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How To Invest in Stocks

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If you haven’t Invested in Stocks before, Here is what you need to know

Investing in the stock market can see, scary and confusing. There are so many choices…where do you begin? Well, it’s really not that different from learning how to swim.

Jumping into a big pool, river or ocean can seem scary. But if you simply dive in and begin to learn, you’ll be on your own in no time.

As the world’s greatest investor Warren Buffett explains, it’s not rocket science…

As you can see, Mr. Buffett doesn’t make a big deal out of things that aren’t. He doesn’t have access to special and secret information. He has access to the same information as you do. He simply approaches it in a calm analytic manner.

But just so we’re clear, if Mr. Buffett were here and we asked him to explain how to invest in stocks he would tell you some version of the following:

Buying a stock is buying a piece of a publically trading company. Yes, the minute you buy one single share of a given stock you are an owner of that company. Naturally, as you acquire more shares, you acquire a larger share of equity. In plain English, this just means that you own more of the company in question.
Each stock you buy entitles you to that proportional part of that company’s earnings and assets.

There are two types of stock, common stock and preferred stock.
Common stock ownership allows you shareholders voting rights but no guarantee of a dividend payment. A dividend is a small percentage of the stock price which is paid back to the stockholder on a pre-determined basis.

Common Stock - how to invest your money
It’s basically the company’s way of saying, “Thank you for investing in our company. Here’s a little something to show you we appreciate your business and care about you making money while we are.”

Preferred stock ownership does not give you any voting rights, but (in most cases) guarantees you a dividend payment.

Once upon a time, stockholders would receive a paper stock certificate which had the number of shares they owned written on it. This is called a security, it’s just another word people use in place of “stock” or “share” so don’t get confused. The differences are not big enough to worry about.

What is Preferred stock - 1900's certificate-How to invest your money

What is Preferred stock – 1900’s certificate-How to invest your money

Today, stock or share ownership is recorded electronically and the record is held with your brokerage firm. Of course, the law ensures that you’re allowed to log into your account and check your ownership status. It’s no different than an electronic account at your bank and is typically as simple as checking email.

 

Now, be careful! Investing in stocks is not as simple as buy, sell, get rich!

 

Reality doesn’t work like that. Anybody telling you otherwise has some nice oceanfront land to sell you…in Nebraska.

You must treat investing in stocks like you would your job. Be serious, learn as much as you can and follow what the winners do.

Before you go out and buy a stock for the first time, you have to master the basics. This won’t make you Warren Buffett, but it will help you feel comfortable and more likely to succeed.
With that said, let’s go through the basics of getting started.

[CONTINUED How to Invest is Stocks, The 4 Pillars of Trading]

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UBS: Economy Still Facing Deep Risks

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UBS: Economy Still Facing Deep Risks

Economists at UBS warn that even after an uptick in economic activity in May and June, the pace of recovery slowed in July as consumers, workers and businesses remain cautious.

The economists believe that the unemployment rate will be hovering around 10% by the end of the year. However, they do expect a strong jobs recovery next year as the country wins the battle against the pandemic. They expect the country’s GDP to rise 5% in 2021 as the economy slowly returns to normal.

The Basis of Models

UBS’ chief US economist Seth Carpenter added that the models that UBS is basing their GDP projections on don’t factor in a large increase in new infections. This is something that could add another hurdle to the recovery. Alan Detmeister, a UBS economist, believes that the recovery is less about the number of cases. Instead, it’s more about the level of restrictions in place.

“The risks are deep,” said Carpenter during an interview with MarketWatch. He points to three challenges facing the economy as it tries to recover. These three include overall job growth is now slowing, incomes are falling, and both households and businesses are hesitant to make long-term plans.

When it comes to job growth, UBS economists are focused on what he calls “labor-market scarring,” according to Carpenter. He’s worried that the next 6 to 12 months could exhibit a “prolonged dislocation in the labor market,” and added, “What’s going to drive this is how fast people get their jobs back.”

The group also noted that except for the automotive sector, manufacturing jobs saw a drop in growth during July. The labor-force participation rate also slipped in July after gaining ground in May and June. “And within the employed, a large share remained either part-time for economic reasons or employed but not at work,” they noted.

Income Drops to Slow Recovery

Falling incomes will also slow any economic recovery. The bank warns that household incomes will drop 10% at an annual rate. This is due to the expiration of enhanced unemployment benefits and at least thus far, no additional stimulus checks. Even with an extension of unemployment benefits or another stimulus check, the economists say it won’t make up for the massive financial relief that was “the lifeblood to prevent the economy from tanking” from March through July.

This drop in incomes is putting further strain on the retail sector. Bankruptcies are piling up, most recently with Stein Mart announcing it would enter bankruptcy and will likely close most, if not all, of its 300 stores.

Neil Saunders, managing director at GlobalData Retail, notes that Stein Mart is just the latest retailer to go under. He’s also sure that won’t be the last. “The failure of Stein Mart is not only the latest in a long line of retail bankruptcies, it also underlines that even traditionally robust segments like off-price are not immune from pandemic-induced disruption.”

He added, “For a company that, at the start of this year, was in the process of selling itself to a private investment firm, the bankruptcy is an abrupt change in fortunes that shows the immense damage the pandemic has inflicted on retail.”

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Wall Street Insider: The Smart Money Is In Cash, Ready To Buy During A Correction

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Wall Street Insider: The Smart Money Is In Cash, Ready To Buy During A Correction

49% of Americans said they expect to live paycheck to paycheck each month. Additionally, 53% said they don’t have money worth at least three months of expenses saved in an emergency fund.

