Earn More Profit With Less Trading

While many people still prefer the "fire and forget" nature of investing in mutual funds, more and more people are rediscovering the excitement and benefits of trading individual stocks. No doubt, this has been aided by the growth of online trading, cheap commissions and a realization that many high-paid advisors and Wall Street research departments consistently fail to outperform low-cost mutual fund strategies.

But with investors' new found status as managers of their own portfolios comes a dangerous temptation – overtrading. In fact, overtrading can represent a far greater risk to a portfolio than mediocre stock selection or a bad market. Time and time again, undisciplined and hyperactive investors run their portfolios into the ground by increasing their costs, decreasing their tax benefits, and missing the natural action of the stock markets. Getting a grip on how often they pull the trigger is crucial in keeping their portfolio moving in the positive direction. (Learn more in Measure Your Portfolio's Performance.)

How Heavy Trading Cuts Profits

If Wall Street's full-service brokers traded their clients' accounts as heavily as many do-it-yourself investors, they'd be accused of churning and lose their licenses. The reality is that $10 self-service commissions can do just as much damage as $50 -100 full-service trades, if they're done five to 10 times as often, something many novice traders don't realize until they sit down and add up their first few month's trading costs. As a rule of thumb, an investor hoping to earn double-digit returns should seek to limit their portfolio's annual costs to 1-2% including all commissions.

The Bid-Ask Spread

But trading costs aren't the only thing nickel and diming individual investors to death. The bid-ask spread, or the built in difference between the level at which a buyer and seller can transact a share of stock, can quickly bleed a heavy trader dry in a flat or down market. While Wall Street's largest stocks typically have a very narrow spread between the bid and ask prices, it still can amount to one-tenth of one percent per trade. While that may not seem like a lot, the bid-ask spread can easily cost a heavy trader 1-2% percent of a portfolio's value over the course of a year. And considering that many do-it-yourself investors also like to speculate on small companies, where the bid-ask spread can be as high as 3-5% per trade, it's not hard to see how heavy trading can be an anchor around a portfolio's neck. (Read The Basics of the Bid-Ask Spread to understand more about this spread.)

Taxes

Of course, many investors are blessed with some combination of skill, luck and good timing and manage to post solid returns in spite of the high trading costs and the bid-ask spread hurdle associated with heavy trading. For these investors, their hard work and good fortune is often punished with a higher tax rate than those that buy their investments and hold on to them over longer periods of time.

Currently, the U.S. tax code penalizes gains on all assets held less than twelve months, by taxing them at ordinary income tax rates. That means that up to 35% of a heavy trader's gains can go to taxes. This stands in stark contrast to a buy-and-hold investor whose long-term U.S. capital gains rates only max out at 15%. (Learn more about how your profits are taxed in our article Tax Effects on Capital Gains.)

How Slower Turnover Builds Profits

It's not just that heavy trading can take its toll on a portfolio, it's that the absence of lower turnover can also rob a portfolio of valuable components. It's like eating a fast-food burger instead of a health salad – you're not just eating garbage, you're skipping the stuff you really need.

The first by-product of slower turnover that many over-traders miss out on is sanity! Trying to follow every up and down tick of your favorite stock, plus all the news headlines that could affect that stock, can leave many investors feeling a little strung out. As a consequence of being overloaded, many investors' psychology becomes more erratic, with them making increasingly poor investment choices on adrenaline and impulse.

Of course, all that time watching the market and trying to time their trades distracts many investors from doing critical research. Whether they are technical traders who need to put in time with their charts, or fans of fundamental analysis that need to put their potential holdings under the microscope, overtrading can be a fatal distraction. By lowering their turnover rate and investing their limited time picking better companies, many lower turnover investors end up outperforming their heavier trading peers. (Find our how to combine technical and fundamental strategies in our article Blending Technical and Fundamental Analysis.)

