Before one begins investing in stocks, it is absolutely essential that he or she begin by learning the basics. Investing in stocks may appear relatively basic at first glance. However, in order to truly capitalize on investing, you must be properly educated on the topic. We will discuss the various types of ownership in a company (primarily focusing on stocks), the rights you gain by owning stocks, and more.

Have you ever wondered how investors were able to exchange and transfer public companies stock between each other? Well, stock is now primarily electronically traded at stock exchanges around the world. Among these exchanges are New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ), American Stock Exchange (AMEX), Euronext, London Stock Exchange, and numerous more. These exchanges are generally linked to a physical location, but with the advent of technology the physical locations are no longer a necessity. These stock exchanges allow for relatively smooth and flawless stock trading to occur between individuals and institutions. Stocks are also given symbols (usually consisting of letters) to differentiate between companies. Some symbols include GOOG (Google), BA (Boeing), F (Ford), and WFC (Wells Fargo), to name a few.

There are also various levels of ownership of a company. The stock most people refer to is common stock. Common stock gives the investor the right to vote on certain company issues. Each share generally equates to one vote, however that may vary based on the companies policies. The downside to common stock is that in the case of a company bankruptcy, these shareholders may lose their complete initial investment. Creditors, bond holders, and preferred stock holders receive the left over cash and assets before common stockholders respectively. Yet, common stock usually offers higher return or yield on the initial investment and is highly liquid (the relatively timely and easy process of converting an investment into cash).

Preferred stockholders, on the other hand, do not have voting rights. The company pays a fixed or floating (changing) dividend to the stock holders ordinarily. They also have the right receive their dividends before common stockholders, along with cash and assets in the case of a bankruptcy. This allows for a more secure investment, but may not lead to as significant of a return on your investment.

Bonds allow investors to capitalize from corporate debt. Investors purchase bonds for face value, or the initial investment cost for each bond (usually $100 per bond). The company is bound by law to repay at least the face value or initial investment in most cases. Furthermore, investors receive interest which is determined by the coupon. The coupon may be fixed or floating similar to preferred stock. Bond holders receive their initial investment before any of the afore mentioned investment methods. This results in a high level of security, but decreases its liquidity. Therefore, bond holders are required to maintain the bonds until the maturity date (a set date when the company has agreed to repay the debt) when the initial investment is returned along with any owed interest. However, investors may opt out before the maturity date, which usually results in a monetary penalty.

The obvious question you ask, “Why should I invest in common stock if it is so vulnerable to bankruptcy?” Well, a major concern of investors is to hedge against inflation. Inflation is the reduction of value a currency posses in buying power. This may be caused by various reasons, but we won’t go into detail here. If investors do not stay ahead of inflation, the value of their wealth and buying power will dwindle over time. Stocks allow not only a hedge against inflation, but also the possibility of more aggressive growth above the other investment choices discussed above. In some cases, investors such as Warren Buffet have become extraordinarily wealthy through long-term investing. However, investors must also be highly vigilant so as not to lose their wealth. Yet, I believe through steadfast and persistent learning, you may also become a brilliant investor.

In addition to seeking healthy returns on money, investors also judge where the want to put their funds by what sort of cash flows they can get out of the investment. Sure, commodities such as gold and platinum, and many stocks and bonds offer excellent return potential, but if they offer no cash from month to month, the investor’s cash flow is tied up entirely in the security itself. To get around this, there are several investments that an investor may make use of to maintain some current income and cash flows. These investments include dividend paying stocks/ETFs, and Bonds. I will discuss each separately, and the pluses and minuses of both.

Stocks

Stocks are great in terms of growth potential, and have historically outperformed bonds in terms of growth. Stocks that pay a dividend in the simple sense are a lot like bonds; you put your money into the shares, and you get a payment every month or quarter. Sounds simple? However, there are pitfalls you need to be aware of. The first is to see if the dividend has been stable or steadily increasing over the LONG term, preferably 10 years minimum. You don’t want to buy the security expecting $1 per share and have it slashed to $.50, $.25 or even nothing. There is nothing that forces companies to keep paying their dividends. In addition, your principal (original amount you put in) could drop as well). A good alternative is to look at shares of preferred stock; they tend to have a larger dividend, and the dividends on preferred shares must be paid first before other dividends are paid out. Another good way to diversify your risk is to invest in an ETF (exchange traded fund), which pools together shares from hundreds or thousands of companies, helping to minimize your risk if one stock alone cuts or delays its dividend. Some funds which I invest in personally are AGC, AVK, and AOD (Advent Claymore and Alpine), but there are many other out there as well. Another good option is a REIT or Royalty trust which pays dividends that are typically larger and avoids the double taxation of dividends. The only downside to this is that their dividends are taxed at ordinary income rates, so beware of this for tax purposes.

