Trading 101: Penny Stocks

Why trade penny stocks? They’re cheap! To meet the criteria of being a penny stock, they have to be listed at less than $5, meaning you don’t need a lot of capital to start investing. The potential for large returns also makes penny stocks attractive to investors. 

What are Penny Stocks?

A penny stock is a stock of a small company that trades for < $5 per share, as defined by the Securities Exchange Commission (SEC). These companies are typically relatively new so don’t have a long performance record and have a small market capitalisation making them speculative investments. Most penny stocks are not always available on large exchanges like the New York Stock Exchange (NYSE), so are mainly traded via over-the-counter (OTC) transactions. 

As penny stocks are tied to small companies and are traded less frequently than most stocks they have a lack of liquidity as there is less demand for them in the markets. This means prices may not accurately reflect the market, a similar issue that some alternative investments find. Their lack of liquidity means penny stocks are considered highly speculative. Being highly speculative means both there is a high potential for profit but also a high risk of losing money with this type of investment. 

As there is a higher risk associated with penny stocks than typical stocks it is advised that you set a stop-loss order and fully understand the price you want to enter and exit the trade at. Penny stocks are high-risk investments, so while it is possible to benefit from explosive gains there is also the potential for you to lose money. 

Penny stocks are provided by small businesses as a way to get funding, usually for companies just starting out. They sell stocks at low prices and at a much lower quantity than typical stocks or blue-chip stocks. Blue-chip companies are typically well-established and financially sound as opposed to small companies that come with high financial risk. 

There are  a few reasons why penny stocks are risky:

  • Private records mean the public have a lack of information to use to consider buying penny stocks. Unlike blue-chip stocks, penny stocks are not required to file financial statements with the SEC – who regulate markets. 
  • No minimum standards means penny stocks can be listed on OTC exchanges no matter their performance. Needless to say this makes investing in penny stocks risky. 
  • Low liquidity is inherent to penny stocks as they are not traded frequently. This opens up the opportunity of fraud as traders can manipulate prices in a pump and dump. 

OTC Penny Stocks v major exchange Penny Stocks

Some penny stocks are listed on major market exchanges if they are large, but based on market capitalisation trade at < $5 per share.

Ever heard of Pink Sheets? These are the cheapest of all publicly traded stocks and are traded on the OTC market. The OTC market does not require them to comply with the safety measures and regulations that stocks listed on large echanges such as NYSE or NASDAQ require. To trade on these larger exchanges the company must present their financial history and their stock must consistently trade at above $1 per share. A company unwilling to be transparent about their finances raises a huge red flag, therefore it may be best to avoid trading OTC penny stocks. Trading on OTC markets not only has a lack of regulation but also typically has stocks with less liquidity, making them more dangerous to trade. 

We pose that investing in penny stocks listed on larger exchanges will reduce your risk a little. Penny stocks listed on larger exchanges are cheap but still provide the high potential for gains without the risk of fraud or bankruptcy. 

How to choose the best Penny Stocks?

You are fundamentally looking to invest in penny stocks that are likely to make big moves.

To find specific stocks to trade you can look for certain criteria: 

  • News presence that will likely catalyse the stock. This can be anything from earnings reports to the release of a new product.
  • Float volume under 100 million shares as this means the stock price is more open to buying pressure that can push the shares up quickly.
  • High relative volume so you know you can get rid of the stock if you want. Check pre-market volumes to ensure you have plenty of liquidity.

Before you invest in penny stocks, you will need to open an account with a broker to manage your investments. 

Choosing the best online stock broker can make the difference from an easy and exciting new experience to  constant frustration and disappointment. Accessing financial markets through online brokers is easy and inexpensive but there are so many out there tailored to a different sort of customer so choose the right broker that will optimise your user experience and profits. 

If you’re just starting out we recommend eToro and easyMarkets for their easy to use interfaces and fee – free trading.

Top Penny Stocks

Zomedica (ZOM) are in the veterinary industry and have developed a product called Truforma which has gained a lot of interest. The stock will pick up speed accordingly so get in there quick. Currently trading at $1.90 per share.

