Stock Market: Restricted Stocks Are Better Than Stocks Options !!

Many companies are concerned by the Financial Accounting Standards Board (FASB) recommendation that Stock Options be shown on the company's expense sheet. Especially high-tech and start-up companies are concerned because they fear losing one of their great motivating tools. They needn't worry. There is already a better compensation choice, Restricted Stocks Options.

Motivation Through Restricted Stocks Issuing restricted stock is a better motivating tool than granting stock options for two reasons. First, many employees don't understand stock options. They don't know that they have to take action to realize any gain. It is far easier for them to understand a vesting period on restricted stock. Second, restricted stock can't become worthless like stock options. Even if the stock price falls, restricted stock retains some intrinsic value.

A Stock Option grant with a strike price of $10 has no value when the stock trades at $8. Restricted Stock awarded when trading at $10 is still worth $8. A stock option has lost 100% of its value. The restricted stock has only lost 20%.

Employee Ownership Through Restricted Stocks

One of the advantages restricted stock has from a management perspective is it is better at motivating employee to think and act like owners. When a Restricted Stock Award vests, the employee who received the restricted stock becomes an owner of the company. He or she has to take no further action to make it happen. The employee is now part owner and can vote at the annual meeting.

Actual ownership of part of the company is a powerful motivating tool in trying to get employees to own the company's objectives. This makes them more focused on meeting goals.

Stock Options, on the other hand, do little to instill a sense of ownership. They are viewed by most as a high risk gamble that has a potentially great reward. An individual may very well invest a couple of years helping a company grow and prosper when compensated for that time by stock options. However, their loyalty is to raising the stock price so the can cash out and make a bundle. They have no loyalty to the company and its goals. Often, they will choose actions which raise stock price in the short term, thus increasing their potential gain, rather than taking a longer-term view that will help the company.

Restricted Stocks Supporters

The LA Times reports that Microsoft plans to replace stock options with restricted stock grants. Amazon.co.uk notes that all their employees are allocated a number of Amazon.com restricted stock units when they join. The Altria Group, Inc., points out in their annual report that "in 2003, we made equity awards in shares of restricted stock rather than fixed-price stock options". Dell Computer Corp., Cendant Corp., and DaimlerChrysler AG are also reported to be moving toward restricted stock in lieu of stock options.

Manage This Issue

Restricted Stocks awards are a better tool for motivating employees than stock options. Restricted stock awards are better than stock options for motivating employees to think and act like owners. Restricted stock awards are better treated on the financial statements than stock options. That makes restricted stock awards better for the employees, management, the investors, and the regulators. There is no reason to not make that choice.

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Lights of the Stock Market!

There Are Red Lights, green lights, blue lights and spot lights. There are orange lights, pink light and flash lights. There are search lights and micro lights. And the one you must obey is the stop light.

If you don’t stop when the light is red you could easily have an accident and lose everything you have, even your life. These different types of lights alert us to possibilities and dangers. Is there a light that goes on that tells us whether the Stock Market is going up or down; one that is green to invest or red to sell? They aren’t very obvious, but they are out there. You only need to become aware and learn when the signal flashes.

It doesn’t take long to learn to drive an automobile, but it does require much more skill to handle an 18-wheeler. The professional driver has taken to time to learn his profession. He knows what all the lights mean. Not only the red and green, but the yellow and blue as well. There are also many light signals inside the cab that he must be aware of all the time if he is to have a safe passage.

Stock Market Signals may not be red or green or any color at all, but they are there and are obvious to one who wants to learn. The one who wants to learn is the investor who wants to protect his capital from loss and to make enough money to retire in a comfortable life style.

The most obvious signal is the 200-day moving average! You can find one of the best market signals printed every day in the Investor’s Business Daily Mutual Fund Index. When the index is above the 200MA line you are in the green and should to be invested. When it is below the 200MA line you the red light is on and you want to be in a Money Market Fund. When those signals flash and you learn to act you will become very wealthy over the next 10 to 20 years. You will not lose your money when the market is going down.

It you take the time to go back in history, say 20 years and treat the S&P500 Index as a dollar value you will quickly see that buying and selling on this simple method would have made you a ton of money. No, there is not very much trading involved. You will only be buying or selling about once each year. It will not take much of your time and you will sleep better, especially when the market is crashing and your money is safely tucked away.

