Stocks: An Introduction

What are stocks?

Stock equals ownership

A stock represents a share of ownership in a business. When you hold one or more shares of stock in a company, you actually own a piece of that company. Your percentage of ownership will depend on how many shares you hold in relation to the total number of shares issued by the company.

Investors who purchase stock are known as the company’s stockholders or shareholders. The price of shares reflects the public’s level of interest in owning the shares. If a lot of investors want to buy shares, they bid against one another, driving up the market price of the stock. If interest is low, competing bids are few and far between, and the price of shares is likely to fall.

You may hold the stock in the form of a stock certificate, which identifies you as the owner of the stock and the number of shares you own. Alternatively, shares may be held in an account with a brokerage firm.

Stock ownership can give you a share of profits and other perks

Your percentage of ownership in a company represents your share of the risks taken and profits generated by the company. If the company does well, your share of the total earnings will be proportionate to how much of the company’s stock you own. The flip side, of course, is that your share of any loss will be similarly proportionate to your percentage of ownership, though you are not personally financially responsible for any share of the liabilities of the company in which you hold an equity interest.

Beyond that, depending on the company and the types of shares you have, stock ownership may carry other benefits. Specifically, you may be entitled to dividend payments (which you can generally receive either in cash or additional shares), capital gains payouts, voting rights, and other corporate privileges. For example, common stockholders have the right to vote for candidates for the board of directors and on other important issues.

Stock is a means of raising money for a company

From the standpoint of the company, issuing and selling stock enables it to raise capital needed to expand, conduct research, modernize, pay off creditors, and meet other corporate expenses. When you give a company capital by buying its shares, you acquire equity in that company. Just as your equity in a home represents the portion that you actually own relative to the amount you owe on the mortgage, equity in a company represents your ownership stake. That’s why stocks are sometimes referred to as equities.

Why invest in stocks?

Many investors never venture beyond the world of cash alternatives–bank accounts, CDs, money market accounts, and Treasury bills. They take comfort in knowing that these investment vehicles provide relative safety coupled with liquidity that allows them to access their money easily if they need it. However, while these investments are relatively low risk, they generally yield minimal returns; some may not even keep pace with inflation. At some point, most investors want the potential for greater returns, which is where stocks enter the picture.

A variety of factors motivate people to invest in stocks. Many view equity investments as an opportunity to accumulate wealth or to prevent inflation from eventually reducing the purchasing power of their money. They generally take a long-term view, hoping their stocks will appreciate in value over time. They may also be interested in the dividends that some stocks pay, which shareholders may accept in cash or (in some cases) reinvest in additional shares of the company. Dividends and any increases or drops in the stock’s price combine to produce the stock’s total return. Investors with a gambler mentality may be attracted by the thrill of playing the market. They may trade actively, sometimes buying and selling the same issue within a few days or a few hours. These day traders try to take advantage of small, intra-day price movements in volatile stocks or indexes.

How do you make money with stocks?

Investors who purchase stock hope to make money in one of two ways–through dividend payments and/or capital gains.

Dividends

Some investors buy stocks because they seek regular income from dividends. Dividends represent distributions of corporate earnings to shareholders. The company’s board of directors decides whether to distribute a dividend to shareholders; payment of a dividend is by no means mandatory. Dividends, if distributed, are usually paid out to investors in cash. However, a company may also pay dividends in the form of additional stock, known as stock dividends, or in property (this is rare). Some companies allow investors to buy stock through an automatic dividend reinvestment plan. A brokerage commission may or may not apply.

Qualifying dividends received by an individual shareholder from domestic corporations (and qualified foreign corporations) are taxed at long-term capital gains tax rates, making dividends more attractive to many investors. As of January 1, 2013, those rates range from 0% for individuals in the 10% and 15% marginal income tax brackets to 20% for individuals in the highest marginal tax bracket of 39.6%. In addition, a 3.8% Medicare contribution tax applies to the investment income (including qualified dividends) of individuals with income that exceeds $200,000 ($250,000 for married couples filing jointly).

Not all stock dividends qualify for capital gains tax treatment. Dividends that are ineligible will be taxed at ordinary income tax rates. These include:

  • Dividends attributable to shares held for less than 61 days in the 121-day period beginning 60 days before the ex-dividend date
  • Dividends attributable to any shares that were purchased with borrowed funds, to the extent the dividend was included in calculating investment income for purposes of claiming an interest deduction
  • Dividends attributable to shares for which related payments must be made with respect to substantially similar or related property
  • Substitute payments “in lieu of a dividend” made with respect to stock on loan in a short sale

Further, dividends paid on hybrid preferred stock (i.e., stock that is reported as debt) are also ineligible for capital gains tax treatment.

