3.4.2012 | 5.3.2012 | ||
Apex Healthcare | Dutch Lady | ||
Income Statement | |||
31/12/2011 | 31/12/2011 | ||
RM (m) | RM (m) | ||
Revenue | 366.00 | 810.65 | |
Gross Profit | 95.14 | 304.47 | |
Operating Profit | - | 139.372 | |
Financing costs | -0.288 | -0.919 | |
PBT | 35.849 | 141.553 | |
PAT | 28.468 | 108.082 | |
EPS (basic) sen | 29.96 | 168.88 | |
EPS (diluted) sen | 29.96 | ||
Balance Sheet | |||
NCA | 85.596 | 74.048 | |
CA | 202.303 | 324.465 | |
Total Assets | 287.899 | 398.513 | |
Total Equity | 212.212 | 259.154 | |
NCL | 8.737 | 4.051 | |
CL | 66.95 | 135.308 | |
Total Liabilities | 75.687 | 139.359 | |
Total Eq + Liab | 287.899 | 398.513 | |
Net assets per share | 2.120 | 4.05 | |
Cash & Eq | 22.802 | 193.143 | |
LT Borrowings | 1.345 | 0 | |
ST Borrowings | 2.267 | 0 | |
Net Cash | 19.19 | 193.143 | |
Inventories | 43.098 | 93.448 | |
Trade receivables | 86.158 | 36.713 | |
Trade payables | 63.665 | 121.831 | |
Quick Ratio | 2.38 | 1.71 | |
Current Ratio | 3.02 | 2.40 | |
Cash flow statement | |||
PBT | 35.849 | 141.553 | |
OPBCWC | 42.941 | ||
Cash from Operations | 39.476 | 188.290 | |
Net CFO | 32.650 | 161.940 | |
CFI | -15.866 | -7.135 | |
CFF | -16.979 | -47.319 | |
Capex | -13.251 | -10.882 | |
FCF | 19.399 | 151.058 | |
Dividends paid | -11.363 | -46.400 | |
DPS (sen) | 12.12 | 72.5 | |
No of ord shares (m) | |||
basic | 93.717 | 64 | |
diluted | |||
Financial Ratios | |||
Gross Profit Margin | 25.99% | 37.56% | |
Net Profit Margin | 7.78% | 13.33% | |
Asset Turnover | 1.27 | 2.03 | |
Financial Leverage | 1.36 | 1.54 | |
ROA | 9.89% | 27.12% | |
ROC | 14.75% | 163.73% | |
ROE | 13.41% | 41.71% | |
Valuation | 3.4.2012 | 5.3.2012 | |
Price | 2.92 | 29.5 | |
Market cap (m) | 273.65 | 1888.00 | |
P/E | 9.61 | 17.47 | |
P/BV | 1.29 | 7.29 | |
P/FCF | 14.11 | 12.50 | |
P/Div | 24.08 | 40.69 | |
DPO ratio | 0.40 | 0.43 | |
EY | 10.40% | 5.72% | |
FCF/P | 7.09% | 8.00% | |
DY | 4.15% | 2.46% | |
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Tuesday 3 April 2012
Apex Healthcare versus Dutch Lady (A Comparative Study)
Malaysia’s stock market hit an all-time high
Malaysia’s stock market hit an all-time high of 1,603.96 points yesterday and closed at 1,603.78 for a gain of 7.45 points. PETALING JAYA: Malaysia’s stock market hit a new high yesterday with the FTSE Bursa Malaysia KLCI (FBM KLCI) reaching 1,603.96 after... By WONG WEI-SHEN weishen.wong@thestar.com.my
Impact of Retained earnings on EPS
When EPS growth is entirely due to profits from retained earnings, the increased EPS percentage measures the impact of ROE on those retained earnings.
For instance,
Half of profit is retained: If ROE is 20 percent, half the profit is retained and ROE in the following year remains steady at 20 percent, EPS will increase by 10 percent.
All profit is retained: If all profit is retained and reinvested at 20 percent, EPS will increase by 20 per cent.
