Are Stock Market Prices an Accurate Reflection of the Value of Your Stock Portfolio?

stock-priceThe usual description of any market assumes that every trader wishes to purchase or sell a known quantity at each possible price.  All the traders come together, and in one way or another price is found that clears the market – that is, makes the quantity demanded as close as possible to the quantity supplied.

After all it has been said by the authoritative stock trader W. Haddad of B.K. Labovitch that ultimately economics is supply and demand.

This may or may not be an adequate description of the markets for consumer goods, but it is clearly inadequate when describing security markets.  The value of any capital asset depends on its future prospects, which are almost always uncertain.  Any information that bears on such prospects may lead to a, which s we know are always uncertain.  Any information that depends on its future prospects may lead to a revised estimate of value.  The fact that a knowledgeable trader is willing to buy or sell some quantity of a security or commodity at a particular price is bound to be information just of that sort.  Offers to trade May this affect other offers.  Prices may, therefore, both clear markets and covey information.

The dual role of prices has a number of implications.  For example, it behooves the liquidity motivated trader to publicize his or her motives and thereby avoid an adverse effect on the market. Thus, an institution purchasing securities for a pension fund that intends, simply to hold a representative cross section of securities should make it clear that it does not consider the financial interments under priced.  On the other hand, any firm trying to buy or sell al large number of shares that it considers wrongly underpriced should try to conceal its motives, its identity or both (and may try).  Such attempts may be ineffective, however, as those asked to take the other side of such trades try very hard as you know to find out exactly what is going on and many do well succeed in these days of rapid communications and access to many sources of information succeed.

Most securities are sold in very standard ways which requires payment and electronic notification of delivery within the standard settlement period (standard is three Business as opposed to calendar days).  On rare occasions, a sale may be made as a cash transaction requiring payment immediately on receipt.  Sometimes as a reward or as in effect a marketing or sales promotion payment may be extended over a longer time period – usually 15, 30 or 60 days.

Sometimes in the case of new issues a payment extension period is also granted for the same reasons as above.

It would be extremely insufficient if every securities transaction had to end with a physical delivery of transfer of actual share certificates from seller to buyer.  A brokerage firms might well sell 1000 shares of ABC Co. for one client. , Mr. Stevens to another client and later that day buy 1000 shares for Mr. Felon obtained by accepting delivery from her seller. Mr. Stevens’s shares could be delivered to his buyer, and Mr. Felon’s shares could be obtained by accepting delivery from her seller.

However, it would be much easier to transfer Mr. Steven’s shares to Mr. Felon and instruct Felon’s seller to deliver the 1000 shares directly to Mr. Steven’s buyer.

This would be especially helpful if the brokerage firm’s clients Mr. Felon and Mr. Stevens held their securities in street name.  Then, the 1000 shares they traded would not have to be physically moved and then the ownership would not even have to change at ABC Company.

As you can see valuation of your portfolio of stocks and securities are not always indicative of the true and exact value of your securities.  Actual logistics, human emotion and even greed play major and ongoing roles.


A Spiraling Market and Rising Penny Stock Opportunities


shree-securities_stock-market-success-resizedIt’s been a wild and wooly couple of weeks on the international stock markets. But is the recent slide grinding to a halt…or just taking a breather before tumbling some more? And more importantly, what does it mean to astute penny stock investors?

Wall Street recently stumbled to its worst week of the year, and global stock markets fell dramatically on concerns about rising interest rates and slowing growth. After rising almost 9% in the first four months of the year, the Dow Jones industrial average has fallen about 6.5% from a six-year high, reached May 10, 2006.

Stocks have been ailing because penny stock investors fear the Fed could be so focused on inflation that it ignores signs of an economic slowdown, raises interest rates too high and sends the economy into a recession.

Global stock markets were sent reeling last week after golden-tongued U.S. Federal Reserve Chairman, Ben Bernanke shocked penny stock investors in saying the Fed will continue raising interest rates to keep inflation in check.

And that decision will have a direct impact on the penny stock market. Higher interest rates hurt penny stock prices because investors believe it will curb economic growth and corporate profits.

But why is inflation heating up? Higher energy costs. Traders and penny stock investors are also worried that with the hurricane season officially under way, Gulf Coast refineries and oil production sites could be damaged again this summer and fall.

And higher interest rates have the ability to affect the entire economy. Finance charges on credit cards will rise. So too will rates on mortgages and home equity loans, putting additional pressure on homebuyers and a softening housing market. Ultimately, it will cost more to borrow for expansion.

But does this signal doom-and-gloom for the penny stock market? Au contraire. While the temptation to sell everything can be overwhelming, some see this as a great opportunity. “I would not be selling. I would tend to be buying,” said one New York analyst.

So how exactly is this an opportunity? It just so happens that many companies caught in the market’s downward spiral are cheaper than they were a few weeks ago. And as any seasoned penny stock investor will tell you, buying a great penny stock when it’s been beaten down isn’t a bad way to make money over the long haul.

If you can stomach some of the volatility that is. While many blue chip investors have difficulty handling the market’s unpredictability…it’s par for the course.

So, “snap out of it,” said another watcher. A month of dizzying selling has brought the markets into an attractive range. Is it possible the markets will fall more? Absolutely. After all, no penny stock is a sure thing. But one thing is certain: “Stocks are much cheaper now than they were two months ago.”


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