But perhaps one of the biggest missed opportunities of maintaining an extremely higher turnover portfolio is missing regular dividends and unexpected stock splits. Dividends especially, have proven to provide a potent share of investors' overall total return historically. In fact, some studies estimate that dividends account for as much as half of the overall long-term growth of major large-cap indexes such as the S&P 500 and the Dow Jones Industrial Average.

Alternatives to Heavy Trading

Whether you've got the itch for some fast action or the hankering for some incremental return, there are more efficient ways to reach your goals than heavily trading your account. These techniques are especially relevant if trading is not your full-time source of income, but something you have taken on as a hobby or out of necessity.

If you're determined to be the shot caller on which stocks end up in your portfolio and when, be sure you're diversified significantly. Not putting all your eggs in one basket can actually lead to less micromanagement since all of your net worth is not tied up in the next trade. Even though you may make roughly the same amount of trades as before, they'll be spread over more companies, lowering the actual turnover of each position. In turn, you may cut down on some of the previously mentioned pitfalls such as shorter capital gains holding periods, missing dividends and stock splits, and becoming a high-strung trader who's got everything riding on just a few positions.

If you're open to turning over the reins to someone else, consider using an actively-managed mutual fund that focuses on high-turnover strategies, or even a “separately managed account” if you have more than $100,000 - $250,000 to invest. In both of these situations, you'll get the joy of knowing someone is actively working the market for you, but likely doing it with more expertise and lower costs than if you tried to do it yourself.

Last but not least, consider utilizing a covered call writing strategy, especially with assets that are in tax-protected IRAs. By writing covered calls, or selling someone the right to possibly buy your stock in the future, you can increase your portfolio's overall return in an exciting hands-on way, while lowering your turnover significantly in flat and down markets. (Read The Basics of Covered Calls to learn how a simple call option can work for you.)

Conclusion

While many investors dream of being active traders, it's a costly and time-consuming lifestyle that can cause your net worth to evaporate over the course of a couple of poorly-timed trades. If higher returns are what you seek, consider slowing down your turnover, spending more time on research, and utilizing some creative strategies to keep your portfolio's return exciting.

Source : Earn More Profit With Less Trading

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Sensex lacklustre; Pharma, Oil & Gas up

Benchmark indices were moving in narrow ranged Friday as investors stood on sidelines ahead of a long weekend. However, buying activity
was seen in midcaps and smallcap stocks.

“Bulls are indeed on seventh heaven as the September series came to a happy close with a 7% gain in the major indices. Foreign funds continue to pour money into Indian equities while the local funds don’t appear to be all that excited. The market is likely to remain sideways with mostly a positive bias and its direction will hinge on FII inflows and external environment. Results and RBI’s monetary policy are the two big events to watch out for next month.

We have two back-to-back extended weekends. This has the potential to make the market choppy but also gives you a chance to relax,” said India Infoline report.

At 12 pm, Bombay Stock Exchange’s Sensex was at 16749.53, down 31.90 points or 0.19 per cent. The index touched an intra-day low of 16618.43 and high of 16787.67.

National Stock Exchange’s Nifty was at 4978.60, down 7.95 points or 0.16 per cent. The broader index touched a low of 4931.25 and high of 4989.50.

“Yesterday's recovery suggests us that the bull strength is still intact however; the recovery above 5020 level is needed to continue the same. On the lower side the level of 4925 may act as a major support for the market and failure to hold the same may invite further sell off in the market. Below 4925 level the index may reach 4870/4880 level. Traders can search for fresh trading long opportunity around these levels,” said Kotak Securities report.

BSE Midcap Index was up 1.21 per cent and BSE Smallcap Index moved 1.53 per cent higher.

Amongst the sectoral indices, BSE Healthcare Index gained 2.68 per cent, BSE Oil&gas Index and BSE Realty Index was up 0.99 per cent each.

BSE IT Index was down 1.29 per cent and BSE Metal Index tripped 0.84 per cent.

