Stocks selling in between $1 to $5 are called penny stocks. They are basically low-priced stocks, considered speculative. Another term for penny stock is the microcap or small cap stock. These were used for stocks that were priced less than one dollar. Larger companies such as General Motors or IBM will not be found in this section, though at one time, they had also started small in the share market. The well-seasoned investor may take up penny stock investing in the hope of locating the next Microsoft.  At Company Invest, we’re a bit skeptical about trading penny stocks though.  They are dangerous because institutional investors do not buy them, thus they are controlled by a small inner circle.  However, there are opportunities:  For example at Company Invest we have Liquidmetal Technologies in our portfolio (LQMT).  It is currently trading at .64 a share.  This startup company just sold licensing agreements to both Apple and Swatch and has paid all their debt.  Opportunities like this are uniqe.

It is not right to assume that since the price of stock is $1, it is not worthwhile to invest in the company. Many renowned companies that now trade in the NYSE and NASDAQ had once started out as penny stocks. Before taking any financial decisions, it is preferable to do as much homework and research as is possible, since this is also an investing venture like any other. Value of a stock lies very much in the eyes of the investor. Whether to invest or not, should not be decided by the stock price alone. The present price of a stock is never an indicator of the future performance of the company.

Blue chip companies, the behemoths like Blue Star, General Motors, and Ford Motor Company, may be considered for stock trading by investors, as the icing on the cake.   As a whole Company Invest recommends and analyzes stocks that are $5 and above. On the other hand, penny stocks would be considered more like biscuits. However, some biscuits can and do have a taste that lingers on long, in the minds and hearts of the consumer.

However, none of the sources such as Russell 2000, Wilshire 5000, the S&P 500 or the Dow Jones, cover the penny stocks, in the stock market today. If you are interested in investing in penny stocks, the best source of information would be your financial advisor or your broker. The Walker’s Manual of Penny stocks is another great resource, since it lists over 500 of them.

Instead of the NASDAQ or the NYSE, penny stock trade is limited to the Over-the-Counter market, generally known as the OTC. You can find them quoted on the OTC Bulletin Boards. Be careful and check out the financial condition of the company before you buy stocks. The financial statements will be available on the SEC website, provided the company is registered with SEC. Else; your state securities regulator should have the details.

As with any potential investment, the investor will need to look into the future prospects of the small company, in generating profits. The company even if small, having sound growth potential, could generate significant profits over time. Look for the company’s existing financial revenue stream, its solvency, stock news, profitability, current valuation, history and longevity, before taking the plunge.

The risks involved in investing in penny stocks are manifold. Lack of information is one of the biggest factors to be considered. The information available may also turn out to be erroneous. Since the companies are small, and do not file their reports with SEC, there are chances of fraud. These risks act as deterrents to investing in penny stocks.  Again, Company Invest cautions you against investing large amounts of capital into penny stocks.

Fundamental analysis is the study of the combination of underlying company, industry, and economic factors that affect a stock’s present value with the aim of forecasting its future value. It aims to deduce a current fair value of the stock. If the derived fair value is unequal to the current price of the stock, the stock is said to be either under or overvalued. The current market price will ultimately move towards the fair value. Fundamentalists studying the analysis of stock markets believe them to be weak-form efficient. They tend to capitalize on the perceived price variations, and believe that the share prices are not accurate to mirror the available information.  Fundamental analysis is important, no doubt about it.  But at Company Invest, the main focus is technical analysis. Good fundamentals will tell you why to buy, while technical analysis will tell you when to buy.  You will see a little of both in Company Invest analysis.

In fundamental analysis, a top down approach is taken, starting with the economy as a whole, moving over to industry groups and then to specific companies. It goes without saying that all information is relative. The industry groups are compared with other industry groups, and companies are analyzed with others in the same group.

The economy as a whole can be likened to a tide with the individual companies, and industries are like boats. As the economy expands, more industry groups and companies grow and benefit. A shrinking economy hurts the sectors and companies which now decline. The economic fluctuations are linked to the level of interest rates. The rates are an important indicator for the stock markets as well. The economic forecast creates a scenario for the overall economy, and the investor can then delve down into its individual industry groups for trading the market.