Capital gains from sale of stock

Capital gains represent increases in stock prices. Investors looking for capital gains hope to buy a company’s stock at a low price and sell it when the price has risen. Stock prices can increase for many reasons, including company profitability, a good economic environment, or rumors of a takeover. Conversely, stock prices may decline for many reasons, including poor earnings reports, poor management, lawsuits, faulty or out-of-date products, competition, bad publicity, or an overall poor economy. Prices also can be affected simply by the investment community’s view of the stock market as a whole.

Capital gains from selling stock result in taxable income; however, such gains, if long term, will generally be taxed at a lower rate than ordinary income tax rates, as was discussed above in connection with dividends. Also, in any given year, any capital loss you sustain can be used at tax time to offset capital gains. Finally, if unused capital losses remain, they can be used to offset up to $3,000 ($1,500 if married filing separately) of ordinary income for that year or can be carried forward to future years.

Caution: Capital losses cannot be used to offset dividend income taxed at long-term capital gains rates.

What are some things you should consider before buying stock?

The decision to invest in stocks is a personal one that should depend on your individual situation. Before taking this step, and before selecting specific types of stocks to add to your portfolio, there are some issues you should take into account.

Your temperament for risk

One of the main factors to consider before buying stock is your attitude toward risk. How much financial risk, if any, are you willing to accept? If the thought of even a small amount of risk makes you anxious, you probably would be considered risk averse, in which case stocks might not be an appropriate investment for you. If you can handle some risk, you still need to tailor the stock portion of your portfolio to your particular level of risk tolerance.

Though past performance is no guarantee of future results, stocks as a whole have historically offered relatively high potential reward over the long term compared to most other types of investments. As a result, stocks generally have a higher level of risk compared to other investments. You can lose a portion of your investment in stocks–or even your entire investment. Among the factors that affect the level of risk you face with stocks are:

  • Competitive risk–Competitor actions may cause lower profitability, business losses, or bankruptcy.
  • General business risk–Poor managerial decisions cause business losses or bankruptcy.
  • General systematic risk–The state of the economy prevents the corporation from achieving the profit levels it is seeking.
  • Political or social risk–Groups within a society may object to the nature of a particular company’s business, or to how it conducts its business. Bad publicity could cause prices to decline.

Different kinds of stocks carry different degrees and types of risk and are therefore suited to different types of investors. For example, if you are fairly conservative and prefer minimal risk, you might think about stable, relatively safe blue-chip stocks. If you are very aggressive, however, you may want to consider riskier investments like aggressive growth and microcap stocks.

Although an investor can screen for potential risks before making an investment, it is virtually impossible to plan for every conceivable contingency that could affect a business. For this reason, stock investors must be prepared for some degree of risk.

Your desired return

How much of a profit do you hope to make on your stock investments? If you seek the potential for better returns than cash alternatives and most fixed-income securities such as bonds or notes can offer, and you don’t want the management responsibility of real estate or partnerships, you should probably at least investigate investing in stocks. Their potential for higher returns than many other investments means that stocks as a whole have a better chance at staying ahead of inflation, thus preserving your money’s purchasing power over the long term. If you are certain that you want to pursue the highest returns possible, the stocks that you should consider are very different from those suitable for an investor who would be happy with modest returns. Of course, you should always weigh your desired return against the amount of risk you are willing to assume, because the potential for higher returns also means greater potential for loss. It can be challenging to strike the right balance.

Your financial and personal circumstances

First and foremost, your finances will determine whether you are in a position to invest in stocks and, if so, what types of stocks are appropriate for you. If even a small loss would have a meaningful impact on your finances, stocks may not be a viable option for you. If you have relatively limited resources, the types of stocks you choose and the amounts you invest will probably differ from those of an investor with substantial assets. Also, make sure you consider your finances in relation to your income and other personal circumstances. For example, if you have $200,000 available to invest but also have a child who will be attending college within a couple of years, the choices you make about stocks probably won’t be the same as those of someone who has the same amount of investable assets but no significant near-term financial obligations.