All profit is distributed: If all profit were distributed, irrespective of ROE, EPS growth would be zero.
Money is actually a debt instrument. So grows the gap between the haves and have-nots.
When it come to personal-finance success, responsibility for how we earn, spend, save and invest is obviously essential. However, financial objectives can easily elude us if we lack the whole story about money.
Central banks worldwide (Federal Reserve for the U.S.) issue currency at the precise moment it is borrowed via an automated procedure called fractional-reserve banking. Therefore, money is actually a debt instrument (Federal Reserve Note). This private profit, interest-delivering system was designed centuries ago.
Over time debt grows per compounding interest and purchasing power diminishes with increased cost of living. The cost of living rises as businesses add their interest cost from bank loans to the cost of the goods and services we purchase.
And so grows the gap between the haves and have-nots.
That brings me to the pivotal issue of how much purchasing power $1.00 has in the marketplace today. One dollar is only worth 4.5 cents and an online inflation calculator proves my point. An item purchased for $1.00 in 1913 (when the Federal Reserve System was created) would cost $22.10 in 2010; a 2000% increase in inflation!
Without a working knowledge of money as debt, even the most sincere efforts may falter as a rising cost of living erodes hard-won forward movement. When following conventional financial wisdom, the solution to keeping up and making ends meet could well end up, once again, as participation in the vicious cycle of credit and debt. Who benefits?
If you find a good company at a good price, who cares what "the market" is doing?
When buying a great wonderful company, also ensure that the stock was reasonably priced.
Even a great company can be a bad investment if you pay too much for it.
If you find a good company at a good price, who cares what "the market" is doing?
Monday 2 April 2012
Petronas Dagangan versus Dutch Lady (A Comparative Study)
5.3.2012 | 5.3.2012 | ||
PetDag | Dutch Lady | ||
Income Statement | |||
31/12/2011 | 31/12/2011 | ||
RM (m) | RM (m) | ||
Revenue | 23,251.78 | 810.65 | |
Gross Profit | 2,100.70 | 304.47 | |
Operating Profit | 1209.173 | 139.372 | |
Financing costs | -1.015 | -0.919 | |
PBT | 1208.911 | 141.553 | |
PAT | 875.927 | 108.082 | |
EPS (basic) sen | 87.5 | 168.88 | |
EPS (diluted) sen | |||
Balance Sheet | |||
NCA | 3957.02 | 74.048 | |
CA | 4527.712 | 324.465 | |
Total Assets | 8484.732 | 398.513 | |
Total Equity | 4830.594 | 259.154 | |
NCL | 198.629 | 4.051 | |
CL | 3455.509 | 135.308 | |
Total Liabilities | 3654.138 | 139.359 | |
Total Eq + Liab | 8484.732 | 398.513 | |
Net assets per share | 4.862 | 4.05 | |
Cash & Eq | 1026.209 | 193.143 | |
LT Borrowings | 16.232 | 0 | |
ST Borrowings | 0 | 0 | |
Net Cash | 1009.977 | 193.143 | |
Inventories | 832.6 | 93.448 | |
Trade receivables | 2668.903 | 36.713 | |
Trade payables | 3351.073 | 121.831 | |
Quick Ratio | 1.07 | 1.71 | |
Current Ratio | 1.31 | 2.40 | |
