BEWARE OF 2550% PENNY STOCK GAINS ADS

Have you seen stock advertisements like this online that make fantastic claims?


I see them all too frequently and while I don't know whether they are scams, I do know that penny stocks are very dangerous. For the ad above, I clicked through to the site and immediately went down to the bottom of the page looking for a disclaimer or terms & conditions section.

I found a Disclaimer link and was taken to a page of solid legal writing but I didn't have to go far to find something very interesting and very scary. The VERY FIRST sentence on the disclaimer page was this:


Clearly this is NOT something you want to read before you pull out your wallet to pay for some penny stock picking system or sign up to their newsletter. You can lose YOUR ENTIRE INVESTMENT!

That, in a nutshell is why penny stock are so risky. They shouldn't ever be bought by beginners and yet so often they attract a beginner's attention because they are cheap. Ads like these are good at getting the attention of novice investors and those are the very people that should stay as far away from penny stocks as possible.

My advice would be to resist the temptation of clicking on an ad like this and to NOT sign up for any newsletter. You will just get in trouble and probably lose money if you get involved later on. Instead, go out and buy a copy of The Stock Market For Dummies and learn the basics of stock investing so you can put your money in stocks that have a chance of going up and making you money!

STOCK MARKET: LOW VOLUME = HIGH VOLATILITY

Is it a good time to buy stocks when the market shows low volume like we will see this week during Thanksgiving? A lot of people are busy with family events and others are out shopping which means little time will be devoted to thinking about stocks and planning their investments.

It is during low volume weeks like these that we often see a lot higher volatility. When fewer people are buying and selling during these slow days, the stock trades that do occur move the market up and down a lot more than they do during normal volume trading days. Low volume = increased volatility.

Day traders love the market to be volatile because they make their money quickly when the market moves one way or another. When the market is moving sideways, it is harder for them to pick a direction.

On Monday we have already seen the stock market go down over 300 points before making a little bit of a comeback towards the end of the day. More worries from Europe and an impasse from the 12 member Congress Super Committee debating the U.S. debt ceiling was responsible today for the down day. But because of the low trading volume, it was probably a worse day for the Dow than it would have been had it not been a big holiday week.

Buying stocks when volume is low means you have to be prepared to see the market go up or down more than it might during other weeks. If you are an investor buying stocks for the long haul, it probably won't matter if you pay a bit more or a bit less (depending on whether your stock goes up or down) for your stocks. Just be warned that the prices of the stock(s) you are interested in might be moving more than usual just because of the low volume.

BEST STOCK BROKER COMMERCIALS

Online stock brokers usually have pretty dull commercials but there is one company that has chosen to make their pitch a bit more interesting - E*Trade.

I don't have any statistics to be able to tell you how well these ads work but E*Trade has gone exclusively with these baby commercials since their debut during the 2008 Super Bowl. To me that surely means they must be working and I'll tell you why I think they do:

1) First of, all they are lighthearted, funny, and cute. You can't go wrong with that.
2) They make saving and investing look fun as the E*Trade baby is always upbeat and totally into his portfolio.
3) These commercials take the fear out of investing. If that baby can do it then so can you.
4) That baby and his friends are cool, hip, or whatever current day term you want to use. That makes the commercials cool and also makes E*Trade cool.

In reality, investing is a boring subject but these advertisements make it sound fun. Fast Company writes that in response to that first Super Bowl ad, E*Trade had more sign ups the next day than in any day prior in their history. These TV spots are memorable and that is good for the brand as long as people remember what the ads are selling.

E*Trade was one of the pioneers of online stock trading and they also have the most recognizable commercials on television. They also have a great trading platform which I use. Here is a video showing many of the E*Trade baby commercials that have become so popular.

OCCUPY WALL STREET IS NOT ABOUT STOCKS

Have you heard of the new social movement called Occupy Wall Street? Protests are spreading around the country and slowly making their way to many of the major cities. This movement is being fueled online through many of the social websites like Twitter and you probably will be hearing more and more about it in the news in the coming weeks.