In an expanding economy, certain industry groups profit more than others. An investor narrows the field to the most thriving groups among these. An aggressive growth oriented strategy may be best if the companies are expected to benefit from the economic expansion, and the risk in the equity market being low. In case of a shrinking economy, a more conservative strategy may need to be adopted, and stock investing of stable income-oriented companies should preferably be resorted to.

For assessing the potential of an industry group, its overall growth rate, importance to the economy, and the market size may be subjects to consider. As with individual industry, the industry group to which it belongs is likely to apply a greater influence on the stock prices. This is because, when stocks move, they do so in groups. Therefore, taken as an industry group, is more beneficial to the investor than a lone single stock. Presence in the right sector makes all the difference for the investor.

Within an industry group, the list of companies has to be narrowed down for detailed trend analysis. It is preferable to find the innovators and leaders within a group. The current competitive businesses within a particular group have to be identified, and their future trend studied. A study should be made of the ranking of companies according to product position and market share. This comparative trend analysis will help to identify companies having an edge over others and likely to succeed.

Fundamental analysis could next focus on the individual companies with sound finances, a reasonable business plan and solid management, leading to a competitive advantage over others.

COMPANY INVEST BOTTOM LINE

Both fundamental analysis and technical analysis data is critical to understand if you want to succeed in the stock market.   However, we at Company Invest primarily focus on technical analysis since stock charts are a measure of supply and demand and patterns often occur in predictable patterns.

Whenever the share market takes a dive, and we have a bear market, it is time to realize that the stock exchange is an unsafe place for our investments. As long as the market remains bullish, everyone enjoys the returns. However, this is part of the game; it is a risk-to-return tradeoff. For enjoying higher returns offered by the bull market, we have to face the higher risks in the bear market. For those who are unable to face this high risk, and a volatile market, the money market offers a safer alternative.

The money market is one place where government and large institutions come to manage their short-term cash requirements. Individuals can also access these markets with the help of different securities. There are various types of money market securities, which work for you.  At Company Invest, we will make every effort to find individual stocks we feel will net a good profitable trade.  However, when the setups are not favorable, we will either recommend bearish ETFs or putting your money into save havens such as money market funds.

Money market securities have short maturities and are also called cash investments. In reality, the money market is a segment of the fixed income market. Fixed income is usually treated as being same as bonds. However, a bond is just one of the many types of fixed income security. The money market specializes in short-term debt securities, of less than one year. This is shorter than the bond market terms.

Money market securities are generally IOUs issued by large corporations, financial institutions and governments. Since these are considered extremely safe and are also very liquid, at the same time being conservative, they offer significantly low returns, as compared to many other securities.

One of the major differences between a money market and a stock market is that in the stock market the broker takes his commission, and leaves the entire risk to be borne by the investor who is holding the stock. In comparison, the money market securities trade in extremely high volumes, which make it difficult for an individual investor, to act solo. Further, in the money market it is the firms that buy and sell securities in their own accounts and at their own risk. Therefore, the money market can be called also as a dealer market. The dealer market is also characterized by the absence of a trading floor, as in a stock exchange, as most deals are interacted through the electronic systems.

The easiest way for individual investors to enter the money market is through money market mutual funds. Money market bank accounts also serve a similar purpose. The money market funds and accounts serve to collect the investments of thousands of investors in order to purchase the money market securities on their behalf. Treasury bills, however, can be purchased directly. Large financial institutions with direct access to the markets also sell treasury bills. These bills are extremely simple instruments, which explain their popularity. Governments raise money from the public through Treasury bills, as short-term securities that mature in one year or less.  There will be several times a year when you will see a Company Invest post recommending a move to money market funds.

The money market has many other securities and instruments. They offer different risks and different returns. Investors with different needs can use them as per their choice.

COMPANY INVEST BOTTOM LINE

Money market funds are wonderful places to stash your capital when the charts and fundamentals are pointing to a sizeable correction or bear market.  Stay tuned at Company Invest for weekly stock picks and advice on when to move money in and out of money market funds.

