Showing posts with label stock market tips. Show all posts
Showing posts with label stock market tips. Show all posts

Thursday, October 16, 2014

SEC Introduces New Money Market Rules Which Might Deter Investors From Investing

The Securities and Exchange Commission has announced few major changes to its money market fund (also known as MMF) regulation. SEC Chairwoman Mary Jo White had emphasised that these new rules are inculcated with an aim of reducing the risk of runs in the money market funds. The new MMF regulation is expected much needed financial stability in the funds market.

However, the Ms. White’s assertion of reducing the risk factor in money market along with bringing in of financial stability is a highly debatable call from any corner.

Detailed Analysis of the New Money Market Rule

The two major rules announced by the SEC related to MMF are:

  • a. MMFs can charge a certain amount of fee to withdraw your money or they might even delay paying during the times of stress. 
  • b. Second rule allows the share price to change in accordance with the market conditions.
Money Market Funds in general sense are mutual fund with a share price fixed at $1. During the normal and not-so-happening times, the MMF share remains unchanged. Furthermore, MMFs simply invests only in short-term debt which are non-volatile in nature. MMFs also respond to small price changes by adjusting their yield in a dignified manner. But currently we are living in highly unpredictable times with another crisis looming at the horizon. MMFs are also feeling the heat of the moment and bound to face liquidity risk, it is a situation where investors does not buy more as they to sell for raising cash.

Liquidity risk poses a real problem for the borrowers. It basically affects a corporation selling short term debts in order to finance its business operations. At the maturity of each debt contract, the corporation or issuer is expected to sell a new one. If the market sizes up, the corporation could get into big trouble due to lack of investment.

Credit market is often described as a highly unpredictable and volatile where everyone is having it fun until some misses a payment. When they cannot sell up the debt contracts corporation gets into a fix.
How this affects MMFs

This kind of situation is posing a serious threat to the money market funds because they own debts and hold them as their assets. Currently the market value of the MMFs assets are depreciating or falling but their share price is fixed at $1. This simply puts that fund loses more with every redemption. If a large number of redemption is made the remaining investors would end up just holding an empty bag

SEC Comes To Rescue 

Through its second rule, it allows the share price to drop as per market conditions and it saves the investors from the threat o total loss. And with its first rule of imposing penalties it cleverly discourages withdrawals to certain extent.

Through delaying of payments, it prevents the runs, which might occur even with a floating share price and withdrawal penalties. The new rule would come into effect in 60 days, which gives an ample time to the investors to pull their money if they wish to do so.

Friday, July 15, 2011

Tips for Investment In Stocks Part.III

Certain conditions must be met for a product to be the target of speculators, they are:
* A growing market:
Forecasts and expectations on the treated product should be the hause.
Oil is a commodity increasingly used in our economies and especially in emerging countries.
The consumption worldwide is increasing steadily for many years but natural resources are not infinite.
The price of a barrel of oil went from $ 30 in 2004 to $ 120 in 2008, an increase of 300% in 4 years..
The law of supply and demand simply acting on this market: more and more demand, less supply.
* Market liquidity:
Have a rising market is a thing essentially, but not sufficient, speculation implies easily able to buy and sell easily. Buy 10,000 tons of oil today at $ 120 is useless tomorrow if nobody buys you $ 200, what would you do 10 000 tons of oil at home?
The liquidity of the market must be large, which is the case for a barrel of oil is trading very easily: the cargo on large oil change ownership several times during their sea voyage.

It therefore appears that the playground of speculators in markets that have already started up and have significant prospects in the same direction.
Speculation does while follow market trends.
* "The speculation does not create trends but amplified"
The rising price of oil is not directly related to speculation but to:
* Demand more and bigger (with a demand for more and more strong in emerging countries)
* Deal with an offer less and less important or less stagnant (it was estimated that the natural reserves could cover another 10 years of our world's needs for oil-drilling techniques are becoming more efficient).

Tips for Investment In Stocks Part.II

The Money is considered a low risk investment and therefore to use in policies with high risk aversion.

Diversification, the key against all attacks (almost). Whether to retain a single word it is this one: DIVERSIFICATION!

As stated above the proverb fits so well: "Do not put all your eggs in one basket."

Stock market diversification is to invest in different companies, different business sectors, different geographic areas, this allows not only partially undergo a crisis of a business or present in a geographic area.

Take the example of the Internet bubble at the end of year 90:
Case 1: People who invested only in technology stocks could have a portfolio valued at several million at the end of year 90. When the Internet bubble burst, their portfolio has plummeted to a value near zero.
Case 2: People with a partially invested in technology stocks and partly in the so-called traditional values, certainly had a portfolio valued less than the 'case 1', however, when the Internet bubble burst, their investments in traditional societies were allowed to keep a good value of their portfolio (even if the technology stocks that have collapsed, traditional values have continued to grow).
Investing in life is to apply a rule to limit losses due to changing markets. The principle: invest gradually and investing in time.
Financial speculation
Financial speculation is the fact to act in anticipation of market trends. It aims to use the profits in the short to medium term and is applied to all financial markets (equities, currency, commodities ...).

The principle of speculation is the goal of profit by anticipating market trends.
Investors speculation on the current price of a barrel of oil price increase its estimate that more or less important in the near future. They will buy at a price of barrels of oil to be sold at a price B (B> A) a little later.

Tips for Investment In Stocks Part.I

Here are some important principles to be followed while invest in share market. Applying these principles has the effect to win every time but to reduce its exposure to changing markets. They are not exhaustive but represent a good start to understand the philosophy of financial investments. Knowing the aversion to risk is very important in stock trading. What is risk aversion?

Risk aversion is the level of risk you're willing to accept. A strong aversion to risk means that you bear little risk, and conversely a low aversion to risk implies that you're willing to take risks.
Risk aversion can be classified into three categories:

* Low
* Average
* Strong

Once its aversion to risk assessment, it is possible to choose its investment products. It is important to realize that the returns are commensurate with risks: the higher the risk, the greater the gain / loss potential can be significant.

Some products are to be avoided or privileged following its aversion to risk, here are the 3 main families of products that can be used:

* Shares

Shares are products with high volatility, it is best to choose this mode of investment strategies with low risk aversion. It is possible to make a lot quickly, but also losing a lot.

* Bonds

The Bonds are to be considered in strategies to moderate or high risk aversion (this will depend on the strength of the underlying). These products allow recovery of interest at intervals over a set period of time. The risk of these investments is the cessation of payment of the underlying (state, company ...).