March 26, 2008
Public Company
No Comments
Whether people like or hate Wal-mart, the large retail chain store, there is one thing they do agree on. Wal-mart has cornered the market on merchandising products that average middle class American families can afford. Widely criticized for putting “mom and pop places” out of business and not paying their employees fair wages, the company has undergone a lot of scrutiny over the last few years, and now they are gearing up to be under the watchful eye of America once more.
Wal-Mart is ready to take on Wall Street, as company executives try to enter the store into the banking business! An attempt in 1999 to purchase an Oklahoma Savings and Loan was met with a negative result by Congress. People are afraid that if Wal-mart enters into the world of banking, smaller banks won’t be able to compete with the amenities they offer. Opponents of the plan include Sen. Hillary Rodham Clinton, who ironically once sat on Wal-Mart’s board, but feels it wouldn’t be prudent to remind people of those ties with an election year closing in on her …
Those who support the idea point out that Wal-mart would do for the average American’s banking needs what it does for their retail needs. It would make banking available for the little people that big banks tend to overlook. Right now, most banks force lower income families (i.e. those that can’t afford to carry big balances in their checking accounts) to pay higher than normal fees.
Wal-mart isn’t trying to become a full-fledged bank. They gave up on that idea the last time they were rejected in their attempts. They simply want to apply for a charter that will help them reduce their credit card fees. At present the company offers a check cashing service that costs patrons $3 to have a check cashed. While this may seem a bit expensive, it is much cheaper than the percentage fees that most check cashing businesses charge.
Started in Rogers, Arkansas in 1962, by Sam Walton, Wal-Mart is the largest retailer in the world. Wal-Mart is the largest private employer in the United States, Mexico and Canada. It also has given back to shareholders over 180,000% in total returns since it went public in 1972. There should be no wonder that several Walton heirs feature on Forbes’ list of billionaires; they include Christy Walton, Jim Walton, S. Robson Walton, Alice Walton, and Helen Walton who all hover around a net worth of $16 billion.
Salim Jordan publishes MoreThanLinks (www.morethanlinks.com). He writes on finance and business. Visit http://buzz.morethanlinks.com or http://money.morethanlinks.com
March 26, 2008
Public Company
No Comments
Depending on the size and nature of a public offering, it may be necessary to hire a separate investor relations firm. In many instances, both direct and initial public offerings can benefit from the services of professional investor relations assistance.
For a company going public with an initial public offering, the decision to hire an investor relations firm will probably depend on the company’s ability to internalize the function or the underwriting firm’s ability to provide the service. Because an investor relations firm can be very important in the establishment and maintenance of relationships within the financial community, many corporations opt to hire a firm that specializes in such tasks. In some cases, companies may opt to hire out this function in hopes of gaining additional contacts through the investor relations firm.
The function of a good investor relations firm is relatively straightforward. The investor relations firm serves as a highly visible point of contact for interested investors and members of the press, answering questions and providing information as necessary. These goals are often accomplished through a combination of internet resources, press releases, webcasts, and phone calls. Brochures and other types of corporate collateral are also the responsibility of the investor relations firm. This includes the fact sheets, presentation materials, and earnings releases that are necessary before an offering.
Prior to an initial public offering, the role of the investor relations firm is especially critical. A good firm can play a major role in the success of an issue, creating an impression of success and stability for investors. Heavy roadshow support is a given with any investor relations firm, and the company may help compose various financial reports to present to prospective investors. Good firms will also help by arranging numerous meetings with potential investors, based on the preferences of the issuing company.
Because direct public offerings are generally used by companies with smaller capital needs, the use of an investor relations firm is somewhat less common. Regardless, its function is just as important to a smaller company as it is for a company seeking funds through an initial public offering. With a direct public offering, there is no underwriter to guarantee sales, so full responsibility for the success of the issue lies with the issuing corporation.
