Category: General

Secondary Offerings

Posted on by The INO.com Team

Last month I asked Zach from Zachstocks.com to give us an insight into IPO's. Today he's going to teach us the in's and out's of Secondary Offerings.

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Besides Initial Public Offerings (IPOs), the fund that I manage is also very involved in secondary offerings. The concept of secondary offerings may not be very familiar to most individual investors, but it actually may have more of an effect on the price of stocks they participate in than originally thought.

A secondary offering is simply an additional issuance of stock to the market. The additional stock may be considered primary shares (shares actually being sold by the company itself) or the stock may come from large existing holders of the stock. While the net result is often the same (additional shares in the public float), the resulting fluctuations in the underlying price can vary drastically and often depends on which type of stock is being offered.

While every case should be analyzed individually, it is widely accepted that primary shares are more constructive to a company and its stock. The reason is that the actual company is receiving the majority of the capital and can put it into use within the context of the business. One industry that has been very active in issuing additional primary shares this year is the shipping industry. Zachstocks has covered companies such as Diana Shipping Inc. (DSX) and Euroseas Ltd. (ESEA) that have come to market from time to time to raise additional capital. This capital is put to work to buy new vessels which increase the profitability of the company over the long term. While the sale is often initially dilutive to current shareholders in regard to the technical book value per share, if management can explain how the additional capital will be put to work profitably, the shares often rally after a deal is priced.

On the other side of the coin is a secondary offering that is simply providing existing shareholders an easy exit. Ironically, while this type of trade has virtually no economic effect on the underlying company, this type of secondary offering can be damaging to existing shareholders. The reason revolves both around the supply/demand equation as well as hinging upon the element of trust or confidence which is paramount in the trading of securities. If I as an investor know that one of the founding members of the firm I am holding has decided to liquidate his position, it immediately makes me suspicious. Questions such as why this party would be selling some or all of his position can result in a lower multiple as the perceived risk in the stock is higher.

At the same time, basic economics will tell you that when there is excess supply (imagine a large block of stock hitting the market) and demand is not strong enough to soak up that supply (who is going to buy this insiders 10 million shares?) then the natural result is lower prices. While the price may often bounce back as nothing has fundamentally changed within the company, it is uncanny how many times an insider will sell prior to a large decline in the stock. It may be that he knew more about the business environment than the general public and so his expertise allowed him to exit the stock at an attractive time. This does not necessarily mean that there is insider trading occurring, but more likely that his knowledge of the entire industry or economy leads him to make a wise selling decision.

So while secondary offerings may not rise to the top of applicable data when choosing an investment, one who is holding a stock long-term should pay attention when an offering of this type is announced. While there are some private transactions that never hit the news wires (I field calls from underwriters about these on a weekly basis), many of the larger offerings actually hit news services and can be found on ino.com, or any other capable news feed. If one of the stocks that you are involved in issues a secondary offering, look up the prospectus which is free on the company’s website and see who is selling the stock and if it is the company, see what they are going to do with the capital. You may find that the capital is being put to wise use and that may lead you to increase your position. On the other hand, if the company’s founder is selling his last remaining shares, consider yourself warned!

Zachary D. Scheidt, CFA

Zachstocks.com

How to remove your obstacles to being consistently profitable

Posted on by The INO.com Team

Today we have a chance to hear from Mo Christiensen of Trading Advice Blog. I asked Mo to teach us how we can do something that aludes even the greatest traders...stay CONSISTENTLY PROFITABLE!!

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We're receiving a lot of emails these days from people asking for guidance and help unraveling their trading. With all the variables involved, people want advice figuring out where they're going wrong, or where they can improve.

So here are some suggestions:

Start by taking this free self assessment. It will help you to evaluate your trading around some of the primary success factors for consistent trading.

Second, go through the list of success factors below step by step. Evaluate each one. You'll be able to either tick it off as 'satisfactory' or you'll want to dig deeper and find a solution.