Your holding period

Stocks are typically a long-term investment. The reason is that stocks can be volatile. If you’re counting on a stock’s price going up, it may take several years of ups and downs to reach your desired selling point–if indeed it ever does. But there is another reason. The sale of stock held for one year or less results in short-term capital gain or loss, and short-term capital gains are taxed at ordinary income tax rates. By comparison, the sale of stock held more than one year results in long-term capital gains, and long-term capital gains generally are taxed at lower rates than ordinary income. For example, if you are in the 28 percent tax bracket for ordinary income, your long-term capital gains are generally taxed at 15 percent. 

What you want your investments to do

Your investment choices will naturally be affected by the various factors discussed previously: your attitude toward risk, your desired return, and your financial and personal circumstances. Other factors may come into play as well, but these are the most common ones. Based on these very important considerations, you and your financial professional will be able to choose investments that match your situation. Different stocks may have very different strengths and weaknesses in terms of how they attempt to achieve a return. For example, you may want short-term gains, long-term capital appreciation (growth in value), steady income, or some combination.

Your own research and beliefs

No one, not even the most esteemed expert, can forecast with any certainty what the stock market will do from day to day or from year to year. It’s not for a lack of trying, however. It seems there are always a number of conflicting theories floating around that attempt to predict or explain the market. You may have your own theories as to how the market works or will perform in the future. If so, such beliefs will likely influence your decisions about which stocks to invest in or whether to invest in stocks at all. In addition, your research into specific companies may guide you toward certain stocks and steer you away from others.

Where do you buy stock?

As you probably know, hundreds of millions of shares of stock trade daily on the stock market. The stock market is a general term referring to the organized trading of stocks and other securities through various exchanges, including the over-the-counter market. Stocks are generally bought through intermediaries, known as securities brokers and dealers. Investors can also purchase a group of stocks indirectly by owning shares of a mutual fund or an exchange-traded fund (ETF)

Stock exchanges

Most stocks are traded on various stock exchanges. Two major U.S. exchanges are the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX). The Nasdaq is an equally important U.S. exchange, although there is no trading floor–the stocks are bought and sold over a broker-dealer computer network.

In most cases, when you buy or sell stock, you go through a broker rather than deal directly with the issuer of the stock. This is true for most transactions, including initial public offerings (IPOs) and secondary offerings. In exchange for brokerage services, you ordinarily have to pay your broker (including discount brokers) a commission based on the dollar value of a particular transaction or the number of shares purchased. Many brokerage firms also offer so-called wrap fee programs, which are all-inclusive accounts whose fee structure includes commissions and investment advisory services.

Over-the-counter market

In addition to the major exchanges, you can buy and sell stocks on the over-the-counter (OTC) market. Stocks that trade on the OTC market are generally those of smaller companies that don’t trade on the NYSE and the AMEX because they don’t meet the listing requirements of those exchanges. In recent years, however, many companies that qualify for listing have chosen to remain with OTC trading because they prefer this system to the centralized approach of the major exchanges.

Initial public offerings

An IPO occurs when a corporation decides to go public by offering shares of its stock to the general public for the very first time. Only the first issue of stock made available to the public is considered an IPO; subsequent issues by a public corporation are called public secondary offerings.

Evaluating stocks

There are several ways that investors can evaluate the financial health of a company, as well as its prospects for the future. These methods may include an examination of factors specific to the individual company, or they may pertain to the industry as a whole.

Types of stocks

The stock market is enormous; there are many different types of stocks from which you can choose. This should come as no surprise, given the number of companies worldwide that sell stock to the public. The types of stocks that you ultimately pick should depend on your individual circumstances. In narrowing the field to appropriate stocks for your portfolio, your financial professional can be immensely helpful.

Very broadly speaking, stocks can be divided into two general categories–common stock and preferred stock. In many cases, a single company will make both kinds of stock available to investors. Each has its own particular strengths and weaknesses. Stocks can be further broken down into voting stock and nonvoting stock.

Beyond that, there are stocks for investors of all types. For the more conservative investor who wants to keep risk to a minimum, there are blue chip stocks and conservative, income-oriented stocks. For the very aggressive investor who sits at the other end of the spectrum and is more interested in the potential for greater returns, there are aggressive growth stocks, microcap stocks, and emerging market stocks, among others. If you fall somewhere in between these two extremes, you may find a fit with midcap stocks, value stocks, and growth stocks. If you closely follow current economic conditions, cyclical stocks may be an appropriate option, just as international stocks may be a good match for an investor who stays attuned to foreign markets and is willing to accept the added risks of foreign investing.