Because the process of issuing and selling public shares is time-consuming and stressful, it may be beneficial to enlist the aid of an outside investor relations firm to help with marketing the issue and communicating with investors. In addition to easing the stress, the use of an investor relations firm can help a corporation appear more professional to investors, creating a greater image of stability and profitability.
It’s not impossible for an issue to be successful without the aid of an investor relations firm, but success is certainly more likely with one. By allowing capable hands to take over investor relations functions, the corporation can focus on other important tasks at hand before the issue.
Joel Arberman is the Managing Member of Stock Aware, LLC. We publish a free investment research and analysis newsletter and offer
investor awareness services. Learn more at www.StockAware.com
March 26, 2008
Public Company
No Comments
The Companies Act and its own constitution bind a company when it comes to matters related to managing its affairs. A company’s board of directors possesses the power of issuing shares. However, these powers are restricted to the proviso of the Companies Act and the company’s constitution. The board normally determines the amount of money the company requires to be raised through the issue of shares. The time and the person to whom the shares are to be issued are other related factors.
It is pertinent to know that your company is registered under the Companies Act before you issue shares. Thereafter, your company issues the number of shares mentioned in the registration application to the persons, who have been specified in the registration application. To acquire those shares, the shareholders pay money to the company at the rate per share agreed upon.
Notifying the Registrar of Companies
It is mandatory, as per law, to notify the Registrar of Companies of the act of issuing shares to the shareholders. The law requires a company to notify the concerned office, in the prescribed form, within ten working days of the issue of shares. The failure to comply with this legal requirement can attract penalty for each director of the erring company. The law is very firm on this.
Obtaining Shareholders’ Approval
Another important point that may crop up on issuing shares is the presence of certain restrictive clauses in the company’s constitution. The company could find itself in a bind on account of the restrictive clauses that prevent it from issuing shares. In that case, the board of directors can approach the shareholders and seek their approval to make the necessary amendments so that shares can be issued. A 75% shareholder majority is required to pass a special resolution to this effect.
Pre-emptive Rights of Current Shareholders
Current shareholders of a company have pre-emptive rights. These rights give them priority over non-existing shareholders of exercising the option of purchasing newly issued shares. The shares can only be offered to non-existing shareholders when the current shareholders turn down the purchase offer. There might be instances where shares are offered to non-existing shareholders on favorable terms. In such cases, the shares must first be offered to the existing shareholders on those favorable terms, though they had earlier declined the original offer.
Payment for Shares
The law does not require the existing shareholders to pay anything in return for the new shares, if the constitution of the company is silent on the matter. However the shareholders will have to pay if the constitution says so. The payment of consideration (value of shares) can be in the shape of cash, future services, promissory notes, or other means as defined in the constitution. The board of directors determines the consideration before the shares are offered.
Additional Help
The software available in the market provides the necessary documents related to the issue of shares and other related activities. This software is reasonably priced and provides all required information and help required.
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
Mergers, acquisitions and spin-offs are part of the corporate restructuring strategy in which big and small companies indulge in today’s corporate world. These are also called consolidation activities. Companies pursue consolidation activities to strengthen their strategic and competitive positioning.
Merger happens when a new company is formed by the combination of two separate legal entities. The stocks of both of the companies are surrendered and a new company issues fresh shares in the market. An acquisition is a purchase of one company by another where the target company ceases to exist and the acquiring company holds the stock of the target company.
In today’s world, top managers try to name an acquisition also as a merger, because it gives a negative impression in the minds of the stockholders that their company has been acquired. An equal merger is very seldom seen and most of the times it is an acquisition given the name of a merger. A merger can be both hostile as well as friendly.
A spin off is a divestiture wherein a new company is formed by selling or distributing the shares of an existing company. Companies pursue spin-off in order to streamline their main businesses. Then the companies sell their businesses, which have lower productivity.