Cerebain Biotech (CBBT) develops ground-breaking treatments for Alzheimers, a condition that is becoming more and more prevalent. They have an upcoming merger with PKG which will likely push the stock high. Currently trading at $0.20 per share.

ToughBuilt Industries, Inc. (TBLT) have been rising fast with sales increasing 30% over just five years. After a recent rise, we may see a dip soon – presenting a good opportunity to buy. Currently trading at $1.50 per share.

Gold Resource Corporation (GORO) works in gold and silver production. Due to recent uncertainty with the gold market, this penny stock is an absolute bargain at just $3.00 per share. With commodity prices set to rise over 2021, this may be a great opportunity for profit compared to larger gold companies on the market. 

Arcadia Biosciences, Inc. (RKDA) manufactures and sells agricultural chemicals and technologies. Stock prices dropped sharply after a direct offering scared investors into a sell-off with fears that the company may be on the brink of dilution. If the stock rises past $3.50 (currently at $3.20) then the rise should continue through 2021.

Now you know that penny stocks can get you high potential gains but high potential losses. Will you be investing? We recommend eToro and easyMarkets for beginners. 

Should I buy or should I Shell?

Shell has taken its first ever annual loss as pressures to commit to a greener future become too much. The company revenues are down 48% year-on-year due to lower oil prices, but does this dip present an opportunity to buy?

The company lost £16 billion in 2020 following a crash in crude oil prices. Depreciation in the value of oilfields and increasing costs to adapt to a less-polluting energy system have led to profits down a colossal 71% this year. With news that the Anglo-Dutch supermajor saw an 87% loss in the final quarter, no wonder share prices have dropped. 

Chart from Hargreaves Lansdown

Royal Dutch Shell (RDS) has struggled to keep afloat during the pandemic. For the first time this century the company was forced to slash its dividend and its workforce to fight off debt that currently stands at £47 billion. The company hopes that reducing its debt by almost 20% will set a solid entry point for 2021 and allow them to reinstate their dividend value this quarter. Shell’s stock has halved over the past five years, and yet the yield is currently only around 3.9% as a result of their dividend cut. Their yield is much lower than competitors Total and Chevron, which have continued to offer generous dividends despite hits to the market.

Shell manages the largest natural gas supply in the world yet refuses to embrace the switch to a renewable energy that has led other companies, such as SolarEdge to thrive. The Royal Dutch Shell plc is a company based in the Netherlands that explores for crude oil and natural gas worldwide and hope to reach net zero carbon emissions by 2050. But if they fail to embrace the green energy revolution, will they survive?

eToro and easyMarkets state that 75 % of retail investors lose their money when trading CFDs. Trading 212 state that 76 % of retail investors lose their money when trading CFDs. DeGiro provide a detailed ‘The risks of investing’ page here. You should consider whether you can afford to take the high risk of losing your money.

Before we go into whether you should buy, you will need to open an account with a broker to manage your investments. 

Choosing the best online stock broker can make the difference from an easy and exciting new experience to  constant frustration and disappointment. Accessing financial markets through online brokers is easy and inexpensive but there are so many out there tailored to a different sort of customer so choose the right broker that will optimise your user experience and profits. 

If you’re just starting out we recommend eToro and easyMarkets for their easy to use interfaces and fee -free trading!

Buy or Sell?

Overall, RDS is a BUY. Over the past month share prices have dropped 6.85% making the company’s shares on the market at a bargain price. The buy rating has been consistent over the past few months, indicating that the drop in Shell price will not last forever. Get in while you can!

Graphic from CNN Business

Price Prediction

Shell’s share price is expected to rise by 30.7% over the next 12 months following a median target of 49.0. However the price prediction is broad with a range between low and high estimates of roughly $43. 

Graphic from CNN Business

Shell has taken a turn for the worst due to pandemic and oil price drops. Yet this presents a great buying opportunity with a potential 70.7% growth following generous price forecasting. Want to start trading? We recommend eToro and easyMarkets for beginners. 

Trading 101: Dividends Stocks

Dividend stocks are a great way to get regular income from your investments. Savvy investors are always on the lookout for the best dividend stocks out there, but during these pandemic-driven economic downtimes, what are the best dividend stocks out there now?

