How to Deal with Cyclical Stocks

It's been said that nothing is certain except for death and taxes, but there are likely many people who feel that the fluctuations of the stock market should be added to the list. It is nearly impossible to find a stock or other investment that doesn't fall in value at one point or another while you own it… some even make a regular habit of it.

In order to get the most out of your investment experience, it's important to recognize patterns in the performance of certain stocks so that you can get a better feel for how long their occasional fluctuations might last and help you to decide whether or not you should sell the stock or see it through until prices rise again.

Defining Cyclical Stocks

Cyclical stocks, as the name might imply, are stocks that periodically fall in value and then rise again soon after. The apparent cycle of gain and loss can be caused by several different situations, from economic trends and seasonal products to the stocks being issued by companies that do the majority of their business during certain parts of the year such as holidays or tax preparation season. In most cases these stocks don't suffer a major loss over the course of the cycle, due largely to the recovery that occurs later in the cycle.

Cyclick Stocks

Some cyclical stocks perform these actions in reverse, as well… instead of falling in value, they increase the value of their shares for a time and then the prices return to their normal state.

The Fluctuations of Cyclical Stocks

Of course, the fluctuations of cyclical stocks tend to make some investors shy away from making a major commitment to what tend to be at best a form of seasonal investment. Individuals who are looking for good short-term investments often consider these fluctuations to be more of a godsend, however, and are much more willing to invest larger sums during the low point of the cycle in hopes of reaping greater rewards when the value of the stock shares peaks. Of course, this plan isn't foolproof… changes in the market or the economy can either stimulate or delay the cycle, making the cycle start later or last longer.

If you have done your research correctly, the company should continue to grow in value and in time other investors will realize the potential and the price of the stock will continue to rise.

Additionally, some cyclical stocks are only temporarily in a cycle so investing in them with the hopes of their repeating of past performance can cause problems with cycle planning when they begin either rising or dropping in value and then fail to recover or if they fail to do either.

Deciding Whether to Keep or Sell Cyclical Stocks

Of course, cyclical stocks can cause undue stress when their value begins to fall… the decision must be made to either hold onto the stocks until the value recovers or sell off at least some of the shares of stock in order to avoid a potentially large loss of investment revenue.

The decision remains up to the investor, but a well-diversified portfolio that contains investments in cyclical stocks should be able to bear temporary losses in stock value without a great degree of difficulty since if the stock is truly cyclical it will recover within a reasonable amount of time anyway.

Cyclical Stocks and Long-Term Investments

Of course, cyclical stocks can be used effectively for long-term investments. The growth end of the cycle is usually increased slightly with each revolution of the cycle, so investors who choose to purchase cyclical stocks and hold onto them for a number of years may find that when they finally sell them the value is much higher than it would have been for short-term investments.

You may freely reprint this article provided the following author's biography (including the live URL link) remains intact:

About The Author

John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.

Penny Stocks and Micro Cap Stocks: Finding the Right Company at the Right Price

In past articles I have touched upon how to play a penny stock or micro cap stock near its bottom. You will come across a lot of stocks at or near their bottoms when trading penny stocks, here are some tips for timing your purchase correctly.

Once you have found a stock you like, take a look at its 52-week high and its 52-week low. This will give you the stock’s trading range for the year. When a stock is trading near its 52-week low it has a better chance of moving upward in the trading range. When at a 52-week high, some traders may feel its to risky to purchase and will wait until there is a retrace in price. This is a general rule for the majority of penny stocks that trade within a range. There are some obvious exceptions, such as great news causing a penny stock to continually make new 52-week highs.

When a stock you like is near or at its 52-week low, you must investigate why. Search for any S-8’s, SB-2’s, or an increase in the amount of operating shares. These filings are dilution, the company will have added shares to the market causing an increase in supply and a price drop. If these filings are not present and there is no reason for the stock to have dropped this low, then it may be a good time to invest.

You should have a good reason why you like the stock before purchasing. Some major things to keep an eye on are stocks in very strong markets. Currently gold and oil stocks are strong, therefore finding undervalued gold and oil penny stocks is a good idea. Another of my favorites is finding a penny stock with an innovative product, these types of products can garner national media attention and often will draw the interest of other big companies in that field.