You might be wondering what Occupy Wall Street is all about and what does it have to do with the stock market? Actually, it has little to do with stocks as it is a growing group of people who are disenfranchised, often out of work and in debt, and angry because they think corporate America is making millionaires of the few and leaving everyone else behind.

"Wall Street" is the business district of New York and for anyone who buys and sells stocks it also represents the stock market. While these protestors are angry at high corporate profits and injustices they think abound in the business world, their protests involve much more than the stock market. Like most protests, the majority of people marching are under 30 years old.

The Internet and sites like Facebook, Twitter, and others are becoming important ways people organize and we all saw how they played a big part in the protests in Egypt which were responsible for ousting Hosni Mubarak. Occupy Wall Street will probably fizzle out eventually but it shows how the bad economy, high education prices, low wages, corporate bailouts, corrupt politicians, and other perceived problems with today's society are affecting the minds of today's younger generations.

They are angry it is clear, but they aren't angry specifically at the stock market like the name might imply.

GET FREE REAL TIME STOCK QUOTES AT YAHOO FINANCE

Finding online real time stock quotes that are truly free can be difficult. Many of the online discount stock brokers do offer real time quotes but they aren't free as you have to pay a monthly fee to get them. For people who trade only once in a while, it is hard to justify paying that fee for something that you would think should be included with your account.

Over at Yahoo Finance (free) though, you do get real time quotes, or at least as close to them as you can get. See the picture below with the small blue "real time" quote of -$2.85 which is about a dollar better than the $3.82 you see in the body of the data. Usually, where ever you get your quotes, you would only see the $3.82 price.
You must understand though, that the market moves so fast that no stock quotes are really "real time". They might be close but never up to the second. However, the 20 minute delayed quotes that you get most of the time at most financial sites are now a thing of the past if you use Yahoo Finance. Whenever you have a volatile trading day or a stock with breaking news that you are interested in buying or selling, it does help greatly to be able to get quotes that are real time and free.

THAT SICK FEELING IN THE PIT OF YOUR STOMACH

We've now all seen first hand what a panic sell off in the stock market looks like. For anyone who owns stocks, they've also felt what it FEELS like too: a tight feeling of uneasiness and helplessness that sticks with you the whole day and makes sleeping at night a very difficult.

There is no doubt that the 500 and 600 point down days on Wall Street we have just seen were based on economics and news but fueled mostly by sheer panic. After all, nothing really changed in the last week or so except a lot of added coverage of the debt ceiling debate and the credit downgrade over the weekend. These problems have been years in the making and aren't brand new. But the wall to wall coverage spooked people and made them want out at any cost.


Fear and greed are primary motivators in the stock market and right now fear is on display for all to see. If you are thinking of buying, you might want to wait a bit because it might not be over. As I write this the market has just given back all of it's 200+ point gain on Tuesday and is now down close to 200. My advice? Don't get too greedy just yet because you might get burned as we could have more down days ahead.

If you want to be a long term investor, you have to have the ability to sit back and do nothing. You have to have the stomach to take the losses when the world looks like it is ending. You have to have the confidence that with time, the market will come back. There is no guarantee of course. But history has shown that so far, the stock market has ALWAYS come back. You really should have a long investing time horizon so that you can wait these things out.

In times of high volatility like these, there is a lot of added interest in stocks. People who aren't lifetime investors see the market as the lead story on all newscasts, newspapers, and of course the Internet. They get interested in maybe picking up a stock or two while it is on sale. But what they really should be doing is picking up a copy of Stocks For Dummies or some other such book and learning the basics first. Don't just jump in without knowing the risks, especially at a time like this!

PROOF THAT INVESTING IN STOCKS IS IMPORTANT

There is a news article out today that is in all the major news services detailing how the wealth gap between whites and minorities has widened in the last 25 years. I think this story is very misleading because it is all about race when the real story should be about EDUCATION: people who have access to education are doing better than those who don't. This graphic should have groups split into "education" and not "race":

This story talks about skin color, politics, and all sorts of other issues that I won't discuss further because they have nothing to do with the stock market. However, stocks were mentioned twice in the article as being one of the reasons whites are doing better than some minorities.