Impact of Mergers and Acquisitions on the Shareholders and Employees
Mergers and acquisitions are not always welcomed by the members of the company whether it is the shareholders or the employees. The reason for this is that a merger normally leads to more job cuts and reduction of workforce. Job cuts are what the employees are afraid of and something that is inevitable. As far as the shareholders are concerned, mergers and acquisitions can lead to creation of large and small groups of shareholders. The minority shareholders are always at a risk of losing their interest to the larger groups. However through mergers and acquisitions the companies can achieve economies of scale and an improved infrastructure for the staff.
Causes of Failure of Mergers and Acquisitions
Most companies have increased productivity after a merger or an acquisition. But things might not work that effectively if the corporate cultures are very different. Reduced efficiency and shrinking productivity can hamper the success of the new company if the employees do not enjoy the same privileges they used to have in the target company. These are some aspects, which are ignored by the top management while entering into a contract, but later on they realize the mistake. Due to these flaws the day-to-day business is hampered to the extent that the company may suffer huge losses in a short span of time. Experts suggest that the board of directors needs to be more realistic while making a deal so that the future integration is for the betterment of one and all. The value of the company, which is pursuing an acquisition or merger, would decline, as a result of the integration risks and cash exhaustion associated with the transaction.
Available Software
Several software packages are available in the market to help companies create documents associated with these transactions. Since the approval of the Stock Exchange Commission (SEC) is required to complete the transaction, a lot of documentation work has to be done. This software helps companies to reduce their paper work.
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
A proxy is an agent legally authorized to act on behalf of someone else. When shareholders are unable to attend corporate meetings they can still cast their votes by using a proxy, who votes on their behalf. In order to do this the proxy needs to produce a power of attorney document.
Generally the company sends a letter to shareholders, prior to any meeting. This letter contains several documents providing information about the company’s growth, performance, its management, information about changes in the share structure, notices about any mergers or acquisitions and anything else pertaining to the functioning of the company, which may interest the shareholders. In short this letter would contain all the matters that shareholders might vote on during the meeting. Along with these documents, there is a form, which allows shareholders to vote by a proxy if they cannot attend the meetings in person.
Importance of Proxy Voting
Shareholders must carefully study all the documents provided and cast their votes. This is the primary method by which a shareholder can influence a company’s operations, its corporate governance, and other important issues. Therefore voting and making their decisions clear is very essential for a shareholder. Hence, when voting in person is not possible, proxy voting becomes essential for a shareholder. Usually a shareholder has the right to cast one vote per share he owns, so it is important that the shareholder casts his vote at least by a proxy. Proxy voting enables a shareholder to own shares of companies registered all over the world and influence every one of those companies’ decisions.
The Role of Institutional Investors
Thanks to the Internet, several large institutional investors can post their decisions online explaining their stance and making small time investors aware of why they have made their choice. They use proxy voting guidelines, helping proxy voters to know their views about the matters to be decided on at the meeting. These institutional investors can urge the company to alter or at times even withdraw some of the proposals making the institutional investors’ proxy voting guidelines fairly important.
Proxy Voting - Service Providers
The Internet has made it very easy for shareholders to cast their proxy votes online. Proxy service providers, such as EquiServe, Automatic Data Processing and other such companies deliver the documents in an automated electronic format and the shareholders merely have to fill out the form and cast their votes. They log in using a personal number or a code number assigned to them and cast a vote for or against the corporate resolution proposed.
Nominating Board of Directors
Companies also allow shareholders to nominate members to the board of directors. It is a refreshing change to get to nominate directors, for the shareholders can elect an appropriate person who will guide the company to better, above-average growth and ensure good corporate governance in the company. However the wrong choice can lead to someone with no experience or direction causing a lot of harm to the company. Shareholders can vote on such matters as election of directors and auditors as well as the choice of acquisitions and mergers.
