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What Is A Stock Index?

By: Bill Dufrane

In the fast paced ever- changing world of todays stock market you need a quick way to analyze and graph the movement from day to day, month to month or year to year. Stock indexes such as the Dow Jones Industrial Average and Standard and Poors 500 give you a tool to do just that.

But what exactly is a stock market index? A stock market index is a listing of a group of stocks, and a number to go with them. The number that goes with them is used to track trends in the market, going up or down when the market does. In general the stocks have something in common, such as trading on the same exchange, or belonging to the same industry. The Indexes can be classified in a wide variety of ways. The most widely quoted Index in the world, the Dow Jones Industrial Average, is a broad based index designed to reflect the stock market as a whole and give an idea of investor sentiment on the state of the economy.

1. How Are Indexes Calculated?

Different Indexes are calculated in different ways and it is important for stock investors and traders to understand how the index they are using is calculated because the calculation method has a large impact on results. You need to know what is being measured and how. The Dow Jones Industrial Average, for instance, was originally just that. In the beginning, when there were no calculators or computers, and calculations needed to be done quickly and by hand, there were 12 stocks in the Dow Jones Index, that were counted up and then divided by 12. The results were expressed as points. Now, with computers the norm, the index is calculated differently.

Most stock indexes such as Standard & Poor’s 500 Index and the NASDAQ Composite Index are weighted and give more weight to larger companies. These are capitalization - weighted indexes (Capitalization is the total market value of any outstanding shares of a companies stock.) These indexes are not valid indicators of the price of the average stock in the index. Since there should be more investors in the larger companies they do give us an idea of price levels in an average investors holdings.

The Dow Jones Industrial Average, however is NOT capitalization- weighted. It is price weighted, giving more importance to higher priced stock then lower priced ones. The Dow Jones Industrial Average now includes 30 stocks. It is calculated by adding together the price of those stocks and then using a divisor. The Dow average is quoted in points and not dollars.

2. Types of Indexes

The most widely quoted indexes are the broad based indexes, that attempt to represent the movement of an entire stock market. They normally include the largest companies on the nations largest stock exchange. Standard and Poors 500 (S+P 500 index) and the Japanese Nikkei 225, as well as the Dow Jones industrial average, are examples of this type of index.

More specialized sorts of indexes are indexes like Morgan Stanleys Biotech, that consists of 36 American biotech firms, or NEMAs EIS (National Electrical Manufacturers Associations Electroindustry Stock Index) that tracks Electroindustry stocks.

Indexes that track companies of a certain size or a certain type of management are also fairly common.

3. Socially Responsible Indexes or Sri Indexes

Another specialized index type are those for Socially Responsible Investing indices that include only those companies satisfying ecological or other social criteria. Often called SRI or Socially Responsible Indexes, SRI indexes allow investors to watch stocks according to their beliefs and performance on Social issues, and may exclude companies such as arms or tobacco companies. They include The Calvert Group, Domini, the Dow Jones Sustainability Index, and the FTSE4Good indices

With so many ways of grouping stock it is often difficult to choose that index, if any, are the ones you should follow. Deciding what you want to track and how you want to track it is important. Make sure you pick the indexes that are right for your investment strategy, and easily understandable for you.

Article Source: http://www.noviceinvesting.com/Article

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Bull Markets And Bear Markets

By: Adam Masterson

The difference between a bull and bear market is something that every sucessful investor knows. When the market moves downwards for a period of time the market is referred to as a bear market. Upward moving markets are bull markets. If a particular stock is doing well, it is said to be bullish. If it is losing value it is bearish. Of course, there are more to bull and bear markets than that, as you will soon discover.

1. Bull Also, Bear Markets

These terms refer only to long term fluxuations, not short term changes in the market conditions. This is because even during a bear market prices may increase temporarily.

2. A Reflection Of The Economy

Usually stock market conditions reflect the state of the economy. During bull markets the economy is doing well, unemployment is low and interest rates are reasonable. Bear markets usually occur during times of economic slowdown. Investors lose confidence and companies may begin laying off workers. At the extremes, an exaggerated bear market can lead to a crash brought on by panic selling. An exaggerated bull market can be caused by over-enthusiasm of investors. It leads to a market bubble that will eventually burst.

3. When To Make Money

Although most money can be made during bull markets, there are also opportunities during bear markets. Knowing the characteristics of each type of market allows investors to profit from them. As would be expected, when the market is bullish investors wish to buy up stock. The economy is doing well and people have extra money that they wish to invest in stocks. This creates a situation of short supply that drives up prices even higher. During bear markets, on the other hand, prices are falling so investors wish to unload their stocks and put their money in fixed-return instruments such as bonds. As money is withdrawn from the stock market, supply exceeds demand that drives prices down even further.

4. Bull Markets Offer The Best Opportunities

It is easiest to make money during a bull market. Getting in right at the beginning will allow you to make the most profits. During a bull market any dips in the market are temporary and should soon be corrected. The upward rising prices cant go on forever, though, so the investor needs to be able to gauge when the market reaches its peak and sell at that time.

5. When To Buy

Bear markets represent opportunities to pick up stocks at bargain prices. Getting in near the end of a bear market offers the greatest chance for profit. The prices will most likely fall before they recover, so the investor should be prepared for some short term loss. Short-selling is also an investment strategy during bear markets. Short selling involves selling stock that you do not own in the anticipation of further price drops, so that when it comes time to deliver you can buy the stock for less than you sold it.