Ideally, you want to find a company that has increasing revenues and a lot of valuable assets. These types of companies are hard to find and you must investigate thoroughly. Often you must assume they will generate revenues in the future. Look at the amount of shares the insiders are holding: is there a small float with a large amount of insider ownership? This would be a sign that the insiders think that their shares will be very valuable in the future. At times you will also find that institutions are holding a percentage of shares, which would also be a good sign.

Using a stock screener you will be able to generate lists of stocks with institutional holders, insider buying, small floats, and strong revenues. After you generate these lists, separate them by their fields, such as technology, oil, or gold. Find the companies that interest you most in the strongest of fields and begin to read the filings. You will be able to dismiss some companies almost immediately. Keep narrowing down your search until you have a handful of companies into which you are willing to invest your hard earned money.

About the author:

Keith Guyette M.Ed, J.D. is a professional trader and the owner of a stock talk board http://www.thepennystockblog.com as well as the head stock analyst for http://www.bottompicks.com

A Guide to High-Yield, High-Risk Stocks

The classic image of the stock market is that of a place where fortunes are made and lost throughout the course of the day, and where those who take the biggest risks are rewarded by a hefty payout when all is said and done. Of course, this is the movie version of the market… no matter how thrilling the day-to-day dramas of investment trading become, they'll never compete with the images of the stock market that have been created for the silver screen.

There is a small grain of truth to those images from the movies, however… those individuals who choose to deal in high-risk stocks can make a lot of money if they handle the risks correctly. If they don't, however, then there's a good chance that they could lose their entire investment.

Below you'll find more information on the world of high-risk (and high-yield) investments, including ways to help insure yourself against major losses when dealing with higher levels of investment risk.

Defining High-Risk Investments

The first thing that needs to be covered when talking about investing in high-yield, high-risk stocks is exactly what is meant by the terms “high-risk” and “high-yield.” The risk of the investment is usually due to the very fickle nature of that particular stock… though it may be growing in value rather quickly, it's obvious that the growth is going to stop soon and a very rapid and severe descent is going to begin.

The yield of the investment, on the other hand, refers to the money that could potentially be made by buying stocks early on in the increase in price, and then selling just before the value starts to plummet. Fortunes have been both made and lost (sometimes in the same day) with high-risk trading; the key is knowing exactly when to start buying or selling.

How to Trade High-Risk Stocks

When trading high-risk stocks, it's almost essential that you have access to your brokerage account and that you'll be able to buy or sell shares as soon as the price begins to fluctuate in one direction or the other. This can be done online, via the telephone, or in person if you don't use an online brokerage firm.

You can also usually set up hold orders which will start buying the stock when the price reaches a certain level (up to the amount that you've specified) and that will begin selling shares as soon as the price drops below a certain point. Many online brokers allow these types of hold orders, and they can allow you to go about your regular day without having to watch the market ticker the entire time.

Guarding Against Loss

Of course, even with hold orders or a dedicated broker you can still end up losing money when dealing with high-risk stocks… that's how they earned their name. In order to minimize this potential for loss it's important to have a well-diversified stock portfolio to fall back on.

If your high-risk investments begin to fall in price too quickly and you end up losing money by the time the shares have been sold, the relatively stable value of some of your core portfolio stocks and indexes will help to even out your losses.

The fall of the higher-risk stocks might even stimulate some other portions of the market, causing an increase in other stocks in your portfolio. This will help take some of the sting out of your loss, and may end up giving you a greater long-term gain than you might have had from your short-term investment that went sour.

John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.

A Fundamental Way to Make Money in Stocks

Now that the fundamentals are over I want to tell you a few things that will make you or anyone some money. A company worth investing in must have earnings. The company must earn a profit every quarter to be worth a quarter. If the company is losing money it is a highly speculative stock. A trader who buys a company with many quarters of losses is hoping the stock will get stronger and one day show a profit. I listen to Warren Buffet on this one. He said “Rule #1. Don’t lose money. Rule #2. Don’t forget Rule #1.” A speculative play on this type of stock is begging for trouble.

I recommend five or more quarters of profits exceeding 20% each quarter. This is a very good growth company with management that knows what they are doing. I like a business that has increased profits by the same 20% for five or more quarters as well. The same goes for sales, five or more quarters of 20% growth. When all of these factors are in place the risk factor is minimal so I have less chance of breaking Mr. Buffets’ rules. I also look for companies with little to no debt. There is a much smaller chance of this company going bankrupt which will do awful things to a stocks share price.