Cash flow statement | |||
PBT | 1208.911 | 141.553 | |
OPBCWC | |||
Cash from Operations | 188.290 | ||
Net CFO | 1043.938 | 161.940 | |
CFI | -307.041 | -7.135 | |
CFF | -623.159 | -47.319 | |
Capex | -289.167 | -10.882 | |
FCF | 754.771 | 151.058 | |
Dividends paid | -633.327 | -46.400 | |
DPS (sen) | 63.75 | 72.5 | |
No of ord shares (m) | |||
basic | 993.454 | 64 | |
diluted | |||
Financial Ratios | |||
Gross Profit Margin | 9.03% | 37.56% | |
Net Profit Margin | 3.77% | 13.33% | |
Asset Turnover | 2.74 | 2.03 | |
Financial Leverage | 1.76 | 1.54 | |
ROA | 10.32% | 27.12% | |
ROC | 22.93% | 163.73% | |
ROE | 18.13% | 41.71% | |
Valuation | 5.3.2012 | 5.3.2012 | |
Price | 18.24 | 29.5 | |
Market cap (m) | 18120.6 | 1888.00 | |
P/E | 20.69 | 17.47 | |
P/BV | 3.75 | 7.29 | |
P/FCF | 24.01 | 12.50 | |
P/Div | 28.61 | 40.69 | |
DPO ratio | 0.72 | 0.43 | |
EY | 4.83% | 5.72% | |
FCF/P | 4.17% | 8.00% | |
DY | 3.50% | 2.46% | |
Padini versus Dutch Lady (A Comparative Study)
6.3.2012 | 5.3.2012 | ||
Padini | Dutch Lady | ||
Income Statement | |||
30/6/2011 | 31/12/2011 | ||
RM (m) | RM (m) | ||
Revenue | 568.48 | 810.65 | |
Gross Profit | 290.80 | 304.47 | |
Operating Profit | 106.63 | 139.372 | |
Financing costs | -1.573 | -0.919 | |
PBT | 105.057 | 141.553 | |
PAT | 75.694 | 108.082 | |
EPS (basic) sen | 11.51 | 168.88 | |
Balance Sheet | |||
NCA | 94.585 | 74.048 | |
CA | 349.754 | 324.465 | |
Total Assets | 444.339 | 398.513 | |
Total Equity | 282.677 | 259.154 | |
NCL | 23.715 | 4.051 | |
CL | 137.947 | 135.308 | |
Total Liabilities | 161.662 | 139.359 | |
Total Eq + Liab | 444.339 | 398.513 | |
Net assets per share | 0.430 | 4.05 | |
Cash & Eq | 138.622 | 193.143 | |
LT Borrowings | 22.151 | 0 | |
ST Borrowings | 24.948 | 0 | |
Net Cash | 91.523 | 193.143 | |
Inventories | 170.955 | 93.448 | |
Trade receivables | 39.433 | 36.713 | |
Trade payables | 93.94 | 121.831 | |
Quick Ratio | 1.30 | 1.71 | |
Current Ratio | 2.54 | 2.40 | |
Cash flow statement | |||
PBT | 105.057 | 141.553 | |
OPBCWC | 129.019 | ||
Cash from Operations | 60.017 | 188.290 | |
Net CFO | -2.104 | 161.940 | |
CFI | -2.276 | -7.135 | |
CFF | 8.773 | -47.319 | |
Capex | -24.728 | -10.882 | |
FCF | -26.832 | 151.058 | |
Dividends paid | -26.316 | -46.400 | |
DPS (sen) | 4.00 | 72.5 | |
No of ord shares (m) | 657.91 | 64 | |
Financial Ratios | |||
Gross Profit Margin | 51.16% | 37.56% | |
Net Profit Margin | 13.32% | 13.33% | |
Asset Turnover | 1.28 | 2.03 | |
Financial Leverage | 1.57 | 1.54 | |
ROA | 17.04% | 27.12% | |
ROC | 39.60% | 163.73% | |
ROE | 26.78% | 41.71% | |
Valuation | 6.3.2012 | 5.3.2012 | |
Price | 1.53 | 29.5 | |
Market cap (m) | 1006.60 | 1888.00 | |
P/E | 13.30 | 17.47 | |
P/BV | 3.56 | 7.29 | |
P/FCF | -37.51 | 12.50 | |
P/Div | 38.25 | 40.69 | |
DPO ratio | 0.35 | 0.43 | |
EY | 7.52% | 5.72% | |
FCF/P | -2.67% | 8.00% | |
DY | 2.61% | 2.46% | |
Guan Chong versus Dutch Lady (A Comparative Study)
8.3.2012 | 5.3.2012 | ||
Guan Chong | Dutch Lady | ||
Income Statement | |||
31/12/2011 | 31/12/2011 | ||
RM (m) | RM (m) | ||
Revenue | 1,382.80 | 810.65 | |
Gross Profit | 304.47 | ||