2-DAY MARKET SELLOFF SPOOKS SOME INVESTORS

Technical analysis is a wonderful tool and has led Company Invest stocks to some wonderful gains over the past several months.

But the last two days have been big selling days on high volume.  What does that mean and how do you prepare for a large correction or an outright reversal?  That’s the even better thing about technical analysis:  You can make money when the market goes up or down.  But more on that later.  First, I want to address the recent pick, HOV.

HOV, A FAILED TRADE

HOV was an excellent trade setup and had a symmetrical triangle pattern on its price chart.  Company Invest recommended it over the weeked for a possible buy this week.  However, since we had a long weekend (market closed Monday) and with the unrest in Libya, the market gapped down on Tuesday morning, and with it, HOV.  Thus, I never entered a position in HOV, which is a good thing because it sold off big-time.  The thing about symmetrical triangles is that usually they are continuation patterns (they are a “breather” before a continuation of the previous trend, which was up).  However, they can break either way, and in this case, Tuesday HOV broke down out of the triangle (see below).

Although I’m glad I wasn’t able to enter the trade because it failed, it was still a good Company Invest pick based on the charts and offered good risk/reward.  As with all trades, you should always use a stop loss order every time you place a trade.  And, in my last post, I suggested a stop loss on the trade at $4.29, which would have been triggered.  This is important because if you do this all the time, you limit your losses, but let your winners run.  It is in this manner that you can lose on 3 out of every 5 trades and still make a nice profit at the end of the year. Of course, we shoot for a higher win percentage than that, but the fact is that with a disciplined strategy you can make money winning on only 2 of every 5 trades.

COMPANY INVEST CURRENT MARKET TAKE

Currently, the only long position I hold is penny stock Liquid Metal (LQMT).  It just looks and smells like a 10%+ correction in the broader market here, so we recommend either staying in cash while this correction plays out, or trying a “short” ETF, which gains value when the market goes down.

I opened a position in MWN (short ETF for Midcap stocks) on Tuesday and we’ll see how that plays out.  So far so good.

The Russell Index broke it’s long term trendline earlier this week (see below chart) and also broke out of a rising wedge pattern, which is also bearish.

Some options for being short small and midcap stocks incude:

• SDD
• MWN
• TZA

Company Invest will continue to monitor how this plays out, but there will be more company stock picks here when the setups indicate it’s a favorable trade opportunity.

Good luck to all, and remember we made LOTS of money from December 1 all the way through Tuesday.  A correction is a good thing and will give us the opportunity to find good stocks on sale.

As the broader market remains overbought under very bullish market conditions due to the Fed’s POMO and zero interest rate policy medicine, we at Company Invest will continually look for trading opportunities that happen after pullbacks or upon certain pattern formations. This Company Invest pick was selected largely due to the symmetrical triangle continuation pattern that has formed on the daily stock chart.  The company is Hovnanian Enterprises (HOV).

HOV PROFILE

The company designs, constructs, markets, and sells single-family detached homes, attached townhomes and condominiums, mid-rise and high-rise condominiums, urban infill, and active adult homes. It markets and builds homes for first-time buyers, first and second-time move-up buyers, luxury buyers, active adult buyers, and empty nesters. The company offers homes for sale in 192 communities in 40 markets in 18 states in the United States and also provides various financial services such as mortgage origination.

Fundamentally, I do not like housing stocks as I’m convinced we’re in the midst of a double dip in the housing market, with house prices still falling.  However, with interest rates still extremely low, and with a 32% short percentage of float, if shorts start covering, this stock will rocket upwards.  And, it can be had for around $4.50 a share and features a high beta (3.28).  When the charts say buy (which they do now) you have to jump on the train and ride the volatility!

SEVERAL BUY SIGNALS ON THE PRICE CHART

Looking at the chart, first we see that the 20 day Relative Strength Index (RSI) is again above 50, which is quite bullish. Look at the red boxes in the RSI chart.  Those are the times the RSI has broken above 50.  Now look at the stock prices during that time.  Nice runs each time.

