Todeo Net

Peter Lynch has long been one of the most revered peronalities in stock investing. His returns as a manager of the Fidelity Magellan Mutual Fund were extraordinary, and the huge influx of money into the fund largely because of his stewardship made it the largest mutual fund ever with him at the helm. But Peter Lynch is also known for a series of books he wrote which made investing easy to understand for all people. “Beating the Street”, “One Up on Wall Street”, and “Learn To Earn” all gave a plain-spoken account of what Peter Lynch had learned in his many years of successful stock picking. He laid his philosophy out into a series of well respected books, and many people have used his techniques successfully to find great stocks of their own to invest in. Most of his principles are as applicable today as when he first introduced them. We’ll take a look at a few of these briefly:

Peter Lynch’s greatest teaching was that we are all surrounded by superior investing ideas if we open our eyes to the possibilities. Behind every great stock is a great company, Lynch figured. So the next time you’re at the mall, pay attention to which companies are doing the most business. Which store is really crowded? What restaurant chain has really long lines when you go there? Think of a company that moves to your town and dominates the local competition. These companies, Peter Lynch told us, are the ones that grow into the big winners on Wall Street. And companies that go from tiny seeds to huge multinationals make their investors rich. Most of the battle in investing is finding the best companies and putting the money into them when they’re just beginning to grow.

Peter Lynch loved growth stocks. He had his biggest gains when he invested in stocks of companies that were hot at the time. As they ascended into the highest arc of their growth phase, their share price also sizzled. Investors who get in early, at the beginning stage end up making boatloads of dough. Get a few of these twelve-baggers, as Lynch called them, and you’re well on your way to easy street. He followed his own advice and often hit huge returns on several stocks that would save his entire portfolio return for the year. If you’re pretty sure you’re onto a winner, then you need to swing for the fences when your time at the plate occurs. Companies that have rapidly accelerating profit margins and increasing sales have stocks that rise along with them. As the business expands, the company’s share price rises accordingly. If you can find a micro-cap company that ends up becoming a large cap during the time frame you hold it, you’ll have substantial returns.

It’s impossible to summarize the written and spoken words of a great investor like Peter Lynch in a space like this, so I’ll encourage you to do more research and check into this series yourself. All of the basic priniciples of growth investing and portfolio management are covered, and he’s also an upbeat writer who illuminates a great many bullish insights you may not have looked into before. Concentrating on a portfolio of growth stocks has worked for others, and it may just work for you.

For those of us who consider ourselves novices when it comes to “the financial world”, it is interesting to understand the impact of the Securities and Exchange Commission (SEC) and its role in the world of investment. The SEC touts as its mission statement, “…to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” That’s good because many of us need all the help we can get.

As a part of the SEC’s mission the belief is that in order to sustain and advance economic growth, capital formation must thrive. The SEC’s actions protect the value of savings and advocate a growing economy. It is that growing economy that should improve our standard of living and should spur the creation of new jobs. The SEC offers investor protection that is especially needed by first-time investors planning for such things as home mortgages and college funds.

Because of the complexities in the investment world, it is important that all investors do research and question what they do not understand. There are no guarantees when it comes to stocks, bonds and other securities that can go down in value. If a person wants security, one option is to just stick with the banking world where deposits are guaranteed by the federal government.

One of the main functions of the SEC is that it requires public companies to disclose information to the public. The securities industry is governed by laws that follow a very simple concept - all investors should have access to certain basic facts prior to investing. The premise is that investors can only make sound decisions if they have timely, comprehensive and accurate information to help them judge whether to buy, sell, or hold.

Because the formation of capital is so important to the nation’s economy, the SEC works with major market participants and investors to address their concerns. The SEC is concerned about promoting disclosure of information, protection against fraud, and fair dealing. To that end it oversees the securities exchanges, brokers, dealers, mutual funds, and investment advisors. Every year hundreds of civil actions are taken against companies and individuals by the SEC for violation of the securities laws. The most common infractions are insider trading, accounting fraud, and false information about securities.

How does the SEC obtain the information they need for enforcement? Most of it comes from investors themselves. This validates the emphasis on educated investors and providing information that keeps them current. In fact, the SEC offers information on its website that includes disclosure documents that the Commission requires to be on file.

Does the SEC stand alone as the only overseer and regulator? Absolutely not. Congress, other federal departments and agencies, the stock exchanges, state securities regulators and other private organizations all work toward those goals. The President has established the President’s Working Group on Financial Markets, which consists of the Chairman of the SEC, the Chairman of the Federal Reserve, the Secretary of the Treasury, and the Chairman of the Commodities Futures Trading Commission.

