The Handy Investing Answer Book. Paul A Tucci

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СКАЧАТЬ by law. This library of business information may provide the details necessary to make informed decisions regarding purchasing or selling stocks in publicly traded companies. It includes such information sources as the EDGAR Company Database (Electronic Data Gathering, Analysis, and Retrieval System), and publishes all corporate filings and forms necessary for publicly traded companies, as well as earnings reports, annual reports, and IPO forms. The site also includes tutorials and information for individual investors, including tips and information regarding stockbrokers and firms to see if they are properly licensed, or have complaints or actions against them.

      According to the SEC, what types of questions should I ask when trying to decide which broker to choose?

      The SEC recommends that investors ask potential brokers the following questions, in order to determine if the broker is legitimate, properly licensed, and trained. Questions may include:

      • What experience do you have, especially with people in my circumstances?

      • Where did you go to school?

      • What is your recent employment history?

      • What licenses do you hold?

      • Are you registered with the SEC, a state, and/or the Financial Industry Regulatory Authority (FINRA)?

      • Are the firm, the clearing firm, and any other related companies that will do business with me members of the Securities Investor Protection Corporation (SIPC)?

      • What products and services do you offer?

      • Can you recommend only a limited number of products or services to me? If so, why?

      • How are you paid for your services?

      • What is your usual hourly rate, flat fee, or commission?

      • Have you ever been disciplined by any government regulator for unethical or improper conduct, or have you been sued by a client who was not happy with your work?

      • For registered investment advisers, will you send me a copy of both parts of your SEC Form ADV?

      What is a “stock split”?

      A stock split happens when a publicly traded company decides to divide its outstanding stocks in half, or split (doubling the number of shares outstanding), while cutting the price of the shares in half. Investors usually view this as a favorable indicator for the company’s stock, and normally will wish to acquire more shares at a more favorable price. It also indicates the company’s belief in its own future prospects. Some experts discount the perception that stock splits are generally beneficial for the company or investor, as a company has inherent value no matter how many shares are available.

      What is a “reverse stock split”?

      A reverse stock split occurs when a company decides to consolidate its outstanding shares. If a company has two million shares outstanding, it may wish to consolidate these shares down to one million by doubling the price of each share. So instead of having two million shares trading at $50, the company now has one million shares trading at $100. Companies normally decide to engage in reverse splits when they have a depressed stock price, and that decision generally is not seen by the investment community favorably.

What are stock or share “buybacks”?

      Yet another strategy that companies may employ is share “buybacks,” or the purchasing back of shares from the open market. Since the earnings of a company are often calculated on a per share basis, a company can make its earnings per share radically improve if there are fewer shares on the market. An important way to tell if a company is in fact buying back its shares is to scrutinize its quarterly reports, and find the line item “shares outstanding.” From here, you may compare past quarters or years to see if any buybacks have occurred.

      What is another strategy that a company might employ to make its stock attractive to potential investors and current shareholders?

      Another strategy that companies might use to distinguish their stock from all others is by paying dividends or distributing the earnings of the company either on a regular quarterly basis or, in some cases, as a one-time event. Normally, a company announces the record date, which is the date that any shareholder must own stock prior to the payment of dividends, and distributes the dividend, usually shortly thereafter. When a company has amassed a lot of cash, it may pay out a special dividend to shareholders of record. Companies that regularly pay dividends tend to be large, predictable, and profitable companies, such as many companies listed in the Dow Jones Industrial Average.

      What is a “market order”?

      When you purchase a stock, you may request your broker or online brokerage interface to enter a market order. A market order is an order to purchase or sell a stock at the best available price. Even if the order is executed immediately, it does not necessarily mean that you will get the last traded price, as prices change every second, and the price you receive may be quite different from the price you originally wanted.

      A lot of people still picture stockbrokers shouting out orders to buy or sell stock, but these days computer transactions make the process a lot more quiet.

      Why is there a difference in price from the time that I want to buy or sell a stock and the time that I actually buy or sell that stock?

      When you call a broker or click the “execute” button on an online interface, your trade ultimately goes to an intermediary, who must determine to which market to send the order. The stock orders may or may not be packaged together with many other orders to be fulfilled at the most favorable price. According to the SEC, there are no current regulations making brokerage firms execute trades within a certain time, only that the firm cannot deceptively advertise its ability to trade, and must meet its promises to its clients.

      What is a “limit order”?

      A limit order allows an investor to buy or sell a stock at a specific price. If the limit order is a “buy” limit order, it may be executed at the stipulated price or better. If the limit order is a “sell” limit order, the brokerage firm or site must execute this trade at the limit price or higher, so that the client receives the most money in exchange for his shares at the time of order execution.

      Why are limit orders good to use?

      For investors who are buying or selling positions, limit orders help ensure that the investor is getting the best price for his transaction, and does not pay more or sell for less than a predetermined amount. Limit orders provide investors with some protection against volatile price movements of securities while trades are moving through various electronic systems. Limit orders may be more expensive to execute than market orders, so experts generally assert to check with your brokerage firm regarding its fees.

      What other types of special orders may help investors when executing trades?

      In addition to market and limit orders, there are a few other special orders that may be available to the investor, either at a brick-and-mortar brokerage firm or an online brokerage site. A stop order or stop-loss order is used when you want to buy or sell a stock at a specific price, also called the stop price. A buy-stop order is executed at a stop price somewhere above the recent market price. A sell-stop order is executed at a stop price below the current market price. Investors like to use buy-stop and sell-stop orders to limit losses and to protect profits when executing СКАЧАТЬ