The “symmetrical” triangle pattern is a continuation pattern that takes place during an uptrend, which HOV has been in since early November.  You can clearly see the triangle formation (blue lines) on the chart.  Also, volume should wane during the pattern formation, which has also clearly happened.  The price target is the difference between the top of the downslope line (pt 2) and the bottom of the upslope line (pt 1).  ($5.00 – $4.20 = .80).  Then you add .80 to the $5.00 value to get a target of $5.80, which would be nearly a 29% gain from current levels.

Also, we’ve just gotten a 13/23 EMA golden cross (blue line over the red line) which provides excellent price support and has given good buy signals in the past.

MACD ALSO BULLISH

The MACD indicator is still above the zero line (quite bullish), and the histogram bars are heading into positive territory, confirming the other buy signals.

STOCHASTIC HAS PLENTY OF MOMENTUM

Finally, the slow stochastic indicator has made a series of higher lows since December, with another forming right now. There’s been a bullish MACD line cross (black line over red), and with a value of 39, there’s plenty of juice left in this run (>80 considered overbought).

COMPANY INVEST BOTTOM LINE:

Grab it Monday at these levels with a stop below the bottom slope of the triangle around $4.29.  Great risk/reward on this trade.

COMPANY INVEST CURRENT TAKE: QUANTITATIVE EASING AND THE STOCK MARKET

In early November, 2010 the Federal Reserve announced it would embark on a second round of Quantitative Easing (QE).  In simplistic terms, with short term interest rates already at zero, the Fed was running out of bullets.  The market had rebounded nicely but unemployment was close to 10% and the consumer just wasn’t spending.

For those who don’t know, QE is essentially monetizing our own debt through the expansion of the US money supply and subsequent purchase of US Treasury notes with that phantom money.  The goal was to keep mortgage rates low, spur spending, goose the stock market, and move the economic “recovery” out of the doldrums.

Well, it certainly has accomplished one goal, consider the market goosed.  Outside of an initial selloff in November right when the program began, there hasn’t been a single sustained market correction since.  All major indices are at multi-year highs and even on days when it seems the market will surely drop, it doesn’t.  You see, the Government buys those treasury bonds on the open market from Goldman Sachs, JP Morgan and the like — and paying them huge commissions.  These purchases have averaged $6 to $8 billion each and every day.  That money is then funneled into stocks, because the market can’t go down right now, right?

To make a long story short, there are some stocks that have pulled back even during QE.  We’ve been able to grab some of them recently (SSRI, JRCC).  When you can find a stock that has pulled back in this environment with the right setup, strike while the iron is hot.  QE2 is set to end in June, so the way we look at it, there is anywhere from 5-13 weeks of rally time left.  Today’s Company Invest pick, Sierra Wireless, just may be one to ride the remainder of the duration.

SWIR PROFILE

Sierra Wireless (SWIR) provides wireless solutions for mobile commuting and machine to machine markets.  The company’s products and solutions connect people, their mobile computers, and fixed terminals to wireless voice and mobile broadband networks. Its mobile computing products are used by businesses, consumers, and government organizations to enable high speed wireless access to a range of applications

FUNDAMENTAL TIDBITS

Price to Sales Ratio: 0.55 (a wonderful value)

• Forward PE: 11.88 (Also good)
• Cash: 111.85 Mill.
• Debt: 587 K

COMPANY INVEST TECHNICAL TAKE

Today’s chart is a weekly chart which is used for longer term trades or investments.  Each candle represents one week.  We get a good, long term snapshot here.

The 3 Week Relative Strength Index (RSI) has bottomed out in the midst of an uptrend.  Look at the 1st red circle on the chart (at the top left), which was another recent time this happened. There was a 5-6 week rally that followed.

The weekly candlestick price chart has a few interesting points to note.  First, the 10 day EMA is greater than the 20 day EMA, and both are above the 50 day EMA.  This is called a bullish alignment.  although these averages have started to curl over, it would take a great selloff to dismantle this alignment.

Next, look at the trend line (blue line) going all the way back to the March, 2009 lows.  What this shows is although we may be just a bit early on a trade here (the price could still go down some more), there is SOLID support at the $10 range.  Expect a bounce and resumption of the uptrend between now and $10.

