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Investing 101 Archive

  • Everywhere you turn these days it seems that dividends are making the news. Companies are declaring them and raising them, yield-hungry investors are clamoring for them, and all the while politicians are eying them like never before as fat targets for new taxes. Yes, the lowly little dividend has found itself at the center of the fiscal cliff battle. So for this installment of Investing 101, we take a look at how potential policy changes might affect your portfolio.

    The backdrop for this renewed attention is, of course, the country's dire fiscal outlook and President Obama's proposal to raise taxes to close the gap. As Jeremy Schwartz, director of research at WisdomTree Investments (WETF), points out in the attached video, on January 1 a decade of preferential 15% tax rates is set to end, rising to 20% for capital gains, while dividends would be taxed as ordinary income again.

    "Since the President enacted a 0.9% Medicare payroll tax, plus another 3.8% to fund Obamacare," Schwartz says, "the highest tax on dividends is set to go up to 43% under that scenario for the highest income earners."

    Conventional wisdom suggests that nearly tripling the top tax rate for dividends would lower after-tax returns, thus reducing the overall demand for dividend-paying stocks. However, Schwartz says there "are number of mitigating factors" that would reduce the actual impact — namely the fact that nearly 50% of dividend-paying stocks are held in s0-called "tax insensitive accounts," such as IRAs, pension funds, endowments and non-profits. He also thinks that any sell-off in these stocks would likely be short-lived, as it "could motivate these investors" to scoop up bargains.

    Read More »from What the Fiscal Cliff Means for Your Dividend Stocks
  • There's no substitute for hands-on experience, particularly when it comes to investing. During the holiday season that means every one of the seemingly endless visits to stores and malls is another opportunity to come up with investment ideas to help pay for whatever it is you're buying.

    This practice of shopping a company is just the first step in a stock picking process. Commonly referred to as "The Peter Lynch technique" in reference to Lynch's seminal "One Up on Wall Street" book, investing in what you know is one of the building blocks to successful money management.

    Of course, you have to know what it is you're looking for when you shop. In the attached clip Brian Sozzi of NBG Productions runs through three specific qualities you probably want to see before rushing out to buy stock of the company from which you buy that sweater or toy.

    1. Customer Service Slightly Better Than Expectations

    The important point here is expectations. The way Walmart (WMT) treats its customer is different than the standard of care to be expected at Saks (SKS). A well-run company gives the customer what he or she should anticipate when they pull into the lot. At a discounter that means a clean store and a clerk at every register when the store is packed. At a high-end store exemplary service means "anything you want."

    What a shopper should never feel is ignored, even if they're suspected of Showrooming. "Just because I have a smart phone doesn't mean I don't need attention," says Sozzi.

    Read More »from Investing 101: Three Things to Look For When Shopping for Retail Stocks
  • There's more to "short selling" than meets the eye. In this edition of Investing 101, we take a look at the basics of shorting, what it is, how it works and who might do it. To help us along, we brought in Tim Smith, senior vice president at Sungard's Astec Analytics, a market data firm specializing in securities lending and borrowing.

    1) What is Short Selling?

    "It's the opposite of long buying," Smith says in the attached video, explaining that when people buy securities, they think the price may go up. But when they sell a security short, he says "they do that because they think the price may go down." On Wall Street, there are several different iterations of shorting, but they all essentially mean the same thing; that a stock or index is overpriced and expected to go down in value. "It's another investment management technique,'' Smith says.

    2) Who Should Sell Short?

    While this practice of bearish bets is open to anyone, Smith says it is "really a game best left to the pros" simply because the risks surrounding shorting can be huge. "The argument goes that the downside for short selling is infinite," Smith points out, "and by that I mean, if you think the price of a share is going to go down and you put on a short position, the price could actually go up, and it could go up to infinity." For example, if you buy a $20 stock and it just goes completely out of business, the most you could loose by being long - and wrong - is $20. The flip-side of this is if you are short a stock at $20, the most you could make is $20 if you were right and that stock indeed went zero. But the catch, or mismatch, is if you're short - and wrong - that $20 stock could, theoretically, go to $1 million or more, so your ultimate exposure or risk is infinite.

    Read More »from Investing 101: The Art of Selling Short


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Breakout’s Investing 101 helps you gain insight on money management and trading. Whether you’re managing your own retirement account, just beginning, or an advanced investor in need of a good refresher, Investing 101 will help you learn, grow, and keep you informed of the basic steps to effectively manage your money. Expect investing tips that focus on trading strategies, asset allocation, and portfolio management.

Investing 101

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