stocks

Dow Jones Stocks: The DJIA tips, stocks and profiles

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The Dow Jones Stocks are one of the most quoted indexes in the world, and are often used as a barometer of not just the US economy, but to an increasingly large extent the world economy. But the Dow Jones wasn’t always this important.

Dow’s Early Start

The origins of the Dow Jones Industrial Average were at the end of the 19th Century when Charles Dow, the founder of the Dow Jones & Company, created the index to measure and track the value of just 12 Dow Jones Stocks from the best industries in America.

While this wasn’t the first of Charles Dow’s indexes, it became the best known and has influenced Wall Street, Main Street and Washington for more than a century since its creation.

While the formula is something of a complexity and is based on the Dow Divisor (currently approx. 0.13231925), the index is referred to as an average of the price of the components. The math involved is statistical, and perhaps a little obscure.

Currently, the DJIA consists of 30 Dow Jones Stocks, all of which Successful-Stock-Trading will be examining in the coming months. So readers will be able to follow up on some of the highlights of each company’s history, current situation, and performance.

The Components of the Dow

The Components, 30 in all, are listed below. Please note that the list contains all the current members, but that from time to time the actual composition of the Index may vary.

Company Name Symbol Business
3M MMM Conglomerate
Alcoa AA Aluminum
American Express AXP Consumer finance
AT&T T Telecommunication
Bank of America BAC Banking
Boeing BA Aerospace and defense
Caterpillar CAT Construction and mining equipment
Chevron Corporation CVX Oil & gas
Cisco Systems CSCO Computer networking
Coca-Cola KO Beverages
DuPont DD Chemical industry
ExxonMobil XOM Oil & gas
General Electric GE Conglomerate
Hewlett-Packard HPQ Technology
The Home Depot HD Home improvement retailer
Intel INTC Semiconductors
IBM IBM Computers and technology
Johnson & Johnson JNJ Pharmaceuticals
JPMorgan Chase JPM Banking
Kraft Foods Inc. KFT Food processing
McDonald’s Corp. MCD Fast food
Merck MRK Pharmaceuticals
Microsoft Corporation MSFT Software
Pfizer PFE Pharmaceuticals
Procter & Gamble PG Consumer goods
Travelers TRV Insurance
United Technologies Corporation UTX Conglomerate
Verizon Communications VZ Telecommunication
Wal-Mart WMT Retail
Walt Disney DIS Broadcasting and entertainment

Recent additions to the index in the past two years include: Kraft Foods, Inc. after it was spun off from Philip Morris (aka Altria). Travelers Companies and Cisco Systems in 2009 replaced two venerable names from the list: General Motors and Citibank.

Investing with the Dow

There are quite a few strategies to investing with the Dow Jones stocks: from buying individual components to buying the entire index in an ETF.

ETFs

There are several ETFs that aim to match the price movement in the Dow Jones. One popular choice is the Diamonds ETF, first introduced in 1998 from a family of ETFs known as SPDRs. I’m currently holding some Diamonds in my stock account, and regularly get updates and dividends paid out (usually monthly).

Souped-up ETFs

You can also buy DJIA ETFs that promise to either match the daily performance of the index or do the exact opposite upto 300% of the change.

There are other strategies that involve buying a weighted short list from the components that are undervalued, and holding them with their more generous dividends payouts and potential for price increase in the stock value.

Dogs of the Dow

One of the most famous of these strategies is the Dogs of the Dow first made popular by Michael O’Higgins in 1991.

It goes thus: Investors in the Dogs of the Dow strategy believe that large companies do not often vary their dividend simply to reflect current market values, and that the dividend is akin to a measure of the value of the company’s worth. In contrast, the stock price itself can vary considerably through the business cycle.

Therefore, dogs of the dow investors will buy those that are relatively undervalued by stock price, and will receive more upside potential as well as a reasonable regular and stable dividend. Rinsing and repeating the process will lead to higher longer term returns than just buying the full index.

Of course, events in 2009/10 have proved that even substantial companies, like Citibank, GM, and others can find themselves undergoing exceptionally bad cycles in which bankruptcy (as in GM’s case) becomes the only way to save the company.

