Everything from interest rates to debt load, taxes, lawsuits, management, technological and other social changes, and the general economy affect earnings - both short and long term.

Almost all companies borrow money and even when they don't their competitors, suppliers and customers do. That affects how much money they have to invest in research and new products or improving existing ones, relative to other companies in the similar lines of business.

Sometimes even stellar managers can be threatened by social or technological changes, unless they evolve the company to adapt. In that case, a company which once sold light bulbs - and made good profits doing so - can become an almost entirely different company in time. General Electric - the only original Dow stock that is still part of the DJIA (Dow Jones Industrial Average) - is an excellent example.

Over shorter time frames, influences become even more numerous and harder to quantify. Everything from the latest analyst recommendation and rumor or actual news event to fraud, the herd mentality and a blizzard of technical factors plays a part.

Google's share price quadrupled in a two year time frame and is projected to grow yet another 50% over the next year. Microsoft - once the most reliable growth stock in the world, even ridiculously so as admitted by its senior executives - has been in the doldrums for years now. Earnings alone can not explain these and other, similar, cases.

Political changes play a part, and sometimes they too are unexpected by most investors. No one can say when or whether a tax bill will pass that reduces or increases corporate rates. The election of a new Prime Minister or President can have a large, short term affect or longer, sometimes, depending on the individual.

And, then there's the inherent unpredictability mentioned earlier. Short-term, and to some degree long-term, prices are a statistical phenomenon. As with any statistical effect you can't make a prediction - except with some degree of probability. And, since investors - some of whom own large blocks - can change their minds on a whim, you can only make educated guesses about what or when those choices will be.

So, what's the average investor to do? That depends on the kind of investor you want to be.

For those with the talent and time to do intense moment-by-moment research, it is possible to do well in short-term trading. Though almost all day traders lose money. For those, even big risk takers, who are more inclined to fundamental factors and willing to research long-term trends - take comfort in the fact that 8-12% return over decades is as good a prediction as you need.

Apart from some interesting historical info, that's to remind everyone that, though the U.S. market is large, it is not the only game in town - even for U.S. investors. And the latter are far from the only traders on Earth, though they sometimes think that way.

How to go about playing it?

A call to a broker is generally required for a U.S. investor to trade a non-U.S. company stock, and a larger commission is charged. 1% is normal. On a $5,000 trade - often the minimum - that's $50, hefty in this day of online trading accounts. But other than that, the transaction is carried out, from the investors point of view just as normal business.

The research requirement to avoid losing money at more than the normal rate is considerably higher, however. Keeping tabs on the activity of foreign companies means understanding the local culture and business environment. It entails tracking many more laws that can impact earnings and knowing the rules that govern trades in different countries.

Fortunately, with the growth of consolidated exchanges like Euronext - formed in 2000 by merging the Paris, Amsterdam, Lisbon and Brussels exchanges - has made that significantly easier. That trend is likely to continue.

Risk, too, is higher. Trading outside one's home country means having to pay attention not only to all the usual factors, but exchange rates as well. And currency exchange is the largest and most active market in the world. For several years, the U.S. dollar was king of currencies but lately it's been taking a beating.

That isn't necessarily bad even for U.S. investors, since risk can be minimized and profits maximized in two ways. One way is to invest in offsetting currencies and equities - as one country's currency rises, one can buy more of their shares with that country's currency. The other, better, way for the average investor is to look to ETFs (Exchange Traded Funds) that focus on foreign securities and let those issues be handled by professionals.

Whatever your plan, having a healthy respect for research and a commitment to a well-thought out trading strategy is required for anyone interested in capitalizing on the growth of businesses far from home. Unless you just enjoy losing money.

The first thing to consider about investing isn't technical at all. EPS, P/E, P/S, MA and EMA, RSI and dozens of other indicators are all important. But start at the beginning by looking not outside, but in.

What kind of investor are you? Young with a little capital to risk but a large earnings potential over several decades? Retired, or near it, with a healthy savings but living on limited income?

All these factors will influence your investment strategy. You do have a strategy, right? If not, go back to square one and develop that first.

'HARD' FACTORS

PEG - Projected Earnings Growth

Traditionally, Price to Earnings (P/E) ratio was a helpful indicator of value. Low price, relative to large earnings (per share) suggested a company's share price would likely rise in the future. But that was before thousands of new companies entered the public markets and when investing meant buying Coca-Cola stock.