Dividends have fallen the greatest since WWII according to Link Group who say British dividend payouts will not go back to pre-covid times for around five years. Last year saw a 44% loss in dividend payout equating to £40 billion in income. So although there is a more frugal market, there is still lots of opportunity to get regular income from your dividends. 

Why invest in dividend stocks?

Dividend stocks are an opportunity to get regular income from your investments. Dividend stocks are companies that pay out a portion of their earnings to a class of shareholders on a regular basis. This way you can get a little back as the stock grows over time. Most people who invest in dividend stocks aim to hold them over the long-term, therefore paying attention to strong and stable growth rather than temporary erratic shifts in price will direct you to the most sustainable dividend-based income.

The best dividend stocks are typically well-established companies with a good history of giving back to shareholders. Companies with a history of strong fundamentals, increasing dividend payouts and a bullish trend often provide the best dividend income. 

To get the biggest returns on your investment, holding stocks for a long time and reinvesting the dividends you receive from them will sustain growth.

What to look out for for a high dividend yield

Often stocks that are falling will increase their dividend yield to compensate, so this is something to look out for. 

Also look for:

  • A low payout ratio of 60% or less indicates a dividend is sustainable. The payout ratio is the dividend per share divided by the earnings per share. 
  • A strong history of raising dividend value even during tough economic times like the recession or COVID pandemic.
  • Stable growth of revenue and earnings as this indicates a safe place to invest in long-term. 
  • Having a competitive advantage that will last, such as a powerful brand name is a good indicator the company will succeed long-term. 

How to trade dividend stocks?

Before we go into which dividend stocks you should buy, you will need to open an account with a broker to manage your investments. 

eToro and easyMarkets state that 75 % of retail investors lose their money when trading CFDs. Trading 212 state that 76 % of retail investors lose their money when trading CFDs. DeGiro provide a detailed ‘The risks of investing’ page here. You should consider whether you can afford to take the high risk of losing your money.

Choosing the best online stock broker can make the difference from an easy and exciting new experience to  constant frustration and disappointment. Accessing financial markets through online brokers is easy and inexpensive but there are so many out there tailored to a different sort of customer so choose the right broker that will optimise your user experience and profits. 

If you’re just starting out we recommend eToro and easyMarkets for their easy to use interfaces and fee -free trading!

We recommend eToro and easyMarkets for beginners. 

Top dividend stocks

Proctor & Gamble (PG) is the creme de la creme of consumer product manufacturing. They have a great history of giving dividends: over the past 63 years the company has increased its payout each year! This is a great stock to invest in due to its stability, the products they produce are essentials so will continue to do well no matter how the economy performs. 

AT&T (T) is a telecom giant and like P&G has increased its dividend every year for around half a century. AT&T’s recent moves to enter the entertainment industry could provide a powerful growth move. 

Chevron Corp. (CVX) has an annual yield of 4% which greatly beats the average yield of the S&P 500 (1.9%). Their quarterly payout is generous at $1.19 per share. 

Price history from mapsignals.com

QUALCOMM Incorporated (QCOM) is a leader in the semiconductor and 5G industry. This stock has a strong history of buying signals meaning it is on an upward trajectory. It is even showing a 11.3% monthly gain. Institutional investors have done a lot of buying over the past year (green bars), indicating this stock is on the rise. 

Currently QUALCOMM are giving out $0.65 dividend per share. 

International Business Machines Corp. (IBM) have one of the highest dividend payouts out there at $1.63 per share and a fairly good dividend yield of 5.14%. They have also proven they can ride out the pandemic. 

Microsoft (MSFT), one of the largest companies in the world, has been increasing its subscription-based revenue streams which is great for dividend investors! Currently the dividend yield is around 0.97% equating to an annual dividend of $2.24 per share.

M&G (MNG) are a British investment company that was only listed on the LSE in 2019, meaning it is fresh to the dividend game. With a dividend amount per share shanding at almost 11% for 2020, this company should surely be on your watch list. 