Currently the green signal is on to be invested according to the IBD Mutual Fund Index. The red signal will come on that tells you it is time to sell when the index plunges below the 200MA line. Pay attention to the signals. You don’t want to lose everything!

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Stocks Investment: What Is a "Retained Earnings" Account?

A Special kind of account, called "Retained Earnings" is an interesting and important account. Most business people know it better as "Net Profit". Net Profit is, of course, your total income less your total expenses. For example:

Sales: $1600.00 USD

Cost of stock: $1200.00 USD

Operating expenses: $300.00 USD

Net Profit: $100.00 USD

So, after this series of transactions $100 profit is made. Since net profit is usually the same as retained earnings (they are not always exactly the same and this point is discussed later) and retained earnings is a liability, then it would seem net profit is actually something we don't want...Of course, this liability is a special case. It is not money owed to our suppliers, but money owed to "us" (since the company must issue its profits to its owners). In this case, from our perspective, this is a "good" liability. In reality of course, the company may decide to keep the profit as a reserve because its managers are expecting additional expenses next month, and so on. The Net Profit or retained earnings may be eaten up before the firm gets a chance to issue it to its owners.

From an accountant's perspective, operating a general ledger involves shuffling numbers between sets of asset and liability accounts. Obviously, the higher the numbers on the assets side, the better. These types of accounts are referred to as balance sheet accounts.

One of the key concepts that accountants use to ensure that they don't miss anything when updating account totals is that of balance. Every monetary transaction involves the interaction of at least two accounts. Let's write the above example out again in a form that an accountant would be slightly more happy with:

Sales: $1600.00 + (increase by)

Stock levels: - $1200.00 (decrease by)

--------

$400.00 -

Operating expenses $300.00 (deduct expenses)

--------

Net Profit: $100.00

In the above all the amounts that make up the transaction have been accounted for. Sales have been increased by $1600. We therefore need to offset this $1600 against other accounts that balance to $1600 also. This was achieved by deducting $1200 worth of stock (or increasing the cost of the sale by $1200 depending on how you look at it), increasing operating expenses by $300 and Net Profit the remainder. The principle of balance will be discussed in greater detail in the next section when we get to debits and credits. For now, lets continue to look at retained earnings.

The major problem dealing with only asset and liability accounts is that while they tell us how much we owe and how much we own, they don't tell us how we arrived at this situation. If the retained earnings account holds $10,000 what did we do right to arrive at this figure or if the balance is negative $3000 what did we do wrong?

In order to determine how the final total was made up, it is common accounting practice to expand the retained earnings accounts into income and expenses. Income, revenue or sales are usually thought of as assets and expenses, overheads or costs are thought of as liabilities. However, they are not quite the same thing. We don't really owe money to the "vehicle maintenance" expense account, we owe it to Joe's garage, for example. Likewise, we don't strictly speaking, get money from a sales account, we get it from a customer's account when they pay their bills.


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To Your Online Trading Success,
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Dan A.

What Is Penny Stocks Investing?

PENNY STOCK is low price share with broad range of market capitalisation. Though penny stocks’ prices are the same as small cap stocks, mid cap stocks or micro cap stocks, they are different altogether. If small cap stocks are companies with $300 million to $2 billion market capitalization, penny stocks may have as high as $4 billion worth; although their stock prices are similar. This can happen if high market capitalization companies decided to issue many shares or to split their stocks to maintain its attractiveness to stock market investors and traders.

But most of the time, Penny Stocks are new companies that just get listed in the stock exchange. This makes almost all the small cap stocks are penny stocks indeed. Because of their smaller capital base, these companies are generally more vulnerable than larger companies during economic downturn.


Why Investors Get Hooked to Penny Stock Investing?

Stock market investors like to make quick gains from its price volatility. Moreover, due to its nature of very cheap in price, stock traders often bought them in very large units. Sometimes, one per cent price fluctuations enough to make millions of dollars.

...That's how profitable it can be.