But P/E isn't entirely useless, even today. Just supplement it with a little more information to calculate the PEG - Projected Earnings Growth.

Calculate PEG by taking the P/E and dividing it by the projected growth in earnings. For example, a stock with a P/E of 20 and projected earning growth next year of 10% would have a PEG of 2 (20/10 = 2). The lower the number the less you're paying for a unit of future earnings growth. Therefore, a company with a high P/E may still be a value if it has a high projected earnings.

ROE - Return On Equity

Some companies can make silk purses out of pigs ears, others couldn't make a profit if they were given Apple's engineering and marketing teams for free. Return on Equity is one measure of how well a company uses its assets to produce earnings. (By the way, silk comes from worms, not pigs.)

Easy to calculate, simply divide Net Income by Book Value (assets minus liabilities). Both numbers needed are easy to obtain from Internet sites. Three percent is low, 15% is healthy - but be sure to compare to other companies in the same economic sector, and track the number over the long term.

Obviously, when projected ROE is high (based on historical trend) you want to buy. Timing the sell is a matter of estimating when ROE is trending downward.

Some factors to consider for the latter involve major mergers which look to be unwise (HP acquiring Compaq is one example), major technology or management changes (this can be positive or negative), lawsuits initiated or settled, and general economic factors influencing that company more than others.

Continually add to your database and your toolkit. Track the numbers and add new numbers to track. MA - moving averages and RSI - Relative Strength Indicator are two of the more common technical indicators used, for example. After you're comfortable with those, seek out some of the methods of quantifying risk.

And don't forget to develop that strategy. Tools are useless if you don't know what you want to do with them.

As with the equities markets themselves, complexity reigns in (and reins in) regulation. The history of regulation is almost as old as the securities markets. Stock exchanges, then called bourses, were born in the 15th century in Burgundy's northern trading centers.(Now Belgium. The term 'bourse' is from the Latin 'purse' and is still used for some exchanges.) The Royal Exchange, created in 1566 to compete with Amsterdam, evolved into the current London Stock Exchange.

Well, that's all very interesting history but why should the average investor care? The answer, for good or ill, is simple: they make the rules. Every trade is governed by a set of complex regulations formed by the interplay between self-interested exchange members and the various government bodies overseeing their activities.

Though lobbyists abound in all industries, nowhere is the process so formalized as in the equities trading businesses.

In the U.S. the 800-pound gorilla granddaddy is the SEC, formed in 1934 on the basis of the Securities and Exchange Act after the market crash of 1929. (Governments moved slowly then, too.) It oversees almost all of the activity in the U.S. markets and it's a very busy body. The NASD monitors more than 5,400 securities firms with over 58,000 branch offices and 505,000 registered securities professionals. NASD regulation is governed by a Board made up of half securities professionals and half representatives from the public.

Other countries have similar arrangements.

UNITED KINGDOM

The UK Treasury has governmental responsibility for policy and for financial services under the Financial Services Act of 1986 ('FSA'), along with oversight of the Securities and Investments Board (the 'SIB') and the London Stock Exchange. The SIB is responsible for most of the functions under the Act.

The London Stock Exchange, especially since 1987, has evolved from a quasi-governmental agency to a for-profit enterprise.

HONG KONG

The Stock Exchange of Hong Kong (HKEx) was formed in 1980 by unifying four separate exchanges and commenced trading in 1986, though it's roots go back to the 19th century. (Even private, quasi-governmental organizations move slowly sometimes.) The SFC, whose directors are appointed by the Chief Executive of the Hong Kong Special Administrative Region Government, supervises the HKEx. The rules are determined by both bodies, though.

ITALY

The Italians have an interesting experiment underway. The regulatory structure of the Italian Stock Exchange changed radically in 1997 due to the Legislative Decree No.416 of 1996. The Italian Stock Exchange Council established a private company, 'Borsa Italiana Spa', responsible for defining the functioning of markets and market surveillance. It regulates the admission of securities and is behind a Code of Behavior for all market operators.

Most of the large exchanges have either completed or are undergoing a process called 'demutualisation', essentially turning the exchange from a quasi-governmental overseer into a fully private, for-profit organization. As a consequence, most are publicly traded companies themselves with shares that trade and Boards of Directors.