Finally, the HUGE selling bar of two weeks ago could be considered a capitulation of sorts.  Sellers dumped, and dumped fast, but that momentum appears to have waned.

Next, we look at the MACD indicator.  Although we have a bearish cross on the MACD line and signal line, more than likely after tomorrow’s close, the histogram (blue bars) will put in a higher low.  This is known as a PpP reversal, and is an early signal of directional change.

Last, we look at the slow stochastic momentum indicator.  At 32 and dropping, there is still some downward pressure here.  However, a bullish divergence could be setting up with a higher low forming on the stochastic line.  Also, the last time the stochastic line was at the 20 level (oversold), SWIR was selling for less than $7.  We’ll most certainly get a higher low on the price chart, probably $10 or greater.

COMPANY INVEST BOTTOM LINE:

We’re a bit early, but some signals indicate dipping our toe in the water here is a good idea.  Scale in with just 50 or 100 shares and set your stop at $9.87 or so (right below trendline support).  If it reverses, and runs through the end of QE in June, we could be looking at a $17-$18 target.

We have the luxury of being able to trade and invest in many foreign stocks.  China has been BOOMING, and particularly in the Shenyang area: an industrial mecca.  As manufacturing demand continues to increase, so does the need for power.  Today’s Company Invest pick, A-Power Energy Systems, provides onsite distributed power generation systems and micro power grids for industrial companies Shenyang, People’s Republic of China.

COMPANY PROFILE:

A-Power designs, constructs, installs, and tests distributed power generation and micro power grids as stand-alone facilities for various customers in the steel, chemical, ethanol, cement, and food industries. The company also offers automatic control systems to monitor the performance of equipment in the system, including the boiler, turbine, generator, grid supply, and demand and distribution, as well as space and water heating functions. In addition, it manufactures and sells wind turbines.

FUNDAMENTAL TIDBITS:

• A-Power features a LOW price to sales ratio of 0.83, making it a value play.
• Share price of under $6 makes it an affordable trade
• High Beta of 2.95 means profitable, fast trades when technicals flash buy signals
• 16.5% short interest means short covering could elicit a nice gain fast!

COMPANY INVEST TECHNICAL ANALYSIS

Once again, we find most of the US stock market in an overbought state.  Not the case with APWR.  Starting at the top of the chart is the ADX momentum indicator.  The indicator got a bullish +DI cross on 2/13/11 which has since been confirmed.  Further, the ADX line which measures trend strength looks ripe for a nice run after bottoming out at the recent 2011 selloff.

Looking at the candlestick daily price chart, APWR had a 3/10 Exponential Moving Average cross (GOLDEN CROSS) yesterday, 2/14/11 that was confirmed with a higher close today.  This is extremely bullish.  Look at the chart and the excellent signals it gives on the 3/10 EMA cross.

The MACD is a thing of beauty.  A POWERFUL bullish divergence is playing out.  Look at the WAY higher low that has been formed with the MACD line (black).  Also, look for a MACD/signal line bullish cross possibly tomorrow.  In addition, the MACD is approaching the zero line, which is also quite bullish.

Finally we look at the slow stochastic oscillator.  This oscillator does a good job indicating overbought/oversold conditions.  A healthy reading of 45 shows APWR has positive momentum and there is plenty of juice left in it.  In addition, the weekly stochastic is low and just got a bullish cross.  Company Invest thinks this could also be a great stock to hold even for several months.

Company Invest Bottom Line: This is a great safe entry point for a trade since APWR already has some positive momentum.  Also, the stock is in a wonderful position to place a stop right below the 50 day moving average at around 5.55.

The share market is an obscure place. Many investors too, subscribe to the feeling. Further, the stock market reports further complicate the issue. For the newcomer to the stock market, the stock reports are quite complex to understand.

The symbols, acronyms and numbers used in the daily stock report are a cause of puzzlement to the newcomers in a stock market. For keeping track of the stock market prices, today in the stock market, it is imperative to understand how to read these reports. Some overview can be gained by reading the quick moving tickers on financial TV broadcasts. They provide various stock analysis results. We at Company Invest rely heavily on technical analysis (the study of stock charts), however, you should always research companies fundamentals, as well as looking at stock reports.

