|
Written by Anthony Green
|
|
Rising and falling interest rates offer a special risk to stock investors. Historically, rising interest rates have had an adverse effect on stock prices. Hurting a company’s financial condition. Rising interest rates have a negative impact on companies that carry a large current debt load or that need to take on more debt because when interest rates rise, the cost of borrowing money rises, too. Ultimately, the company’s profitability and ability to grow are reduced. When a company’s profits (or earnings) drop, its stock becomes less desirable, and its stock price falls.
Affecting a company’s customers
A company’s success comes when it sells its products or services. But what happens if increased interest rates negatively impact its customers (specifically, other companies that buy from it)? The financial health of its customers directly affects the company’s ability to grow sales and earnings. For a good example of this situation, consider what happened to Cisco Systems in 2000.
Because a huge part of its sales went to the telecommunications industry, Cisco’s profitability depended on the health of that entire industry. The telecom industry’s debt ballooned to $700 billion. This debt became the telecom industry’s financial Achilles heel, which, in turn, became a pain in the neck to Cisco. Because telecom companies bought less (especially from Cisco), Cisco’s profits shrank. From March 2000 to March 2001, Cisco’s stock fell by nearly 70 percent! As of September 2001, Cisco’s stock price continued to decline because the companies that were Cisco’s customers were hurting financially. Impacting investors’ decision-making considerations
When interest rates rise, investors start to rethink their investment strategies, resulting in one of two outcomes:
- Investors may sell any shares in interest-sensitive stocks that they hold. Interest-sensitive industries include electric utilities, real estate, and the financial sector. Although increased interest rates can hurt these sectors, the reverse is also generally true. Falling interest rates boost the same industries. Keep in mind that interest rate changes affect some industries more than others.
|
|
Read more...
|
|
|
Written by Rob Rens
|
|
To me psychology is the key to trading. Many trades on hunches about economic or political trends, while others use "insider information" or simply hope. Do you remember how you felt the last time you placed an order? Were you anxious to jump in or afraid of losing it all? When you closed a trade did you feel humiliated or embarrassed and started to second guess yourself? These feeling evolve among thousands of traders which merge ultimately into a huge psychological wave that moves the markets trend.
The majority of traders spend most of their free time looking for good trades. Once they enter a trade they desired to be in, they start to squirm and lose all self control over themselves. They ride an emotional train and miss the element of winning - which is the management of their emotions. Their inability to manage their emotions leads to a downfall in their stock trades.
All losing amateurs ignore the importance of psychology. If you are not up to date with the market, or you ignore mass psychology of crowds, then you have no chance of succeeding in the market. The importance of psychology is that it focuses on reality, which is you have to live with your eyes open. To be a good trader, you have to invest with your eyes open and make neutral decisions. You need to recognize real trends and not waste time on regrets or hopes that the stock will turn around from a downfall.
Trading is similar to sky diving, rock climbing, and street racing because they all share a common risk involved. These sports involve a considerable amount of risk/pleasure. Many participants in these sports ignore the risks and take thoughtless chances. A person who wants to enjoy the risk and excitement of sports must follow the rules. When he/she reduces the risk of a sport, they get a sense of accomplishment knowing they have control over that particular sport. This same criteria involves trading. You can succeed in trading only if you handle it as a intellectual pursuit to overcome the risks. To help ensure enjoyment/success, a good trader must watch his capital funds as close as a sky diver knows the exact time to release his parachute. |
|
Read more...
|
|
|
|
|
|
|
Page 23 of 28 |
+repeat-x&color4=%23FFFFFF&color5=%235C7099+url(images%2Fgradients%2Fgradient_thead.gif)+repeat-x&color6=%23FFFFFF&color7=%23FFFFFF&color8=%23000000&color9=&fontsize=12&dark_icons=0){kind=link}