The Role of Internet
Owing to the excellent choice of software available to enable the process of proxy voting it is simple and easy for a shareholder, within a matter of a few minutes, to cast his vote by a proxy through the Internet or by a simple phone call. The Internet has made it possible for an investor to own shares of companies across the globe and cast votes for every one of them in a fairly simple manner, allowing the investor to influence the companies’ decisions regarding corporate governance and other important issues.
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
Shareholders can bring a proposal for certain resolutions as part of the company’s annual meeting procedures. In order to file a proposal a shareholder must own at least $2,000 worth of shares or roughly 1% of all shares in a company and own these shares for a minimum period of one year as per the rules of the US Securities and Exchange Commission (SEC). The Securities and Exchange Commission protects the interest of the company and the shareholders. A resolution must usually be submitted 120 days before the date on which the company releases the previous year’s proxy statements to the shareholders. The entitled shareholder may file one resolution per year and it cannot be longer than 500 words. The resolution proposed must be clearly written and have background material that justifies the need to implement the proposed resolutions. The shareholder may send a draft to the company and get a clear idea as to whether the company objects to the proposed resolution partially or fully. The resolution must be submitted along with a cover letter to the Chief Executive Officer (CEO) of the company. The secretary of the corporation is the one who deals with shareholder resolutions. It is recommended to file the resolution well in advance in order to negotiate with the corporation and to prepare for the annual meeting. It is also advisable to send a copy of the proposed resolution to the SEC too. A corporation may decide to vote on the resolution, or object partially or fully and may send its reasons to the SEC regarding the company’s decision on the proposed resolution. The SEC allows the corporation 13 reasons to reject a proposal.
Reasons for a Company to Reject a Proposal
1. The company considers the proposal not a proper subject for taking action. This depends on the applicability under the State laws.
2. The proposal would require the company to violate state and federal laws.
3. The proposal contradicts the company’s proxy rules and regulations.
4. The proposal benefits only the shareholder who proposed the resolution and not all the other shareholders, or if it is written out of a grudge against the company.
5. The proposal accounts for only 5% or less of the company’s assets at the end of the recent fiscal year, or less than 5% of the net earnings and gross sales at the end of the recent fiscal year.
6. The proposal involves issues outside the company’s control.
7. The proposal relates to the conduct of ordinary business operations of the company.
8. The proposal concerns an election to office.
9. The proposal is counter to a resolution to be submitted by the company at the annual meeting.
10. The proposal has been rendered moot.
11. The proposal is a duplicate of another proposal submitted earlier by another shareholder, which is going to be voted on at the annual meeting.
12. The proposal is a duplicate of any proposal submitted within the preceding 5 calendar years.
13. The proposal relates to specific amounts of cash or stock dividends.
The Need to Consider Proposals in a Timely Manner
The shareholders must be quick to act since the company has until the last 60 days before the annual meeting to disclose the proxy statements. The company has to notify the SEC that it is omitting and rejecting the proposal based on the 13 reasons and the SEC will review the situation and decide if the company has the right to do that based on the rules. The Internet and the variety of software available today are helping the shareholders and corporations regarding the implementation of corporate resolutions in a timely manner.
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
Choosing a stock while making an investment decision depends upon your financial goals. Corporations issue different types of stocks, the basic two types being common stock and preferred stock. Another type of classification, commonly used is to classify stocks as growth, value, or blue chip stocks, amongst others. It is important to understand the various terms clearly so that you can make a wise investment decision.
Common Stock
This is the basic stock issued by a corporation and represents the fraction of the company owned by you. Common stockholders bear the most risks associated with the company. Common stockholders get dividends only after preferred stockholders get theirs. However, the investors holding common stocks have voting rights in the company, which enable them to influence corporate resolutions. Preferred stock holders do not have voting rights.
Preferred Stock
This is a form of equity, but has the characteristics of both bonds and common stock. As the name implies, preferred stock holders can claim the earnings and also the assets in the event of liquidation of the company, prior to common stock holders. However, the claims of preferred stock holders come after those of bondholders.