Operating Profit | 156.667 | 139.372 | |
Financing costs | -6.598 | -0.919 | |
PBT | 150.069 | 141.553 | |
PAT | 124.641 | 108.082 | |
EPS (basic) sen | 38.68 | 168.88 | |
EPS (diluted) sen | 37.27 | ||
Balance Sheet | |||
NCA | 250.665 | 74.048 | |
CA | 650.093 | 324.465 | |
Total Assets | 900.758 | 398.513 | |
Total Equity | 268.494 | 259.154 | |
NCL | 23.118 | 4.051 | |
CL | 609.146 | 135.308 | |
Total Liabilities | 632.264 | 139.359 | |
Total Eq + Liab | 900.758 | 398.513 | |
Net assets per share | 82.550 | 4.05 | |
Cash & Eq | 13.16 | 193.143 | |
LT Borrowings | 8.917 | 0 | |
ST Borrowings | 427.672 | 0 | |
Net Cash | -423.429 | 193.143 | |
Inventories | 466.392 | 93.448 | |
Trade receivables | 170.337 | 36.713 | |
Trade payables | 161.907 | 121.831 | |
Quick Ratio | 0.30 | 1.71 | |
Current Ratio | 1.07 | 2.40 | |
Cash flow statement | |||
PBT | 150.069 | 141.553 | |
OPBCWC | 182.743 | ||
Cash from Operations | -54.949 | 188.290 | |
Net CFO | -72.380 | 161.940 | |
CFI | -106.673 | -7.135 | |
CFF | 180.136 | -47.319 | |
Capex | -107.002 | -10.882 | |
FCF | -179.382 | 151.058 | |
Dividends paid | -38.932 | -46.400 | |
DPS (sen) | 14.00 | 72.5 | |
No of ord shares (m) | |||
basic | 317.957 | 64 | |
diluted | 330.026 | ||
Financial Ratios | |||
Gross Profit Margin | - | 37.56% | |
Net Profit Margin | 9.01% | 13.33% | |
Asset Turnover | 1.54 | 2.03 | |
Financial Leverage | 3.35 | 1.54 | |
ROA | 13.84% | 27.12% | |
ROC | 18.01% | 163.73% | |
ROE | 46.42% | 41.71% | |
Valuation | 8.3.2012 | 5.3.2012 | |
Price | 2.6 | 29.5 | |
Market cap (m) | 858.07 | 1888.00 | |
P/E | 6.88 | 17.47 | |
P/BV | 3.20 | 7.29 | |
P/FCF | -4.78 | 12.50 | |
P/Div | 22.04 | 40.69 | |
DPO ratio | 0.31 | 0.43 | |
EY | 14.53% | 5.72% | |
FCF/P | -20.91% | 8.00% | |
DY | 4.54% | 2.46% | |
Petronas Gas versus Dutch Lady (A Comparative Study)
8.3.2012 | 5.3.2012 | |||
Petronas Gas | Dutch Lady | |||
Income Statement | ||||
31/3/2011 | 31/12/2011 | |||
RM (m) | RM (m) | |||
Revenue | 3524.95 | 810.65 | ||
Gross Profit | 1787.17 | 304.47 | ||
Operating Profit | 1921.65 | 139.372 | ||
Financing costs | -20.10 | -0.919 | ||
PBT | 1901.55 | 141.553 | ||
PAT | 1440.38 | 108.082 | ||
EPS (basic) sen | 72.8 | 168.88 | ||
Balance Sheet | ||||
NCA | 6881.563 | 74.048 | ||
CA | 3493.725 | 324.465 | ||
Total Assets | 10375.29 | 398.513 | ||
Total Equity | 8393.908 | 259.154 | ||
NCL | 1542.517 | 4.051 | ||
CL | 438.863 | 135.308 | ||
Total Liabilities | 1981.38 | 139.359 | ||
Total Eq + Liab | 10375.29 | 398.513 | ||
Net assets per share | 4.242 | 4.05 | ||
Cash & Eq | 2756.079 | 193.143 | ||
LT Borrowings | 423.58 | 0 | ||
ST Borrowings | 0 | 0 | ||
Net Cash | 2332.499 | 193.143 | ||
Inventories | 100.399 | 93.448 | ||
Trade receivables | 374.513 | 36.713 | ||
Trade payables | 326.728 | 121.831 | ||
Quick Ratio | 7.73 | |||
Current Ratio | 7.96 | 2.40 | ||
Cash flow statement | ||||
PBT | 1901.554 | 141.553 | ||
OPBCWC | ||||
Cash from Operations | 2573.192 | 188.290 | ||
Net CFO | 2233.579 | 161.940 | ||
CFI | -654.443 | -7.135 | ||
CFF | -1009.326 | -47.319 | ||
Capex | -478.366 | -10.882 | ||
FCF | 1755.213 | 151.058 | ||