But whatever the name or form, they all have the same mission. To keep markets orderly, information public and trades honest. While keeping one skeptical eye open, as investors we can all wish them success in that. Our success depends on it.

Fundamental analysis met technical analysis and introduced themselves to software. The rest is rather bumpy history. In one famous case, though some studies deny this, it may have contributed heavily to the well-known Black Monday of October 1987 when the market dropped by over 20% in one day.

While the NYSE defines a program trade as a basket of 15 stocks or having a total value of $1M (or more), trades can be executed in small lots (100-300 shares, for example). In theory, this allows orders to be completed before other investors get wise, and helps avoid large price movements before positions are solidified or liquidated.

As finance professors and large-firm specialists develop ever more sophisticated methods of taking advantage of small price discrepancies across global markets, program trading becomes ever more complex. In many cases, the individuals involved don't themselves understand well the consequences of implementing a particular strategy.

Program trading now comprises over 50% of NYSE volume on average and it can introduce large swings in a few stocks or large portions of the market. Clearly, the big boys wouldn't bother unless they believed - backed now by decades of studies - that there was an advantage in using the technique.

But whether villain or savior, it's here to stay. Over 50% of the volume on one exchange that trades over 1.6 billion shares a day is a huge amount of arbitrage activity. That effect can work against the average investor or for him, but only if included in a trading strategy that pays attention to where those trades are going.

For those without the time or temperament to carry out research themselves, there are full time research services available - for a fee, of course. Full-Service brokerages, such as Merrill Lynch and other large, well-established firms offer research as part of their value to clients.

For those who see research not as a necessary evil or time-consuming burden, but as part of the process or even an adventure, there are now more sources than could be used in a lifetime.

Starting with the source of data is always a safe bet, since it's the most unbiased, thoroughly audited information around. That source is the legally required filings of individual publicly traded companies.

In the U.S. those are 10-K's - more or less equivalent to lengthy annual reports - which can be viewed or downloaded from the SEC's website (www.sec.gov). (10-Q's are filed quarterly, 8-K's for significant financial changes in between.) Other countries have their equivalents, such as the Hong Kong Securities Regulatory Commission (HKSRC).

In those reports you'll find recent (as of the filing date) financial data about income, expectations, competition and lines of business, current senior management listings and other information useful to those inclined toward Fundamental Analysis.

For a modest annual or one-time fee, a blizzard of chart data is available that matches any produced by the in-house research departments of the large brokerages. (Sometimes they're produced by the same people.)

Newsletters are another potentially good source of information, though opinions about the market vary so widely that researching whom to believe takes as much time and care as researching individual stocks. Sometimes they're a few dollars per year, sometimes many hundreds - and price is no indicator of quality here.

One direct source of one kind of information are the in-person, on TV, or on the Internet interviews of company senior managers, usually by one or a panel of analysts.

CEOs, CFOs, and others often talk to the financial press and brokerage stock analysts to give their views on where their company stands, what challenges they face, and where they expect to be in the near to long-term future. Often they're asked about specific pending lawsuits or legislation and to assess its potential impact.

Of course, executives have an interest in painting a rosy picture, but analysts have often heard it all and are very adept at keeping the 'spin factor' to a minimum. If nothing else, it tells you what the executives want you to believe, which in itself is useful.

Even armed with nothing more than an inexpensive online trading account, the average investor has access to charts of historical and current data, future expectations, and a wide variety of statistical information which would keep even the most technically inclined busy for quite some time.

Nevertheless, there are indicators that help to reduce the risk and increase the odds of profiting over the long term. After all, historically stocks have returned over 10%, as measured by the growth of the S&P 500.

The Enron case (case in which the executives of Enron manipulated their earnings figures to appear to be much more
successful than they were) is extreme, but even ordinary procedures involve judgment calls on the part of financial officers and auditors.

RESEARCHING BUYS

Obtain the latest, and some historical, financial statements. The SEC provides these free (www.sec.gov) in their EDGAR database, but other exchanges have similar arrangements.

Analyze the quarterly statements covering two to three years, looking for EPS (earnings per share) and revenue trends. Calculate dividend yields, if the company pays dividends.

Compare the company's P/E (Price to Earnings) ratio to others in the same economic sector. Look at P/S (Price to Sales) ratios, too. Sales growth is easier to predict than earnings and less volatile than P/E ratios.

