How to Spot Quality Growth and Value Stocks

How to Spot Quality Growth and Value Stocks

The fundamental rule of investing is to buy low and sell high. While the concept is true, the actual implementation of it presents a challenge considering that there are around 15,000 publicly traded companies in the U.S. alone. There needs to be a system for separating stocks into categories to make the investment choices more manageable.While some overlap exists, most stocks can be broken down into two different types: growth and value. Both categories are defined by unique characteristics that can be attributed to almost every stock listed. While some may fit one definition or the other easily, many more display varying characteristics of both like coloring the label in gray rather than in black and white.It helps to think of the stock market like a retail store: some products fly off the shelves faster than they can stock them while others get marked down in order to entice customers to buy them. Growth stocks operate a bit like the item that sells fast. It’s usually sold at a premium and goes quickly. Value stocks are like the items on the discount rack. It could be there because it’s out-of-season, or it may be slightly damaged. Both types have their own strengths and weaknesses and play a part in any portfolio.Growth StocksAs the name suggests, growth stocks consist of companies on the rise. They range in size from a few hundred million to tens of billions of dollars but generally display some common characteristics.High Rate of Earnings Growth – The primary definition of a growth stock is a company that is growing earnings at a greater-than-average rate. A good...
How To Brace For a Correction

How To Brace For a Correction

It takes minimal skill for an investor to make a profit in bull markets. After all, a rising tide lifts all ships. Stock picking and sector rotation become less important as indices mark new highs on a weekly basis.The long bull market of the 80’s and 90’s gave rise to prominent investment experts who touted their strategies as the best way to make money on Wall Street. The popularity of the stock market gave way to Regulation Fair Disclosure, allowing everyday people to play the market and copy the methods of great investors like Jack Bogle, Warren Buffet, and Peter Lynch.However, the tech bubble crash in the early 2000’s shattered the illusion that anyone can make easy money in the market. Some were able to pull out with only minimal losses, but many more lost everything they had put into stocks.A question was raised. What did everyone do wrong? If they mimicked the patterns of successful investors, then why did so many people fail?A case was made that the relatively stable market of the 80’s and 90’s made it easier to pick winning companies and make a profit. There’s some truth to that theory. A look-back at the $VIX over the last 20 years reveals a much more volatile marketplace post-2000 than it was in the 90’s.The macro wasn’t to blame though. The real difference between successful investors and unsuccessful ones isn’t what type of market they’re investing in, it’s how they manage it.Even in bull markets, corrections happen. They should be expected and taken into account when designing your investment strategy. The same easy-money methods that work when...
How Continued Tapering Will Affect Interest Rates and Inflation

How Continued Tapering Will Affect Interest Rates and Inflation

The Federal Open Market Committee (FOMC) announced last week that it would once again cut its quantitative easing (QE) program by $10 billion. This marks the fourth consecutive quarter that the Fed has tapered although the Fed Funds rate will still have a target of zero for the foreseeable future.There is now $45 billion being pumped into the U.S. economy – $25 billion in treasury purchases and $20 billion in mortgage-backed security purchases. The reduction came on the heels of relatively weak first quarter GDP data where the economy grew at a much less-than-expected 0.1% rather than the 1% that was widely anticipated. For the fourth quarter, GDP grew at 2.6%. The Fed claimed that adverse weather conditions were responsible for the sub-par performance in the first quarter and maintains that second quarter GDP could be as high as 4%.The economic impact of reduced QEWhen the last round of QE began, many economists claimed that the infusion of so much liquidity into the money supply would cause interest rates to spike and dilute the value of the dollar causing runaway inflation. So far however, it seems that Fed activity has had little impact on inflationary figures and interest rates.In the last two years, the interest rate on the 10-year T-Note has mildly risen from 1.87% to around 2.6%, although it did briefly touch 3% at the beginning of 2014. Even still, it’s hardly the sharp climb investors feared might happen.Inflation figures are actually the opposite of what many predicted would happen. In 2012, inflation stood at around 1.7% and has dropped slightly to 1.5% for the last two years...
5 Great Reasons Why You Should Be Selling Options in Your Investment Portfolio

5 Great Reasons Why You Should Be Selling Options in Your Investment Portfolio

You’ve had many successful years trading stocks, but you want more leverage – you want better performance. As you assess strategies to improve your portfolio’s performance, consider an options selling strategy.   This strategy may provide smaller drawdowns and higher realized returns over long time horizons than investing only in equities.Whether your general outlook is bullish or bearish, there’s a money-making strategy available using options selling. It doesn’t even matter if you’re an aggressive speculative small-cap type of investor, or a conservative dividend paying blue chip investor, there’s a place for selling Puts and Calls that fits neatly within your risk profile.Here are 5 great reasons why you should include selling Puts and Calls in your portfolio:#1 – Adds Extra IncomeIf you could add a few percentage points of additional gains every year while only risking a fraction of the cost necessary to do so, why wouldn’t you do it? Well that’s exactly what happens when you start selling options as part of your investment strategy.Let’s break down selling a basic Put to show how this works:XYZ stock is trading at $30 and you think the stock will probably stay at the same price for the next 3 months or so.You sell a Put on XYZ stock with a strike price of $25 that expires in 3 months for $100.The $100 is an immediate gain that you pocket no matter what the stock does.After 3 months, the stock trended slightly lower to $27, but still above your strike price. The Put expires worthless and you realize a gain of $100.Of course the obvious question is what would’ve happened if the...