A friend of mine has asked me to help him invest. He wants me to look at penny stocks. The outlook when investing in penny stocks is usually not very long-term. You typically enter a position looking to make a quick buck and then get out. There are several things to consider when choosing to put your money in a penny stock.
You have to make sure that your entrance/exit does not influence the stock price to drastically. To combat this you must make sure that the stock that you deem a good buy has high enough volume that you can act upon it fairly easy. If the stock is really low volume it makes it much harder to accumulate enough shares to get a good return if the stock actually goes up. You also have to be aware of the stock being delisted from the exchange. This can happen when a stock has an average below $1 for too long. If this happens your investment is not looking great because the amount of people that would potentially buy the stock from you is now greatly dropped and the volume will subsequently follow.
Penny stocks are usually more of a gamble than investing in stocks with a higher market cap. They also have the potential to give you the highest returns, this is what is so attractive about them from an investors standpoint. They also have the greatest potential to lose money. That is precisely what scares me.
Monday, October 25, 2010
Kinder Morgan Energy Partners LP (KMP)
Here is the description of the company given on Google Finance:
Kinder Morgan Energy Partners, L.P. (KMP) is a pipeline transportation and energy storage company in North America. KMP owns an interest in approximately 28,000 miles of pipelines and 180 terminals. It has five business segments: products pipelines, natural gas pipelines, CO2, terminals and Kinder Morgan Canada. On October 1, 2009, KMP acquired the natural gas treating business from Crosstex Energy, L.P. and Crosstex Energy, Inc. On November 1, 2009, KMP acquired 40% ownership interest in Endeavor Gathering LLC, the natural gas gathering and compression business of GMX Resources Inc. In May 2010, the Company completed a 50/50 joint venture with Kinder Morgan Energy Partners, L.P. (Kinder Morgan) involving the Company's midstream business in the Haynesville Shale, and the sale of Terryville Field.
Kinder Morgan is one of the largest pipeline master limited partnerships in the United States. The definition of a MLP is here: http://en.wikipedia.org/wiki/Master_limited_partnership
On October 20, 2010, KMP raised their quarterly dividend to $1.11 per share. The dividend is payable to shareholders on record as of October 29, 2010. The distribution is scheduled for November 12, 2010. As of today KMP is trading at 70.51, which would put the dividend at 6.296%.
If you are looking for a great dividend paying stock with an even better past of dividend payouts, then KMP is a good choice. They have a 30 year history of raising their dividend yearly. Aside from consistently raising their dividend they often raise it more than the rate of inflation. Inflation has averaged 3.36% a year since 1913. If you are looking for a dividend stock to add to your portfolio, one that outpaces inflation is very important. Otherwise, the value of your money will be decreasing yearly. This will defeat the whole purpose of investing. Adding KMP to your portfolio will help you battle inflation by making use of their fantastic dividend.
They are a consistently growing company. Their gross profit has risen the past four years. The stock price of the company has gone up over 75%, since early 2006. The company also appears to have great management with shareholders best interests aligned with their own. This is a quote I found on their website www.kne.com: At Kinder Morgan, we pride ourselves on being a different kind of energy company. What makes us different?
It starts at the top with Chairman and CEO Richard D. Kinder, who earns a salary of $1 per year and does not receive a bonus, stock options or restricted stock grants. As a shareholder/unitholder, Kinder’s financial rewards are directly aligned with the company’s investors – if the company does well, he does well.
I will end my post with that. If true, it says more than I even could about the strong foundation and bright outlook for this company.
Wednesday, October 20, 2010
Chico’s FAS, Inc. (CHS)
CHS is a fashion company with Chico’s, White House Black Market, and Soma Intimates brand names. They are currently trading at $10.25. They currently average 4.82 million shares traded per day. They do offer a dividend of .04 per share. Chico’s does not have a long history of giving out a dividend. The dividend was put in place within the last year. Chico’s is a company that carries very little debt, other than their short-term debt, which belongs to merchandise.
I feel this is a strong company with great upside. They have a good following and are striving to grow the White House Black Market stores to rival the Chico’s stores. By them carrying so little long-term debt it gives them flexibility to be aggressive in other areas of the business without the fear of incurring expenses and falling further in debt. The importance of being in this position cannot be stressed enough. When businesses are in serious debt their judgment can become clouded. That will certainly not be a problem with Chico’s. Look for them to continue to grow and gain an even stronger following as they develop their branding and prove to be a leader in women’s clothing and clothing accessories. Do not miss out on CHS. It will be trading significantly higher in early 2011, than it is now.
Monday, October 18, 2010
Technical Analysis is essentially the reading and interpreting of past charts for a stock’s price movement. This thought process of picking stocks can be attributed to the gambler’s fallacy. Someone sits down to play roulette and watches as the ball lands on red 7 times. A person that falls prey to the gambler’s fallacy “knows” that the next spin will land on black. However, the odds will stay the same. The next spin will have a 47.36% chance of hitting no matter the previous spin. Past results are not indicative of future results.