One simple method to help understand and read the stock reports could be to make a note of all the acronyms appearing in the report and keeping track of their meaning as a list. This list could be updated and expanded with time. Using this list while reading a stock report online could then be likened to reading a newspaper with a dictionary by the side.

One of the factors of interest to the investor would be the closing value in the stock market today. This is generally placed right next to the stock symbol. This value can be used as an important tool to compare the prices between different stocks, within the investor’s portfolio.

Immediately following the closing value, the stock report gives the major percentage change figure. Some reports mention the price change, in the stocks market today, between the starting and closing prices, others give a percentage change figure. An up or a down arrow, next, serves to indicate the price movement involving the stock, for the investor. The investor can then compare the change with the different indexes for the industrial sector and thus gain an overall view of the position of the stock in the market.

For long term investors, the next figure is important. This shows the performance and competence of the stock in the last 52 weeks. Detailed information on the moving average in this range may be obtained from websites and business-TV shows. A thorough analysis of these trends, helps the long term investor take a stand in his trading of stocks.

For an understanding of the stock report, the best place to go to is the online trading platforms. They provide the latest trends and charts which help the investor to take quick decisions in the live market. They also provide trend information about a bunch of stocks in the portfolio. Financial television tickers are another source of information, which responds very fast to market changes. But for a newcomer, the high-speed movement of the tickers may not be a very comfortable experience.

The stock markets may remain stagnant, may move up or move down. It is very important for the investor to keep track of the movement of stocks through stock reports and online trading portals, so as to get the latest news and take maximum advantage whether he is a day trader or a long term trader. Proper stock analysis and timely action, backed by a positive attitude is very important for success in the stock market.  At Company Invest, we feel looking at a stock report is another piece of the investing puzzle that can only lead to success.

By far and away the most popular (and preferred method) for buy and sell signals here at Company Invest is through chart study, or technical analysis. Technical Analysis of the stock market can be considered as the assessment of the stock markets as related to the demands and supply of stocks. Unlike Fundamental Analysis, Technical Analysis does not look at the earnings potential while analyzing stocks. The stock’s price movements and trading volumes are studied using charts and computerized programs to identify trends. The Technical Analysis provides a means to infer a trend for the stock and its future movements by extrapolating on the trend. The assumption here is the fluctuation of the stock market prices is comprised of the several external factors and the efficiency of the market. This assumption makes technical analysis an effective tool for short-term investment predictions.

Technical Analysis of the stock markets uses the trends from past movements and uses this information to predict the future of the stock. The study of past movements is done in two ways, the moving averages and the charts and patterns.

The Days Moving Average is used to predict a trend by studying the movement of 30 or 200 stocks on average per day. This Technical Analysis can specify the various resistance levels and support, both in the long and short term periods. Charts and Patterns are also used for plotting the earlier trend and then predicting the future based on the past. Two of the most common pattern groups of chart analysis used, are Reversal patterns and Continuation patterns.

In general, the trend analysis can be of three broad types. Up-trend is when the consolidated movement of the shares and stocks creates new highs for the stock. Down-trend is when the consolidated movement creates new lows. If there is no significant movement, either up or down, within a certain span of time, the trend is called Range-bound.  At Company Invest,  we will present strategies to profit in all three environments.

If the price of a stock remains range-bound for some time, it means not many people are trading in that stock or the volume is maintained constant. Any sudden spurt in the price of a stock is usually followed by a drastic change in the volumes traded. If a sudden increase in volume is not followed immediately by a fall in stock market prices, it is an indication that there may be a rise in prices soon, and presently the prices are consolidating. Investors study the change in volumes with Technical Analysis to get a head-start during breakthroughs.

Investors use Technical Analysis of the stock market for their short-term decision-making for investment in stock. The short-term trading may be further subdivided as day trading, short term investments and for hedging purposes. A day trader instead of counting margin will rather count on turnover. He will interpret the falling stock market prices as a sign that he should sell off and when the prices start to rise after hitting a trough, he can decide on stocks to buy now.  Although we don’t recommend day trading at Company Invest, you’ll find our average hold time for picks in anywhere from 2-3 days to 3-6 weeks.