Additional Classifications
1 Growth Stocks: Growth stocks are stocks of companies whose financial performance and earnings exceed the industry average and the economy in general. The profits are typically re-invested to expand the business and minimal dividends if any, are paid to stockholders. Stockholders gain because the share price goes up as the company grows.
2 Value Stocks: These are stocks considered undervalued by investors. Typically, these may be stocks of companies going through a rough patch or whose growth potential has been underestimated by the market. These stocks attract those investors, who believe in the long-term growth of the company.
3 Blue Chip Stocks: Blue Chip stocks are stocks of financially sound, well- established companies with well-established management and track record of delivering earnings. Their stock price movements are less volatile and they pay regular dividends. Such companies have industry leadership.
4 Defensive Stocks: These stocks provide stability in stock price during periods of recession, economic slowdowns or slow down in industries. Consumers continue to buy food, medicines, gas and electricity even during slowdowns and stocks of companies dealing with these sorts of goods do not lose much value during rough patches in the economy
.
5 Cyclical Stocks: Cyclical stocks are stocks of companies, whose performance increases and decreases along with business cycles. When the business cycle is in an upturn, the value of the stocks of companies related to the particular industry would appreciate rapidly, offering windfall gains. Commodities, airlines, durable goods manufacturers fall in this category. However, these stocks lose value during downturn in business cycles.
6 Income Stocks: These are especially suited for investors looking for a greater proportion of current income of companies. Income stocks offer a higher dividend in relation to their market price. Blue-chip companies and utilities like banks fall in this category.
7 Seasonal Stocks: Stocks of such companies fluctuate with seasons. Examples are stocks of retail companies and greeting card companies, which have a greater proportion of sales during festive seasons.
8 Penny Stocks: These are low value stocks, typically with a value in the range of $1 to $5 per share and are traded Over-The-Counter (OTC). They are highly speculative and high risk investments.
Additional Help
A thorough understanding of different types of stocks and the characteristics of each is essential to make informed decisions, and preserve or witness appreciation in the value of your investments. Modern software makes it easier to manage your stocks in various companies.
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
Dividends are a portion of the company’s earnings to be distributed to its shareholders, based on the board of directors’ decision. Dividends are quoted as Dividend Per Share (DPS) or dividend yield. Most companies having stable and secure growth offer dividends when their share prices become stagnant. However several companies do not offer dividends since all their profits are reinvested to ensure faster, better-than-average growth. The board of directors decides the percentage of the profit to be distributed as dividends. Dividends are issued quarterly or annually, and companies are not under any obligation to pay dividends every quarter and the company may stop paying dividends at any point in time. But if the company stops paying dividends its market value is affected. Hence a reason why dividends are usually paid regularly and even if there is no increase in the dividend at least they will get dividends on a fairly regular basis. The board of directors declare dividends each time they are paid. There are three important dividend-related dates: declaration date, date of record and payment date. On the declaration date the company opens a book of liabilities in terms of the cash dividends it owes to the shareholders, and on this date both the other dates are decided and declared. Date of record indicates the dividends paid only to shareholders who are the owners of the share on or before the date of record. Payment date is the date the dividend is paid out.
Types Of Dividends
Companies offer three regular kinds of dividends as well as special forms of dividends
1.Cash Dividends:
This is the most common and popular method of sharing a company’s profits. The company pays portion of profits to shareholders as dollar per share. However cash dividends are subject to double taxation in the US. This is a reason used by many companies to justify not paying dividends. The government taxes at a maximum rate of 15%. The company distributes dividends after the company has paid income tax and the government taxes the shareholders once they receive the dividends.
2.Stock Dividends:
Companies pay stock dividends in the form of additional shares of the same company or its subsidiary corporation according to the proportion of the shares owned.
3.Property Dividends:
Companies pay property dividends in the form of products or services provided by the corporation. These take the form of assets such as gold, silver, cocoa beans etc. distributed by companies.