Strategies for stocks

There are several strategies you can adopt to get the most out of your stock investments. These range from very basic strategies appropriate for a novice, to more complex strategies that a sophisticated investor might be inclined to use. Some of the most common strategies available to you include buy low/sell high, buy and hold, and dollar cost averaging.

Stock research resources

There are any number of resources, both in print and online, that can help you find general information on investments. In addition, a number of resources are valuable specifically for stock research.

Start with your financial professional’s website. Brokerage and other financial services firms often include investment research capabilities, both proprietary and from third parties. You may need to be a customer to get access.

SEC’s EDGAR database contains all SEC filings, including 10Ks (yearly) and 10Qs (quarterly).

Hoover’s online database of companies includes both free and paid content. Value Line offers sample reports on all 30 companies in the Dow Jones Industrial Average, and its fundamental data on approximately 1,700 large companies is available by subscription or in most public libraries.

Stock price quotes, either delayed 15 to 20 minutes or real-time, are available online nearly everywhere. Traditional news outlets, such as television stations, have basic data, and many newspapers are reducing or eliminating daily stock tables and putting the information in their online editions. Also, many Web search engines or services such as Yahoo! or America Online have extensive links to a wealth of stock data in their finance or investing sections.

Company-specific discussions or message boards let you connect with others interested in a particular stock. However, take everything with a grain of salt. Posts are generally anonymous, and misleading or false information can be posted by people who are paid to promote a particular stock.

If you’re interested in running some stock screens, Microsoft’s MoneyCentral site and Yahoo! Finance both have screening tools that let you set criteria and parameters to narrow your list of candidates for investing or further research.

Basic Strategies for Stocks

Introduction

Equities have a history of producing higher returns than most other types of investment over time, though past performance is no guarantee of future results and there also have been extended periods in which they have not outperformed. Because of their greater potential for higher returns, stocks also involve greater risk. Different types of stock and some of the strategies for investing in them involve different levels of risk. By seeking stocks that suit your profile as an investor and using an appropriate strategy for acquiring them, you may be able to manage risk in ways that are comfortable for you.

No matter what strategy you use, you should research your choices. All investing involves risk, including the potential loss of principal. A financial professional can help you make choices that are appropriate for you.

Buy and hold

You could work hard to identify what seem to be some good, high-quality stocks, and then hold them for a long time, trying not to be too concerned by day-to-day ups and downs. This so-called buy-and-hold strategy is appropriate if you hope to benefit from a long-term upward price trend. It is also an excellent way to avoid one of the most common investment mistakes, which is frequent trading. All too often, investors buy a stock, hold it for a short period of time, become impatient and sell it, only to see the stock move higher when they no longer own it.

On the other hand, if the reason for buying the stock no longer exists–for example, if a company was bought for robust dividends that it no longer pays–investors should think carefully about whether they still want to own the security.

Caution:               Buy and hold isn’t the same as holding on to a position after it’s outlived its original role in your portfolio, just because you’ve suffered a big loss and cling to the idea of recouping that investment. When it comes to stock selection, there are no guarantees, which is why it is wise to build a diversified portfolio.

One advantage of a buy-and-hold strategy is that it takes advantage of the compounding effect of reinvesting any dividends you may receive. Dividends can be automatically reinvested in additional full and fractional shares instead of in cash. Virtually all mutual funds allow you to reinvest dividends and capital gains distributions. Today, many companies offer what is called a DRIP, or dividend reinvestment plan.

Caution:               Unless your shares are held within a tax-deferred retirement plan, like an IRA, 401(k), or similar plan, the dividends you reinvest will be taxable just as if you received them in cash.

Some buy-and-hold investors also like the idea of acquiring additional shares in a company through repeated stock splits over time. With a stock split, you have more shares for every one you own, although the market price of each share also splits by an equivalent amount. A split doesn’t change the value of your investment, though splits often are associated with companies that have experienced share price gains and want to make the stock more affordable for retail investors. Not all splits are positive; sometimes companies do a reverse split and investors end up with fewer shares that carry higher prices. However, stock splits often are seen as a favorable trend, though there is no real change in a share’s economic value.