Dividends paid | -989.365 | -46.400 | ||
DPS (sen) | 50.00 | 72.5 | ||
No of ord shares (m) | 1978.732 | 64 | ||
Financial Ratios | ||||
Gross Profit Margin | 50.70% | 37.56% | ||
Net Profit Margin | 40.86% | 13.33% | ||
Asset Turnover | 0.34 | 2.03 | ||
Financial Leverage | 1.24 | 1.54 | ||
ROA | 13.88% | 27.12% | ||
ROC | 23.76% | 163.73% | ||
ROE | 17.16% | 41.71% | ||
Valuation | 8.3.2012 | 5.3.2012 | ||
Price | 16.8 | 29.5 | ||
Market cap (m) | 33242.70 | 1888.00 | ||
P/E | 23.08 | 17.47 | ||
P/BV | 3.96 | 7.29 | ||
P/FCF | 18.94 | 12.50 | ||
P/Div | 33.60 | 40.69 | ||
DPO ratio | 0.69 | 0.43 | ||
EY | 4.33% | 5.72% | ||
FCF/P | 5.28% | 8.00% | ||
DY | 2.98% | 2.46% | ||
Friday 30 March 2012
How to Apply the Secret - The Stick Man
Bob Proctor uses little stick men to explain how our mind works, how we think and create our personal attitude and overall view of life.
Always Express Gratitude.
Always Express Gratitude.
How you can create wealth
David Schirmer shows how you can create wealth and retire in after just 15 years of work or much less even if you are on a very small wage, working a normal job.
Thursday 29 March 2012
Capitulation – Panic Selling
Capitulation is best summarized as panic selling. Capitulation is the final phase in an extreme downtrend when stock owners are willing to sell out at any price. Capitulation is the end of a downtrend as a result of this panic selling. During capitulation, there is almost a complete lack of buyers, which creates a vacuum of selling.
Example of capitulation:
This index saw capitulation as prices moved lower and accelerated in their descent. Capitulation ends with a volume climax as price moves virtually straight down.
Capitulation is the opposite of a parabolic uptrend, and often marks a lasting low on extremely heavy volume.
http://www.thestockbandit.com/capitulation/
Read also:
http://myinvestingnotes.blogspot.com/2012/03/parabolic-parabolic-uptrend-stock.html
Example of capitulation:
This index saw capitulation as prices moved lower and accelerated in their descent. Capitulation ends with a volume climax as price moves virtually straight down.
Capitulation is the opposite of a parabolic uptrend, and often marks a lasting low on extremely heavy volume.
http://www.thestockbandit.com/capitulation/
Read also:
Parabolic – Parabolic Uptrend Stock
http://myinvestingnotes.blogspot.com/2012/03/parabolic-parabolic-uptrend-stock.html
Parabolic – Parabolic Uptrend Stock
A stock moves parabolic at the end of extreme uptrends, and is seen when panic buying sets in and prices are driven vertical. During a parabolic uptrend, there is almost a complete absence of sellers, which creates a vacuum of buying. This occurs only in momentum stocks as traders rush to just get into the stock regardless of price, in fear of being left behind. Parabolic moves can make the largest price moves in the shortest amount of time, but are dangerous places to buy stock when you overstay your welcome. When a stock moves parabolic, it often marks the end of a move with prices not returning to the ultimate highs again for a long time.
