Beheld The World of Stock Market Investing

Warren Buffett made a big bang in stock market investing when he purchased stocks from Coca Cola in 1988.  The financial market was stunned by this undertaking since during this time, a lot of Wall Street analysts had deemed Coca Cola as a “very expensive stock” to consider for stock market investing

At a time when no other financial guru saw it as a good investment, Buffett acquired 7% of Coca-Cola stocks or 94 million shares of Coca Cola.  This meant a total investment of $1.02 billion or at an average price of $5.46 per share.  By the end of 1989, Coca Cola represented 35% of Berkshire Hathaway common stock portfolio.

Why Warren Buffett Chose Coca Cola

The financial world knows Warren Buffett is the duke of stock market investing; but why Coca Cola?

According to Buffet, the company was undervalued.  The market felt the company value was $15.1 billion. While Buffett felt it was worth anywhere from $20.7 billion to $48.3 billion.  So, like his mentor Benjamin Graham, Buffett felt there was a huge margin of safety — the discount of intrinsic value.  Other investment gurus though looked at Coke as overvalued.

Aside from this, it had addressed the previous points discussed earlier.  Buffett considers Coca-Cola “inevitable” where it has low business risk and is suitable for long-term holding, thus a good candidate for stock market investing.  He also finds that Coca-Cola has a simple and understandable business.  Apart from that, Coca-Cola also showed very high cash flow or “owner earnings.”

Buffett always advises investors to study the raw data in the financial statement and to trust our own eyes rather than analysts’ summaries.  Given the strong performance and certainty in management quality, Buffett felt highly confident that he would be rewarded by the management’s ability to generate more owner earnings and to realise the full potential of the business.

Thus, as of December 31, 2007, Berkshire Hathaway owned 200 million Coca-Cola stocks, or 8.6% of the company’s outstanding shares.  Based on the market value dated the same time, Buffett achieved an annual compounded capital gain of 11.9% for 20 years. However, if we include all the dividends received, it is believe that his return from this stock may be more than 20% per annum!

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6 Case Studies How Stock Market Trading Failed http://www.stockmarketinvesting101.com/6-case-studies-how-stock-market-trading-failed/ http://www.stockmarketinvesting101.com/6-case-studies-how-stock-market-trading-failed/#respond Thu, 22 Sep 2011 03:20:16 +0000 http://www.stockmarketinvesting101.com/?p=84

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The school of thought regarding whether Stock Market Technical Analysis works or not is quite divided and strongly debated in the industry. Those who support their credibility are of the opinion that Stock Market analysis never claimed to be 100% accurate, rather they are 50%-70% accurate most of the time. The other school of thought argues that stock market analysis has never been able to deliver results consistently and time after time in financial history we have seen stock market technical analysis fail with brutal consequences.

Barbara Rockefeller, an economist specializing in foreign exchange, stock indices and author of many best sellers, writes in her column that stock market analysts are more consistently wrong then right. Since market analysts depend on technical tools and method, they often fail to consider the crucial human factor. In the past, market analysts who based their prediction on recorded behavior patterns and past trends failed to predict major economic changes because they didn’t expect a certain trend to come to an end or the change in the usual behavior pattern of the market.

Case Study #1 – Collapse of Barings Bank

The history of speculative trading gone wrong dates back long before the Chicago Board of Trade came into existence in the 1850s to herald the trade in stocks. One of the earliest cases that made the headlines was the collapse of Barings Bank, one of the top investment banks of the UK.

Nick Leeson, one of the bank’s investment managers and the man credited to have single handedly bought the bank down, lost around $1.4 billion by investing the banks money on his market speculations.

Initially his speculations were spot on and made a $10 million profit for the bank. However, his speculation that the Nikkei index of Japans biggest stocks will remain steady and his subsequent investment in it led to an enormous loss as the Kobe earthquake of January 1995 brought the NIKKEI crashing down.

Case Study #2 – Long-Term Capital Management….And How They Failed

While one can argue that his was a special case since he couldn’t predict an earthquake, we can hardly apply the same excuse when Nobel Prize winning economists suffer similar losses. In 1997, Professor Robert C. Merton of Harvard University and Professor Myron S. Scholes of Stanford University, joint holders of the Nobel Prize for economics for their method of determining the value of derivatives, developed a formula for the valuation of stock options, in collaboration with Fischer Black.

This formula has facilitated many modern stock market analysis tools and methods. In 1998, Long Term Capital Management, a hedge fund where these two were principal shareholders had to be rescued at the cost of $3.5 billion, since its collapse would have affected the global financial markets severely. Obviously, even the pioneers of today’s stock market analysis tools couldn’t predict their own downfall.

Case Study #3 – Fall of Enron

In the 21st Century we have a number of cases where stock market analysis failed and brought corporate giants to their knees. There were a number of cases involving stock market fraud as well, like the case of ENRON that impacted the economy. This company had built its reputation as the world’s biggest energy trader simply by manipulating the books.  It had a huge effect on the economy as people rushed to sell its highly priced stocks within minutes of the story hitting the press.

Case Study #4 – Massive Losses for China Aviation

In 2004, China Aviation lost a staggering $550m by trading according to market analysis which failed to predict the downturn in the aviation industry caused by combination of bad weather and the worsening global economic climate.

Case Study #5 – Downfall of Amaranth Advisors

Amaranth Advisors, traders in energy stocks made a fortune in 2005 by placing bullish bets on natural gas market, which was bolstered by the effect of Hurricane Katrina on natural gas production and delivery.

The company predicted a similar trend in 2007-2008 and ended up losing $6 billion in less than a month as contract prices in the energy market fell drastically. This again proves that market analysts deliver consistently.

The year 2007 also saw the beginning of the biggest global financial meltdown since the great depression, as US and UK economy were hit by credit crunch, resulting from risky trading by Banks and Credit Card companies. Investigations into the meltdown have revealed how industry analysts not only failed to predict this crash, some of the market analysis and speculations were even responsible for magnifying the meltdown.

To sum up we can say that while market analysis can be correct sometimes, it has been wrong quite often and with disastrous results. Therefore, trading based on stock market technical analysis can be considered as safe as trading without such input.

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6 Simple Tips To Better Your Value Investing http://www.stockmarketinvesting101.com/6-simple-tips-to-better-your-value-investing/ http://www.stockmarketinvesting101.com/6-simple-tips-to-better-your-value-investing/#respond Tue, 20 Sep 2011 03:15:18 +0000 http://www.stockmarketinvesting101.com/?p=82

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As an investor, here are some useful things to know before you invest in the stock market.

1. Attend classes which involve the study of the basic principles of stock market and value investing.

2. Read books which involve stock market investing in order to broaden your knowledge and skills.

3. Learn to be patient. You cannot find stocks which are fundamentally sound and undervalued in the market every day, every other day, a week, or even a month.

4. Invest in something you are very familiar with. Having knowledge on a particular type of investment would give you an advantage over others who do not have experience and know little information about it.

5. Take things slow and be cool. In order to know how to invest in the stock market effectively, you must be able to take in information and consider its merits fully.

6. Do not blindly follow the crowd. When the whole world wants to buy then sell! And when everybody is selling, choose to buy.

That’s it! Six simple tips to follow to better your value investing today!

For more insights and real life strategies on how to consistently bag multiple baggers from the stock market, visit out website to sign up for a free preview seminar – Millionaire Investor Program

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