TCS (-2.15%), Infosys Technologies (-1.49%), Bharti Airtel (-1.43%), ICICI Bank (-1.30%) and Sterlite Industries (-1.27%) were amongst the Sensex losers.

Gainers included Sun Pharmaceuticals (1.61%), Reliance Industries (1.26%), Maruti Suzuki (1.03%), ONGC (0.70%) and NTPC (0.59%).

Market breadth was positive on the BSE with 1765 advances and 766 declines.

News Source : Sensex lacklustre; Pharma, Oil & Gas up

Bharti fails to keep pace with Sensex on MTN overhang

Bharti Airtel, which has underperformed the benchmark Sensex ever since it revived a plan to merge with South Africa’s MTN Group, may surge if the deal falls through, as it would put an end to uncertainty about the future of a combined entity with differing management styles, structures and some imponderables, investment advisors say.

“If the deal (with MTN) succeeds, there could be a small downside,” said Mehraboon Jamshed Irani, senior vice-president-PMS, FCH Centrum Wealth Managers. “But if it fails, the stock could gain, as those worried about the uncertainty surrounding the deal may want to include Bharti in their portfolio,” Irani added.

Bharti, the biggest mobile phone company with a 4.4% weighting in the benchmark Sensex, is down 2% since May 25 this year, when it announced the reopening of exclusive negotiations with MTN. During the period, the most popular index has risen 20%. Bharti ended 1.4% higher at Rs 419.25. Sunil Mittal, who last year ditched a plan to combine the companies, revived the idea to create a $23-billion behemoth with more than 200 million customers, as he sought to grow globally when the domestic revenues per user were declining due to stiff competition.

But the regulatory hurdles such as mandatory open offer by MTN for 20% of Bharti’s minority holders and legal complications in dual listing are threatening Mittal’s ambitions. Both the companies are still in discussion and the deadline to conclude a deal is September 30. During the downturn in 2008, Bharti figured among the best performing stocks and many investors still like the stock, but for MTN. The stock has underperformed its peers, too, despite many investors preferring it over rivals.

“We like Bharti’s strong management team and its ability to execute consistently. But given the current overhangs, we do not think the stock is cheap at 15.9 times FY11 P/E,” said Nomura in a note to clients. It
has a neutral rating on the stock. “Uncertainty about the MTN deal is one element, but domestic competition concerns, along with 3G and MNP (mobile number portability) impact, are other overhangs.”

Its leadership position and experience make it the best candidate to take on the emerging competition, some analysts say. “In our view, it’s best positioned to manage competitive pressure, given its incumbency advantage and diversified service portfolio,” RBS said in a note to clients. “We believe current valuations, at almost 14 times FY11 EPS, factor in the transaction, thus restricting downside on a formal announcement. Hence, termination of a deal could drive significant upside,” the note added.

There are also some who are betting that a buyer of Bharti will be a winner irrespective of what happens to the deal. “Whichever way the deal goes, it will be favourable for investors from the stock market point of view,” says Amitabh Chakraborty, president (equity) at Religare Securities.

“If the deal goes through, Bharti may find a place in the MSCI index which will result in foreign investors wanting an exposure to the stock. At the same time, domestic investors are not very positive on the stock as they think value accretion may take some time in the event of a successful deal with MTN. If the deal falls through, these fund managers may start buying the stock again,” he said.

News Source : Bharti fails to keep pace with Sensex on MTN overhang

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India to Auction 3G Mobile-Phone Licenses in December

India, the world’s second-largest wireless market by users, said it will start accepting bids for licenses to offer high-speed services on Dec. 7, a move that may help boost revenue at Bharti Airtel Ltd. and other carriers.

Bidders must submit any queries they have by Oct. 8, before a pre-bid conference on Oct. 12, and applications for the permits must be made on or before Nov. 13, the Department of Telecommunications said in a statement on its Web site. The government said last month it may raise about $5 billion from selling licenses for mobile-phone and wireless broadband Internet services.