Price history from mapsignals.com

UnitedHealth Group Incorporated (UNH) are a leading health insurance company. Although their month’s performance is only slightly positive at 0.54%, there is a three-year dividend growth rate of 18.9% and a current dividend per share of $1.25. We can also see a strong interest from institutional investors below. 

Invest in these stocks now with eToro and easyMarkets. Now you know about the top dividend stocks, take advantage of this good buying opportunity to achieve a long-term regular income. Based on high growth prospects, strong financials and generous dividend payouts investing in these top dividend stocks will give a tidy income. Kickstart your trading journey with BullBear now.

*Tax: Dividends from UK companies generally don’t have tax deducted at source, but dividends from foreign companies might – it depends on their local rules. At present, in the UK the first £2,000 of dividends is tax-free, whatever rate of tax you pay, with the excess taxed at 7.5% for basic-rate taxpayers while higher and additional rate taxpayers pay 32.5% and 38.1% respectively. Although if you get dividends from a Stocks and Shares ISA then you will not be taxed at all. 

What ISA is best for me?

ISA’s are great as they have tax benefits and are really simple to use. Thanks to the UK government, people can build up large tax-efficient sums to make their money work harder.

Individual Savings Accounts (ISAs) are open to UK residents to save and invest in a tax-efficient way. Holding investments in an ISA avoids capital gains tax and further income tax. We all want to know how we can invest our cash to get the best interest rates and incentives, so read on to find out more. 

Each year you can invest up to £20,000 in ISAs, this means you can put it all in one or split it between various types.Make the most of your money by putting it in the best-paying savings vehicle possible, and when that is maxed out, turn to the next best option. 

How to choose the best type of ISA for you

It is important to compare different types of ISA to maximise your returns and allow you to access your money as you need. Note you can invest your annual ISA allowance into one type of ISA, or split it across a combination of products upto the value of £20,000 a year. 

Consider the following when making your decision:

  • What level of risk are you comfortable with?
  • What are you saving for?
  • How long will you save or invest for?
  • What is the most efficient method of saving for your goals?

Lifetime ISA

Lifetime ISAs can be utilized by potential first-time buyers or to save for retirement. Anyone aged 18 – 39 can open a LISA and save up to £4,000 of tax a year and get a generous 25% bonus from the government on top! If you made the most of this type of ISA by saving the max £4,000, you will actually have £5,000. Then when you want to buy your first home you can use your accrued money towards a deposit of a property of up to £450,000 or for your retirement. 

Sounds too good to be true right? Many people are often capped fairly early on in their savings career. Also, it is capped at entering an initial sum of £1,000 and then £200 a month. Another thing you may want to consider is if your first property is likely to be less than £450,000, while for most parts of the UK this wouldn’t cross your mind, but if you live in a big city and are looking for a sizable or central location property, it is definitely worth a few minutes to consider. 

Does this sound familiar? Well the Help to Buy ISA aimed at first-time buyers is a similar set-up, although they are being phased out by the government so you can no longer apply for one of these. 

Cash ISA

A Cash ISA works similarly to a traditional savings account, as it lets you save money and pays you interest. The difference is that a Cash ISA doesn’t tax your interest.

There are two main types of cash ISA. A fixed-rate cash ISA is essentially a savings account where the interest isn’t taxed and the interest is a fixed number and requires your cash to be tied up for a certain number of years (usually 5). If you are over 16 you can put up to £20,000 in each tax year and your gains will be free of tax thereafter. Whereas, an easy-cash access ISA doesn’t have withdrawal restrictions, freeing up your cash to be withdrawn whenever you like. 

The average interest rates on Cash ISAs are only around 1%, so you could get better returns elsewhere. 

The biggest thing to watch out for is checking inflation doesn’t outpace the interest rate of your Cash ISA, as this would produce a small loss. If your aim is to grow your savings then this is something to 100% avoid. 

Stocks and Shares ISA
Here you can make the most of your £20,000 tax-free ISA allowance with a potentially higher rate of return than other types of ISA. A Stocks and Shares ISA is fundamentally an investment ISA as your money is invested in a range of assets like shares, bonds, properties and commodities. Again, you don’t need to pay capital gains you make on interest or dividends so is a great way to get involved with investing tax-free. 

