profit through investing on Stock Market
Generally, all over the world financial markets exemplify a state of intricate and inscrutable situation. These marketplaces are of immense significance in the western nations, where the constituents employ their expertise to invest and generate profit whilst formulating a pool of funds, statistics, derivatives, shares and calculation intricacy. These constituents or elements are those investment maestros who are the whole and sole performers of the elaborated function pertaining to the methodologies of these markets. These marketplaces also play an important role in facilitating the financially viable entities as well as the intellectual traditions. Even though being the most vital component of an economy, these marketplaces have not been fully acknowledged because; the constituents who are unswervingly gripped in the methodologies of these marketplaces, as well as those who endeavor at delineating these methodologies, still comprehend up to their better judgment the efficacy of these marketplaces on the economies of their respective nations (Mayall, 2006).
Shareholders are the best exemplary structure for the illustration of this particular instance; their objective is to maximize their profit by executing the astute dealing of the shares and stocks. According to Preda (2002b: 9) stock dealing is a model of an assimilated application, where analogous functions are executed by a populace pertaining of sundry personality attributes. However, a marketplace which is neither concrete nor sufficiently presentable, hence in such circumstance the functioning of the stock dealers can be made persistent by conjoining the elaborative and illustrative methodologies, mutually with intellectual statutes and contemporary electronic compositions (Preda 2002b: 10). Preda also writes (2002b) that the elaborative and illustrative methodologies depict the conventional means which have been executed to convey these marketplaces as well as the transparency and amenability for the associated constituents (Preda, 2002b).
Although the occurrence of these assimilated methodologies assist these marketplaces in persisting their functionality through a rational system, but the prime motive of the stock dealers persists to be the same which is to maximize their profits through overwhelming the marketplace. The comprehension of these methodologies becomes crucial when one needs to maximize the profits on a persistent basis, along with this comprehension a dealing methodology needs to be executed which exposes the fragile applications of the marketplace mechanism. Nevertheless, the predicament is also associated to this stance; which means that amidst the occurrence of a superfluous quantity of substitutes for the comprehension of stock marketplace mechanism, a standard is absent. Therefore, the concentration is effortlessly shifted to the superfluous dealing methodologies contemporarily being executed in the stock marketplace by its constituents, which is dictated by the conception of profit maximization (Buenza and Stark, 2004).
Stock dealer defined
An explanation which is theoretically and abstractly ample is generally a very intricate occasion regarding this topic of such intensity. As the terminology “stock dealer” is concerned, the accentuation of this term is not just limited to specialized or educational level but also incorporates numerous taxation regulations (Black, 1993).
The studies targeting those who intend to become potential stock dealer, have delineated the query associated to the “functioning” of the marketplace (for example, Elder 2002; Steen and Kendall 2005), the most viable and proficient system of explicating the concept of share dealer is through its comparison with the terminologies of “shareholder” and “share investor.” The core point made in this study to delineate the ideology behind the share dealers is the profit maximization through the trading of shares of diverse business entities. In contrast, share investors or share holders terms are used to depict a more conservative mentality which propels that a person focuses on gathering a pool of returns so that it can be utilized in a long-term state. This explanation depicts the prime and core emphasis of endeavors regarding the dealing of shares in both the diverse spectrums. Furthermore, as Hull (1997: 32) states that dealers are depicted as transient phenomena analogous to the investors. He also writes that this ideology is based on utter fallacy, and the holding period return and the amount of commands accomplished by the dealers analogous to investors can be of overlying nature in a few circumstances. The dissimilarity amidst the endeavors of the investors and dealers is totally aligned with one of the attributes which states that a person endeavoring to maximize the profits should always aim to comprehend the functionality of a marketplace astutely (Hull, 1999).
Background of the study
As stated by Willman et al. (2001: 887), financial marketplaces are profoundly abstract realms. In this study, the researches aimed to comprehend and form the functioning of financial stock markets by the assistance of significant educational means and the extrusion of these means have been conducted so as to further assess the conditions. The core emphasis of this study which was supported by the presentation of presumption regarding the functionality of the stock marketplace, and the communal grounds based on which these methodologies have been instigated (Willman, 2001).
For the specialized and expert personnel, the most prominent study regarding the financial marketplaces is the one that endorses a neoclassical standpoint, which regulates according to the Efficient Market Hypothesis (EMH). The EMH was instigated in the decade of 1960s by the study of Fama. The EMH has generated postulation about the sagacity of financiers and the efficacy of the financial marketplaces, and this feat has been accomplished by the extrusion of the postulations of the ransom walk theory (see Malkiel (1997). It stresses that the fee associated to the securities depicts the modern state of the erudition level of the elements which are responsible for this fluctuation and hence it is expected to be a finer approximation element regarding the fundamental worth of the security (Fama 1965: 6). Therefore, if stock marketplaces are proficient, then the efforts in profit maximization will be of simpler nature because the decisive element reallocates from persistence dexterity to possibilities (Kahnemann and Tversky, 1979).
Chapter 2: Literature Review
According to Brealey and Myers (2003: 358), the behavioral studies have been dictated by two core regions; one is the person’s own intellect regarding tackling impasses, and the second is the methodology that a person deploys to diverse likelihoods. The study conducted by Kahneman and Tversky (1979), have been the propelling force in the assessment of the peril dispositions, and have also been distended by researchers like Odean (1998) and Barber and Odean (1999; 2000) who have determined the disparities in the investor’s dealings with advantageous or collapsed outcome. They have also scrutinized the propensity of a person’s aptitude in maximizing profits through dealings. This was also illuminated to being the whole and sole foundation of the dealings in the stock marketplace. The outcomes obtained can be broadened to cover the whole marketplace from just pertaining to a single person, so a greater scope of dealing can inculcate the conception of noise dealing. All in all it can be witnessed that the behavioral finances can facilitate in comprehending the general mentality of the constituents in a stock marketplace (Brealey and Myers, 2003).