Find a trading method you can be confident in

This is THE basic requirement for every trader. With everything else you need to focus on as a trader, you want to know that your trading method has positive expectancy. That doesn't mean each trade is going to be profitable- but it does mean that you can rely on a regular flow of signals that if you execute correctly will lead to overall profitability.

For new or struggling traders we always advise finding a system with simple entry and exit signals that don't rely on a lot of interpretation in the heat of things. Plain, no nonsense signals that say 'get in' or 'get out' are best. That’s the beauty of MarketClub's Trade Triangles - there's no guesswork involved.

Are you executing correctly?

Many new and struggling traders face the challenge of managing their emotions, which get in the way of precise and focused action when it comes to placing an order in the market. This is almost entirely fear based and is usually caused by a lack of confidence in the system they are trading. Second guessing is the mortal enemy of consistent profitability!

Again, this is where Trade Triangles excel - the signals are so clear that you can see with absolute clarity what you are meant to be doing. So if you don't take the signals, you know immediately that what you need to work on is your execution. Both MarketClub and Ino TV have a rich selection of videos with more on this subject.

Money management

Are your profit targets appropriately balanced with your risk? In other words when you analyze your trades, and compare the profitable ones to the losing ones, does the amount of each profitable trade exceed the amount of each losing trade - preferably by 2 or 3 times?

This is important. Many new traders make the mistake of thinking that their consistent profitability will come about by having more winning trades than losing trades. They get despondent when they have a string of losing trades and begin to doubt their system. Yes ideally your system will have more profitable trades than losing ones. However even if you have 10 winning trades and 10 losing trades, or even 5 winning trades and 15 losing trades, if each of your winning trades is significantly more profitable than your losing trades, then you will be consistently profitable over time. The reverse is equally true, so make sure your winners are bigger than your losers.

Manage those emotions

What's your favorite? Fear, greed, jealousy, guilt? They're all bubbling away in there somewhere and affecting the way we think and act. Here are two pieces of counsel for traders:

The first is clear, clear, clear and clear. Find a method that you can use to clear your emotions! This may sound a bit touchy 'feely' to you, but believe me it will translate into such significant improvements in your trading, and in your life in general, that you'll forever consider it to be one of the most practical things you ever did for yourself. We recommend two methods that are particularly effective.

Second and in closing this post, I want to come back to MarketClub. Adam recently recorded a video on the number one account killer: emotion in trading, and what he says is spot on. Trading Triangles will help you take the emotion out of your trading. Even if you have challenges managing your emotions, if you can just marshall your focus and use the simplicity of the Trade Triangles, over time you'll build the confidence that will allow you to succeed.

Mo Christiensen is co-editor of the popular tradingadviceblog.com which specializes in trading advice for new and struggling traders.

Are you really committed to being a successful trader?

Posted on by The INO.com Team

Continuing with our guest blog posts for the week, I would like to introduce Pierre Charlebois from Tradingpostfinancial.com. After reading his posts for a while, I finally asked him to write a post that would help our thousands of readers!

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I was asked to offer something educational as a guest blogger and I was trying to think of what could I write about, to have the greatest impact. How can I get through to the readers what it is like to trade for a living? How can I explain what the one, most important ingredient in trading is? What is the one common thing that all traders need to do well, to get solid results overall. And how do I help them understand it? And then how can I teach them to do it? Then I thought: Man that is no small task.

If anyone could do that well on a consistent basis people would be knocking down their door. Let’s face it, trading for a living isn’t all that easy. Well, let me rephrase that statement. The average person can learn to trade. That is, most of us with a little effort and time, can learn all the basic concepts of trading and develop a reasonable system to apply to trading. So how come more people aren’t successful? More importantly: how come you’re not?

Simple; Learning to trade and ‘Executing Trades’ are two very different things. Learning the techniques is not what is difficult. Learning the ability to execute well, is!

You see, what separate the few good traders from the many mediocre ones is the real commitment of doing what it takes to be successful as a trader. I said earlier in the article that I wanted to try to explain the one thing that would be common to everyone who trades. Well that one thing is: You. Each one of us is what makes the difference in our trading. Not the next system, not a better market, but simply our own ability to find the discipline of executing our system well.