However, most of penny stocks are under researched and received very low media coverage. Due to not having much publicity, these stocks can be easily syndicated by professional speculative investors. Moreover, it is not easy for average stock investors to verify if the rumours or some ‘Insider Tips’ are true. And because it was heavily syndicated, regular trend from technical analysis won’t work that easy. Due to these very high uncertainties, penny stock investing can be very risky for novice stock investors. Nevertheless, you can still make money from penny stocks from the following approach.


4 Ways to Pick Winning Penny Stocks!

Fundamental Analysis:
Good stock picks from fundamental analysis should consider earnings potential, revenue growth, debt loads, positive cash flows and other important financial ratios. Extensive study of the company’s financial statements is inevitable to discover the best medium to long term stock investment opportunities. To make money in penny stock investing, you must buy the one that have the most effective management and making the most money at the same time.

And don’t forget to compare the standard financial ratios with other stocks in the same industries to predict which companies are destined to be successful. Good fundamental analysis of penny stocks can unleash the two per cent companies with superior stock investing opportunities. They are so profitable that can give better return than 90 per cent of the blue chip stocks.

Undervalued Stocks:
It is not uncommon to see share prices slide dramatically. This has a lot to do with weak market sentiment than the underlying fundamental values. And today’s seamless communication through the internet, information from China can travel to US as fast as a blink of eyes. If this happen, you shouldn’t avoid the stock market, but take advantage on the undervalued stocks instead. Calculate its intrinsic value and buy the stocks if the share prices where within its margin of safety.

Technical Analysis:
Under normal situation, technical analysis able to discover repetitive price trending of penny stocks. These patterns can reveal profitable penny stock trading by buying stocks with high probabilities of moving upward. With all the available technical indicators, you can make money even if the stocks are flat but are traded within some trading range.

Promotional Stocks:
Promotional stock is a common penny stock that is heavily promoted by promoters who have substantial holding in the stock itself. The promoters generate market interest for the stocks in an attempt to drive the price higher. Once the stock prices are at the desired level, they sell their holding and generate substantial personal profits. Then, they simply move on to another stock and leave the original stock and its investors behind. Without any further promotion by new shareholders, the stock price will soon collapse.

The promoters are frequently moved in a group. They form a syndicate with other interested wealthy speculators as well as other professional hedge fund managers. To make money from this type of stocks, you need to participate early in the stock cycle and ride on their promotional effort. Otherwise, you’ll lose fortune against them!

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To Your Stocks Trading Success,
A Professional Stocks and Forex Market Trader
Dan A.

Stocks Trading: Beating The Stock Market !!

"Many people dream about beating the market through their stock investments. However, is this really worth the effort and is it really possible?"

Many have attempted to beat the stock market and only a few have managed. Some pundits have gone a step further to claim systems that guarantee this. Nevertheless, beating the market may not be the best goal that you can set for your stocks. The reason for this is that there are a number of other considerations that should be made.

People are generally unclear about the meaning behind the word “Market”, which leads to its different definitions. Different indexes are used when referred to the stock market one of them being the S&P 500. However, this index fails to objectively present all of the stock sizes.

Beating The Market requires the undertaking of various Stocks Deals that enjoy short term benefits. Some experts recommend that you purchase companies that have high customer satisfaction attached to them. There is logic behind this argument, because when clients are satisfied with the product or service of a particular company they use it and become loyal to the company. As a result, the returns increase as well as the popularity among investors. The price of the stock of the company will be also influenced in an upward direction. If you have managed to invest in the company while its price was still low, congratulations you have managed to beat the market.

If you fail to walk away of the stock market when the right time has come you may put your money at risk. And what actually happens is that instead you beat the stock market you are beaten by it. Beating the market requires you to know when is the right time to enter it and when to exit it. You should learn its indications and not only notice them, but also understand the signals that they send to you.

No matter how good you may be at such things, you should consider whether it is worth risking your money for such a goal. Beating The Market may reward you very well, but you should never forget that its punishment can be even higher. Winning several hundred dollars from the stock market today may result in their loss tomorrow. Because, even if you have done it once, beating the stock market twice cannot be guaranteed for sure. No matter what formulas the pundits have offered and techniques applied, it is a game in which only a few have succeeded.

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To Your Stocks Trading Success,
A Professional Stocks and Forex Market Trader
Dan A.