the corner

Over last few decades, many investors have moved away from the traditional full service stockbrokerage firms to discount and internet brokerage firms. For some investors, especially during the heady days of the late 1990s and the middle of the first decade of this century they have abandoned all brokerage advice and took on the business of investing by becoming “day traders.”

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During the end of the first quarter of 2001, there was a virtual chorus of individuals across the country blaming Alan Greenspan for the economic downturn that followed the DotCom Bust. The chiming got louder as the stock market continued to crumble and economy softened. While Greenspan may have been a culprit in the downturn, it was not because of his actions or inactions during the economic and stock market declines. On the contrary, it was because of what he did not do during the speculative boom. Thus, the complaints were great examples of how little most individuals knew about the bull market of the 1990s and the bear market of the early 21st century.

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The 200-day moving averages (calculated by averaging the closing prices for the past 200 days) are plotted daily for many individual stocks, indexes and market averages, including the Dow Jones Industrial Average (DJIA), S&P 500 and the New York Stock Exchange Composite Index. Many financial newspapers print graphs which include the 200-day moving average for the most well-known averages and indexes. In addition, there are a number of chart and graph services that plot the 200-day moving average for individual stocks.

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Among the many approaches to analyzing the outlook for the stock market are those most popular with “value analysts.” They typically involve a study of various corporate productivity measures such as dividends, earnings and book value. Included among “psychological market indicators” are three of the yardsticks most often used to determine if the market is overvalued, undervalued or fairly valued.

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There are a lot of one-liners and clichés that get tossed around in the stock market. Among the classics, “Don’t fight the tape”, “the trend is your friend,” “Never try and catch a falling knife,” and “Don’t fall in love with a stock” One of my favorites is “don’t confuse brains with a bull market.”

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Many mutual funds have dividend and capital gains reinvestment plans. Under these plans, mutual fund shareholders do not take (or keep) their distributions from the mutual fund in cash but, rather, reinvest all the dividends and capital gains distributions received in new shares of the fund. Mutual funds have found that the various reinvestment plans are popular. In some funds as much as 95 percent of the capital gains and dividend distributions made to shareholders are reinvested by the shareholders in additional shares of the same fund.

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Every country that has a monetary system of its own has some kind of money market (not to be confused with money market fund investments). The term money market refers to the short-term borrowing and lending of money. These financial markets are not necessarily located in any particular place; they are arrangements for the purchase and sale of financial instruments. New York City is still the major financial center of the nation and, accordingly, the great majority of security transactions are ultimately channeled there.

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The great rise in the stock market during the last years of the 1990s led many investors to forget the inevitable link between risk and return. This is because they had the return first and had, until the Dotcom Bubble busted, yet to wake up to the risks. If history was anything to go by, and there was not an alternative guide available, it was likely that the market would fall sufficiently to affect people’s short-term attitude about the market. And that happened.

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