Bonds

Bonds are best for those who are more risk adverse or getting closer to retirement age. Your principal is safe, unless you choose to sell your bond in the open market. Remember that bond returns and prices are inverse; bond rates are currently low, making their prices high. If you buy a bond now, be prepared to hold it until maturity or you may lose some on your initial investment. The best thing about a bond is that your payments are guaranteed; if the company doesn’t make their payments, they can be held in default and forced into bankruptcy. In addition, if the company does go bankrupt, you have a good chance at getting some of your principal bank, versus none for shareholders (bondholders have priority over stockholders). Bond risk is easy to determine; if they are in the A-AAA, and not in a currently depressed market (i.e. A-AAA bonds involving real estate), it is probably safe to buy them, with a low risk of default. Bonds may not offer mega returns, but if your aim is cash stability and security, bonds may be the best route to go.

Strong Buy Stock: PPHM – In today’s questionable financial times, it’s difficult to put money into the stock market and feel confident that your risk is going to pay off. But there are stocks out there that can earn much more money than a simple interest-earning savings account. For easy trading, no service fees, and no minimum dollar amount required to open an account, look at individual investor websites like www.TDAmeritrade.com.

PPHM Funded by the US Department of Defense’s Defense Threat Reduction Agency

Peregrine Pharmaceuticals, Inc. (PPHM) has apparently caught the interest of the Transformational Medical Technologies Initiative (TMTI) of the US Department of Defense’s Defense Threat Reduction Agency (DTRA). The US government agency DTRA has agreed via contract to pay up to $44.4 million for PPHM’s furtherance of testing and developing what is termed “bavituximab” as well as “broad spectrum treatments for viral hemorrhagic fever infections.” In short, PPHM has been funded to develop counter-terrorism drugs for the US.

According to PPHM’s management, “The DTRA biodefense contract award has the potential to create long-term value for Peregrine, including generating future potential revenues from government stockpiling to combat bioterrorism threats.”

Furthermore, PPHM is well on its way with researching, developing, and testing treatments for cancer and hepatitis C.

Time to Buy Indicators

While the stock price has a volatile history, on January 13, 2009, it moved above its 50-day moving average, on the 14th it moved above its 200-day moving average, and it has recently experienced unusually high volume.

Because of its current low stock price, only .40 per share, there is not a lot of information going on about PPHM, but one can easily chalk that up to its low price and a low amount of publication relations information. While most institutional investors stay away from stocks priced under $1, PPHM does have 4.16 percent institutional investors, a percentage that is likely to increase once PPHM meets the NASDAQ’s “minimum bid price rule” requiring a stock price of at least $1. Look for that by July 27.

Also, look for news about PPHM’s new chairman and the changes that will bring to PPHM.

As with buying any stock, there is risk involved, but several indicators point toward higher stock prices for PPHM: the assignment a new chairman and possibly bringing onboard an additional board member; the stock price crossing above its moving averages; NASDAQ’s $1 stock price requirement deadline coming up on July 27; funding from the US government; and of course, continual successful clinical trials as PPHM strives toward treating various forms of cancer and hepatitis C.

For an investor to survive the rough tides of the stock exchange market the investor should first establish an investment policy. Investment policy is a plan of action or a statement of ideals. This plan should have specific objectives regarding the return requirements and the risk tolerance. This means that the investor should determine or forecast the level of returns he expects on his principle once invested before choosing the stock. An investor should generally seek an investment strategy that provides the highest possible returns within the constraints of time, capital, and risk level among other important variables.