Example of a parabolic uptrend:
This stock went parabolic and gained in volume and price move at the end of the run. What began as an uptrend quickly became panic buying, driving the stock vertically higher.Example of a parabolic uptrend:
Capitulation is the opposite of panic buying and parabolic uptrends.
http://www.thestockbandit.com/parabolic/
Read also:
Capitulation – Panic Selling
http://myinvestingnotes.blogspot.com/2012/03/capitulation-panic-selling.html
Wednesday 28 March 2012
Managing Risk - Some Simple Rules
Managing Risk
Investors can manage their risk in picking individual stocks by following some simple rules:
• Require that the company have at least five years of financial history. Younger firms haven’t developed enough of a track record for assessing management performance.
• Study only companies that have proven they can make money. Someone who invests in a company that has never reported earnings is speculating, not investing.
• Understand the possible risk and reward of owning a stock.
• Diversify your portfolio. Even if you’ve done your homework on every holding using all the information you need to make an informed decision, you’ll still make mistakes. If you have a good-size basket of stocks, however, you’ll also have some stocks that perform much better than expected.
Besides investing in high-quality growth stocks and diversifying your portfolio, two other simple principles can help you build wealth over the long term.
Investors can manage their risk in picking individual stocks by following some simple rules:
• Require that the company have at least five years of financial history. Younger firms haven’t developed enough of a track record for assessing management performance.
• Study only companies that have proven they can make money. Someone who invests in a company that has never reported earnings is speculating, not investing.
• Understand the possible risk and reward of owning a stock.
• Diversify your portfolio. Even if you’ve done your homework on every holding using all the information you need to make an informed decision, you’ll still make mistakes. If you have a good-size basket of stocks, however, you’ll also have some stocks that perform much better than expected.
Besides investing in high-quality growth stocks and diversifying your portfolio, two other simple principles can help you build wealth over the long term.
- First, reinvest all your dividends and earnings.
- Second, invest regularly in both good markets and bad; this is often called dollar-cost averaging.
The type of analysis outlined provides a lot of the information fundamental investors need to determine whether a stock is a suitable investment. But not everything. Reading annual reports, listening to conference calls and viewing company presentations will help you form a fuller picture of the company.
In today’s unpredictable, volatile market, fundamental analysis is even more important than usual. But for an investor using a simple, straightforward methodology that focuses on the long term, these are also times of great opportunity.
The Road to Building Wealth
The Four Principles
1 . Invest regularly.
You can begin by investing as little as $25, $50 or $100 a month. As your
resources grow, your monthly investment can grow. The important thing
is to invest on a set schedule over time.
2 . Reinvest earnings, dividends and profits.
If a stock pays dividends, reinvest them to buy more shares. If you sell
a stock, apply the proceeds to another investment.
3 . Invest in quality growth stocks and mutual funds.
With the right growth stocks and equity mutual funds, you can achieve
goals like doubling your money every five years with an acceptable
amount of risk.
4 . D i v e r s i f y.
A balanced portfolio includes companies of various sizes from different
industry segments and mutual funds from various categories. This kind of
diversification helps reduce risk and broaden investment opportunity
Also read:
Searching for Good Quality Growth Companies
http://www.investlah.com/forum/index.php/topic,23855.0.html
Stock Market Scams
As an investor, you must be aware of the stock market scams. The following are two of the most common stock scams.
1. The Pump and Dump
The pump and dump is one of the easiest and most common ways of taking money away from unsuspecting investors. Although it is illegal, the use of the pump and dump has actually increased because the Internet has made it possible to reach millions more people.
Here’s how the pump and dump works:
First, company insiders try to convince outsiders to buy a stock, usually the stock of a small over-the-counter company (Penny stocks). Investors are led to believe that this is a “once-in-a-lifetime” opportunity to make a small fortune. The fraudsters will pump up interest in the stock by sending messages through Internet chat rooms, or posting overly optimistic press releases.