Unfortunately, holding stocks for a long time does not assure a gain. No matter how hard you work to find solid companies that appear to have bright futures, you could be disappointed. Even some widely admired companies that once seemed invincible have stumbled. Some have even gone bankrupt amid widely publicized scandals. This is one reason why diversification is so important; not having all your eggs in one basket means that losses on a single position have much less impact on your overall portfolio.

Buy low, sell high

No matter what strategy they use, every investor’s goal is to buy stocks when they’re selling at low prices and sell them when they’re high. Market timers–people who try to get in and out of a stock or the market at just the right times–have this as a primary goal. Speculators who invest for the short term may buy a stock one day and sell it the next, or as soon as the price rises above the price they paid for it, hoping to realize enough profits to justify the trading fees involved. By contrast, investors working toward long-term goals may be more patient. If the stock price drops, these investors may stay the course or even buy more shares if they believe the price will rise again at some point.

Tip:        Some investors who find they’ve bought a stock that declined in value get discouraged and decide to get out as soon as the stock price returns to where it was when they bought it. In fact, you might be better off selling the stock at a loss to create a possible tax deduction, and putting the proceeds to work elsewhere.

Deciding when to sell a stock may be even harder than deciding when to buy it, so many investors use a disciplined strategy. They set an upside target price in advance. If the stock rises to that level, they sell it, or at least take a long, hard look at it, asking themselves whether it makes sense to take profits now rather than risk holding it too long. Many investors also set a downside target, called a stop loss target. If the stock falls below that level, they sell it and avoid a longer ride down.

Example(s):      John buys 100 shares of ABC at $20 a share, for a total investment of $2,000, and plans to sell when it reaches $30, so he can earn a profit of $1,000. If he also set a stop loss target at $16, he would sell the stock once it fell to that level.

Bear in mind that you don’t realize a capital gain (or loss) until you actually sell a security. Unrealized (or paper) gains or losses may be here today and gone tomorrow, literally.

Dollar cost averaging

Dollar cost averaging is a strategy widely used by people buying individual securities, shares of mutual funds, exchange-traded funds (ETFs), and other pooled investments. You invest a fixed sum at regular intervals–monthly, quarterly, or semiannually–in a fund that fluctuates in price, without worrying about whether the price is high or low. When stock prices are high on the day you invest, the amount you set aside buys fewer shares; if prices are low, you acquire more shares. This strategy is automatic if you invest using a payroll deduction plan where you work, or an automatic investment plan through a mutual fund or bank. It can be a relatively low-stress way to invest.

Example(s):      Jane decides she’ll invest $2,000 each month into ABC Mutual Fund. At the end of the first month, ABC Mutual Fund closes at $20/share, so Jane purchases 100 shares. The following month, ABC has fallen to $16/share, and Jane’s $2,000 investment gets her 125 shares of ABC Mutual Fund. The following month, the fund prices rise to $25, and Jane’s $2,000 gets her only 80 shares. At the end of the third month, Jane has purchased a total of 305 shares and has an average cost of $19.67.

As the example shows, dollar cost averaging allows investors to take comfort that with ongoing purchases of a security or pooled investment vehicle, they’ll likely have a better chance to get close to an average price than with making a single purchase, which could occur at the wrong time. This aspect of dollar cost averaging takes away the pressure many investors feel to pick the bottom price or otherwise carefully time their purchases.

Dollar cost averaging does not guarantee you a gain or protect you from loss. If you invest in a stock or mutual fund that goes steadily down, you would lose money. In addition, since dollar cost averaging involves continuous investment regardless of fluctuating prices, you should consider whether you’ll be financially able to continue purchases during bad times.

Dollar cost averaging in taxable accounts can make tax filing more complicated. The fixed sum you invest buys shares at various prices, so you may need to calculate your average cost basis to determine what the tax consequences may be when you sell your shares. If this strategy is combined with dividend reinvestment–another kind of automatic dollar cost averaging program–the tax calculation becomes even more complicated.

Broker-dealers and other financial intermediaries are required to track your cost basis for stocks purchased after January 1, 2011, and report that cost basis to both you and the Internal Revenue Service. The same provision applies for stocks bought through a dividend reinvestment plan after January 1, 2012, and to shares of mutual fund bought after that date. However, brokers are not required to track the cost basis for shares bought before the specified dates.