Short term investors form the largest customer base for the Technical Analysis. They will conduct the trend analysis for a longer time period to take their decision. They can set cutoff margins and if the trend breaks through, then they will act accordingly.

Hedgers are really big investment companies with large amounts of money at their disposal. Therefore, they can afford some hedging of their risk. This group compares the equity market with the index and based on the results of the comparison take their stand. They predict small peaks in the movement of stocks, also called rallies, and sell or buy during the rallies to make their profits.

COMPANY INVEST BOTTOM LINE:

We love technical analysis.  When you combine powerful chart signals with a disciplined trading strategy (always using stops, limiting losses and letting winners run), you will make a lot of money in the stock market.

An ETF or Exchange Traded Fund is a bunch of securities that can trade in the stock market like a single stock. What this means is you get benefits of owning an individual share at the same time, it renders the advantages of an index tracking fund. Same as individual stocks, an ETF can be traded on a stock exchange, based on the US S&P500 index.  You will find lots of recommendations to buy ETFs at Company Invest.  In our opinion they are much, much better (and less expensive) than mutual funds.

An ETF, being a conglomeration of equities, and also called an equity traded fund, trading like a single stock, gives benefits like owning a single individual share at the same time, providing benefits that a collective investment vehicle would give. ETFs will track the performance of a bond, stock, or a commodity index. An example is the Gold ETF. Each Exchange Traded Fund, as with individual stocks, has a SEDOL and ISIN number, a ticker, and can be traded on the stock exchange. Since ETFs are listed securities, market prices rather than the NAV prevail during trading. The market price fluctuates in sync with the NAV, and with the demand and supply of the ETF shares.

The most common way to invest in ETFs is through brokers. It is similar to buying a normal share. ETFs listed on Stock Exchanges are eligible for inclusion in Self Invested Pension Plans and Individual Savings accounts. ETFs also attract dividends.

Same as in a normal fund, dividends are paid for the underlying investments of an ETF. It depends on the individual Exchange Traded Fund, if these dividends will accumulate to the fund or are distributed regularly.

The liquidity of the underlying stocks determines the liquidity of the equity traded fund. If the underlying stock is liquid, it becomes easier for the Market Makers or the Authorized Participants to facilitate trading by creating units. Therefore, even if the ETFs have low trading volumes, they may remain liquid.

Recently, short ETFs have developed, which move against the index, allowing speculation on price falls by private investors. Depending on private investor availability, equity traded funds can also be sold short. Therefore, in anticipation of falling prices, one can sell an ETF that he does not own.  The great thing about short ETFs is you will see Company Invest recommendations for them when signals are bearish on the charts.  That way you can make money when the market goes up AND down.

Since many stocks are making up one ETF, the owner gains diversified market exposure, thus spreading the risks. Mutual Funds can be traded only in day trading, or once a day, whereas equity traded fund are traded real time on stock exchanges. Therefore, ETFs are more liquid than Mutual Funds.

Information on the underlying securities of the equity traded fund is published daily, resulting into a transparency impossible with many other pooled investments. There being no load fee or stamp duty on ETFs, they cost less than similar Mutual Funds, and the cost efficiency of ETFs is higher. ETFs thus represent a low cost investment tool for many investors.  At Company Invest, we clearly like ETFs better.

There are certain risks involved with Exchange Traded Funds, which merit careful consideration before investment. The investor should review all associated documentation published by the equity traded fund provider and learn the risks involved with the investment. There may be tax implications, or exposure to currency risks for international ETFs. Risks after investment may be tracking error and bid offer spreads. Tracking errors include transaction costs and annual fees.

COMPANY INVEST BOTTOM LINE

ETFs are wonderful trading vehicles that offer low fees, less risk than individual stocks, and the opportunity to capitalize on hot sectors.  You can even profit when the market goes down by playing several bearish ETFs.  Watch for many Company Invest ETF picks in coming weeks.