Apparently whites are apt to have more of their money and savings in the stock market than minorities are. They might own individual stocks, 401K's, and mutual funds that have rebounded nicely since the crash of 2008. Minorities, on the other hand, are more likely to have most of their money in real estate (their houses) where we have seen valuations NOT go back up.

Stocks are never guaranteed to do well but over time they have always outperformed all other forms of investing. Everyone should have the opportunity to invest in them. It is also true that the earlier in life you start investing, your chances of making a good lifetime return are increased. However, it is understandably hard to get interested in the stock market if you don't have any money to invest! Why would someone pick up and read a copy of Stocks For Dummies if they don't have any money, right?

If there is anything you should take away from this it is that all kinds of education are very important. The basics of the stock market and investing in stocks should be taught early on in schools if we want to raise kids that will have a chance to do well financially in life. Everyone should have access to information about the stock market and how to invest in it.

Poor people not only don't have money to invest but it is also unlikely that they have the knowledge of HOW to invest it if they if their fortunes changed. The stock market is and always will be very confusing to most people and something that is looked at as a playground for the rich. In reality though, it is anything but that.

MAKE MONEY BUYING "CLOUD" STOCKS

There is a tremendous amount of buzz about the cloud almost everywhere you turn. Apple's announcement that it is bringing iCloud to you by the end of this year has only magnified all the attention this type of technology is getting.

While cloud computing isn't new, it is ramping up in importance and it appears to be the real future going forward. It won't be long before most or all of what you do will be stored in the cloud rather than on your desktop or laptop. Whether you like it or not and whether you think your information will be safe or not, everything is going to be moving to the cloud.

Over the next 10 years, businesses everywhere are going to be investing in and making the move to the cloud. This leads investors to the question: what stocks should I buy to take advantage of this trend and what stocks are poised to make the most money?

The purest stock play on cloud computing is Salesforce.com (CRM) but by the looks of it's chart it is probably much too late to get in. Here is the chart for CRM:

One thing is clear with stocks and the stock market: you have to get in early if you want to make the big money and that means being very good at figuring out what the future holds and what companies are poised to take advantage. By the time something like "cloud computing" is all over the news, it is probably already too late to find a stock that will profit and get your money in at a low price.

There are many other companies that will make money from the cloud as they are involved one way or another. Stocks like Apple, Microsoft, EMC, Google, Amazon, IBM, and Accenture among others will be involved in the cloud and should benefit from it. They all have other products though so their stock prices are not as directly connected to the success or failure of cloud computing.

I personally own EMC and it has more than doubled in the last two years. How much of that is attributable to it's involvement with setting up equipment for the cloud I don't know, but I am glad I have the stock and don't plan to sell.

ANOTHER DOT COM BUBBLE COMING OUR WAY?

The Dow and Nasdaq are two indexes that track the progress of the stock market and they are the two that are most often quoted. When you watch the business news every night, read the newspaper in the morning, or watch any business show on television during the day, those two averages are the ones that you will see prominently displayed.

The Dow Jone Industrial Average is comprised of 30 stocks that are thought to be a representative sample of the market in general. It is an average of those 30 stocks which are all large established United States companies. In other words, if the Dow goes down on any one day, chances are that the stocks you own will also have gone down. I have included a graph of the DJIA since about 1983 below:



The Nasdaq Composite is a different index that includes companies from all over the world. The NASDAQ is an average of all the stocks in the index and they are often more growth oriented than the stocks on the Dow. The NASDAQ has many more technology companies, Internet companies, and companies that are in new industries than the Dow does which is why it's graph looks somewhat different over the same time period:



The biggest difference between these two historical graphs of the Dow and NASDAQ is seen between the years of 1999 and 2002. That was the time period known as the Dot Com Bubble when all the enthusiasm for Internet companies quickly changed from euphoria to pessimism and people were rushing to sell their Internet stocks.

The NASDAQ had climbed to over 5000 and you can see that it was going straight up at one point, a trajectory that spelled doom because of too much enthusiastic buying. When things crashed, they REALLY crashed for all the Internet companies and since the NASDAQ had a much higher percentage of such businesses, you can see the big difference between the two charts. While the Dow did go down, it didn't go down nearly as much because it had many more companies that were in "traditional" industries.