The sale will pave the way for faster data services in India, the biggest economy in the world not to offer 3G nationwide. India’s number of mobile-phone subscribers has room to triple from more than 440 million, giving Sweden’s Ericsson AB, China’s Huawei Technologies Co. and Finland’s Nokia Oyj incentive to compete for network-equipment orders.

The third-generation services “will be the next phase of growth,” Nishna Biyani, an analyst at Mumbai-based Prabhudas Lilladher Pvt. said by telephone. Carriers will use the permits for airwaves to initially boost revenue from improved voice services even as they add data and broadband offerings, he said.

Bharti, India’s largest wireless operator, expects the start of high-speed services to boost “voice efficiencies” and the speed of data downloads, Chief Executive Officer Manoj Kohli said on Aug. 27. The carrier is eager to participate in the auction, he said at the time.

Gaurav Wahi, a spokesman at second-ranked Reliance Communications Ltd. declined to comment on whether the Mumbai-based operator will participate in the auction.

Revenue From Auctions

The auctions for licenses to operate third-generation mobile-phone services and WiMax wireless broadband services will earn India about 250 billion rupees ($5.13 billion), Communications Minister Andimuthu Raja said Aug. 27.

A group of ministers set a minimum price for a pan-Indian permit at 35 billion rupees, ending a nine-month deadlock over the pricing of the licenses. As many as four slots will be auctioned for each of the nation’s 22 phone-service zones, Raja said at the time.

Bharti, Vodafone Group Plc and other mobile-phone companies may gain customers by offering faster services such as music and Internet downloads that could help them offset slowing revenue growth in the more profitable urban markets. The world’s largest wireless market after China has attracted Norway’s Telenor ASA and Japan’s NTT DoCoMo Inc. AT&T Inc., the biggest U.S. carrier, has said it wants to start services in the South Asian nation.

‘Requested to Monitor’

“Participants are requested to monitor the auction Web site actively” for any changes in the schedule, the department said in its statement.

India’s Finance Minister Pranab Mukherjee has sought to delay until next year the country’s auction of rights to provide third generation mobile-phone services, Mint newspaper reported last week, citing a person familiar with the development.

India in November picked NM Rothschild & Sons Ltd. as the independent auctioneer to help it sell the permits and initially aimed to complete the process by Jan. 15.

State-controlled Bharat Sanchar Nigam Ltd. and Mahanagar Telephone Nigam Ltd. currently offer high-speed services in some parts of the country. The carriers have been exempted from the auction process.

News Source : India to Auction 3G Mobile-Phone Licenses in December

Stocks subdued; Nifty holds 4800

Stocks remained subdued as losses in realty and metal stocks took a toll on sentiment. But key indices pulled back marginally with the Nifty regaining the 4800 mark.

“In the minor term, support for Nifty continues to remain at 4780. If this level is broken then we could see selling pressure emerging and Nifty might test 4720 or 4680. And in the slightly intermediate term, support exist at 4560, unless Nifty breaks below 4560 with huge volume this trend is safe and every dip is a buying opportunity. Resistance is at 4900; if this level is breached with positive market breadth and huge volumes then the next target is 5050-5200,” said Nirmal Bang Securities in a technical note.

At 11:30 am, Bombay Stock Exchange’s Sensex was trading at 16,194.49, lower by 0.43 per cent or 69.81 points from the previous close. The index fell to a low of 16,119.95 after opening at 16,185.26. National Stock Exchange’s Nifty lost 0.52 per cent or 25.35 points to 4804.20. The index touched a high of 4832.25 and low of 4786.25 in trade so far.

The broader market scrambled back after an initial blip. The BSE Smallcap Index edged 0.13 per cent higher and BSE Midcap Index was trading 0.07 per cent down.

Sectorwise, BSE Realty Index slipped 1.59 per cent, BSE Metal Index lost 0.94 per cent and BSE Oil&Gas Index dropped 0.67 per cent.