Diversification

No matter which investment strategy you use, a diversified stock portfolio should be a primary objective. When a portfolio is diversified, it means that the assets are spread out (allocated) among different companies, different industries, different size stocks (large cap, midcap, small cap, or microcap), different types of stock (aggressive growth, growth, value, or income), or different parts of the world. Even greater diversification benefits can be achieved through asset allocation between non-correlated asset classes such as stocks, bonds, and other investment classes.

Mutual funds that invest in common stocks are diversified, although the level of diversification varies by fund. Fund managers are responsible for the selection and level of diversification of the funds they manage. Some invest in a diversified portfolio of one type of stock, such as small-cap stocks; others allocate investors’ assets over different types of securities, including stocks and bonds, in varying proportions. Before investing in a mutual fund, carefully consider its investment objectives, risks, fees, and expenses, which can be found in the prospectus available from the fund. Read it carefully before investing.

The advantages of diversification are clear. Say, for example, that you invested only in the stocks of an emerging market. If the economy in the country where those companies are located lapses into political turmoil and the overall stock market there declines, you would likely suffer a loss if all your assets were focused in that one geographical area. On the other hand, if your investments are more diversified and emerging-market stocks make up only, say, 10 percent of your stock investments, your loss would be substantially less. It might even be offset by strong performance of stocks in other countries.

There is nothing wrong with buying stock in the company you work for. You may believe the company has a great future, and you may be right. But experienced investors caution against making this the sole or dominant component of your overall portfolio. It makes more sense to diversify.

However, diversification is not a panacea. It does not guarantee a profit or insure against a loss. It can also limit gains. Let’s say you invest in emerging-market stocks because you think the potential rewards outweigh the risks. If those stocks soar, your biggest gains might be limited to 10 percent of your portfolio–a less risky but less spectacular result overall.

Analyzing Stocks

Introduction

Investors in stocks need to know what the stock is really worth, how risky the stock is, and when to buy, sell, or hold. There are many ways investors can analyze stocks to determine this information. There is no single way that works for all investors. In fact, many investors use a combination of methods to analyze stocks.

Though there are many investment evaluation methods that can be applied to analysis, we will concentrate on the two most basic ways–fundamental analysis and technical analysis. Fundamental analysis is concerned with evaluating the strength of a company’s finances and operations. Technical analysis reviews past stock price action in an effort to predict future stock price movements.

Fundamental analysis

Fundamental analysis involves an in-depth review of the issuing company, including its product(s) or services, current financial condition, operating efficiency, and management performance. Much of this information can be ascertained by reviewing the company’s annual reports and 10K or 10Q Forms filed with the SEC.

An investor can measure a company’s value by calculating certain financial ratios and comparing them to companies in similar industries. The following most common financial ratios and factors are discussed below.

Earnings per share (EPS)

Earnings per share (EPS) represents the company’s after-tax income divided by the number of shares. An increase in this figure over time indicates the company is growing.

Price/earnings (P/E) ratio

The price/earnings (P/E) ratio of a company measures the price of its stock in relation to its EPS. Theoretically, this ratio tells investors how much the market is willing to pay for stock per dollar of earnings. Generally, higher P/E ratios mean that investors are willing to pay more because they anticipate earnings to grow rapidly. A company’s P/E ratio needs to be compared to companies in similar industries to be useful.

Current ratio

Current ratio is calculated by dividing the company’s assets by its liabilities, and indicates the company’s ability to pay its debts. A higher ratio indicates the company has a stronger ability to pay its liabilities.

Debt-to-equity ratio

Debt-to-equity ratio measures the amount of debt a company has in relation to its equity. A high debt-to-equity ratio indicates that the company is leveraged and may be more vulnerable to downturns in the economy.

Technical analysis

Technical analysis, sometimes called charting because of its reliance on charts, attempts to predict future stock price movements by analyzing patterns in price changes and volume over time. It is less concerned with a company’s financials than with investor interest or lack of interest and the patterns formed by changes in its price. Key indicators used by technical analysts include 50- and 200-day moving averages, which are plotted as lines on a chart; a decisive move above or below such a moving average is believed to indicate whether the stock’s current price trend will continue and/or whether the current price represents a buying or selling opportunity. Also considered significant is the trading volume in a particular stock–an indicator of investor interest.

Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisors, Inc. Armstrong Advisory Group and the Securities America companies are unaffiliated. Representatives of Securities America, Inc. do not provide legal or tax advice. Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2014.  Please consult with a local attorney or tax advisor who is familiar with the particular laws of your state. May 2015