Examine general economic factors. Interest rates affect stock prices as well as bonds (though less directly), since almost every company borrows money. Even when they don't, their competitors, suppliers, and customers do. Interest charges reduce profits for all but the lenders, for whom it's income.

Even when researching a bank, though, high interest rates increase short-term profits, but can reduce the number of loans and cause certain current ones to be repaid early. High interest rates aren't necessarily good for banks either, therefore.

Use some of the more common technical indicators, such as MA (moving averages) and RSI (Relative Strength Index, which compares the number of days a stock finishes up versus down). An RSI of 70, or above, for example, does tend to indicate a stock which is overbought and due for a fall in price.

RESEARCHING SELLS

Pick a target price, which amounts to deciding how much profit (in dollars or percentage terms) you seek then sell at that price, unless your continuing research has turned up significant new information.

Consider selling if the price has dropped substantially or remained unchanged for several months. Losses are hard to bear, but consider that you can't always pick winners and while you're invested in one stock, you're forgoing potential profit from another. That profit could help reduce or more than make up for the loss from the sale.

Continue to monitor the company's fundamentals by obtaining updated filings. Re-evaluate them by updating earnings trend calculations, significant management or general economic changes.

You can ease the difficulty of performing calculations (which is a useful exercise at least once) by finding Internet sites that provide objective data and go easy on the "here's how to pick winners" sales talk.

And remember, 'on the street' opinions are a dime a dozen - including mine.

At the end of fiscal year 2005, the U.S. Federal debt was approximately $7.9 trillion. Yes, you read that correctly. That's almost eight trillion dollars. That's up from 930 billion in 1980, an increase of more than 849%. $4.5 trillion of that is owed to 'the public' - individual T-Bill and T-Bond (and other) holders, a third Japanese.

Another big factor is interest rates.

Not all interest rates are set by government action. Private lenders determine - in the final analysis - whether a home mortgage, a CD (Certificate of Deposit) or a margin rate is 2% or 10%. But the Fed, Her Majesty's Treasury, and other countries' governments have a large influence. Whether by setting 'the prime' - the rate large banks pay to borrow short-term funds - or simply by being the enormous borrowers (as shown above) they are, interest rates are other than what they would be in their absence.

So, what's that got to do with stocks?

Apart from the general economic impact of regulations and direct taxation, bond rates (and interest rates generally) are one of the largest factors affecting share prices, outside of daily speculation.

When governments borrow, they raise interest rates for everyone. The difference is, the government doesn't pay it back out of profits - they haven't any. They pay it back out of taxes and by inflation, which reduces the real amount they have to pay back. Thus, large government borrowing whacks the investor twice.

Also, since stocks effectively compete for investor dollars with bonds and other instruments, changing bond rates influences how attractive equities are versus those others.

Now, of course governments don't have infinite power to determine prices - in shares, bonds or loans (interest rates). A T-Bill or UK Govt Bond paying 1% is - other things being equal - going to attract fewer buyers than an 8% AAA bond or even (one may speculate) a 5% dividend from Google. (Google doesn't, and doesn't intend to, pay dividends by the way - it's just an example.)

Whether all this is a good or bad thing, or somewhere in between, is a debate we leave for another time. But whatever one's view, it definitely has an impact on the equities markets.

So next time you're researching whether to buy 100 shares of the next GoogYah NextBigThing, Inc be sure to factor in how affected they might be (relative to others in the same economic sector) by interest rates and government debt. And don't forget that impact on your own future cash flows either. After all, you may want to buy 100 more later.

Then in 1994, Aufhauser Securities (now owned by Ameritrade) created the first Internet trading system. As Internet trading grew dramatically, companies developed systems allowing individual investors to not only trade, but access information once available only to those large companies.

The world has never been the same since.

Trading commissions fell to negligible territory. Twenty years ago, it was common to pay $100 or more on a $1000 trade; online trading fees are less than $10 today. Yet, despite the considerable drop in prices, brokerages are making enormous profits, thanks to the increase in trading volume.

Research, once available only to specialized analysts in large brokerage firms, is now accessible to the average investor with an online trading account - often for free. And the research itself has grown from simple Earnings Per Share and Dividend Yield data to a bewildering array of Relative Strength Indexes (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands and others even more arcane.