4.Special Dividends:
Companies offer special dividends rarely, such as when the company wins litigation and when the company sells a business or liquidation of investments. Some companies also offer special dividends when they have high amount of excess cash, in order to boost the market value of their stocks. Sometimes they document these special dividends as return of capital, meaning the company is returning a portion of the money invested by the shareholders. They call these dividends capital dividends, and these dividends are tax-free.
Reinvested Dividends
Shareholders can reinvest dividends received partially or totally in the company’s stock if the shareholder does not depend on the dividends to make ends meet. Shareholders accumulate wealth consistently this way and enrolling in a dividend reinvestment plan can make the whole process of reinvesting easier since everything is automated, thanks to the various types of software that have commendable features, making everything concerned with dividends just a mouse click away. From the convenience of your home you can find out the latest statistics about dividends and reinvestment options.
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
Insider trading is the trading of a company’s shares by people who work for the company, such as senior level executives, directors and those who own more than 10% of the total shares. Insider trading is illegal since the trading is based on some privileged information that the insider has access to, but is not known to the public at large. The act of misappropriating some privileged information, or violating duty and trading or relaying information illegally is illegal in the United States. The office bearer has made a contract to serve the shareholders and to protect the interest of the shareholders so the office bearer violates their duties if the office bearer trades based on company owned privileged information for their own gain. The United States has had laws against insider trading going as far back as 1909. At this time the law declared if a company’s director bought his company’s shares because he knew its value was about to increase suddenly, it was fraud.
Not just senior level executives are capable of insider trading. Anyone in the company with privileged information is capable of insider trading. For instance, if an employee of company 1 learnt about the takeover of company 2 by company 1 and buys the shares of company 2 it is illegal insider trading, since that employee is violating the interests of the shareholders of company 1. According to US federal laws, companies have to specify a certain period when their staff can safely trade stocks without being accused of illegal insider trading.
Penalties for Insider Trading
Penalties for insider trading include a fee of three times the profit incurred or the loss caused to the company by insider trading. The insider may be banned from being a company executive or removed from the board of directors. The culprit may even have to face a jail term. The SEC (Stock Exchange Commission) offers rewards as bounty to those who help apprehend insiders who practice illegal insider trading.
Laws must be enforced to protect the investors, to ensure a fair, efficient market that is transparent and ethical, and to reduce systemic risk. Laws are needed to control insider trading, trading ahead of the shareholders, and to avoid misuse of client’s assets. These principles are the core principles issued by the International Organization of Securities Commissions and more than 85% of the world’s security and comodities regulators have agreed to follow these principles.
Legal Insider Trading
Insider trading can be legal when a company’s insider does not break any law and trades his shares in a normal mannerm reporting it to the SEC. However, some groups oppose the notion of any insider trading being illegal. They argue that trading by insiders is allowed in real estate sectors so it should be legalized in other sectors as well. They don’t think the securities market should be treated any differently. They believe insider trading makes the stock market more efficient.
Effects Of Insider Trading On Shareholders
When insider trading occurs repeatedly, the common shareholders end up losing money, whereas the insider pockets a sizeable profit cheating the company and the trust the shareholders have placed in the corporation. Despite the laws and the penalities, insider trading continues and most often the perpetrators of this illegal act are left unapprehended due to lack of proper evidence. This has a negative effect on shareholders in general.
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
An initial public offering (IPO) is the initial sale of the common shares of a company or corporation to public investors. A corporation issues an IPO to raise capital. IPOs come with a host of compliance regulations and other legal requirements. The term IPO refers to only the first public issuance of a company’s shares. Any further public issuance of shares is a Secondary Market Offering. The company offering its shares, known as the issuer, enters into a contract with the underwriters to sell its shares to the general public. The underwriters approach investors with offers to sell these shares. The IPO is a risky investment. As an individual investor, in the absence of historical data, it is difficult to predict the market’s response. Since most IPOs are of companies, which are going through a period of transitory growth, the future value of the stock tends to be uncertain.