Article Source: http://www.noviceinvesting.com/Article

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Report On Stock Research

By: Stu Pearson

The report of stock research contains all the information like the fair value estimate of a companys worth. Likewise, guides on when to buy and when to sell stocks as well as the selling prices of stocks are also discussed and displayed on the stock research report.

A stock research report is accomplished by expert analysts who are renowned in their own companies and their industries. Their reports mainly cover strengths and weaknesses, lines of business, whats good and bad about recent stock investment decisions as well as some projections of what to expect from a company in terms of its financial health.

The stock research report also tells you whether a company is worth buying or selling and just when to buy and sell stocks from this company. Knowing such information can help you in earning back a great deal of profits from your stock investment.

In addition, the significance of such reports cannot be taken for granted, especially in a world where the market is unstable, wherein in a blink of an eye you might lose everything you have invested. Stock research reports keep you up-to-date with the latest and timely developments happening in the stock market. Stock reports are just one of the services provided by most online stock research providers.

When you sign up or joined an online stock research provider you were provided with stock alerts regarding new analyst reports plus some daily commentaries. Aside from that, you will also enjoy the privilege of having daily dose of expert opinion about companies they cover in the news. They also have portfolio alerts that tell you when your portfolio is underperforming or outperforming.

With a stock research report you will always be guided on what course of actions to take especially if you cannot monitor your portfolio regularly. Remember that the stock investment requires for keen monitoring or else you will find yourself losing money instead of gaining back more profit.

However, the stock research report is not a free service, most providers of these types of reports only offer free-day trials for new members but afterwards would require for a monthly or annual subscription fee.

Be sure to correctly choose the stock research provider; opt for those highly regarded providers that already have names in the stock investment market. Dont be fooled by those stock research providers claiming that they have the best stock investment solutions and promises you very high rate of investment returns. These promises often times just remain to be a promise that can never be realized since the provider that you have chosen is really not that knowledgeable in stock investment.

Look for those providers that possess credible portfolios and to be really sure you may try to confirm by researching further the authenticity of their claims. You may also try to ask your friends, colleagues and family whether they are familiar with the provider you are investigating. Even better still, ask people in the stock market if they are familiar with the provider you are inquiring about. If it is really true that they are a reputable stock research provider, then their reputation will echo the sentiment.

Article Source: http://www.noviceinvesting.com/Article

Stu Pearson has an interest Business & Finance related topics. To access more information on free stock research or on stock research online, please click on the links.

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Stock Investing Mistakes That Make A Difference

By: Bill Dufrane

The process of investing is a great way for you to earn potential income. Hardly any people have the knowledge to be able to suceed, however, so many people rely upon brokerages to manage their portfolio for them. There are, however, some common investing mistakes that people make that can result in huge losses and missed opportunities. Here are a list of the absolute worst mistakes to avoid when investing in the stock market.

Mistake #1 - Invest When You Are Old

You are never too young to start investing in the stock market - in fact, it’s recommended to get started sooner. The perception of investing is that it is reserved for older, financially established people who can invest large sums of money. This is a misconception that is limiting people from tapping into the power of investing. Waiting just ten years can make a huge difference in the total gains that one can make over their lifetime. For example, investing just $2000 a year (thats just $170 a month) starting at the age of 26 can yield $2,114,379 by the time you are 75. This is with an Annual Return Rate (ARR) of 10% per year steady through the life of the investment. The same investment, with the same ARR, made ten years later at the age of 36 will result in a return of only $802,895 at the age of 75. That is a 1. 3 million dollar difference. If you are not able to invest as much as $160 a month, set aside $25 per month. Even this small amount can have a large impact over time.

Mistake #2 - Not Understanding The Company

It is shocking that many people will put more time and research into choosing an MP3 player or home theater system than they will researching the stocks they will invest in. It is imperative that you take the time to understand the financial history of the companies you wish to have shares with. Make sure that you understand what you are buying and how it will benefit you in the long run. It is also important to keep in mind that you must remain objective when choosing stocks. Stocks that you have researched well and carefully selected are more likely to increase than ones you choose based on a feeling. Put your emotions aside and consider your options carefully. Taking time to research and investigate is also important when choosing your financial advisor. Consider meeting with a few candidates and evaluating their approach to investing. If you are meeting with someone on a recommendation, make sure that the person who recommended the advisor is someone who is qualified to do so.

Mistake #3 - Gambling On Stocks

Another common mistake is confusing gambling or speculating with investing. Investing in stocks is part of a long- range financial picture and not a get- rich- quick scheme. While there certainly are high yield quick return programs out there, it is wise to limit your participation in those programs. Day trading is one of these types of programs. When someone is involved in day trading they trade very rapidly in and out of stocks in order to profit daily from marginal changes in the market.

This practice may seem easy to profit from but it actually results in more losses for investors than gains. Similarly, some try investing over a short period of time in very risky stocks. A short- term investment of six months to a year in a hot stock does not belong in a well- thought out financial plan. True investing should be done in quality companies over a period of several years. Finally, listening to someone who has a hot tip is a quick way to lose a lot of your investment. Research any tips you get carefully and only invest if the numbers pan out, no matter how much others insist that this is the stock to have.

Mistake #4 - Putting All Your Eggs In One Basket

Don’t underestimate this old addage. In any portfolio, you will want to diversify your holdings. Additionally, having too much stock in one specific industry can also be a recipe for disaster when the market changes. Spread your money over several different companies and different industries. That way there would have to be some catastropic disaster in order for you to lose all your money.

Article Source: http://www.noviceinvesting.com/Article

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