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An Introduction to Options

Options are among the most versatile investments available to individual investors. They also might be among the most misunderstood.Options are low-priced derivative contracts that can help improve investment results or they can help reduce risks. Options can also be used to generate income. Unfortunately, many individual investors believe options are too risky for them. The truth is, when used properly, options can be a low risk way to increase and protect wealth. In future articles, we will explain specific trading strategies for options. This article will provide an overview of the trading instruments.As the name implies, trading options gives the ...
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What Risk Means

Risk is part of investing. It is unavoidable and it’s even sought after. Risk is clearly related to potential rewards. To achieve the largest possible returns, investors have to accept higher than average risk. Low risk is associated with low returns. While these basic principles are well understood, the meaning of risk is less well understood.Professionals almost always tend to define risk in terms of standard deviations. This is frustrating because the idea of a standard deviation means nothing to most of us. If a financial adviser tells a client that portfolio risk is two standard deviations above average, that ...
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What’s a Stock Worth?

Identifying what a stock is worth is the one of the most challenging problems an investor faces. A stock’s worth determines whether it’s a buy or a sell. If a stock is trading its worth, or below its fair value, the stock has the potential to deliver a gain as the price moves towards fair value. Stocks trading above fair value carry risk that the market price will fall. Finding a stock’s fair value is the question Warren Buffett’s mentor, Ben Graham, set out to answer in his classic book, Security Analysis. Writing with his partner David Dodd in 1934, Graham ...
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Four Gold Stocks That Could Double in Value

Gold means different things to different investors. For some investors, gold is a hedge against disaster. This type of investor tends to believe economic disaster is imminent and may prefer holding physical gold. Other investors view gold as part of a long-term investment plan. These investors often point to studies showing an allocation to gold helps manage risk and volatility through diversification. These studies are often produced by an industry group known as the World Gold Council which notes, “Whether investors are based in the U.S., the U.K., continental Europe, or Japan, adding 2% to 10% in gold provides benefits ...
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Amazon Founder Cashes Out, Does That Mean You Should Too?

The headline is dramatic – “Amazon Founder Sells $671 Million Worth of Stock.” Other headlines pointed out this is the largest stock sale Amazon CEO Jeff Bezos has ever completed. Speculation mounted after the news broke. Is Bezos worried that Amazon can’t make enough money as a company to justify its high stock price? Does this mean Amazon’s stock price has topped?Although we don’t know exactly what Bezos was thinking, we can be fairly certain he doesn’t believe this is the end of Amazon. While $671 million is a big sale, it represents just 1% of the shares Bezos holds.Bezos ...
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Three Cheap Income Stocks in the Energy Sector

Oil is among the most volatile markets in recent weeks with crude oil futures declining more than 15% in July. After dropping more than 25% from its June high, oil is officially back into a bear market. Analysts generally define a bear market as a decline of 20% or more. Despite the fact that the new bear market has only just begun according to some analysts, there might not be much downside risk for oil. Based on futures prices, it’s likely oil is in a trading range and prices could move between $40 and $50 a barrel for some time.Trading ...
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How the Election Should Impact the Markets

Between now and November, it is safe to say we will all hear a lot about the elections. News sites will publicize and analyze every word the Presidential candidates say. Commercials will fill the minutes between shows on almost every channel. Whether your favorite shows are on PBS or Cartoon Network, it’s unlikely you’ll be able to avoid hearing about the election.For most of us, this election will actually have an important impact on our lives. This is especially true for investors since news over the next few weeks is likely to impact stocks, bonds and in some ways, our ...
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Five Ways to Trade a Rebound in China

In May 2015, China was among the hottest stock markets in the world. By the middle of June, the Shanghai Composite Index, a benchmark for stocks traded in China, was up 60% since the beginning of the year. Within a month, the index was down nearly 35%. Within seven months, traders in China had experienced a bubble and a crash.The 35% decline that began in June was the beginning of a bear market. By February of this year, the Shanghai Composite had lost nearly 50% from its peak and China was one of the least-loved stock markets in the world ...
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