There are a range of plans out there which range from low to high risk (although they are all fairly safe). If you invested an initial sum of £5,000 and then £200 each month for 5 years your investment could grow to almost £22,000 on an 8% annual growth rate. The stock market is volatile in the short-term, but tends to outperform cash in the long-term, so most financial advisors recommend investing for at least five years.

A typical annual return is 6-7% , although returns can go down as can they go up. It is worthy to note this ISA might not be all that beneficial as you can already earn tax-free capital gains up to the Annual Exempt Amount of £12,300 and a Dividend Allowance of £2,000. So it is only worth opening up a Stocks and Shares ISA if you exceed these allowances. 

You should be aware of the risk with a Stocks and Shares ISA that there is no guaranteed return and there is the possibility that the value of your investments could go down. When comparing the higher returns of a Stocks and Shares ISA to a Cash ISA, it may be worth it. To mitigate some risk you can invest over the long-term as this typically smooths the ups and downs of the market and allows your money to compound. Note also there are fees associated with this sort of ISA.

Innovative Finance ISA

This lesser known ISA type allows you to lend money to those individuals and businesses that are approved through a peer-to-peer lending platform. This gets you a return of a fixed amount of interest which is not taxable.

This type of ISA can get you an annual return of around 8-9% but the risks are much greater than other types of ISA.

This direct lender-borrower scheme brings greater risks as borrowers can default on payments which are unable to be compensated by the Financial Services Compensation Scheme. 

Junior ISA

Junior ISAs allow you to save for your child’s future in a tax-efficient way. You can open a Junior ISA for your child anytime before they are 18 and as long as they don’t have a Child Trust Fund. You are limited to putting £9,000 in a Junior ISA each year and have the option of putting your money in a Junior Cash ISA or a Junior Stocks and Shares ISA (or both!). 

Something to remember though is your child owns the ISA, meaning they are able to withdraw money when they turn 18. However if they leave the money in the ISA it is converted to an adult ISA to continue saving. Note you can only open up one of each type throughout their childhood instead of the one per year that is allowed for adult ISAs.

HOT TIP: If you want to move your money from one ISA to a more efficient ISA make sure you transfer directly! Avoid being charged tax by withdrawing and then depositing your money through another bank account. 

Now you know all about the different types of ISA out there. What will you go for? Follow BullBear to stay up to date with the latest financial tips and tricks. 

The end of a free market? | GameStop controversy

This week drew regulatory attention as retail investors found themselves shut out of their trading platforms after the buying frenzy for GameStop and other companies such as AMC Entertainment, Koss Corp and BlackBerry. 

The public is outraged that we cannot be allowed to manage our own risk, whereas hedge funds are allowed to continue as normal. Not only can they continue actively trading whatever stocks they like, they are taking advantage of retail investors being blocked from participating in markets. Trading platforms are protecting corporate interests while compromising the ordinary people. Retail investors know there are risks involved but rules of the free market should allow each individual to make that choice. 

What is happening feels like market manipulation, but is legally justified and legitimate. Many retail investors have been forced to lose a lot of money after trading was blocked for headline companies such as GameStop and AMC Entertainment. By “protecting retail investors from high risk”, many of us have lost out, majorly. 

So what is a free market?

Institutional investors support a free market when it suits them and then turn a blind eye when regulations are put in place! In economic theory, a free market describes a system where the price of goods and services is determined by consumers on the open market. In this system supply and demand create an equilibrium that self-regulates and is devoid of any government forces. The idea is to allow the system to maintain itself without the need of a governing body. In this type of market there is no need for tariffs to restrict trade or other economic tools as economic forces can themselves as a control. 

Photo by Josie Stephens on Pexels.com

Why has trading been restricted?

Most brokerages have halted buying in stocks that have had major rallies this week, including GameStop and AMC Entertainment. Retail investors are left outraged as they have no opportunity to participate in these highly lucrative markets.

Shares in GameStop dropped on average 55% after blocks to buying were put in place. On Thursday, large US broker Robinhood halted buying shares of the video game retailer GameStop, cinema chain AMC and tech pioneer BlackBerry, causing a huge drop in price. GameStop was down 44% and AMC closed at a huge 57% loss.