Networked trading, along with other computer technology, has made exchanges international and in some cases global. Only a few years ago the Amsterdam, Brussels, Lisbon and Paris exchanges merged into Euronext - a single trading exchange for countries with widely differing backgrounds. Efforts continue to bring the London Stock Exchange into partnership with Euronext or FWB (Frankfurter Wertpapierbörse, the major German exchange), or both.

As a consequence of the emergence of merging exchanges, trading has improved not only for members but the individual investor as well. It isn't just citizens of the countries involved in Euronext who can trade there. Exchanges the world over are now open to almost any investor anywhere. Now anyone, not just London's professional traders, can enjoy the effects of sleep deprivation monitoring and trading on exchanges that cross every time zone on the globe.

All this change, while difficult to absorb, has one overriding goal and result - you can now make (or lose) a lot more money a lot faster, in a lot more places, than your father. That ought to produce at least a few interesting family dinner conversations.

So the question really should be: "What Kind of Broker Do You Need?"

Prior to 1975, Full-Service brokers were about the only choice. Then the world gave birth to discount brokers and life changed. In the 1990s, it changed again with the beginnings of Internet trading for average investors. Note that trading over networks had already been going on between large investors for decades.

Those two facts - technology and research - are the basis for deciding what kind of broker you need.

Some are comfortable with executing trades by making those few mouse clicks, others want some human contact - even if nothing more than an efficient-sounding voice - before plunking down a few thousand.

Full-Service brokers, if you find not only the right company but that special individual, can provide you with more than an efficient-sounding voice. Good brokers, and they do exist, offer their clients sound advice based on good research.

No one can predict with certainty any particular price for any stock five hours from now, nor five years from now. But massive statistical studies are undertaken and research analysts do conduct and study them then pass on their recommendations to brokers.

When those brokers are astute they can make reasonable judgments about the likelihood that long rock-solid Acme, Inc will fold in three months, or that newcomer Whizzard Techno-Babble is about to skyrocket.

If that kind of advice and 'partnering' is worth the commissions you'll pay, then a Full-Service broker is for you - especially if you have neither the time nor the temperament to undertake that research yourself.

Others, with more time or analytical interests - or perhaps, just more chutzpah - may find it not only financially worthwhile, but intellectually and emotionally satisfying to take the reins themselves. This is especially true for short-term traders, day traders even more so.

To these types, research isn't a burden or a bafflement it's an adventure. And the deep discount brokers, or pure Internet trading accounts, are the perfect fit for them. Reports, some free others available at varying cost, can be had in greater abundance than even they have time or desire to study.

So, along with determining how much money can be saved by using the broker behind Door #1 vs Door #2, study yourself and decide which kind of trader you are. That's the best way to choose which kind of broker you need.

Let's take a quick look at all these possibilities. The first scenario is of course highly unlikely. Fortunately it's easy to find out if this is the case. Just take a look at the person's track record. People that like to brag about being right all the time, usually enjoy making their point. So they would love to prove their track record to you. If they fail to cough one up, they're probably not telling you the truth.

Then of course we have the third and most likely scenario. In this case, you would take the same approach as you did with the super investor. You ask them to show you their track record. The liar of course will never give you this. Instead they will try to convince you with wonderful stories. All of which are probably fascinating. Some would be interesting enough to serve as a plot for a Hollywood blockbuster on Wallstreet. However, none of these stories will do you any good when it comes to making it in the stock market.

The plain and simple truth is that nobody can invest for any period of time and be right each and every time. It simply is not possible. Now that doesn't mean that anyone telling you they never lose is lying. It depends on what they're really saying. They are not saying that they never lose on a trade or on a specific investment. What they may be saying is that they never close out a year with a loss at the end. So how come they can make money every year even when they lose on some trades just like everybody else? The answer is simple; they are right more often then they are wrong. And more importantly, when they are wrong they limit their losses.

To illustrate this, let's compare the stock market to a game of roulette. Some people could easily substitute one for the other. They live under the assumption that both are simply games of chance. Others may find this comparison ridiculous because the two are so vastly different. The two camps would probably never agree, so let's not go into that discussion here. However there is something very important we can learn from roulette.