What brought about the creation of the SEC? Prior to the 1929 Great Crash federal regulation for the securities markets was not support. During the post-World War I activity there was no support for regulation that would require financial disclosure, unfortunate because it cold have helped prevent fraudulent stock sale.

During the 1920’s the common goal of many investors was “rags to riches”, This theme was rampant, and most investors turned a blind eye to the dangers in the lack of control of market operations. Looking to take advantage of the post-war prosperity, many sought to make their fortunes through the stock market. Unfortunately, many investors had heavy losses, and the eventual “run” on banks caused many bank failures.

After the Crash of 1929 and during the depression, Congress looked to identify problems and find solutions through a series of hearings. The feeling was that the public trust in markets needed restoration. As a result of the hearings, the Securities Act of 1933 and the 1934 Securities Exchange Act were passed. What those acts accomplished were twofold: 1) companies were required to provide the truth about their business and securities to the public; and 2) exchanges, dealers, and broker must put investors’ interest first and treat investors in an fair and honest manner.

Today the SEC has 3,100 staff members and operates from 11 regional and district offices. There are five Commissioners appointed by the President after Senate consent. The President designates one of the five Commissioners as Chairman. No more than three Commissioners may belong to the same political party, which is intended to keep the Commission non-partisan. The functions of the Commissioners is as follows: 1) federal securities laws interpretation; 2) rules amendments; 3) address changing market conditions with new rules; and 4) enforce laws and rules.

This Commission is, in deed, is an integral player in the protection afforded to investors. For the novice investor or the veteran investor, there is that on-going need for sound market regulation. The SEC does that and more.

The SEC is not the enemy… it’s those other guys.

Happy trading!

No permission is needed to reproduce an unedited copy of this article as long the About The Author tag is left in tact and hot links included. Questions and comments can be sent to floyd@TraderAide.com.

They call ‘em ETFs.

There are hundreds of them.

The mutual funds don’t want you to find out about them.

Why?

Because they beat the socks off mutual funds in
so many categories. The expense ratios of most
mutual funds runs about 1.5% and many are much
higher. To buy a mutual fund you must wait until
the end of the day to find out what price you
paid. Many mutual funds have instituted
redemption charges should you decide to sell out
early. Early is whatever definition they want to
apply and could be a year out, maybe more. The
fee at this time is about 2% for many funds.

Fund managers tell you it is to discourage
overnight trading that adds to their expenses
and therefore penalizes shareholders, but that
is not true.

The two most popular ETFs are SPY and QQQ. SPY
is composed of the stocks in the SP500 Index
with 500 stocks and it is priced every few
minutes. It can be bought and sold any time
during the day. The mutual funds who tell you it
is too expensive to price their funds more than
once a day are either lying or stupid. ETFs
prove that. And that same logic goes for short
term trading.

The investor buys and sells ETFs the same as
any stock. The big brokerage companies charge
high commission whereas investors who place buy
and sell orders with discount brokers will find
commissions around $7.00 to $15.00 to buy or
sell. That charge is for one ticket and not per
100 shares. The commission is the same for 100
shares or 1,000 or more shares. Big Wall Street
firms charge many times this for the same
execution.

You can do research on ETFs just as you do on
mutual funds. If you want to determine what
stocks an ETF manger holds they will tell you in
their prospectus. What you want to know is what
Sector the ETF represents. The internal
structure does not change often as does the
stock ownership in a regular mutual fund.

At this time there is one drawback to buying
and selling certain ETFs. Do not place Market
Orders when buying and selling most ETFs unless
it trades more than 250,000 shares each day. As
with stock there is a Bid and Offer Price. In
thinly traded issues where the ETF has a volume
of less than 50,000 shares daily the Spread can
be as high as 20 cents and many times more. In
these issue it is suggested Limit Price Orders
be entered. If the last trade was $20.50 the Bid
could be $20.40 and the Offer $20.60. A market
buy order would be filled at $20.60 and a sell
order at $20.40. It is best to place a Limit
Order at $20.50 and most of the time these will
be executed at the Limit Order price. Stop Loss
Orders are also poorly executed in low volume
ETFs.

Over the next few years as more and more
investors discover these advantages they will be
buying ETFs in preference to both load and
no-load mutual funds.

investment, money, mutual funds, Al Thomas’ book, “If It Doesn’t Go Up, Don’t Buy
It!” has helped thousands of people make money
and keep their profits with his simple 2-step
method. Read the first chapter at
http://www.mutualfundmagic.com
and discover why he’s the man that Wall Street
does not want you to know. Copyright 2005