Hotstocked Precision and The Markets
(35 votes, average: 4.50 out of 5, rated)How Hotstocked Precision Evaluates the Markets
There is a program called Hotstocked Precision that is recently gaining a lot of traction among traders in the stock market. Many people that are not very familiar with the stock market think that it is some kind of a casino, where you bet on a gut feeling and some chit-chat with fellow enthusiasts. If they win they feel good and start to imagine themselves as the people behind the characters in the movies about Wall Street, but if they lose they feel like a some kid trying to play ball with the big boys. This is the exact reason why at certain points in time, when there is an industry on the rise, some people get filthy rich, while others lose their whole fortunes.
But if you manage to better understand the stock market investment and the more you begin to learn about stocks, the better you will become in managing your money, because the big issue is that most new investors see the market as a short-term investment that can bring you huge losses or big gains.
The basics
The most basic thing in the stock market is the share of a certain stock. Buying a share literally means you are buying ownership of a part of a company. This means that you own a small portion of the assets of the company like equipment and buildings. You also own a small part of the earnings.
You may wonder why would the company want you to own a part of it. The answer is simple. It needs money to develop its operations. And what is the easiest way to do that? There are two options. The first is to borrow money that has to be later returned with interest, which gets the company tied to a creditor. This is the reason why most of the public companies have decided that a much easier way to finance their activities is through the sale of stock, which is called equity financing. In that case the money doesn’t have to be returned and there is the added benefit of sharing the risk among the stockholders. This is very beneficial for the founders of the company, as they won’t lose all the money if by any chance the company fails, but at the cost of the shareholders’ investment.
Example
You have always supported the legalization of marijuana and want to open up your own dispensary. You’ve asked around and made some consultations and have figured out that you will need $600 thousand for equipment and building and you would have annual expenses of $400 thousand. That totals to $1 million, which is quite a lot. On the other hand your annual earning come at $520 thousand and you make a $120 thousand in profit.
The problem is – where do you get the money. As a person that hasn’t owned a business your first thought would be a loan, but in that case you would have to return it with interest. The other way is to put your company on the market and try to find public or private investors to which you can issue stock. The price at which you se the business, however, doesn’t have to reflect the company’s current profitability or assets. You can also decide the number of shares you want to sell.
The price per share shares might depend on the number that you wish to issue. Another option is ownership, which would give each person who has bought stock voting power in how the company is run. A good thing to consider, as a founder, is to buy a majority of the available shares, so that you remain in full control over the company and can’t be outvoted.
Stock price
COMPOSITE SIGNAL PERFORMANCE
Fig 1. Google, Inc. chart from 2006
As you know, stock prices arent fixed and will start to fluctuate as soon as the company becomes public. Investors are using Hotstocked Precision to get stock prices and review the market. As explained in the previous chapter it doesn’t depend on the actual balance sheet of a company, which is referred to as book value. Stock value is calculated by multiplying the company’s current shares outstanding. An example – a company has 3 million shares outstanding each priced at $20 in which case the total stock price of the company would be $60 million. This is usually the number to which newspapers, investors and analysts refer to when speaking of the value of a business.
Even though the markets a pretty unpredictable, the forces that drive them aren’t a complete mistery. We know that the prices fall or rise depending on the press releases, supply and demand, local and world news. This can be seen very good in a situation when the number of shares in circulation doesn’t change and more people want to buy in, the stock price will rise and will do the opposite the people who want to sell outnumber the ones that want to buy. There are, of course, other things that drive the price of a stock. A good example of a thing that plays a major role in a stock’s movement is the earnings and profit. There will surely be more investors attracted if your dispensary posts record sales in its latest quarterly report, which will drive the prices up. There are, however, other things that are considered. Brokers and professional stock analysts, as well as some of the amateur investors take into account things like global competition, news, interest rates, GDP, production, employment when making their predictions for the stock’s futre price.
There are of course different types of investors – short-term and long-term. In most cases, short-term investors rely mainly on technical analysis and the chart patterns that a company stock is making rather than the fundamentals. Long-term traders usually use fundamentals and invest in slow growth stocks. A good example of a slow growth stock is that of Pepsi which has steadily ascended to a current price of $87 per share, when it was traded for just $1.3 back in 1980. A simple calculation shows that if you had invested $1300 back in 1980 you would have $87 thousand today and this is without even considering all the dividends over the years. Putting them in the equasion will make the amount of profit much bigger. This is of course a period of over 30 years that we are speaking of and we regularly hear of people getting rich in a year or two. They put a lot of effort in analyzing the markets and play with large amounts of cash.