In a game of roulette the odds are actually divided in a reasonably fair way. If you were to continue playing by constantly just betting a small amount, say $10.00. And you would consistently play the same color, say black. You would be right 18 out of 37 times on average. Of course you would also be wrong 18 times. If you would consistently play the game this way, you would probably never win much, but you couldn't lose much either. As a matter of fact if you would just continue playing long enough, you would eventually lose on 1/37th of all your bets.

Unfortunately the same can not be said for the stock market. The odds are quite different there. Yes, the market can go up and down, and there is no zero, but there are many more factors to be taken into account than in a game of roulette. The same strategy that was described in the roulette example could work quite well in the stock market, but it could also cost you everything you've got. One part about being a successful trader is to be right as often as possible. And even though you cannot predict the market, at least not perfectly. You can do your homework by studying the technical analysis charts and doing some fundamental analysis into the company. If you know what to look for, this will greatly increase your chances of being right.

However, you still will not be right all the time. And that is where both the lesson from the roulette example and the title of this article come in. First of all, you have to place your 'bets' evenly. Stick to the $10.00 example. Don't be persuaded to invest a significantly large part of your investment capital into any one trade just because you're so sure this time. This may work out fine many times, but sooner or later it will hurt you, and it will hurt bad. You see it is not how much you make when you're right that counts. It is what you keep yourself from losing when you're wrong that really matters in the long run. You can be right 90% of the time and make some pretty good money. But it won't do you any good if you lose it all on the 10% of your trades when you're wrong. Of course diversification and proper asset allocation can help protect you, but that simply isn't enough. You have to know when to get out.

So next time when you're about to make a trade, ask yourself: "What if I'm wrong". And then determine a price level at which you will take your loss and get out. Once you've determined this simple rule, just stick to it. It may cause you to lose a little money every once and a while. Even on trades that may bounce back just one day later. But in the long run that will hurt far less than the losing trade you so desperately hang on to, hoping it will recover. Only to find out that it won't.

Investors who don't have the time to watch the market closely can subscribe to services which publish signals on a daily or hourly basis. These services may employ market analysts who may follow several indicators to arrive at a particular signal. More commonly, however, their systems are completely automated with signals being generated by software which examines market conditions. Some of these services have a better track record than others – it's a good idea to research them before signing up.

With any third-party signal provider it pays to know how the signals are being generated. Since there are such a large number of market indicators some of them may contradict each other. In addition, a particular indicator may send out conflicting signals depending on the time frame.

Market conditions also play an important part on the accuracy of indicators. During upswings in the market, for example, trend indicators will send out buy signals but longer-term oscillator indicators will view the market as being overbought and send out a sell signal. Generally speaking, trend indicators are most accurate during trend conditions and oscillators are best during times of transition. Both types of indicators are often in variance with the other.

To overcome these problems, try to find a signal generator that uses at least 3 market indicators for verification. Signals that are verified by 3 different indicators are strong and tend to be accurate. It is also important to look at signals from varying time frames. An upswing may simply be a short term correction and the market may afterwards continue its downward movement. Taking a broad view of market conditions allows you to see these variations more clearly.

Depending on the type of service you sign up for, signals can be delivered by email on a daily basis, available for viewing on a website, or be integrated into your trading software so that popups appear on your screen for particular signals that you are watching.

Companies which provide signals usually offer their services on a monthly basis. Some are quite expensive – as high as several hundred dollars a month. These are obviously aimed at the professional trader but other services are also available at more reasonable costs.

The value of these services has to be weighed by the individual investor. They can be a great time saver but they may also encourage laziness when it comes to analyzing the market. A knowledgeable trader should have the tools necessary to judge the effectiveness of a signal system and do some of the calculations himself to keep on top of the market.

Hedging

Buying put options against individual stocks is the most expensive hedging strategy. If you have a broad portfolio a better option may be to buy a put option on the stock market itself. This protects you against general market declines. Another way to hedge against market declines is to sell financial futures like the S&P 500 futures.

Dogs of the Dow

This is a strategy that became popular during the 1990s. The idea is to buy the best-value stocks in the Dow Industrial Average by choosing the 10 stocks that have the lowest P/E ratios and the highest dividend yields. The companies on the Dow Index are mature companies that offer reliable investment performance. The idea is that the lowest 10 on the Dow have the most potential for growth over the coming year. A new twist on the Dogs of the Dow is the Pigs of the Dow. This strategy selects the worst 5 Dow stocks by looking at the percentage of price decline in the previous year. As with the Dogs, the idea is that the Pigs stand to rebound more than the others.