In those extreme cases, stock investors usually lose their shirts. Fortunately, this higher risk usually rewards more patient investors as well. If you are interested in finding out more about this way of investing, check out the Dogs of the DowWebsite which has very complete stats and information on current incumbents.

Updates: Coming through 2010

I’ll be expanding this page and its related content on a regular basis as I find more information and products. I’ll also be updating the list of Dow Jones Stocks, too. So do remember to bookmark this page, and check back each month or so.

Play the CashFlow 101 game: Explains why your cash is low?

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cashflow-101-game.html

Is anyone here a fan of CashFlow 101 game? Did you ever play the game before? I’ve been a keen player of the game for some time now. I’ve even introduced to some of my students over the years, even the younger ones enjoyed playing the game.

What is CashFlow 101?

Cashflow 101 is an educational board game designed by Robert Kiyosaki (author of Rich Dad, Poor Dad).

The aim of the CashFlow 101 game is to teach the players about investing and making their money work for them. The game provides a setting that is challenging yet informal while helping players some basic lessions in financial literacy. In playing the games, players find it easier to learn and use the basic principles of personal financial management.

Interview with the CashFlow 101 Game Designer

The CashFlow 101 game board is divided into two stages. The first is "the rat race" in which the player is given a basic bank account, spending habits, personal and mortgage debt and a salary. As the game starts, each roll of the dice determines what opportunities you have or what expenses you must make.

There are four sets of cards that determine different the assets and liabilities that you must take on. And each expense or income has to be adjusted. Players go around the rat race trying to accumulate the amount of money that will allow them to enter the fast track.

The promotion criteria is quite simple: that passive income generated in the game must exceed the expenses of the player. Given the different jobs, salaries and financial pictures, this can be quite a challenge!

Personal Comments

Cashflow 101 is actually one great board game. While I won’t go into the rules, as other websites cover this well, I will say that is quite an educational game. I’ve found it quite instructional in a number of ways:

  1. it can model our behavior patterns in a number of ways, esp. our spending patterns, our consumption patterns, our lack of savings as a financially less than capable society, etc
  2. it can model changes in behavior as people try out different strategies, occupations, savings rates, etc.
  3. it can show the longer term consequences of our actions by very quickly showing the results of our dependence on particular aspects of our financial management.
  4. it can show people how to monitor and record aspects of their financial situation, their balance sheet, etc.
  5. it is actually a lot more challenging to play than monopoly.
  6. and, as if you needed another one, it is actually fun to play, we can share our own ideas about money management and financial planning, because, oddly , as our societies consume, it seems there is less and less discussion of the positive aspects of financial management amongst people, and muce more talk about consumption.

You can watch this YouTube video that shows a CashFlow 101 game being played (in Russian, I think) but the game is English and it shows you what the game looks like, and give you a sense of how it is played.

Suggestions, Notes and Improvements

There are some flaws in the CashFlow 101 game that need some working on:

  1. you can ‘learn’ how to win the game, because you know which cards are likely to come up if you play this game more than a few times, there are fewer risks for those who gamble by borrowing money;
  2. stocks are grossly overly simplified, as are houses. You can generally do well investing in stocks, if you know what cards are likely to come up. Again, being more familiar with the cards can help you analyze which cards, so when you hear the offers, you buy them;
  3. there needs to be more challenge to the game for those who played more than a couple of times – so I’d suggest creating a book of separate missions that you can use to play your part in extending the games playability, perhaps increasing the difficulty of individual player’s positions by recreating real-life scenarios;
  4. and, the fast track is spectacularly dull to play, there is little complexity or variety. I think the Rat Race is far more interesting to play.

Financial Education: Commonsense at a price!

Overall, though, it is an expensive game for people to play at nearly $220. If you are interested in playing, perhaps head on over to the Rat Race Players’ website for clubs near you. It’s worth a rainy or cool spring Sunday afternoon!

[For those seeking more of a challenge, you can play CashFlow 202 which is an additional set of cards for the basic game board.]

Have you ever played? What did you think about the CashFlow 101 game? Did you enjoy it? Why? Return from CashFlow 101 game to Successful Stock Trading Page

Whats The Purpose Of The Stock Market For Businesses, As Well As The Average Investor?

