Traders have it easy.  They buy into a stock and get out of it very quickly.  All day long they buy and sell, buy and sell.  At the end of the day they tally up the profits and losses and they know how well they’ve done.  It’s a good day when they’ve got more money than they started with. The problem with trading is not everyone has the time or patience. To be a market trader you need to spend your entire day watching the markets.  Traders by their very nature are focused on the short term. Almost everyone else focuses on the long term.  Most investors are of the “Buy and Hold” variety. These long term investors aren’t focused on the next few days.  They’re looking years and in some cases decades down the road.  You might even be one of them.  Because you’re focused on the long term you have a unique set of challenges. The 10% rule of thumb. I’m sure you’ve heard this before.  As a rule of thumb, markets return on average 10% per year.  Brokers love to quote it, investors talk about it, even as an investment banker I used it a time or two.  This data point is referring to a very long term average.  Like anything sometimes you do better and sometimes you do worse. Most people don’t know this important fact.  The 10% return isn’t always from prices going up.  A portion of this long term average return is from dividends. Dividends play a very important role in most long term investment strategies. I recently read a study analyzing stocks.  What they found was amazing. Investors captured a better return from one particular group of stocks. Companies that paid a dividend and consistently increased that dividend provided a better return than all other stocks. The performance was increased by almost 2.2%. I know that doesn’t seem like much.  But remember, we’re looking at long term buy and hold strategies.  The difference of 2.2% over 30 years is substantial.  For an investment as little as $100 the 2.2% difference amounted to over $1,800 in 30 years! When a company pays dividends it highlights the company’s health. Increases in the dividend show the Board of Directors is confident in the future of the company.  Clearly, owning dividend paying stocks is important to most investment portfolios.  But, you can’t just rush out and buy any stock that pays a dividend. It’s important to find dividend paying companies with strong financials. The first two things I look at are the dividend history and the payout ratio. I like to see companies with long histories of paying dividends.  I like to see 10 to 20 years, or more.  This is a sign management knows how to run the business through all types of economic cycles – both good and bad.  A company that can consistently send dividends to its shareholders speaks to the stability and strength of the company. The second data point I look at is the payout ratio. The payout ratio is simply the amount of a company’s earnings that are being sent to the shareholders.  It’s normally expressed in terms of a percentage.  So a company with a 45% payout ratio sends 45 cents of every dollar it earns to shareholders. The payout ratio can highlight a big red flag.  If I see a company’s payout ratio close to 100%, I tread very carefully.  Companies that send out a significant amount of their earnings in dividends may be looking to cut those dividends soon. On the other hand, the payout ratio can also toss up a big green flag.  If a company has a really low payout ratio, this might signal the board is about to raise dividends.  And that can be a great time to buy. Just having a strong dividend isn’t foolproof.  Just look at all of the financial stocks that have recently cut their dividends. So, how do we invest for dividends? If you want to take the time, and you have a big enough portfolio, you might look at individual stocks.  Make sure to diversify and remember to closely monitor your selections. An easier way is to buy a mutual fund focused on dividend stocks, or maybe an ETF.  You all know how much I like ETFs.  iShares has a dividend focused ETF matching the Dow Jones US Select Dividend Index (DVY).  This fund invests in US based companies.  They look closely at dividend growth rates, payout percentages, and yields, among other factors.  It’s a convenient way to buy a basket of dividend paying stocks and capture a great yield of over 4.5%.

Affordability is the watchword when you are trading in blue chip shares. You are out to deal with some of the top companies that are always in limelight. They are usually listed amongst the top 20 companies, in the exchange. They have the capacity to impact the overall trading in the market. These shares have a long trading history, return excellent profits; the shareholders get high dividends and bonus/right shares at regular intervals.

Normally, the blue chips perform well in ‘all weather conditions’ in the market. Whether the market is volatile, moving up or sliding down, blue chips hold on to their grounds, and as such the investor feels safe in dealing with them. These shares are not cheap. They may quote between 15-20 times of their issue price or even more! You may also need to buy a minimum number of shares to get into the threshold of the blue chip companies. Thus, it becomes the play of the big investors!