Features of IPO
Like other financial assets being traded in markets, stocks also follow the principle of supply and demand. Many analysts obtain expertise in evaluating stocks. If the analysts consider the equity to be undervalued, they recommend buying the stock. They recommend selling the stock of a particular company, once the share price passes the fair value or target price. IPOs are unique stocks since they are newly introduced/issued stocks. The purchase of oversubscribed IPOs are the best bet as they usually appreciate considerably, since there is a great demand for these stocks.
Evaluation of the IPO
Generally analysts consider the following points while evaluating the new issue.
1 The reason behind the company’s decision to go public.
2 The company’s plan for investing the money raised through IPO.
3 The growth prospects of the particular sector or industry in which the company associated.
4 The growth prospects of the company in its own domain.
5 The vision of the company.
6 The career graphs of the people in the top management of the company.
The above information could be retrieved from the Form S-1 that is filed by the company before filing for the IPO.
Pricing of the IPO
Pricing is the most important feature of stocks, and it holds all the more importance in the case of the IPO. There is a marked difference between the prices of IPOs and their own pricing while dealing in the secondary market. This disparity in pricing can be credited to whether there is general acceptance among the investors. The IPOs, which appeal more to the investors, start with an initially high price. The increasing demand for these stocks can only be satisfied after the introduction of trading. This results in high prices for the shares in the morning hours of trading and falls or steadies as the initial rush for trading subsides.
Unforeseen Circumstances
The IPOs generally operate as discussed above, but at times there are some conditions for the issuer such as having a minimum balance in the account of the prospective buyer, a subscription to their premium services, or restrictions on the flipping of the shares.
David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
Stock trading is the process of buying and selling shares of stock. Almost everybody has heard about the stock trading system, but not everybody knows how this trading system works. Most people wonder how it is possible to trade billions of shares everyday. It does not matter if you do not know the technical side of the system. However, if you are planning to engage in stock trading, you must have a basic understanding of how the stock trading system works. Stock exchanges use two basic methods to execute the trading. The first is on the exchange floor and the second is electronically.
On the Exchange Floor
Hundreds of people rushing around, talking and shouting on phones, their eyes on computer monitors, and fingers on keyboards. This is the picture, which comes to our minds when we think about an exchange floor. Keeping in view this chaotic atmosphere, you might feel it a very complicated process to execute trading on the exchange floor. However, it is not as complicated as it seems at first. The following is a simple example that helps to understand the basics of how a trade is executed on the exchange floor.
When you decide to buy a certain number of shares of a specific company in the market, you ask your broker to do it for you.
The broker passes your order to the order department, which then sends your order to the floor clerk working in the exchange.
The floor clerk lets the floor trader of that specific firm know about your order. The trader finds another floor trader, who is willing to sell the number of shares you desire. This is where things look quite complicated, but it is not that difficult to comprehend. The floor trader has an idea, which floor trader will meet your requirement. The floor trader knows every detail about which floor traders trade in specific stocks.
When the floor trader finds someone, who is willing to sell the shares, after a few negotiations, they finalize the price and complete the deal.
Depending upon the stock and the market, the complete process may take from a few minutes to a few hours. The broker then notifies you about the deal.
Electronic Execution of Trading
The stock trading can also be executed through an electronic channel, where a firm does not need to deal with floor traders. It all works through a vast computer network that connects the buyers and the sellers. Indeed, it is more efficient and faster than the exchange floor. However, if you are looking to buy or sell shares individually, you still need to execute the process through a broker, as individuals do not get access to electronic markets. Your broker passes your order to the system, and the system in turn finds a buyer or seller for your order.
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
Penny stocks do not require you to have a big cash outlay to get started. All you need to spend is just a fraction of penny or maybe as much as $5 per stock. These stocks carry tremendous reward potential, but at the same time, they carry more risks than other regular investments. For example, the penny stock may go from 20 cents to as high as 20 dollars or it may just prove worthless with literally no return.