If you take out the 1999 to 2002 period, the charts of the two indexes look a lot alike but technology stocks seem to be getting hot again. There is a lot of enthusiasm for Internet companies right now and stocks that come to mind are Netflix and Apple as well as all the IPO talk from Groupon, LinkedIn, and Facebook. Heck, they are even talking about doing an IPO for the company that makes Angry Birds (Rovio Mobile)!

The NASDAQ has climbed back up to reach it's highest point since the Dot Com Bubble and you have to wonder whether people are valuing these Internet companies too highly. Things change quickly on the Internet and while these companies may be doing well now, it hardly guarantees the kind of success people are hoping for in the future.

WHY STOCKS SOMETIMES GO DOWN AFTER GOOD EARNINGS

Netflix has just come out with another quarter of great earnings. They made just over 60 million dollars compared to earnings during the same period last year of 32 million dollars. That's great right?

Then why is the stock down more than $12 or almost 5% in after hours trading on 4/25/2011? Tomorrow investors will probably follow through and bid the stock down when the market opens. So, what gives?

This is a great example of a stock that goes down after great or good earnings. Something like this often doesn't make sense to beginners and to people that are just starting out. It is confusing unless you have a deeper understanding of what makes stocks go up and down.

Netflix's earnings were stellar and no one is denying that. Most companies would love to be making money and doing that much better in 2011 than in 2010. But for Netflix's stock price it wasn't good enough because more important than today's earnings, their management cautioned about the FUTURE. Management said that things might start to slow down a bit. That's what did it.

You see, Netflix is a very hot company right now that has had it's stock price come close to tripling in just a year. In order for that to continue, absolutely everything has to go perfectly. When a stock is that hot, you have to have earnings AND a future outlook that blows everyone away.

Actually, management's outlook is almost always more important to investors than the current quarter's earnings no matter what stock you are talking about. That is why it is also possible to have bad earnings along with a good outlook from management and have a stock go up. You see, the future is more important than the past in the eyes of investors.

Everyone knows that Netflix has been tremendously successful in their business model and they continue to sign up people at an impressive rate. They have put competitors out of business and now they are aggressively moving into streaming video which is the delivery system of the future.

But investors want to know if their phenomenal success is going to continue and any hiccup or warning about anything slowing down will make the stock stall or go backwards as we have just seen today. That will happen regardless of current earnings as people who invest in stocks are always more concerned about what the future holds.

WHICH ONLINE STOCK BROKER IS THE CHEAPEST?

In 2011, the lowest stock broker fees are found at OptionsHouse. Just $3.95 per stock trade is the cheapest price I could find of any of the online discount stock brokers.

As you can see buy their name, they specialize in trading options which are different than stocks. Beginners won't want to get involved with options until they learned a lot about the basics of stocks and the market. However, just because they specialize in options doesn't mean that they don't have a great platform for regular stock trading.

With OptionsHouse, your money is protected by SIPC just like it would be for any other online discount broker. They have an A- Rating from the BBB and they have won several awards from Barron's as well. In short, your money is safe with OptionsHouse even though they give you the cheapest stock trades.

At $3.95 per stock trade, you are getting a price that is less than half of what several of the more famous online brokers charge like E*Trade, Schwab, and TD Ameritrade. You are also getting a much better price than brokers like Scottrade ($7) and Firstrade ($6.95).

If you are looking for the cheapest stock trades online, OptionsHouse is the place to go. I personally don't use them because I have used E*Trade for years and I don't want to go through the hassle of switching. I usually don't make more than 10 trades per year though so my extra cost is not too great. However, if I were an active trader I would seriously think about switching because the money I could save with the cheaper trades from OptionsHouse would be significant.

WHY CHAOS IN EGYPT DOESN'T MEAN CHAOS IN THE US STOCK MARKET

Wait a minute. The stock market is actually UP on Monday 1/31/2011 after we all watched a weekend of wall to wall coverage of the crisis in Egypt. How can the market be going up when there is obviously so much uncertainty and danger in that part of the world?

