Main Principles Of The Stock Market Trading - Case Study Example

Running head: Management property Management property [The of the appears here] [The of appears here] Management property There are many important things you need to know to trade and invest successfully in the stock market or any other market. 12 of the most important things that I can share with you based on many years of trading experience are enumerated below. Buy low-sell high. As simple as this concept appears to be, the vast majority of investors do the exact opposite. Your ability to consistently buy low and sell high, will determine the success, or failure, of your investments. Your rate of return is determined 100% by when you enter the stock market. The stock market is always right and price is the only reality in trading. If you want to make money in any market, you need to mirror what the market is doing. If the market is going down and you are long, the market is right and you are wrong. If the stock market is going up and you are short, the market is right and you are wrong. Other things being equal, the longer you stay right with the stock market, the more money you will make. The longer you stay wrong with the stock market, the more money you will lose. Every market or stock that goes up will go down and most markets or stocks that have gone down, will go up. The more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also known as "the trend always changes rule." If you are looking for "reasons" that stocks or markets make large directional moves, you will probably never know for certain. Since we are dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many reasons markets move. A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything. To make a profit trading, it is only necessary to know that markets are moving - not why they are moving. Stock market winners only care about direction and duration, while market losers are obsessed with the whys. Stock markets generally move in advance of news or supportive fundamentals - sometimes months in advance. If you wait to invest until it is totally clear to you why a stock or a market is moving, you have to assume that others have done the same thing and you may be too late. You need to get positioned before the largest directional trend move takes place. The market reaction to good or bad news in a bull market will be positive more often than not. The market reaction to good or bad news in a bear market will be negative more often than not. The trend is your friend. Since the trend is the basis of all profit, we need long term trends to make sizeable money. The key is to know when to get aboard a trend and stick with it for a long period of time to maximize profits. Contrary to the short term perspective of most investors today, all the big money is made by catching large market moves - not by day trading or short term stock investing. You must let your profits run and cut your losses quickly if you are to have any chance of being successful. Trading discipline is not a sufficient condition to make money in the markets, but it is a necessary condition. If you do not practice highly disciplined trading, you will not make money over the long term. This is a stock trading "system" in itself. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist. The perfect competition model is not based on anything that exists on this earth. Consistently profitable professional traders simply have better information - and they act on it. Most non-professionals trade strictly on emotion, and lose much more money than they earn. The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling low for others, creates inefficient markets. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets. Successful market timing is possible but not with the tools of analysis that most people employ. If you eliminate optimization, data mining, subjectivism, and other such statistical tricks and data manipulation, most trading ideas are losers. Never trust the advice and/or ideas of trading software vendors, stock trading system sellers, market commentators, financial analysts, brokers, newsletter publishers, trading authors, etc., unless they trade their own money and have traded successfully for years. Note those that have traded successfully over very long periods of time are very few in number. Keep in mind that Wall Street and other financial firms make money by selling you something - not instilling wisdom in you. You should make your own trading decisions based on a rational analysis of all the facts. The worst thing an investor can do is take a large loss on their position or portfolio. Market timing can help avert this much too common experience. You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that you should only buy when stocks are low and only sell when stocks are high. Since your starting point is critical in determining your total return, if you buy low, your long term investment results are irrefutably better than someone that bought high. The most successful investing methods should take most individuals no more than four or five hours per week and, for the majority of us, only one or two hours per week with little to no stress involved. The Board of Allied Domecq PLC announces that it has reached agreement on the terms of a recommended offer by Pernod Ricard S.A. (through its wholly owned subsidiary Goal Acquisitions Limited) to acquire the entire share capital of Allied Domecq (the "Offer"). It is intended that the Offer be implemented by way of a scheme of arrangement under section 425 of the Companies Act (the "Scheme"). Under the basic terms of the Offer, Allied Domecq shareholders will receive 545 pence in cash and 0.0158 of a New Pernod Ricard Share for every Allied Domecq Share. Based on a Pernod Ricard share price of 116, the Offer values each Allied Domecq Share at 670 pence and the existing issued share capital of Allied Domecq at approximately 7.4 billion. Approximately 80 per cent. of the consideration will be in the form of cash. The share element of the consideration would enable Allied Domecq shareholders to retain an equity interest in the combined entity, a global leader in the spirits and wines industry. Allied Domecq shareholders will also retain the interim dividend of 6.5 pence per share announced today The terms of the Offer represent a premium of approximately: 36.2 per cent. To the closing middle market price ("Closing Price") of 492 pence for each Allied Domecq Share on 3 February 2005 (being the last business day prior to the speculation surrounding a potential offer for Allied Domecq); and 24.8 per cent. to the Closing Price of 537 pence for each Allied Domecq Share on 4 April 2005 (being the last business day prior to the announcement by Allied Domecq that it was in preliminary discussions with Pernod Ricard regarding a possible offer for Allied Domecq). Conditional only upon the Scheme becoming effective, Pernod Ricard has agreed to sell certain. The Offer will include a mix and match facility, so that Allied Domecq Shareholders would be able to elect to vary the proportions of cash and shares they receive, subject to the elections made by other Allied Domecq Shareholders. In connection with the Offer, Allied Domecq and Pernod Ricard have entered into a scheme co-operation agreement which provides that both parties will, inter alia, use their reasonable endeavors to achieve satisfaction of the conditions to the Offer and to meet an agreed timetable for the implementation of the Scheme. As part of this agreement, Allied Domecq has agreed to pay a break fee to Pernod Ricard of approximately 37 million in the event that a competing offer is announced within six months of this announcement and such offer is successful. Pernod Ricard has agreed to pay a break fee to Allied Domecq of approximately 37 million in the event that the Offer is not approved by Pernod Ricard shareholders and, as a result, the Scheme does not become effective. The conditions to and the further terms of the Offer are set out in the announcement made earlier today by Pernod Ricard in connection with the Offer. The possibility of an offer for Allied Domecq has been in the public domain for some time. During this time the Board of Allied Domecq has considered a number of different options. The Board believes that, taking account of these factors, the Offer by Pernod Ricard represents an attractive proposal for delivering value to Allied Domecq shareholders. The Board of Allied Domecq, which has been so advised by Goldman Sachs International, believes the terms of the Offer to be fair and reasonable. In providing its advice, Goldman Sachs International has taken account of the commercial assessments of the directors of Allied Domecq. Accordingly, the Board of Allied Domecq unanimously recommends Allied Domecq Shareholders to vote in favor of the Scheme as they have undertaken to do in respect of their own beneficial shareholdings of 1,385,376 Allied Domecq Shares, representing approximately 0.13 percent of the existing issued share capital of the Company. This is a very different business from the one I joined some six years ago. We have a substantially stronger portfolio with access to growth categories and markets, better margins, more efficient use of resources and of course significantly stronger cash flows. Our Interim Results announced today demonstrate our eleventh successive half-year of growth with constant currency earnings and interim dividend per share up by over ten percent. In the last five years, the market capitalization has almost doubled, increasing by 3.6 billion. Competitive and economic conditions in the first half of 2005 have been tough but we delivered a robust performance driven by wine and Dunkin' Brands. Against this backdrop the need for further consolidation in the distilled spirits industry is increasingly apparent. The offer for the business from Pernod Ricard provides Allied Domecq shareholders with the ability to crystallize value and an opportunity to continue to participate in the future success of many of our brands within the enlarged Pernod Ricard business. This announcement should be read in conjunction with the full text of the Pernod Ricard announcement and the full Allied Domecq Interim Results. (Peter Navarro, Pub. Date: May2004) Reference: Big Picture Investing Peter Navarro Pub. Date: May2004 Read More