Large hedge funds had put billions on GameStop to fall. Yet when the power of Reddit encouraged a buying frenzy that pushed share prices to over 700% in just one week, these hedge funds were losing out. 

Hedge Funds who attempted shorting GameStop thought they were guaranteed profit by betting the out-of-date gaming company would continue to fail. However, they didn’t account for the power of the people who pushed the price in the opposite direction. A lot of investors were sceptical how long this frenzy could last, but with the story gaining traction across social media the stock has skyrocketed and brought some other dying companies along for the ride. 

Amateur investors who follow the Wall Street Bets subreddit have been encouraging buying GameStop shares to push up the price. Here, common retail investors are acting together as market makers. By pushing up prices this steeply, short sellers (ie Hedge Funds) incur huge losses driving them to buy back the shares they have borrowed from other investors to prevent even greater losses. This process is known as covering. Although this saves Hedge Funds, it encourages prices to rise higher as it adds to the demand. 

So why would brokers want to manipulate markets?

Essentially they want to cover their own backs. Brokers rely on large hedge funds to supply markets with shares. As hedge funds have so much capital they can tie up a large proportion of a certain stock if they choose, which is how they can influence markets – through controlling supply. 

Also, free brokers like Robinhood and Trading212 that advocate accessible trading don’t make money off transaction fees like some brokers. Their main income is by selling data that is gathered from retail traders to big Hedge Funds. Therefore , it is in their best interests to support Hedge Funds. 

By banning buying shares of GameStop and others, these free brokerage platforms are then only allowing selling. This reduces buying pressure and then allows the price to fall as retail traders can only supply stock and no longer demand it. Overall by reducing the price, Hedge Funds don’t lose so much on their short position and brokers benefit by supporting the survival of hedge funds that might’ve otherwise gone under. 

Threatened Legal Action

There are many people campaigning for  legal action to be taken against brokerages for market manipulation – by restricting sales of particular shares. 

Founder of Robinhood (the biggest US brokerage) publicly stated they had based their decision to limit shares based on regulatory requirements. 

“We made a tough decision today to temporarily limit buying for certain securities. As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits.”

It is not just anonymous investors on Reddit who have commented on this debacle. Dave Portnoy, a high-profile amateur trader has attacked Robinhood, a platform that advocates for more accessibility on Wall Street. He tweeted

“‘Democratizing finance for all’ except when we manipulate the market, cause too many ordinary people are getting rich,” .

Analyst Neil Wilson said :

“what is so unusual is the peculiar vigilante morality of the traders pumping the stock. They seem hell-bent on taking on Wall Street, they seem to hate hedge funds and threads are peppered with insults about ‘boomer’ money.It’s a generational fight, redistributive and all about robbing the rich to give to the millennial ‘poor’.”

The public is outraged that we cannot be allowed to manage our own risk as brokers block buying certain stocks. Meanwhile Hedge Funds take this opportunity to their advantage, overpowering the market making moves of retail investors. This situation is rare but brings up some big questions about how the trading system works. If you aren’t ready to bet your money, download BullBear.

Trading 101: Bull and Bear Markets

The terms “bull” and “bear” are commonly thrown around in the investing world to describe market conditions. But how should this affect how you trade? 

These terms describe how the stock markets are doing – whether they are increasing or decreasing. It is always a great idea to see what the general markets are doing as this will impact your portfolio and give you insight on the best strategy to use. Read on to understand more about how these conditions affect how you trade. 

Bull v Bear

A bull market is a market that is rising, usually during a time of economic stability. Whereas, a bear market describes a market that is falling, that occurs when an economy is receding. 

A bull market describes a sustained increase in prices. This reflects on how investors feel the markets are going, during a bull market investors are positive the uptrend will continue long term. A bull market arises when a country’s economy is strong and there are low levels of unemployment. These conditions set a spending consensus as people are in a good economic position, in turn increasing consumer spending and pushing prices higher. 

During a bull market there is a lot of buying pressure creating a strong demand for stocks. This pushes share prices up as investors compete for the low supply of available equity. 