No cut and dry formula exists to identify a blue chip share. It is a subjective issue. Some of the important characteristics of such companies are: Proven record of good and stable earnings for some decades, uninterrupted dividend payment, steady increase in the percentage of dividends, less debt burden and strong balance sheets, high credit rating, diversified product lines and geographical location, good procedures of cost efficiencies and distribution control and all such positive qualities that make the business flourish.

Is dealing in blue chips without risk? Not exactly! The usual safeguards for trading apply to such shares as well. Just because they command the highest market value, you can not afford to relax your guards. The technological advances and severe competition in business can give jitters to blue chip companies. Those that fail to absorb unusually intense shocks of market may fail. Roll-Royce, once a blue chip company in UK, collapsed in 1971.

While investing in blue chips too, you need to diversify. Believing that you are on a firm platform is an unfussiness-like approach. Investing in one or two big companies of the same segment is not a bright idea. Safety is the name of the game you are playing!

Be an expert-in blue chips!

When you are dealing in this category, naturally your capital outlay for equity investment is more than average. Therefore your care about servicing the equity should also be more than average. Make a thorough research. Take time to study the real information, beginning with the annual reports, industry trend data, and the current economic policy of the government as for incentives in this segment. Employ a broker or a financial planner for blue-chip investments. This is very important.

The Strategy: Generally those who invest in blue chips understand the world investment scenario. After forming the strategy, you buy the equities of the company that you are interested in, regularly by weekly or monthly debits, for which you have given standing instructions to your banker. Review the portfolio at periodical intervals, you may like to drop or increase the percentage of shares of companies in a particular country. The role of your financial planner is important while taking decisions regarding foreign markets, taking into consideration the fluctuating exchange rates, apart from other considerations.

Blue chips are the best bets for conservative individuals, those not willing to take risks at all and yet wish to be partners in the share trade. Non-governmental, non-profit organizations and retirees prefer such shares. This is an area of share trading without the usual excitement of trade and volatility of the market.

Good industry position, excellent credit ratings put such companies in a place to borrow money and raise capital at a lower cost than their competitors. The sales advantage is–these days, the consumer goes by the brand name. This enables the companies to put a slightly higher price tag for the products.

Penny stocks are sometimes not listed within the big stock exchanges such as the NY Stock Exchange or the Nasdaq due to the fact that they don’t meet the listing needs. When you buy penny stocks know that listed stocks must have a minimum number of stockholders, minimum assets and file financial reports continually.

Penny stocks are customarily traded on the OTCBB or on the Pink Sheets. The OTCBB ( OTC Circular Board ) is an electronic quotation system for over-the-counter stocks that are not listed with one of the nation’s stock exchanges. The sole obligation is the firms file finance reports to the SEC.

The Pink Sheets happenings are not controlled or supervised by the SEC. If the Firm has lower than $10 million dollars in total assets or lower than five hundred total investors then no filings need be done at all.

This fact alone can make the decision to buy pennystocks a tricky one.
Penny stocks are for these reasons completely open to cons and manipulation. When you buy penny stocks you had better have your head on a swivel. The share price is generally far below $5 and market capitalization is small as the corporations itself are little.

The absence of reporting wants can make it tricky to find confirmed info about the company, its money situation and outlook.
Thanks to the shortage of public interest and low number of investors the trading volume is usually low. This suggests that some buy or sell orders can have dramatic effect on the share cost. While a listed stock can just about never move several hundred % inside some days, a penny stock can do that simply.

The low share price makes it feasible to obtain a large quantity of shares with a touch of cash. The low stock costs and limited capital requirements often attract amateur traders however penny stocks are definitely considered a playing field for experienced financiers only.

Many folks will not likely succeed and then go bankrupt. They underestimate the importance of learning how to buy pennystocks and end up getting burned.

The shares will finish up valueless. Remember that you likely can’t sell your stock for days or weeks or only at a huge discount due to the limited liquidity.

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