When I got this about my trading, my first reaction was that all I needed to do was be consistent as to when I trade and how I trade. Boy was that ever easier said that done. I had to really force myself to set the proper priorities of what to do, how to do it and when to do it. Frankly, it is still the greatest thing I am challenged with everyday. You see it takes time and repetition to reinforce good habits and shed old ones. And some of our old habits may never disappear entirely.

So I say, stop looking for the next system that you believe will beat the market and work with a simple system you can easily apply, and then; apply it well and consistently. That’s when you will see your trading improve.

Pierre Charlebois

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Please be sure and check out Pierre and what the team at Trading Post Financial has to offer!

8 Great Ways to Fight Stock Market Stress

Posted on by The INO.com Team

Good Wednesday to everyone! Today's guest article comes from Blain Reinkensmeyer of StockTradingToGo.com, a site that provides free investment tips for online stock trading. You can read over 100 free stock education articles and share investment ideas on his stock forum with over 5,000 other investors. Yesterday I had the chance to chat with Blain about the market's current state and his words really conveyed an air of confidence. His post below covers 8 keys...that we all fall short on. So read and apply!

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We all know that stress is bad. As an investor, it is very important to stay balanced while trading because Monday - Friday you are in the game whether you like it or not. So how do you fight stress?

The key is to stay calm and be disciplined with your investing. Market induced stress can be caused by you being too involved in your daily routine and the second by second moves versus staying focused on the bigger picture.

How do you fight stress from the stock market? Here are 8 ways:

1. Use stop loss orders. Stop loss orders are like insurance, they are stock orders that will automatically sell your position at a pre-determined price if that price is hit anytime during the trading day. They remove the “do I sell now? Should I hold instead?” drama of investing and replace it with a disciplined strategy. They are also perfect for maintaining a strong profit vs loss ratio.

2. Don't watch your streamer live all day every day. The real time ups and downs of the market can really cause some temporary stress. If you are like me you have your real-time streamer streaming live quotes from your favorite stocks and the market all day. If you know you aren’t in the right mind frame it sometimes is better to just close the streamer for a few hours or the day and bring it back on tomorrow.

3. Refresh your portfolio balance only once a day. Are your stocks losing ground fast? Instead of refreshing your portfolio every 5 seconds and seeing fresh losses, wait till after the market is closed and then refresh your portfolio balance. Remember, your stop loss orders will minimize your losses for you so you don’t have to.

4. Have a investment strategy. Not having an investment strategy is like trying to play a sport blindfolded. Don’t be disorganized, trade with a plan. Every buy and sell should be part of that plan and as a result will greatly reduce any stress you may have. In fact, a well assembled investment strategy can mean the difference between daily stress and no stress at all.

5. Eat healthy foods. Eating healthy can help keep your body well balanced. I personally enjoy an Apple almost every day while watching the stock market. Eating junk food doesn’t help stress because if your body isn’t happy your mind typically won’t be happy.

6. Get enough sleep each night. Adults should sleep on average 6 - 8 hours a night. If you are getting 5 hours or less of sleep and are wondering why you are more sensitive when your stocks open down take a look at your alarm clock. Getting that extra hour or two of sleep will make a big difference in how you react and respond to different situations throughout the trading day.

7. Don’t surround yourself with stressed individuals. You act like those who you spend the most time with. Take a look at your colleagues, and if they are investors themselves assess how they handle their own stress. If they are emotional investing evangelists screaming at the computer screen and breaking keyboards like Jim Cramer you may want to take a step back and reconsider how much time you spend with that person.

8. Stay calm in intense situations: stop, think, then act. Perhaps the most affect way to fight stress is to take those stressful times head on with a calm mindset. Remember always to stop, think, then act. This applies with everything from making a tough call with a unknown earnings report coming up to finding your portfolio down several percent on the day.

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Take some time and visit StockTradingToGo.com, read over 100 free stock education articles and share investment ideas on his stock forum with over 5,000 other investors.