This is directly proportional to the commotion associated to a security bond and its likely upcoming state in the imminent times. Although we should be cautious of bonds and real estate in the current situation, investing in stocks since 1999 haven’t seem that promising either. At the moment your financial policy are most likely to end up in a disastrous plan if an investment isn’t made. The crucial decision that you make at the current point of the recovery, will enable you to estimate your investing returns for the coming five years or even more. Besides these problems such as inflation, oil prices, increase in interest rates and terrorism, the long-term essential part of the market and the economy are more favorable for investing in stocks than any other time since 1999. On the contrary, future for fixed-income investments and real estate is not very bright, worse than it had been in decades (Geisst, 2004; Micheal and Erica, 2004).
The aggressive growth is having several issues from past few years. The trades of Tech bell weather Cisco System have tripled from 2002 and are now trading at 27 times of the expected earning of the next year. However, many blue chips companies are selling at below average price/earnings ratios. There have been only 17 times earnings for the current years and 500 stocks were traded by S&P. These earnings are above the market’s historical multiple and below the price/earnings ratio of 18. This would exist well if there is low inflation. The bargaining made these days turns out to be a superior performer for a long-term. Moreover, it is clearly stated that the stocks are turning out to be attractive and exciting among the people (George and Hwang, 2004; Fraser, 2006).
Choosing a right and appropriate strategy is very important for the company and it works like an important decision as that of getting the right company for one’s self. There are some issues and ambiguities related to the stock market, as people are confused with it perception and the author highlights these misapprehensions and also covers the economic trends of today. Author discusses various matters in this research and covers the topic of risk, diversification and income investing. Here the main focus is on the financial strategies that can pay off big and highlights the financial structure (Greenblatt, 2006).
Analogous to the spectrum of economics, a lucid person is considered as the instigation of the comprehending phase which endeavors to explicate the functionalities of a marketplace in the behavioral finances. A substitutive methodology has been projected by sociological studies which comprises of the comprehension of a wider communal, organizational, and philosophical persuasive elements at the marketplace. To the preceding sociologists like Weber (2000a; 2000b), the procedures prevalent in the marketplace were of immense significance to them, and this significance can also be tracked effortlessly in the studies of the twentieth century (like, Schumpeter (1950), Polanyi (1957)). Nevertheless, the studies augmented with a surging pace in the decade of 1980s regarding the outcomes by the execution of networks in the marketplaces (Granovetter’s (1985) study was meticulously significant), and the communal deeds and feedbacks which coalesce in the marketplace.
The occurrence of the financial commotion has been the prime element in a majority of the sociological studies through pervasive inspection and scrutiny. It materializes in these studies as an underlying element with the imminent likelihood of invalidating the conventional economic principles pertaining to the marketplace and supplants them to materialize as a concrete chronological unit. Analyzers like Knorr Cetina and Bruegger (2002a; 2002b), Beunza and Stark (2004, 2005), Abola — a (1996a; 1996b), and Preda (2002a; 2002b) have stated the diverse rigid, spatial, ethnic, and technological persuasion which explicate the technicalities with which the dealers and experts conduct their commotions within a marketplace. This accentuates the propensity of communal and civilization persuasion on the constituents which propels a long-term conversion of the marketplace commotions and procedural enhancements. As Abolafia states, the outcomes of both the prescribed and unceremonious parameter in the commotions and assessment of the dealers focus on a few elements that are favored and others that are apprehended by the occurrence of visibly obtainable parameters (Abola — a 1996a: 232). Whilst it is advocated by Preda (2002b) that the inception of contemporary technological means in the marketplace can convert the prevalent parameters of commotion and dealing within their premises (Preda, 2002b).
The study based on Callon’s (1998) schemes of association of the performance of a marketplace was conducted by MacKenzie and Millo (2003) and MacKenzie (2003a; 2004). They comprised their assessment of the economic postulations and performance and concluded that these schemes have elongated the sociological prominence to the previously unknown realms. They associate the prevalent economic presumptions, not in the comprehension of the pervasive concepts, but, to supplant the assessment phase and actually contribute in the formulation of these concepts which is an archaic, political, and significant procedure. Hence, if the prime motive is to maximize the profits, then it is advisable on the basis of sociological studies that the share prices should depict a relative and chronological sequence which should be aligned to the functionality of the marketplace (Millo, 2003).
Connections between the market notions and the patterns of share trading
The stock market is faced with various false impressions and one of them is its abnormality. It is assumed that the rise in stock market was certainly due to the overvaluation. The decrease which occurred in the early time of this year was to remove the surplus. However, this assumption about the stock market is certainly not correct. (Ehrmann, Fratzscher and Rigobon, 2005)
October 2002 came with an end of bear market. Major advancements have been in March 2003 after a collision. It is seen that after the 21 recoveries since 1900 there has been a rise in stock prices. The bull market sets a history by hitting the collapse due to the world wide economic recession. Not only this but the shareholders started losing interest and got drifted away with it The market smacked up by recession led to the decline in the overall stock market but if we assume the rise in stock prices this will certainly make a deep comparison with the bear market of 2000-02 which was a hit by recession (Hon, Strauss and Yong, 2007).
With the beginning of February to May a normal position of the stock market was observed. The corrections were made by the 16th month after the start of bull market. The correction period prolonged for four months and the drop in Dow was 16%. However, the recovery which occurred recently began at 17 months and carried on for four months. This recovery led to also 10% of drop down (Chan and Lakonishok, 2004).