Those figures are from earlier this year before the pandemic began. Also, as you can imagine, these would be much worse today as the economic fallout from the coronavirus spreads into its fifth month.

Michelle Connell, the founder and president of Portia Capital Management, says the numbers show how weak the US consumer was even before the pandemic, so the prospects of a “v-shaped” recovery are “grim.”

“When the U.S. economic shutdown began in March, we were told to expect a “V- shaped” recovery. The consumer and the economy were originally expected to be fully recovered by the end of 2020 at the latest. Now the grim realities are starting to show,” says Connell.

The Rally and Tech Stocks

She points out that the stock market rally has been concentrated in just a few tech stocks. She also says that essentially every other stock that isn’t a tech stock hasn’t participated in the rally.

Since the S&P 500’s March drawdown of almost 35%, the index has almost retraced the year’s high and is currently 4% up for the year to date. But further analysis finds that only a handful of technology stocks have led this rally,” says Connell. She added that “Investors have focused on the companies that support “shut-in” consumers and workers.

The result has been that the top 10 names in the S&P 500 now comprise more than 27% of the index’s market weight and large-cap growth stocks have returned 20% year-to-date. To a large degree, the other 490 names and other investment styles have not participated. For instance, large to small “value” names are still down between 10%-to-16%% year-to-date.”

She says retail investors overtaken with “boredom” have piled into the markets. She also mentions that they “poured fuel on the government’s fiscal and monetary fire.”

Smart Money in Cash

So what should smart investors be doing right now?

The best idea, according to Connell, is to watch what professional money managers do in their own accounts, not what they are doing in their managed accounts.

And right now, they are in cash.

“You can always determine an institutional money manager’s real opinion on valuations when you ask them what they’re doing with their own money. Currently, many institutions are sitting on cash positions as large as 20% to 25% in their personal accounts.”

She adds, “If you’re sitting in cash, don’t feel dumb. History is on your side — and you are also in good company. Interestingly, over the past 30 years there has been a strong inverse relationship between the unemployment rate and the performance of the S&P 500. This relationship has been upended only over the past five months. Obviously, the $2.44 trillion of fiscal stimulus that has been pumped into the U.S. economy has created an artificial market environment. At some point, this inverse relationship will represent itself and the stock market will correct.”

She says to prepare for the correction by putting together a list of stocks to pick up at bargain prices.

“Be ready for pullbacks in the stock market and dislocations in private markets. And make a shopping list.”

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Gold And Silver Plunge On Vaccine Hopes, Slowdown In New Cases

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Gold And Silver Plunge On Vaccine Hopes, Slowdown In New Cases

Gold prices fell more than $118 per ounce yesterday. It’s the largest one-day dollar loss in more than seven years as hope for a coronavirus vaccine. Additionally, a slowdown in new cases pushed stocks and Treasury yields higher.

Edward Moya, senior market analyst at Oanda, said a report that Russia has developed a coronavirus vaccine had an effect. It served as everything traders needed to lock-in their profits from the recent surge in prices.

The Vaccine and Precious Metals

“Traders who were looking for an excuse to lock-in profits with their bullish gold bets jumped all over Russia’s vaccine news. It didn’t matter that this was somewhat telegraphed,” said Moya. He also said that Russians only starting Phase 3 didn’t matter.

Silver also fell $4.38 per ounce, it’s largest dollar loss on a daily basis since Sept. 23, 2011.

Brien Lundin, editor of Gold Newsletter, went on an interview with MarketWatch. There, he said many investors were actually hoping for a small correction. They wanted one so that they could get into gold and silver before the next leg higher.

“Gold and silver’s run over the past couple of weeks was dizzying in its trajectory and just about everyone marveling at that rise was expecting, and even hoping for, a correction. Well, it’s here, and the metals are simply releasing a bit of the air that had overinflated the market,” said Lundin.

“There was tremendous anecdotal evidence that a great swath of investors had bought into the long-term story for gold and silver and were simply waiting for a pull-back to get in,” he added. “I would expect there’s some reality to this view, and that we’ll see a big influx of investment once it appears that gold has bottomed.”

Reasons for the Climb

Bart Melek, head of global strategy at TD Securities said the recent climb was due to a number of reasons. This includes a falling dollar, lower interest rates, and higher inflation. When the US dollar went against expectations and actually showed strength, precious metals investors quickly headed for the exit.

“The precious metals complex, which posted a spectacular performance over the summer, was driven by a drop in rates, a steady increase in inflation expectations and a falling USD,” said Melek. “The rally is now giving up some of these gains as these drivers lose momentum. Real rates are now rising along with nominal yields due to stimulus optimism and risk appetite, with the USD also off its lows.”

Melek also believes that gold and silver dropped as some investors booked profits. Also, what he says are expectations of an economic recovery due to more stimulus money.

“Specs and CTAs are reducing their gold and silver exposure,” Melek said. This happened “as volatility trends higher and as they take profits out of a crowded trade. The rapid rate of ETF gold and silver purchases, which have been a key driver for the summer rally, are also losing momentum,” he added. The “U.S. economy will continue to positively respond to an additional trillion dollars worth of fiscal stimulus and continued Fed measures,” Melek also mentioned. Given this, “it is quite likely that rates and the dollar may see some better days into 2020.”

Melek adds that the dip in prices is a buying opportunity.

“Correction represents a second chance to get on the gold, silver bandwagon.”

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