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The purpose of the stock market is for both companies and investors to make money. Starting and running a company requires cash. there are many ways to get cash. One of them is becoming a publicly traded company and selling a percentage of your ownership. That’s the business side. And it’s a business side that several prominent social media companies have taken or are about to take: that’s you Facebook, and Twitter!

But for us, the average citizens, we don’t see that side. We buy and sell stocks hoping to make money. But, obviously that’s not always not the case. Ill talk about the business side first. Which is important for any investor to know, as well if you want raise money for your own business some day.

Going Public Provides You With Cash Virtually Overnight

If you own a company, the purpose of the stock market for you is selling stocks, which is a great way to raise funds quickly. A business owner can sell up to 49% of his company and still retain ownership. It is a great way to raise funds quickly, thus you can expand your business quickly.

You must weigh the pros and cons and speak with an underwriter before doing this. An underwriter is basically someone who helps you through the whole process and in the end writes you the check. They value your company, do the market research, and finally find you investors.

The Down Side To Becoming Publicly Traded

But, obviously there is a down side. But many businesses have decided that it’s worth it. As well as not retaining complete ownership, you must also open your books to the public. When a company goes public, it offers an Initial Public Offering, or an IPO. All this means is that this is their first offer to the public to buy part of their company. The underwriter works with the business owners to decide how many shares to sell and at what price.

At a later date the company can sell more or buy back some of they’re stock, thus increasing or decreasing they’re ownership in the company. When a company feels like they’re value is going to go up, it is wise for them to buy back shares. The public knows this, thus it increases the investors’ faith in the company and usually the remaining shares up.

Don’t get this confused with insider trading. You are not allowed to trade based on information that is classified or has not been released to the public yet. This rule applies to company owners, employees, or the general investor. So basically, everyone. I’m sure you wont come into this situation. But just in case you do, its better to not make that extra money, than wind up in jail.

Why Buy Stocks?

When you buy a share in a company, you literally own part of that company. A share can be over-valued or under-valued. You find this by with the price per sales ratio of the stock. You find this by multiplying the number of outstanding shares by the price per share. This gives you the market capitalization, or the market cap. You then take that number and divide it by the company’s revenues. You take that number and compare it other companies in the same industry. This is fundamental analysis. I don’t dabble in this. But it is good to know and a useful tool.

Stocks can also be over-bought or over-sold. That is determined with the RSI oscillator, which I use every time I research stocks. I am a technical investor. That means I look at the charts of a company’s stock.

Most newbie investors first hear about studying a company’s fundamentals. That is called fundamental analysis. The fundamentals are what a company must publish quarterly in order to retain their membership on a stock exchange. This was implemented with the securities and exchange act of 1934. If investing is the purpose of the stock market for you, be safe and good luck.

Be Ahead Of The Curb

If you are an investor, the purpose of the stock market for you should be to beat the hoards of investors to buy and sell before the general public catches on.

curbAs I said before, when you buy a stock you are literally buying part of that company. Stock value is determined by many things. One of them is what the average investor sees a stock as being worth. Thus, a stock price can be inflated or deflated, as I discussed previously. The average middle class person comes in hoards to buy a stock that looks exciting and looks like its going up. Real investors know that they can make money in an up market or a down market. Experienced investors also buy before the public catches on and sells short after the stock has become inflated and is on its way back down.

I’m not saying that you should send your money to a broker. Just Because they are professionals, doesn’t mean they are going to make you money. I’m not saying that stock brokers are your average uninformed investor. But since they trade conservatively, they usually go with the flow of what everyone else is doing. Brokers enjoy using heavily fundamental analysis. They would be good for you if you truly have no idea what your are doing and you are looking to invest in the long-run.

If you want to be a long-term investor, I do recommend fundamental analysis. But, if your looking to be an active trader, like myself, I recommend technical analysis.

So, investors making money is the second purpose of the stock market.

If You Don’t Succeed, Try Try Again

So, the purpose of the stock market basically boils down to businesses being able to get quick cash, with some sacrifices and us being able to make money by buying part of a company. Its good to know how and why stocks work. But don’t spend too much time researching this. Focus on your bottom line, which includes technical analysis and possibly fundamental analysis. The best way to learn in by making mistakes. So, do your research, get in, make mistakes, and repeat. Whatever the purpose of the stock market is for you, good luck.