Before the Internet, pump and dumpers used to call people on the telephone (often called Boiler Rooms). The idea is to artificially pump up the price of a stock by spreading false news. The stock price rises because of increased buying and speculation, not because of anything positive happening in the company.
As the stock goes higher, those with inside knowledge are prepared for the “dump.” As more people buy shares of the stock, the insiders sell all their shares for a huge profit. Eventually, the truth comes out, and the stock price falls as more people sell. Guess who is left holding the shares of the now nearly worthless stock? You guessed it – the unsuspecting investors who bought into the hype. They probably thought the price could go higher, so they never sold their shares.
The pump and dump is one of the oldest and most effective scams. Usually, pump and dumps are used on small stocks selling below $1.00 a share because it is easier for pump-and-dumpers to manipulate the stock price with smaller stocks.
2. Insider Trading
There are actually two types of insider trading: legal and illegal.
Legal insider trading is that done by company employees (insiders) who file proper paperwork with the SEC before buying and selling shares in their company. These documents are available for viewing on the SEC Web site.
On the other hand, illegal insider trading occurs when company employees buy and sell stocks based on information that is not known to the public. For example, it’s illegal for the managers of XYZ Company to buy additional shares of stock in the company if they know that a revolutionary new product is about to be released. It’s even illegal for you to buy shares of stock in that situation if company insiders (perhaps your neighbor) tell you about it.
Do you think insider trading is common?
It certainly is. It occurs a lot more often than many people think. Every once in a while the SEC catches a celebrity just to make a point that it’s watching. Nevertheless, it’s my estimate that thousands of insiders are using information gleaned from the companies they work for to make profitable transactions. It’s an open secret that those in the know are trading stocks on inside information.
1. The Pump and Dump
The pump and dump is one of the easiest and most common ways of taking money away from unsuspecting investors. Although it is illegal, the use of the pump and dump has actually increased because the Internet has made it possible to reach millions more people.
Here’s how the pump and dump works:
First, company insiders try to convince outsiders to buy a stock, usually the stock of a small over-the-counter company (Penny stocks). Investors are led to believe that this is a “once-in-a-lifetime” opportunity to make a small fortune. The fraudsters will pump up interest in the stock by sending messages through Internet chat rooms, or posting overly optimistic press releases.
Before the Internet, pump and dumpers used to call people on the telephone (often called Boiler Rooms). The idea is to artificially pump up the price of a stock by spreading false news. The stock price rises because of increased buying and speculation, not because of anything positive happening in the company.
As the stock goes higher, those with inside knowledge are prepared for the “dump.” As more people buy shares of the stock, the insiders sell all their shares for a huge profit. Eventually, the truth comes out, and the stock price falls as more people sell. Guess who is left holding the shares of the now nearly worthless stock? You guessed it – the unsuspecting investors who bought into the hype. They probably thought the price could go higher, so they never sold their shares.
The pump and dump is one of the oldest and most effective scams. Usually, pump and dumps are used on small stocks selling below $1.00 a share because it is easier for pump-and-dumpers to manipulate the stock price with smaller stocks.
2. Insider Trading
There are actually two types of insider trading: legal and illegal.
Legal insider trading is that done by company employees (insiders) who file proper paperwork with the SEC before buying and selling shares in their company. These documents are available for viewing on the SEC Web site.
On the other hand, illegal insider trading occurs when company employees buy and sell stocks based on information that is not known to the public. For example, it’s illegal for the managers of XYZ Company to buy additional shares of stock in the company if they know that a revolutionary new product is about to be released. It’s even illegal for you to buy shares of stock in that situation if company insiders (perhaps your neighbor) tell you about it.
Do you think insider trading is common?
It certainly is. It occurs a lot more often than many people think. Every once in a while the SEC catches a celebrity just to make a point that it’s watching. Nevertheless, it’s my estimate that thousands of insiders are using information gleaned from the companies they work for to make profitable transactions. It’s an open secret that those in the know are trading stocks on inside information.
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