I like to buy stocks that are small or as they are called, small caps. These companies don’t have too many outstanding shares and when a solid company is being bought, demand increases for the stock and the share price increases more dramatically than if the company had 10 to 20 times the shares outstanding. I like to look for companies that have a new product that is a big hit with consumers. The ipod is just one example, one new product and the price of Apple shares increased from a low in the teens to over 80. New management in a stagnant company is also worth watching. Steve Jobs was a huge factor when he returned to Apple full time. Try to watch for insider trading as well. Most of the insiders will sell en masse when something fishy is going on. If there is a mix of buying and selling among insiders it should be considered normal. Heavy, consistent buying or selling tells you to watch out for disaster or a bargain.

Some traders try to beat the market trend. The market trend is the general direction of the market. If the market is showing an upslope on a chart over a period of time of anywhere from three weeks to years, it is in an uptrend. And visa versa. Don’t try to fight the trend. The trend is your friend. Follow the trend and you will have much more success than fighting it. It is like swimming against the current, it can be done but not very easily.

With three startup businesses before he was 21 years old, Matt Fox has the experience to help you create your own businesses for your financial future. He is a wealth creation specialist. See his blog at http://www.bizmaker.blogspot.com for the other parts of this series

(UF) At Last .. A Trading Veteran Reveals The Truth About Technical Analysis of Stocks vs. Fundament

Nothing we do in society prepares us to function effectively in the commodity markets and an environment with no real boundaries. But, most of us are brought up to function well in society, so we`ve acquired strategies for fulfilling our needs and desires that are geared toward social interaction and acceptance. We don`t just take what we want, we take other people into consideration, too. Not only have we learned to depend on each other to fulfill our needs and desires, but in the process we`ve acquired many socially based techniques for assuring that other people behave in a manner that is consistent with what we want.

The commodity markets may seem like a social endeavour because there are so many people involved, but they`re not. While we may have learned to depend on each other to fulfill basic needs, the market environment is different: it`s every person for themselves.

Not only can you not depend on the market to do anything for you, but it`s extremely difficult to manipulate or control anything that the market does. If you`ve become effective in your personal lives at fulfilling your needs and desires by learning how to control your environment, but are existing as a trader in an environment that does not know, care, or respond to anything that is important to you, what do you do? You take control.

One of the principal reasons so many successful people have failed at trading, is that part of their success, outside the market, is due to their ability to control their social environment. To some degree, everyone has developed techniques to make their external environment meet their needs and desires. The problem is that none of those techniques work with the commodity markets. The commodity markets don`t respond to control and manipulation, unless you`re a very large trader.

However, you can control the way you deal with market information and your own behaviour. Instead of controlling your surroundings so that they fit your idea of the way things should be, you can learn to control yourself. Then you can view information objectively, and choose to behave in a manner that is in your own best interests. You do this by creating rules to trade by, and following them.

Nearly everyone agrees that you need to have rules to be successful in trading, but most traders have no intention of following any. Most people who are interested in trading resist the idea of creating a set of rules. The resistance may be subtle, but it`s still there.

Often this is a response to how we acquired our first set of societal rules. Our parents, relatives, teachers, or friends gave most of the guidelines we live by to us when we were children. These guidelines were taught to us, we did not create them, an important distinction. During this time, many of our natural impulses to move, express, and learn about the nature of our existence through our own direct experiences, were stifled. Some of these impulses were never reconciled, and can still exist inside of us as frustration, or disappointment. The accumulation of these types of feelings can cause a person to resist anything that keeps them from doing whatever they want, whenever they want to.

The very reason most people are attracted to trading, the unlimited freedom of choice and decision making inherent in trading, is the same reason they feel a natural resistance to rules and boundaries. The need for rules may make perfect sense, but it`s difficult to generate any enthusiasm for these rules when you`ve been trying to break free of them most of your life. It usually takes a great deal of effort to break down a traders resistance to establishing and abiding by a trading regime that is organized, consistent, and reflects prudent money management guidelines. But, once they do, the possibilities for attaining consistent trading success are limitless.

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