The scheme of rise in stock price is also followed by another fact that is of the interests of the shareholders. It is assumed that the correction has occurred due to the attention given to the growing stocks and the credit is not given to the boost in stocks but to get benefits in the future as well. MONEY/ABCNews were hit in March 2003 and this is shown in Consumer Comfort Index. As soon as the earnest faced the recovery the prices came back to normal and it can be seen that before the beginning of correction the confidence was retrieved back till January 2004. However, there has been more than halfway drop down in index as it was dropped in 2003 (Balvers and Wu, 2006; Michael and Erica, 2004).
The emphasis which these communal disciplines display regarding the diverse scaffolds and explications is prevalently and pervasively accessible to comprehend the functionality of a marketplace. Furthermore, in these prevalent scaffolds every single one is overt and majority is contrary to one another. This advocates that a person willing to generate as well as maximize the profits, will opt for that dealing methodology which would be aligned to that person’s comprehension of the functionalities of the marketplace. Yet, the implied presumption in this conception accentuates a cognitive recognition of a person’s intuitive opinions regarding the temperament of the marketplace. Nevertheless, for amateurs or fresh entrants in the investment dealing, the preference for a share dealing methodology is chiefly based on the imitation of that dealer who holds the prerequisite of share dealing. Hence to vigorously engross himself in the marketplace mechanism, a fresh entrant should advisably attain the expertise of a proficient dealer (Abolafia, 1996b).
A financial marketplace can impose intricate, asymmetrical, and inscrutable circumstances for the experts as well due to their multifaceted attribute which oscillates incoherently. According to the Hull (2001: 22), dealing assessments has become more dubious due to the inception of the “informational upheaval.” The superfluous and redundant assortment of commodities, services, recommendations, and statistics accessible are subsisting in the prevalent state of affairs in the marketplace. Hence, fresh entrants are recommended to comprehend that a dealer cannot have the overall understanding. Hence it is best for them to have go for an alcove and consolidate efforts in this regard or opt for profit maximization (Elder 2002: 67). This is altogether coherent with the specialized dealing conducts; as mentioned by Beunza and Stark (2004: 372), experts necessitate a consignment to an appraisal mechanism in order to instigate and preserve rationale-based endeavors.
In today’s era the psychology of the investor is more important and he is keener and concern about the trends being followed these days. They focus on the economic trends and observe which are of beneficial to them and which can bring growth to the company (Fong and Yong, 2005).
The fields of Middle East are getting dry and this has led to a high increase in the oil prices. The times when oil could be purchased at low prices is just gone now and now the price per barrel has now touched $42. This does not mean that the times are going to be real tough and as predicted by the analysts the prices of oil per barrel will be in between $30 to $35 in the next ten years (Qi and Wu, 2006).
Inflation has leaded the prices to go up higher than the average price in last 20 years. However, it is still less than the extremes in past few years. The price of oil in 1981 was $82 per barrel and the cost of a gallon of gasoline was $3. Now, demand has rise and this has caused the price to go up to $42 per barrel. Despite the rise in demand there have been fluctuations in the supply also. Eventually, efforts to improve the supply worked and it has come back to a sufficient position. There has been a 10% increase in the world oil reserves (Steve, 2006)
There has been less than 3% increase in the prices over the past few years. But now the rise in prices is seen visibly due to major factor of oil prices. However, it is expected that the inflation rate will decrease in the next few years. The decline in prices could be seen because of the high productivity as in the first quarter of the year productivity increased by 3.8% and labor cost per unit increased to 0.8% (Oyefeso, 2004).
Recovery period did not help the employment to boost up all of a sudden. It took time to create a space for jobs but still the jobs in the market are still faced with slump. There has been an addition of 248,000 jobs in May in the U.S. economy. Starting from March the jobs vacancies rose to 947,000 and the trend of rise in the job openings seem to persist in the near future. (Chinn and Forbes, 2004)
The emerging economic trends are the increase in prices, high productivity and hiring of employees is also increasing. In the recovery period recoil of trends has taken place. The corporate profit projections have also stout. In 2000 the earnings for S&P 500 have also increased but it faced a decline after some period of time. The profits should rise this year and continue the increase with the same pace as that of 2006 (Pierdzioch and Schertler, 2008).
It is considered that home is bought for the sake of investment. The purpose might be investment but it is actually used by your own self however the vacation home is used for enjoyment purposes. While buying a house affordability is a very important factor. Those who can afford high go for the home with bright and pretty outlook. These days real estate is not given a reflection of advantage. It is shown by the chart that the buying of home is definitely related to the inflation rate. However, now the prices for home are increasing rapidly as compared to the rise in inflation. The reason for this is the decline in interest rates as with low interest rate people can by more property. Interest rates are increasing and this will lead to less purchase of the luxurious property (Cooper et al., 2005)
The statistical concepts and methodologies are of immense assistance to those persons who are aiming to pursue the prevalent dealing methodologies for the stock market. Even though, Smith (1999: 14) stated the specialized pattern into six abstract classes, accentuating that the amateur entrants will align their efforts according to these classes. Technical analysis, is one of the most prominent of these classes which has its origin in both the educational texts (for instance, Menkhoff 1975; Smith 1999), and in the manuscripts related to the “functioning” of the marketplaces as well (Smith, 1999).
At the end of nineteenth century, the technical analysis gained significant recognition from the consumer as well as the critics (Preda 2004: 368). But the materialization of EMH in the mid twentieth century hampered the recognition and appreciation of the technical analysis. Nevertheless, this methodology of dealing again surfaced in the decade of 1980s due to its concrete and abstract attributes which facilitates the dealers belonging to the clusters of experts as well as the fresh entrants in the mechanism of the marketplace. There are numerous rationales based on which this resurgence has been definite, but the most crucial rationale is the inception of a fresh class of financiers who favor internet medium over all other means of communication. This preference is caused by the fact that this medium of communication has assisted in formulating a junction of neoliberal economic extrusions, evolutionary individualization of communities, technological enhancements, and venture traditions (Zwick 2005).