There is, however, always a risk when markets become overvalued. In the past 15 years we have witnessed two big stock market bubbles. The first one came back in the early 2000s and formed around the booming Internet sector. It was the so called dot-com bubble and some people managed to get rich shorting, but the ones that reacted slower got pummeled and many people lost all of their savings. The second bubble formed six years later in the US housing market as prices peaked in early 2006, began do slide in 2006 and 2007, reaching a new low by 2012. This was the result of commodities becoming overvalued and many people rushing to invest in a seemingly booming market that crashed when the truth came out.
Corporations
The first thing that a business has to do in order to sell shares of its stock to public or private investors is to become a corporation through a legal process called incorporation. This requires not only a review but also an audit from the accountants.
When you make your own business with your own money you have a sole proprietorship. A business is called a partnership when you pool together money with, let’s say, two other people and you share the profits and the decision-making with them. A corporation is quite different. It is sort of like “virtual person” as after it is registrated it has its own federal tax ID number (sort of like a Social Security number), can sue and be sued, make contracts and own property. Shares of the company are bought by investments and represent their liability which is limited to their investment. In most cases they are not actively involved in managing the corporation, but instead appoint or elect a board of directors which takes this responsibility. As a corporation is considered a legal person by law they can exercise human rights against the state, real individuals and can be themselves responsible for such violations as manslaughter and fraud. There are spocific laws that dictate the way a corporation is organized, how it operates and how to protect the public and the shareholders. As the board of directors makes the company’s decisions every corporation must have one. Even if all the stock is owned by one person and he is the sole employee of the company there has to be a board of directors.
Another interesting thing about corporations is that they limit the liability that the owners take to some extent. If you are the sole proprietor owning a company and your company gets sued, you are also the one that is being sued and can lose everything you own. This is not the case with corporations. A corporation may go out of business and this would be the worst that can happen to the people who are behind it. It is an entity that can “die” while the people involved in its creation hold limited responsibility and may avoid many of the consequences and liabilities that follow a bankruptcy.
What is a stock exchange
COMPOSITE SIGNAL PERFORMANCE
Fig 1. New York Stock Exchange trading floor
Look at it this way. A stock exchange is like a supermarket for companies. Why do you go to the supermarket? It takes a lot less effort to go to the supermarket, instead of going to the baker, the butcher although it doesn’t have the same precision. This is the reason why stock markets exist. Instead of placing an ad in the paper or online you can just list the stock of your company on a stock exchange and all the people that want to invest will have direct access to it. Instead of asking friends around and placing ads that aren’t going to reach the crowd that you want you can target them directly. How many of the people that are reading the papers are going to be actually looking for something to invest in? 20%, maybe 30%? Probably that’s too much to ask for. What if your company is listed somewhere people go to search for such things and not for the weather forecast? And things are easy in the modern stock exchange. You don’t need to actually go there to purchase or sell shares. You can do it online, from the comfort of your home. The three biggest stock exchanges in the U.S. are the NYSE (New York Stock Exchange), the AMEX ( American Stock Exchange) and the NASDAQ (National Association of Securities Dealers).
The main government regulatory organ that is responsible for monitoring the securities markets in the US, the nation’s options and stock exchanges, enforcing federal securities laws and monitoring the activities of other related organizations is the U.S. Securities and Exchange Commission (SEC), which was created during the great depression.
A company must file regular annual and quarterly reports to the SEC if the management wants it to be listed on any of the major stock exchanges. The SEC also requires for companies to provide a narrative account of the passed year, called a “management discussion and analysis” or MD&A, which must also outline the upcoming year and the goals and projects that the management has set up. This is all needed so that investors have a good understanding of what is actually happening in the company before they make an investment decision.
Trading software
In order to trade from home you will need a trading software with which you would have easy access to data and charts. There are many programs used for trading, a lot of which are paid. Yes, there are free ones, but they are not particularly usefull for day trading, because the chart data is delayed. A good example for a trading software which you can use for both technycal and fundamental analysis is Hotstocked Precision. You can find all sorts of data, like analyst reports, charts, financial filings and it also estimates probability by backtesting 15 years of chart data. You can find a review of Hotstocked Precision here.
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