People that institute TA into their trading philosophy are essentially gambling with their money and worse the money that they are managing for others. It is absolutely impossible to look at a chart of XYZ Company from the previous week and know which way their price is heading for this week. There is useful information that can be gained by looking at charts, but it will not give you any indication of the future price movement of that stock.
TA can work on a small scale. It works when several investors are looking for an indicator to make a move. They all are using the same software and charts, and they are given a buy signal for a small cap, low volume company. They all simultaneously pounce on their money making opportunity. This will make the demand for this particular company go through the roof. The price will then go up and they will all be patting themselves on the back for their strategy working so well. Then they face the problem of getting rid of this company that they’ve made a return on, but the volume spike it received has returned to normal and there seem to be way more sellers than buyers. UH!! OH!!
That is how TA can work. I, personally, do not consider that a type of trading strategy that I would want to risk my money using. I certainly would not risk the money of investors with this strategy either. I would much prefer to use another method that would be safer and not require me to be a psychic.
Saturday, October 16, 2010
Bank of America (BAC)-
Bank of America had a steep drop Friday of almost 5%. They are also down a little over 9% for the week, which gives them their low for the year. This stock will continue to drop as the rumors continue to swirl. Here is a great article about Bank of America and the banking industry: http://www.washingtonpost.com/wp-dyn/content/article/2010/10/15/AR2010101506345.html
In the article, it speaks of Bank of America potentially having to repay Fannie Mae back for their deception of the mortgages. As of now this will not happen with the current evidence against Bank of America. However, they did assume the risk of Countrywide when they took them over. Countrywide, was one of the firms that were criticized greatly for their lending practices, before the housing crash.
After all the rumors settle and you look at this bank they are still a strong company. I don’t believe they will be on the hook to pay back Fannie Mae. The web of deceit runs to deep and to be able to place blame on one or another will be too hard.
I fully believe this stock will get under $10, before it will encounter strong support. Once it reaches this point it will be a great buy and hold for the next couple of years. Their profits will return as they continue to weed out these bad mortgages and management continues the progress they have already achieved.
Thursday, October 14, 2010
A must add to your portfolio: Xcel Energy Inc. (XEL)
As I write this it is trading at $23.29. Xcel offers a dividend of .25 per share. Average volume is 2.5 million shares per day. They are trading right at the top of their 52 week range. I feel if once they break through this it will continue up.
Key points about the company:
They are a U.S. electricity and Gas Company which operates in 8 states.
Xcel has a customer base of 3.4 million electricity customers and 1.9 million natural gas customers. Who together, in 2009, generated 9.6 billion in revenue. 681 million in total earnings in 2009.
Xcel Energy is the #1 wind power provider in the nation. Wind currently makes up 5% of their portfolio.
The last one is a strong reason I feel they will be a company that will rise significantly over the next decade. Humans currently use mostly nonrenewable energy. This is not a trend that can continue forever. We must tap into energy sources that are renewable. Wind will most certainly be around much longer than petroleum or natural gas. Xcel Energy is a company that has a vision for the future. In that vision, renewable energy sources will come to the forefront of human consumption. Everyone thinks the key is to work to lower consumption. I feel the idea is to make our consumption more economical. Solar is another renewable energy source that absolutely needs to be taken better advantage of. However, Xcel Energy has a great jump on the competition by being the #1 wind provider in the nation.
I am not affiliated with Xcel Energy Inc.; I simply want to make all of you reading this money. If you’d like to make money you will quickly add Xcel Energy Inc. (XEL) to your portfolio. You can thank me later.
Tuesday, October 12, 2010
This is mainly a blog about building wealth. As of 2009, according to the U.S. Dept. of Commerce, the average income per person was $39,138, down from $40,166 in 2008. The state of Mississippi is consistently at or near the bottom with an average per person income of $30,103 in 2009. Connecticut has been at the top since 1990; with an average of $54,397 in 2009. These statistics give you an idea of what the average American makes. In statistics there is a term when gathering data that can skew the numbers a bit. This term is called an outlier. An outlier in regards to the average salary of each American would be James Simons, who according to Forbes, in 2008, brought home 2.8 billion dollars. His total income so far exceeds that of the average American that he skews the data. My goal is to become an outlier in the statistic of the average earnings for each American.
To do this I will be exploring many avenues, but narrowing my focus to a few. I will note the characteristics of the people that are considered outliers. Not only the people that bring the average up, but those that bring the number back down as well. I will try to emulate the traits and characteristics of the former, while trying to avoid the latter. There are so many ways to become wealthy some of which include: entrepreneurship, investing, working up the corporate ladder, and the lottery. No matter what step you take in life risk will certainly be involved. The key is to create a safety net for each risk that you take in an attempt to limit the downside, while attempting to maximize the upside.
The key is to create a portfolio of skill sets and interests that can give you an advantage over the average person. Make a strong attempt to realize your potential in a multitude of areas and settings. Over time this will put you in position to succeed long term. Here is a quote that I am attempting to apply to my life, “The successful always has a number of projects planned, to which he looks forward, anyone of them could change the course of his life overnight.” ~Mark Caine
This is all for my first post and I look forward to everyone reading and all exploring ideas to build wealth together.