Jet Airways India surged 5 per cent after the five-day-old stir by its pilots ended and the airline
management reached a settlement with the agitators. Shares of Jet Airways India surged 5.05 per cent to ahigh of Rs 270.40 on the BSE.

Biggest index gainers were Jaiprakash Associates (1.43%), Tata Steel (1.29%), Wipro (0.82%), Hindustan Unilever (0.74%) and BHEL (0.62%).

Losers comprised Sterlite Industries (-2.93%), Hindalco Industries (-2.62%), ONGC (-1.64%), DLF (-1.52%) and Reliance Communications (-1.31%).

Market breadth on BSE remained negative with 1192 declines against 1185 advances.

News Source : Stocks subdued; Nifty holds 4800

Home Inspections: Top Ten Problems

Each homebuyer has different ideas of what will constitute the ideal home for them, these notions often based on particular aesthetic preferences. But one thing that unites all potential homebuyers is the desire to find a home that is fundamentally sound—in areas beyond the immediate sweep of the eye—and that will provide a safe, comfortable, and efficient foundation for their life behind a new door.

This is where the services of a home inspector come in. During a home inspection, at least 30 areas of the home are placed under the home inspector’s “microscope.” We’ve compiled the ten most common weaknesses uncovered in a typical home inspection. If not addressed, these problems could cost you thousands of dollars in the long-run. So, knowing what to look for, and performing your own thorough pre-inspection, will help you to identify areas for repair or improvement before they grow into costly problems.

* Damp Basement: If a mildew odour is present, the inspector will be able to detect it, as this smell is impossible to mask or eliminate. Mildew odour is often the first indication of dampness in the basement. The inspector will also examine the walls, checking for any signs of whitish mineral deposit just above the floor, and will note whether you feel confident enough to store items on the floor. Repairs can run anywhere from $200 to $15, 000, this cost ultimately influencing the calculation of your home’s value, so consider enlisting the help of an expert to ensure you have a firm grasp on the bottom line before moving forward with the sale of your home.

* Poorly Installed/ Defective Plumbing: In older homes, plumbing problems and defects are very common. The inspector will determine whether your home’s plumbing is subject to leaking or clogging. Signs of leakage can be visibly detected. The inspector will test water pressure by turning on all the faucets in the highest bathroom and then flushing the toilet. If the sound of water is audible, this indicates that the home’s pipes may be too narrow. The inspector will also check for signs of discoloration in the water when a faucet is first turned on. The appearance of dirty water is usually an indication that the pipes are rusted—a water quality problem that should be dealt with immediately.

* Older/ Poorly-Functioning Heating and Cooling Systems: Heating/ cooling systems that are older or haven’t been properly maintained can pose serious safety and health problems. An inspector will determine the age of your furnace and, if it is over the average life span of a furnace (15-20 years), will likely suggest you replace it, even if it is still in good condition. If your heating system is a forced air gas system, the heat exchanger will be examined very closely, as any cracks can result in the leak of poisonous carbon monoxide gas. These heat exchangers are irreparable; if damaged, they must be replaced. While replacing these components may seem expensive, a new system will yield heightened efficiency, reducing monthly heating/ cooling costs substantially, and benefiting your long-term investment.

* Older/ Unsafe Electrical System: In older homes, it is common to find undersized services, aluminum wiring, knob-and-tub wiring, or insufficient/ badly-renovated distribution systems. When an electrical circuit is over-fused, more amperage is drawn on the circuit than what the circuit was intended to bear, creating a fire hazard. You’ll typically find a 15 amp circuit in a home, with increased service for larger appliances such as dryers or stoves. If replacing your fuse panel with a circuit panel, expect a cost of several hundred dollars.