Nevertheless, even though it has significant recognition, majority of the authors state that technical analysis has an ample amount of ambiguity and vagueness. This is a popular opinion chiefly amongst the educational and marketplace experts like MacKenzie (2003b) and Steen and Kendall (2005). Undeniably, it proceeds to be a disputatious methodology; as stated by Mackenzie (2003b: 4) that graphical representation has been inculcated eternally to the classification of ‘astrology’ with being proportional to ‘astronomy’ of the financial aspects of a marketplace. This is a state of dilemma due to the fact that the adversary of this methodology is EMH, which presumes informational efficacy should prevail in concordance to the up-to-date marketplace idyllic (Zaloom 2003: 260). One another standpoint is that the practitioners of the technical analysis have an insurmountable conviction that the marketplace is administered by an inspirational code of conduct as anticipated by Smith (1999: 136). Hence, these practitioners persist to obdurately condemn the execution of EMH which refutes the unswerving attribute of the technical analysis of persistently overwhelming the marketplace.
The lone query aroused by the fresh entrants in the mechanism of the stock marketplace who are inclined to execute the technical analysis is associated to the methodologies and their execution which are aligned to the obvious digressive illicit procedures. Undeniably, the chronological study of the methodologies is disputatious to the stock marketplace mechanism which necessitates examination of the dealing methodologies, to comprehend the functionality and the roles of its constituent populace, and the route by which the pragmatic deeds are accomplished (Kindleberger, 2000).
In contrast, the latest ethnographic studies (for example, Abola — a (1996a; 1996b), Zaloom (2003; 2005)) have depicted imminent stances into specialized dealing methodologies which are sustained by technological advancement, commercial traditions, and erudition methodologies. However, these are restricted to this philosophy and fail to explicate the relation amidst the stock marketplace opinions and stock trader executions. Furthermore, in the grounds of behavioral finance, the study ideology is based on the pronounced scaffolds of the share dealers when they execute their respective dealing philosophies. But the prevalent opinion is that the study ideology should be based on the original motives, sway or a collective fashionable performance (and chiefly on assessments which emerge illogical, such as over dealing or not capitalizing on profit generating occasions) (for example Shefrin and Statman, 1993; Odean, 1998; Barber and Odean, 1999; 2000).
In accordance with the growth rate of earnings the dispensing of stock universe is among four classes. According to observance of a group of clunkers regarding stocks, those whose progress report is not up to the sufficiency level will ultimately cause disenchantment in the foreseeable future no matter how lower their price is, at the time of purchase. On the contrary there is nourishment in the stocks towards sky high prices which valued so much and contaminates the chances to drop (Ravichandran et al., 2005).
With in the range there are two types of stock groups which attract the most which are the average organizations whose values are always underneath and reasonable organizations who valued aggregately on small premium within the range of market. It is easier and simpler for a company to maintain 13% growth rate instead of 25% which is in the approach and have attained by such companies over years therefore chances to fall down are even less than to organize the business in a huge terms in which the risk is even more. The market becomes calm when a stock fails to spot 25 P/E as a target for earnings (Rapach et al., 2005).
Chapter 3: Methodology
The case study based on which this thesis is formulated was instigated in October 2005 and still in the process of examination. It has been formulated according to the generalized format to the studies which are performed on internet dealers by Zwick (2005). The prime statistics were assembled through the means of exhaustive dialogues, frequently placed on the dealer’s monitor display through which they depict their comprehension of the technology, and occasionally the progressions were disrupted and executed dealings which were assessed as part of the examination. Along with these dialogues, telephonic examinations and electronic-mailing were also executed to assemble an array of opinions (Mayall, 2006).
The dilettante dealers neither incorporate any meticulous intellect in selecting premises of their functioning nor offer their knowledge to any person or an institute; this imposed a contentious impasse on the assembling as well as the completion of the study. Moreover, the dealing in the stock marketplace incorporates transferring of currency hence the dealers might not contribute in my study due to the delicate attribute of this spectrum, I will have to make my steadfastness prominent to them, only then they will share their knowledge with me. Hence to eliminate this discrepancy “arbitrators” (Hornsby-smith 1993: 54; Smith 1999; 178) are involved in the study to formulate a healthy association amidst the dealer and the researcher. My initial arbitrator was a prominent internet brokerage entity who was originally from the United States and confirmed that he will distend the study ideology to his customers and peers (Smith 1999).
In this study we will use the format of survey for appropriate data collection. Typically, the surveys can take up one of these two forms: a questionnaire or an interview. The former usually revolves around a written approach which the respondent employs in answering to the “questions” given to him in the survey while interviews are to be carried out not by the respondent but by the interviewer, as opposed to a questionnaire. In some scenarios, it can be difficult to differentiate between the two categories of surveys. We will use interviews for this particular thesis (Trochim, 2006).
Chapter 4: Results
As part of this chapter, we analyze the stock profits made by different global companies of the world.
Harley-Davidson (HDI, $46) Harley Davidson (HDI, $46) underwent a great depression when it decreased its profits and production plans in 2005 due to a lower demand in the market. This led to an overall decrease in the stocks of 17% and resulted in their value lowering to what it was five years ago. An increase in the prices of gasoline has decreased the demand for their products that consume large amount of gasoline. In addition to this, there is an increase in aluminum and steel prices; as a result the company would have to compromise on future profits. Philip Guziec, a Morningstar analyst, does not rank Harley-Davidson as a below-average company because he says that if your brand loyal customers want a tattoo of Harley-Davidson they will get; saying in essence that there obviously are many people who would want to buy your product due to their loyalty to the brand. Harley-Davidson has the fastest growing operating margins at 25%. Furthermore, Harley has started to enter large markets in Latin America, Japan, and China. If it is able to establish the same fan following as it does in the U.S., it is likely to travel on the road of success again (David, 2005).