Buying on Margin

Buying on margin means to buy stocks with borrowed money – usually from your broker. Margin gives you more return than if you were to pay the full cost outright because you receive more stock for a lower initial investment. Margin buying can also be risky because if the stock loses value your losses will be correspondingly greater. When buying on margin the investor should have stop-loss orders in place to limit losses in the case of market reversal. The amount of margin should be limited to about 10% of the value of your total account.

Dollar Cost and Value Averaging

Dollar cost averaging involves investing a fixed dollar amount on a regular basis. An example would be buying shares of a mutual fund on a monthly basis. If the fund drops in price the investor will receive more shares for his money. Conversely, when the price is higher, the fixed amount will buy fewer shares. An alternative to this is value averaging. The investor decides on a regular value he wishes to invest.

For example, he may wish to invest $100 a month in a mutual fund. When the price of the fund is high he puts a higher dollar amount in the fund and when the price is low he spends less money. This averages out his investment to the original $100 per month. Value averaging almost always outperforms dollar cost averaging as a percentage return on the money invested. When used as part of a broader trading strategy it can help secure the growth of your investment fund.

Why would a company do this?

Stocks can be split by a number of ratios but the most common are 2-for-1, 3-for-2, and 3-for-1. Stocks can also be reverse-split – the company reduces the number of outstanding shares so that each stock holder has fewer shares than before. Reverse stock splits are less common, but can be used for several reasons: the price per share may be so low that it appears as a poor investment; the company may be attempting to stave off possible de-listment on the stock exchange; to push out minority stockholders; or as a way to go private.

Advantages

Lower prices per share can result in greater liquidity – stocks are easier to sell at lower prices and there is less of a bid/ask spread. This is especially true for stocks that are priced in the hundreds of dollars – small investors view them as out of their budget and the high bid/ask spreads (the difference between buying and selling prices) can put off bigger investors.

Other advantages have to do with investor psychology. A split is usually seen as a bullish indicator – stock prices are increasing and the company is doing well financially. There is usually a short-term rally around a stock which splits, but the market tends to normalize after a short period.

On the downside, a split may cause investors to expect more about how the company performs. If these expectations are not met investor confidence may be shaken and the result could be a drop in share prices.

The bottom line is a stock split does nothing to affect the worth or performance of a company. It may be nice to own more shares, but in the end your 2 five-dollar bills are still worth the same as your ten-dollar bill.

Usually stock market conditions reflect the state of the economy. During bull markets the economy is doing well, unemployment is low and interest rates are reasonable. Bear markets usually occur during times of economic slowdown. Investors lose confidence and companies may begin laying off workers. At the extremes, an exaggerated bear market can lead to a crash brought on by panic selling. An exaggerated bull market can be caused by over-enthusiasm of investors. It leads to a market 'bubble' that will eventually burst.

Although most money can be made during bull markets, there are also opportunities during bear markets. Knowing the characteristics of each type of market allows investors to profit from them. As would be expected, when the market is bullish investors wish to buy up stock. The economy is doing well and people have extra money which they wish to invest in stocks. This creates a situation of short supply which drives up prices even higher. During bear markets, on the other hand, prices are falling so investors wish to unload their stocks and put their money in fixed-return instruments such as bonds. As money is withdrawn from the stock market, supply exceeds demand which drives prices down even further.

It is easiest to make money during a bull market. Getting in right at the beginning will allow you to make the most profits. During a bull market any dips in the market are temporary and should soon be corrected. The upward rising prices can't go on forever, though, so the investor needs to be able to gauge when the market reaches its peak and sell at that time.

Bear markets represent opportunities to pick up stocks at bargain prices. Getting in near the end of a bear market offers the greatest chance for profit. The prices will most likely fall before they recover, so the investor should be prepared for some short term loss. Short-selling is also an investment strategy during bear markets. Short selling involves selling stock that you do not own in the anticipation of further price drops, so that when it comes time to deliver you can buy the stock for less than you sold it.

Fixed return investments such as CAs and bonds can be used to generate income during a bear market. So called 'defensive stocks' are also safe to buy at any time. These include government owned utilities that provide necessities no matter what state the economy is in.