Stock selection is more important than timing the price swings. Wisely selected stocks have been found to be appreciating assets that most often offset the hurdles of inflation whereas cash has been a depreciating asset since its introduction. Private investors should focus upon one main approach. Basically there are three approaches to investment and an investor should settle on an approach according to guidelines on his or her investment policy. Majority of investors are appealed to technical analysis approach where buying and selling of shares is based entirely on price movements irrespective of the financial fundamentals of the companies in the question. Investment gurus shun this method because substantial proportion of gains is lost in form of commissions.

Great investors like warren Buffet combine both the growth share approach and the asset situation approach. Both approaches are the best avenues for those investors who take investment as profession and take their time to study and identify these companies. In the asset situations approach the investor buys shares of the company whose share prices have fallen below the underlying value of the business. In this approach one is guaranteed a cushion in case of company closure because there is a security margin provided by the company trading its shares below its intrinsic value. Growth share approach involves trading on shares of companies which have the ability to increase earnings per share at above average returns year after year. The article “choosing the stock to invest in” explains why the growth share is the best approach for the private investor.

The attraction of owning a foreign stock fund lies with the two key components that investors seek.

1. Great returns: For example in 1999 the average foreign stock fund gave happy investors a return of around 44% compared to the S&P; 500 which gave returns around 22%.
2. Diversification: Diversifying your investment allotments into foreign funds means you increase the chances of having a good performer even if the domestic markets are in a sulk. (Morningstar)

The wise investor looks at foreign stock funds as another stream of income. There are possibilities of soaring returns but also risks of precipitous drops in the return percentages. John J. Ray, writing for Forbes.com notes that mutual funds are a good way to add what he calls “a little foreign spice” to your investment portfolio.

Foreign funds can be volatile due to any number of factors not affected by, and not controlled by U.S. investment laws. It pays to have a complete knowledge of your foreign fund manager’s strategy and style. Two key issues to investigate are:

1. How often does the manager of your targeted fund invest in the emerging market sectors?
   
   2. What region or what countries does your fund manager focus on? (Morningstar)

Foreign Funds often spike while U.S. funds are dragging so a portfolio that balances the risks can offer good return potential and diversification. Check with your fund manager and the Morningstar fund rating to examine a target fund’s past returns. Check the funds exposure to emerging markets and volatile local influences. You must understand the degree of insulation from American markets in order to accurately assess the risk in opposition to the perceived potential returns of small cap foreign companies. (Morningstar)

Understanding style is as critical in foreign fund investments as it is in domestic U.S. fund investments. Style balances value and growth, and looks at the capitalization of the stocks in which your target fund invests. I particularly like the Morningstar style box for the quick visual on investment style. The large-blend foreign fund will be the easiest way to take advantage of both the large-value and the large-growth foreign stocks.

A wise investor always keeps the performance of the stock’s parent country in mind. When you look at those foreign funds remember that your return is the combination of how well your stock is performing and the value of the country’s currency against the U.S. dollar. If you buy a stock from Company (A) which is based in the “National Republic” of (B) and the stocks value increases 15% but the Currency falls 20% against the U.S. dollar you lose. If your fund manager is working to eliminate the exposure to the volatility of foreign currencies they will be hedging their currencies by trading in the “National Republic” currencies for U.S. dollars. Buying and selling the stock is totally separate from the buying and selling of the currencies involved. The stock is traded in the equities market. The foreign currency can be contracted for sale at a set future date so the fund is in effect guaranteed a specific exchange rate. Currencies are exchanged in the global currencies market. This separation of activities means the hedging of the currencies has nothing to do with the valuing of the actual stock itself and nothing to do with the fund manager’s decision to buy or sell those companies stocks. Some funds hedge currencies and some do not. It is important to know what your fund’s policies are. (Morningstar)

Explore your options for investing in foreign funds by contacting trusted fund managers. Forbes lists international and global fund families. Here are four funds from their best buy list:

1. Oakmark International Fund-1

2.  Lazard International Small Cap-Open
3.  Vanguard International Value
4.  Alpine International Real Estate Equity-Y

International fund managers may be a bit more daring than domestic fund managers so it pays to re-evaluate your own risk tolerance before you look at investing in foreign funds. Try to match your risk tolerance with the risk behavior of a fund’s management style in order to avoid unsustainable risks that influence your overall investment strategy.