International Game Technology (IGT, $27) for the longest time has been the world’s most prominent slot-machine manufacturers. In 2005 the sales for this increased three time in the previous five years to $2.5 billion as it produced about 70% of all games played in the casinos in North America. This was also because most casinos preferred the most recent machines that did not use coins as opposed to the ones that were coin operated. But this better technology has passed its highest point and has resulted in the fall of profits together with the IGT’s stock price, which is 40% off its highest point in 2004 (David, 2005).
The CEO Thomas Matthews is aiming at increasing his sales by using $140 million this year to come up with new products, one of which is software that would facilitate casinos in better handling their floors. The progress in the U.S. is likely to start again. Powerful states like New York and Pennsylvania have passed a bill aimed at enhancing the usage of game machines. This development has led other states such as California, Texas, and Illinois to think about passing a bill like this one. John Staszak, Argus Research analyst, has predicted that sales oversees would increase two times to $1 billion in the coming five years (David, 2005)
The next business we will analyze here is the Progressive (PGR, $90) which has the largest underwriting limits in the auto-insurance business. Progressive (PGR, $90) is good at coming up with new ideas and understands the essentials required for running the business. The company has been acclaimed for its efforts by its competitors for example Warren Buffet has reported to have said that it perceives Progressive as a great risk for Geico’s business (David, 2005).
Progressive came up with a few novel ideas that have now become a norm; an example of this is a 24 hours claims reporting. This company earns revenue of $13.4 billion annually and was the first one to come up with a low-cost direct-sales model, which enables the consumer to buy insurance online and through the phone. Because of an increase in the competition in direct sales, Progressive has diverted its attention to an insurer’s largest expense which are the claim payments. The company is further improving upon its pricing system, which enables the company to immediately and precisely evaluate each customer’s risk and remove any customers that may not prove to be profitable. Progressive has the potential of further progress as it has only 7% of the $150-billion-plus auto insurance market (David, 2005).
The aforementioned stocks have the return on equity percentages as explained above; the following table shows the aggregate price/earnings percentages.
A — Company (ticker)
D — P/E
Countrywide Financial (CFC)
D.R. Horton (DHI)
International Game Technology (IGT)
Initially, the deviations which were discovered when assessing the derived classes were comprehended preceding the conclusions explicated from the findings of the study pertaining to the commotions by the dealers who are inclined in executing technical analysis. These deviations have surfaced as substitutes of comprehending and judging the stock marketplace functionality, and they have been misconstrued as the fundamental opinion associated to the technical analysis as well as been misinterpreted as the consequences of the pointers, samples and models executed by numerous stock dealers (Mayall, 2006).
This can be easily judged by the practice of Weber that the following four categories mentioned in the following paragraphs show “best forms” of stock trading. They not only unify the progressive voyage that traders may have experienced to get the level of specialized analyst. Also it’s not like the perception of Smith (1999) who said that the planning of individual regarding to trade can be adjusted and altered. For estimating the accomplishments of trade the removal of other tools is unavoidable and also they never suggest proscription type of pattern. As a replacement they show those important attributes and direction of trading conduct that is obvious in present styles which they use currently. Such qualities brings urge in the performance of a particular trader because they try to get clearness in the surroundings which are completely soaked by embarrassing and contradictory knowledge (Mayall, 2006).
Stock Trading as a profit making system
Stock traders are considered to be those who take technical examination to the pretended limits and are depended on ‘systems’. This examination makes them free of selecting any valid point of time in future for buying or selling of any particular product or to necessarily examine about the right time of taking decision as they are depended on computer build software. This software helps in choosing the right product for them and also gives them right time to buy or sell them. Such programs are based on those variables which are set in advance. Furthermore, there are options about scanning, capitalization needed, capacity determination, etc. Hence the traders’ decisions are contracted to two problems; one is about the right choice of system that they should use. Few traders like to use “off-the-shell” sort of programs that can be or can’t be customized, but there are others which can be carefully planned and can become adjusted according to the need. This is certainly a part of decision that indicators can use to help in selecting the stocks that will bring them the most profit. The other problem for the traders is related to the fact that systems can be used to make decision making easy but they are not fully preordained. This is so because the systems are also depended on the performed action of trader which is based on endorsement. This leads to the belief that buying stock is depended on the financial condition of the trader or the program’s own choice that he take between stocks on base of advice or suggestions. One of the interviewees — Gregory depicts it like this, following is an excerpt from his interview.
Gregory: “Purchase signal is indicated by a green pub: while red is for selling
Int: “It means red pub indicates the time of selling”
Gregory: “Hence there is no need of raising any query. What is now best for every morning is that I will not look on shares.”
Int: “You are hitting lightly….”
Gregory: “I hit lightly and just say no presence of red pub.”
Jacob, another interviewee, is predestinated in his activities:
Jacob: “The systems I use are very much organized as they are properly recorded”
Int: “You are getting more limited…”
Jacob: “Yes as per entrance and exit concern there is no chance of any caution about them. I will apply caution on that premises if there is a chance that system is not working according to my need then I would take a gap. That is according to one’s own judgment, other is automatic.”
According to the traders who are dependent on systems the advantage is that the chances of error get limited as there is no involvement of human input that can cause rises of such flaws and they are more organized and dependable. As there is clear indication of buying and selling that’s why there is no need of serving time in determining any proper methodology to overcome the stock market instability. For satisfaction factor it is already judged in back-testing that the program usage is in benefit or not. This gives a technical comfort to traders and this testing is also done by them. For this testing they depend on historical data which is further organized statistically and use of algorithm make the judgment about these indicators more authenticated (Mayall, 2006). Stock traders that we interviewed allude to it in the way of positivistic science:
Michael: “The reason of liking it is its physical reality and straight forwardness of the mechanism. It is a kind of something that is scientific…”
Gregory: “To be a mechanical trader can be in our benefit….. This can make us more disciplined and it will fully define our procedures…. This gives us accessibility to judge our work statistically.”