* Older/ Leaking Roof: An asphalt roof will last an average of 15 to 20 years. Leaks through the roof could be a sign of physical deterioration of the asphalt shingles caused by aging, or could indicate mechanical damage caused by any number of factors, such as a heavy storm. If you decide your roof requires new shingles, you’ll first need to know how many layers are beneath, in order to determine whether the roof must be completely stripped before installing the new shingles.

* Minor Structural Problems: Common in older homes, these problems range from cracked plaster to small shifts in the foundation. While this variety of problem isn’t large enough to cause any real catastrophe, they should be taken care of before they grow.

* Poor Ventilation: Unvented bathrooms and cooking areas can become breeding areas for mold and fungus, which, in turn, lead to air quality issues throughout the house, triggering allergic reactions. Mold may additionally cause damage to plaster and window frames. These problems should be identified and taken care of before any permanent damage is caused.

* Air Leakage: A cold, drafty home can be the result of any number of problems, such as ill-fitting doors, aged caulking, low-quality weather strips, or poor attic seals. This nature of repair can usually be taken care of easily and inexpensively.

* Security Features: An inspector will look at the standard security features that protect your home, such as the types of lock on the doors/ windows/ patio doors, and the smoke or carbon monoxide detectors and where they’re located throughout the home. Check with an expert if your home is lacking in any of these areas, in order to determine what costs to expect.

* Drainage/ Grading Problems: This may be the most common problem found by home inspectors, and is a widespread catalyst of damp and mildewed basements. Solutions to this problem may range from the installation of new gutters and downspouts, to re-grading the lawn and surrounding property in order to direct water away from the house.

Article Source : Home Inspections: Top Ten Problems

What Stocks to buy in a typical recession?

When going gets tough , the tough get going. During every recession there are many investors who have squandered away large amounts of wealth in the share market. Many of them run away since they cannot handle the stress any more. Some remain but are confused which stocks to buy.

There are many analyst who claim that this recession is not like previous recessions and rather it is like the Great depression of 1920's. The most common reason given is this recession is caused by huge amounts of debt the US and other economies have accumulated over the years. However in both cases the recovery process is going to be same.

If you look at past data you would be inclined to believe that investing in small cap companies is always advisable in recession.

Example 1 :
The July 1981-November 1982 recession lasted 16 months. In the three subsequent years from the midpoint, the DJ Wilshire U.S. Small-Cap Index soared a cumulative 101%. The small-cap value index jumped 126% and the growth index advanced 78%. Midcap stocks turned in the second-best performance with a gain of 88%, and value topped growth. The same value-growth dynamic held for large-caps, which gained 82% but still lagged the DJ Wilshire 5000's 85% rise.

Example 2 :
In the three years following the 1990-91 recession's midpoint, small stocks added 105%, with value (up 114%) again outstripping growth (96% higher). Midcaps advanced 88%, but large-caps mustered just a 57% gain.

Example 3 :
The small caps rose about 25% from the eight-month 2001 recession. Midcaps increased by 18%, while large-caps actually retreated by 3%.

Now many people would seek to know why should the small-value phenomenon happen in a recession's recovery?

Genral hypothesis says there are two main reasons for it :

1. Small stocks are more speculative than larger ones. They tend to shine when investors realize a recovery is unmistakably under way -- those three years following a recession's midpoint. During economic expansions these companies can grow revenues and profits faster -- in percentage terms -- than larger ones, drawing investor attention.

2. Value stocks' prices are, by definition, cheap. That is why they have higher dividend yields and lower ratios of price to the per- share worth of investors' holdings (a.k.a. "book value") -- the two classic indicators of "value" stocks. Read our article on http://www.comparebroker.com/should_i_invest_now.php to understand these in more detail. When investor money pours into small stocks, those in the value category are poised to rise the most

-- again in percentage terms -- because they are rebounding from a lower level than are "growth" stocks.

First attempt you should also change it a little and then we would be good.

Wondering how much money to invest? Continue reading 100$ vs 5000$

Content Source : What Stocks to buy in a typical recession?