How to Invest in Penny Stocks
Making investments in penny stocks is quite easy. Contact a brokerage service and open a brokerage account with them. Your broker will take care of the rest. However, every time you buy or sell a stock, you must pay a small fee to the broker.
How To Avoid Risks With Penny Stocks
There are always risks associated with penny stocks. Because of the volatile nature of the shares, you may even lose all your money. However, if you follow a proper strategy, you can certainly minimize the risks.
Remember that penny stocks are low-priced shares, not free. If someone offers to sell penny stocks free of cost, be alert. Two of the sources of such free offers may include an unsolicited email or a free newsletter. In most cases, these are just propaganda.
Only invest in penny stocks that are listed on the premier exchanges.
The higher the volume of the stocks, the safer your investment is. If the volume is, less than twenty thousand shares traded per day, you should understand there is something wrong with the stock.
One of the best ways to avoid risks is to do your own research. Get a feel for the company and analyze how it makes its money. Make sure that the company has a strong business plan and a good profit history. Keep an eye on the trend of improvement
If you cannot do the research on your own, it is always prudent to take the services of a professional stock-picking newsletter. As discussed earlier, a free newsletter cannot be professional and genuine. Therefore, be ready to pay for the newsletter.
Never put all your money into one stock.
More About Penny Stocks
Penny stocks are simply the low-priced speculative securities of small companies. The greatest advantage with these stocks is that they can turn your small investment into a fortune. The greatest risk associated with these stocks is their volatile nature. However, if you follow a proper strategy, you can minimize these risks.
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
March 26, 2008
Public Company
No Comments
Who would not like to possess an exact measurement of risk outlined in front of them before taking any decision? Everyone involved with risky ventures wishes they could impart a precise figure to the associated risk. This risk is implied in any crucial decisions especially in the case of stocks.
Stocks are a tempting bargain. The opportunity to make fast money pushes investors to divulge in activities that entail enormous risks and, at times, lead to major losses. Failure in this arena, due to misappropriation or lack of knowledge always manages to be a part of the day’s newspaper coverage.
In the same context, investors deploy various measures of analyzing the risk profile of the stock market. While a few rely on their intuition, others employ various statistical means including Beta, which is a measure of stock’s volatility, in relation to the market.
For calculation purposes, the investor assigns the market a beta value of 1.0 and any deviation of the stocks from the market generates a corresponding value. The figure is positively correlated with the stock movement, if the particular stock swings more than the market the figure increases and if the stock swings less, the figure decreases. During an up market a higher beta value implies higher risks and higher associated returns and a low value implies a lower risk bundled with lower returns. Stocks with a low beta value are considered safe investment options.
Leads And Shortcomings Of The Beta Value System
Beta is a straight method of analyzing the risks inherent in these volatile markets. As a part of the capital asset pricing model, investors also deploy it for calculating the cost of equity. A higher beta implies a higher cost for the capital discount rate and therefore a lower value for the company’s future cash flow.
This tool is not free of shortcomings. Investors evaluate Beta primarily on the earlier price movements. However, the earlier price movements cannot be the sole deciders of future prospects. What if new stocks do not have a substantial price history to calculate reliable figures? In this case the Beta system does not help.
There are a host of other factors that contribute to the information required for assessing risks, which are not accounted for by this analyzing tool. For instance, Beta does not account for new information and is a little redundant for evaluation purposes. The rapid fluctuations do not ensure a long-term commitment where Beta is concerned.
In Conclusion
Beta is certainly a useful tool for analyzing the risk profile of stocks, especially for naive investors, who intend to invest only for short-term purposes. This easy to decipher tool is a straightforward approach to a complicated market. However, in the long run, it is essential to join this measure with various other analysis tools and subsequently work out the associated risks.
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com