Barry: “… valid sampling is needed for verifying the probabilities. After estimation of defined rules I have something tangible in front of me & #8230; If I have an upward trend in profit by judging all the results then I would also go with this in the upcoming future.”
Stock trading as a profit making art: judgment and instinct
When we talk about other group of traders, for them this is a personal elucidation of uninterrupted visionary indication that provides them an ingredient of their trading methodology (Mayall, 2006). Among these traders few depend on mix symptoms and models of system supporters, while others don’t accept the concept of trading as a science, the base of this contradiction is that they take trading as an art, as explained by out interviewees below:
Merrick: “My perception is that technical analysis on a greater degree is & #8230; an art, it is not a science… It’s in other manner an assessment call; depend on ones feelings… after placing all that you have in your mind about the mix.”
Neville: “… I rely on my own findings. I & #8230; prefer candlestick pattern recognition first attached with market deepness and volume… then I develop my decision dependable on that…”
Stephen: “It is preferably an art of trading not science of trading…”
This subcategory of traders is named as “pattern traders,” this name is given to them because of the fact that they identify and judge pattern in data. The trust and system making is based on personal insight or thinking which brings an excitement in picking up the beneficial profit making chances. This shows that many single traders want to set their own preferred way of organizing technology and data which they think can be more beneficial for them, according to Victor, another interviewee, “The most amazing thing regarding to the system is that unless you checked it your own self the trade is not possible.”
For making the best use of system the pattern traders consciously concentrate on the optic means that are easily reachable and can be judged more easily. These include tables and charts that show the price and volume of data. The real intend behind this is to identify those special forms of markets that can be traded. But this is an accruing process as it needs that one must be “specializes” in a particular area, particular techniques, or in a number of stocks that in between 200 to 400 which are vigorously traded, or the combination of all three; the real thing which can be carried out from practicality is to increase the knowledge, as it is discussed by many traders interviewed:
Victor: “This is in your knowledge that there is an existence of many companies and it is not possible for me to look on all every day…”
Thomas: “I do little effort and make it easy. I just use… few indicators and I think that there is no need to make things complicated by taking a many of them.”
Stephen: “It is impossible for you to trade without having a good knowledge of that thing which you are going to trade. It is too hard for me to keep an eye on 209 company’s ups and downs as it is a large number to be handled by one self. I would prefer to become more knowledgeable about few currencies or about ASX200.
For identifying patterns the presence of visual clarity is necessary. The metaphor mostly stressed to have sensory experience of seeing the data. This is important as it makes the perception and understanding of things a lot easier before the unintelligible data takes a new meaning. Let’s have an example from the interviews:
Matthew: “By looking on the chart on very first day there is nothing for you that can make a difference. Going two years back you can have a pattern showing higher and lower patterns of little description from all the presented stuff and you can judge more. Its same as like you need to purchase red Commodore and coincidently you saw it on a road while going anywhere & #8230;”
David: “From a psychologist’s perspective if one started to stare something for a long period of time you will have some patterns, shapes and people faces in front of you”
Helen: “There is something you watch daily and you become sure that where you can find it which you never had before and you can see a lot more about it”
What would happen, if that order fails? There are four dimensions of patterns that traders can approach, which endorse the four subcategories indicative of fulfilling the Smith’s study that if they commit a fault, they do not tend to understand the responsibility of that error (Smith 1999: 44). Conversely, the technical observers and experts more in favor of learning from the mistakes, with specification to the multiple categories can adopt methods as a scapegoat strategy. A good example of this is that the system traders may tend to look into the ways to improve their system, the gamers may heavily rely on the conflicting advices from the outside, and the explorers will always strive to learn better trading tools. While the pattern traders do, what Matthew has described:
“Occasionally, I think, why do I behave like this? These things are so apparent that it is not difficult to gauge why should I had avoid it, but the observer does not get the knowledge of that until its aftermath. Sometime ago, I came up with flags on breakouts, but I was unable to place them above the flagpole height, and so I must have waited for that. . .”
Tertiary level of traders and category also depends upon the judgment, but in a way it is very different from the technical analysis, mainly because these people tend to use broader pictures of the stock market as a trading and profit tool. However, in this category individuals are regarded as technical analysts because they think primarily or finally, on the basis of chart analysis and their decisions are largely affected by the figural presentation. Smith (1999: 49) declares these people as “traders” and they have also been declared as gamers in this paper, because as said by Peter, another interviewee – “the stock market is indeed a giant computer game, with multi-players at the same time”
In the views of gamers, the market fluctuation is basically the aggregate of all the activities of the players in the market and their goal is to take advantage of emerging trading opportunities by analyzing the peer moves and decisions. The primary tool for this kind of business is technical analysis, which is done on the various presentations of the data, which gives a chance to the players to gather the information needed to make a sound decision about trading.
The information provided can be quite wide and broad based as the gamers have a tendency of following holistic style in trading and they try to comprehend the market moves. Look at the interesting description of his method by Peter (interviewee), when he described the detail information of the visual chart and volume indicators in order to understand and explain the stock movements:
While analyzing the historical trends of the shares he says: “Normally, I look at the chart for understanding the historical moves as the charts are pretty easy methods to do so. Sometimes a share is on the top in one year and the same share is on the bottom or centre in the other year. This also helps me understand why people got excited about the share and also guess what the reason behind its death was. This method helps in future analysis as well.”
While describing the reasons of this changing movement, he says that: “when the shares are traded on a particular price like $3.20 but majority of the trader’s value is at $3.25 it will definitely go upwards. This means that the person who sells it on $3.25 might be having some idea and gut feelings of that. It is just like a divorce resolution between the wife and husband, who get the share as part of their agreement and work with them without any idea of the future trends and moves.”