I have to admit I thought the stock market would be down big today as there is one thing investors hate: uncertainty.

There is so much uncertainty about Egypt right now that no one knows what is going to happen, knows what could happen, or knows what to do about it. We have hardly heard a peep out of President Obama as he doesn't know what side to back or what to say either so he is just waiting and watching like the rest of us. (well maybe he is doing a little more than that)

There are questions about the Suez Canal and whether it will be able to stay open and let ships through. If not, that would impact business worldwide. There are questions about what type of government would take the place of the current pro US regime there now if it falls. There are deep implications regarding any new Egyptian government and Israel and that also will affect the whole world. It could all eventually lead to another war between who knows how many countries.

Why isn't the US stock market going lower today? The biggest reason is probably because people have gotten over the shock of the news over the weekend. If there was any panic here in the US it would have been on Saturday and the markets were closed that day. So now, people have had a chance to digest everything and they might not feel it will have quite as big an impact on us as they might have thought on Friday or Saturday.

Investors might also see the news that Mubarak has formed a new cabinet and is working to stay in power and get things under control. This would have a calming effect on investors as they are less likely to panic and sell based on improving news. As long as Mubarak stays in power, the market will likely not nosedive.

There is also a good economic news story or two out today such as this one about consumer spending having gone up in December for the sixth straight month. Any good economic news will help stabilize the market and there are more economic numbers out later in the week for jobs, automobile sales, factory orders, and construction spending. These numbers could have a big effect on which way the market goes along with developments in Egypt of course.

One of the things that is made clear today is that the direction the stock market moves, either up or down, is very much determined by the way people FEEL about things. Today was a classic day where the market COULD have opened down 200 to 500 points based solely on what is happening in Egypt. However, because investors don't apparently think the situation is quite as bad as I thought they would, the market opened up and remains up at midday.

STEPS TO SHORT A STOCK

This last weekend I decided I wanted to short a stock. It is something that I normally don't do and in fact the last time I shorted anything was over 10 years ago. But I saw a stock that I thought was too high that had been going steadily up for some time now and I thought it might have a pullback sometime soon.

The stock market as a whole has also been going up now for a while and I think a correction could possibly be around the corner (my opinion). So those two factors along with a few more reasons made me want to short the stock and I decided to do that on Monday.

I have an E*Trade account with plenty of cash in it but I wasn't sure they would let me short a stock and when I tried the system wouldn't let me. It turns out you need to have a margin account which I didn't have so in order to short anything, I would have to apply for a new margin account or upgrade my existing account.

I clicked the button to upgrade my account and was led to another page I had to fill out. The information they wanted included things like net worth, yearly income, and other things like that I didn't really want to divulge. In addition to that I had to agree to their terms and conditions for a margin account and wow, that was a LONG and complicated page of legalese.

When you short a stock you are borrowing money from the broker and that is the main reason why you have to agree to all sorts of things that might make you uncomfortable. The main thing you need to understand is that they can force you to get out of the position if you start losing money and don't have enough cash to back it up. The broker can sell your other stocks at any time and they can cover your short at their discretion because they don't want to lose money.

The best way to avoid anything like that from happening is to have more than enough cash in your account to cover any losses you might have if your short stock starts going up. In my case I will cover my short way before I lose more than I have in cash so I should be alright.

Once I applied for the upgrade to the margin account I was able to short the stock right away even before being approved. This might be because I have a long history with E*Trade and so it might not happen that way for you. A couple days later I also go the notification that my margin account upgrade was approved.

Who can open a margin account and what the requirements are I don't know exactly. Suffice it to say that the more money you have in your account and the longer you have been with your broker will undoubtedly increase your chances of getting one.

So, now I am in the strange position everyday that all people who short stocks are in that I want the market to go up so all my long positions will make money but I want my one particular short stock to go down. It is a funny feeling and can give you mixed emotions betting against a stock and it is definitely not something I will do much of. I also don't suggest shorting stocks for a beginner because there is just too much risk for beginners to really understand and they should be learning how to pick winning stocks anyway.