The reason is obvious that they basically analyze and find the rationale behind the moves of other market players with the help of technical and historical analysis (Mayall, 2006). However, this analysis is comprehensive and not restricted to the stock itself. In order to become a successful stock market player, the frame of minds for various big players and movers has to be kept in mind, as they have the power to impact the whole industry or market.
There are some innovative tools to analyze the market just like the one introduced by smartmoney.com. This website provides a comprehensive and delightful presentation of the market movement of various stock companies which are combined as per the industry. This helps the traders to get the fair idea of the market move by just one look. Hence, they can find out the market opportunities to invest.
In the process of market analysis, the gamers sometimes take some non-visual insights into consideration for the technical analysis. This is done by reading various researches and reports reading. In the market scenarios, the traders most of the time communicate with the brokers, while all services are not available by contacting the broking services providers. The brokers are involved to gain in depth market analysis and gain some inside information and gauge the market moods by analyzing the big players’ movements.
Once the traders gain the in depth feelings about the stock market as stated by the traders and Smith (1999: 49), they start judging the actions and moves of the other players on the basis of visual insight they get from their analysis. This analysis and judgment helps them in determination of the base for taking solid actions. Once you have done all of this, you are in a position to outclass other prominent profit-making players in the stock market. The gamers can use their judgment and actions and will try to take a great advantage of the trends they predict for the future. However, sometimes they too “follow the trend blindly” as had been stated by Mack and ultimately take advantage of back ride.
Stock trading as a profit exploration strategy/voyage
Categories of technical analysts can be divided finally into those who can well again be demonstrated as voyage – a voyage which probably would not go to meet a conclusion. This category is most ephemeral, entitled with the name of “explorer.” But the ones who have recently joined technical analysis, this category is transitional where the degree of the method or diverse ideas, packages or products can be investigated, prior to go towards the types of the activities which are mentioned above. However, no change would be observed in others- even though, this situation looks like a deferral towards the explorers and the frequent exploration and assorted utilization of methods and instruments trying to add itself as a style.
While utilizing the technical analysis, those traders still require to get settled on a steady format. This needs to be done despite the fact that they are eager to find out hardware, analytical skills, rules, packages, programs, ideas or further ways which can guide their trade towards increased profitability. During the collection and utilization of the data, instruments and guidance is a common practice in every category, the differentiation among the explorers can be based on their tendency to extend (Mayall, 2006). Despite of ongoing or increasing contracts, the scope of their trading along with every extra stock seek out as they repeatedly go further without getting much hassle from them.
There is no end to the phenomenon of continuous improvements with respect to process and products. Stock traders looking to make profits always have a positive attitude no matter what difficulty they face, they always try to find out alternatives to overcome loses they are incurring in their businesses. Even when they are making fewer profits they don’t get distressed instead they try to be patient in growing their business and keep working to maximize their profits. Some traders who incur loses but still manage to stay in an industry are Sebastian who admits three years without profits and Llewellyn, who openly displays a portfolio in red. Success on most occasions is achievable; traders just have to opt for a correct path. Some traders who are in this business for a long time and very highly experienced still consider themselves as learners because they know it’s very tricky to make right decisions.
Chapter 5: Discussion
These ways of stock analysis and representation, helps to be updated with the market trends more easily; hence it’s an accumulation of four sub-divided categories that work on the technicalities. Every person has their own point-of-views; some consider trade as art and science, while some consider it a never ending game of money. Data in form of price is not just a feature, pilling up the analysis; but is of keen importance to arrange in such diagrams that keep the success and failure terminals of any trade in vision. It can’t be said that, this sort of representation provides complete details about certain process, but certainly it gives concrete form of knowledge and fact, on which process depends.
It can’t be denied that price/profit in whole provides entire related information, as the neoclassical economist championing the EMH, it is a self-contradictory theory. Hence, it’s a source of spark, which leads to the further betterment provided by the example of difference, that should be improved. If we consider two different groups of economists, EMH thinks that data provided in terms of price shows the underlying value of an asset of that trade clearly, and it should not be permitted. Whereas, if we consider the technician’s point-of-view, his work with the machine and its structure is far more observed, and hence summed up in a better way. Concluded price doesn’t give the perfect value that assets posses, but it gives the bird eye view about the security with accordance to the stock market. This helps in scheduling the trade, make the decision to move on with the chosen firm or elsewhere. MacKenzie noticed that, two points-of-view illustrated previously are efficient in providing the market position, hence framed a suitable hypothesis pattern (MacKenzie 2001:129): the research done for future improvement may coupe up with tendency of taking and working with theory and relevant practical side by side. This is the more constructive way to present the financial market condition, theoretically and practically.
People have started to take interest in financial markets after the market contribution has been controlled through the usage of visual cues, and new way of seeing the market has been introduced. The perception about financial market has been varied; the evaluation of the procedures can be done visually, and this is because the important part played by the computer screens (Knorr Cetina and Bruegger [2002a, 2002b]). According to Knorr Cetina and Bruegger [2002a; 393], now the buyers and sellers introduced themselves to the markets that are confronted by computer screens which are more or less stand-alone world(s). It is furthermore cleared by Knorr Cetina and Bruegger [2002a: 395], that screens are not only for the purpose of conveying information, but it is said to be a platform on which the whole financial market is being set up. According to Zwick [2005: 5], new people are entering in the financial markets, who are not professional traders in actual, and this is because of this new technology which is enabling the traders to focus on the information into a unique emblematic surface, and to see the markets on their front position. As the markets are in sight of each single man, people have got empowerment of seeing, interacting with, and acting upon the market swiftly (Zwick 2005).
Technical analysts also found it quite better in seeing, and acting upon the market; they can concentrate on the visual clues accurately with the help of different instruments and techniques, while taking their trading approach in consideration, so that they can make profits. It grabs concentration in visual control; and it distinguishes the information of peculiar forms, for the ‘system traders’ and ‘patterns traders’ respectively. Furthermore, it analyzes the visual representations on the screens of ‘gamers’ for circumstances in which a trader does play, and it introduces chances to the ‘explorers’, despite the fact that they have not yet dominated this peculiar technology (Mayall, 2006).
Goodwin’s debate in this regard is of proficient visualization, which consists of well thought-out social conducts of visualizing and perceiving events that are accountable to the different interests of a specific social group (Goodwin 1994: 606). A deviation from that is comprehensively suggested and reverted by technical analyzers. Lack of engagement with a renowned profession depicts the “non-professionalism” of the traders. The theory appears evenly appropriate to them as the approach of traders is coherent and cohesive in finding their perception of share movement and market. Without a doubt, provided data with which they are functioning is vague and exclusive of realistic magnitudes. Every type of technical examination presents an unlike perception on a general problem, by means of the similar base matter (Goodwin, 1994).
Everyone offers a unique idea in accomplishing trading profits, relying upon the skill to identify in the phenomena typical ways to arrange and conceiving a perception of the data emerging on the computer screen. Furthermore even though the modes in which these specialized ideas are adhered emerge to vary from Goodwin’s archeological digs or courtrooms (and at this point is a magnificent chance to further explore the educational development of traders). However the four types of technical examiners remain to be with Goodwin’s description of a group of professional competitors, majority of whom have never convene before, but, they look forward to each other to visualize and classify the world in conducts that are appropriate to the job, gears and objet d’art that compose of their occupation (Goodwin 1994: 615).
Oil prices, interest charges and the general downtrend in the economy have pressed for a greater concern in the Wall Street. Although there may be some favorable circumstances prevailing in the market. The low profits earned by established and supposedly financially sound companies such as Coca-Cola, IBM and General Motors coupled with unfavorable economic statistics especially those concerned with the retardation in the GDP growth has proved to be a hard and an unprofitable year for the investors. This has also increased the fear associated with the decline in the growth. Furthermore, the continual increases in the interest rates by the Federal Reserve would lead to more problems. In late April, the important equity indexes have been marked red for the year (David, 2005).
Moving towards a better direction is something that is not going to happen soon. In February, there was a hike in the interest rate coupled with the retardation in profits which was a threatening mix for the economy. But because S&P 500 trading were 20 times better compared to the preceding 12 months earning, thus making it a large amount compared to their averages in past. This made the prices of the stock be easily affected by small changes in the economy (David, 2005).
Although the markets are rather unsettled and unpredictable, they still have the potential of proving beneficial and providing favorable circumstances. One way is by finding companies who are powerful but are giving stocks away at an extremely low price. Following this principle we used a profitability measure called the return on equity (ROE). This helps in finding out the effectiveness with which the company uses the money that has been invested in their stocks. The way to work this out is to divide the company’s profit with the shareholders’ equity, where the shareholders’ equity is the company’s assets subtracted by the company’s liabilities. Ron Muhlenkamp, an experienced value manager, has used this principle of the ROE to earn great profits in the long-term. Since its beginning in 1988, his funds have given him an average of 15% per annum, surpassing the 12% yearly return of the S&P 500 during the same time span (David 2005).
Zacks Investment Research made a stock screen that enabled us to find companies that had ROEs higher than S&P 500’s average of 18% and the price/earnings ratio lower than the prevailing mean of the market. The companies that were anticipated to have an average of greater than or equal to 10% yearly earnings increase for the coming consecutive five years and had a debt/capital ratios lower than 50% were made part of this study. Lastly, companies having sales and earnings higher than 15% yearly in the preceding 5 years and had sales that accounted for over $200 million were also included in this study. A mere 38 stocks passed these tough rules, out of which the five best stocks were chosen. Most of these have declined more than expected recently and would soon see an increase in their value (David, 2005).
An increase in the interest rates could result in the decline of home sales thus proving detrimental for the country’s most powerful housing mortgage lender. Hence purchasing Countrywide Financial (CFC, $36) may prove to be problematic. Countrywide has been successful in coming up with a whole range of varied products, which has enabled it to increase its profits two times. Angelo Mozilo, the CEO, has been trying to strengthen the company’s services sector. This may include boring but profitable work like sending mortgage bill through mail and processing of checks. These servicing work acts as a safety net against the fall in new loans. Service fees are directly proportional to the interest tariffs because it’s highly unlikely that the consumer will prepay the loans. This has enabled the company servicing department to increase three times to $840 billion in 2001. By 2008 Mozilo further enhanced and increased the business and went up to $1.9 trillion. All this makes Countrywide’s stock a good purchase (David, 2005).
The top homebuilder company, D.R. Horton (DHI, $30) is a great deal. This company has set the record of being the first one in selling higher than 50,000 houses in 2005. The decline in the homes construction is problematic as it has reduced the value of homebuilding stocks which also includes Horton but Horton is better equipped in facing this decline as compared to its competitors. It has funds of $6.2 billion to make a sum of 21,205 houses. Taking advantage of its large size and huge sales worth of $11 billion, Horton can strike beneficial deals with the contractors and the suppliers. This is especially important because of the price hikes in labor and raw material costs. This has given Horton the advantage of raising its operating margin by three points to 15%. Thus making their stocks highly valued (David, 2005).
Choosing a right and appropriate strategy is very important for the profit-maker and it works like an important decision as that of getting the right company for one’s self. There are some issues and ambiguities related to the stock market, as people are confused with its perception and we highlights these misapprehensions and also cover the economic trends of today. The study discusses various matters in this research and covers the topic of risk, diversification and income investing. Here the main focus is on the financial strategies that can pay off big and highlight the financial structure (Michael and Erica, 2004).
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We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more