On the other hand, a bear market describes one that is in decline. There is also a metric to help define a true bear market. When a market has fallen over 20% from recent highs it can be described as a true bear market. Overall in a bear market, share prices fall. The economy is commonly slow or in a period of recession when a bear market occurs and is usually accompanied by high unemployment rates as companies struggle to support their workforce. People here have less disposable income and tend to be more cautious with how they use their money. Spending less reduces demand and decreases prices on stock markets. 

During a bear market there is a greater selling pressure meaning more people are selling than buying. The low demand and high supply means share prices drop. As markets fall many investors close their positions and withdraw their money as it is hard to tell where the market bottom will be. When this happens there is a high selling pressure making market prices fall even lower. This downward spiral continues until the market hits a bottom.

What does this mean for investors?

Investing in the stock market should overall post positive returns over long-term periods. This makes investing in a bear market (one that is declining) more dangerous as most stocks lose value and prices can fluctuate a lot over a small period of time. Bear markets are therefore less common and often don’t last very long. 

Bear markets over time from Investopedia

Investor sentiment will affect if a market rises or falls. In a bull market, investors are more optimistic and are looking to buy stocks in the hope to obtain profit. Whereas, during a bear market the market sentiment is negative as investors become standoffish as prices fall. This keeps money safely in bank accounts rather than invested in equity, causing the price decline to continue. 

How markets change

Certain events can give a small change in markets but it is the longer term trend that determines whether a market is bull or bear. Sometimes a market can be stagnant as it doesn’t go in either direction. Small increases and decreases would cancel out any overarching trend making an overall flat market. 

How do I take advantage of these markets?

In a bull market you can take advantage of the positive market by buying stocks before most investors catch on. Buying low and selling high will get you a tidy profit. Overall the market prices should rise so it is key to ride out any small bumps along the way. 

Whereas, in a bear market prices are consistently falling over an extended period of time.  This increases the chances of losses as even if you invest in the hopes the trend will turn, it is difficult to judge where the true bottom will be. In this situation short selling can be the best way to gain profits as you are only betting markets will fall in the short-term. 

Understanding market conditions will help you become a better trader. Using different strategies in bull or bear markets will maximise profit and protect against poor moves. If you want to understand more about market moves, download BullBear

How Reddit caused GME to explode | Stock Market News

After the Reddit group Wall Street Bets told followers to go long on GameStop (GME), the stock has been rising in a momentum bubble, gaining a massive 1,000% since last year.  The shares have gained 245% so far this year and are up a further 28% in U.S. premarket trading Monday. But it is sure to crash imminently. 

GameStop was the most watched stock in the US on Friday as profits for longs and options were the hot topic across all platforms. What is so unbelievable is the growth the stock has seen over the past few days, gaining 51.08% on Friday alone. GameStop shares were even halted twice on Friday due to the extreme price action

One redditor posted on Wall Street Bets they invested $565 last year which has grown into a phenomenal $117,110. 

So why did GameStop rocket? 

The company is a dying retailer selling gaming computers and equipment and saw this boost purely from the hype of social media players on the platform Reddit. The price of the stock is highly detached from reality, meaning this bubble has to pop sometime soon! The stock trades higher now than the peak of the business back in the 2000s. The downfall of GME happened when you could start downloading games straight to your device in 2007, making retail stores selling the physical games redundant. In the world of brick-and-mortar retail, if you don’t adapt, you don’t survive. 

GME price chart from Yahoo Finance

Starting from December, investors were betting the stock would go up and fast. This sparked a feedback loop. This process of delta hedging describes mass buying call options equalling the force of market makers, yet market makers such as the New York  Stock Exchange didn’t act on this.

GameStop added three new board members from RC Ventures on January 11th  – Alan Attal, Ryan Cohen and Jim Grube. These transfers will provide the expertise in e-commerce, online marketing, finance and strategic planning needed to revive the gaming and entertainment company.

Mr. Cohen said, “We are excited to bring our customer-obsessed mindset and technology experience to GameStop and its strategic assets. We believe the Company can enhance stockholder value by expanding the ways in which it delights customers and by becoming the ultimate destination for gamers. Alan, Jim and I are committed to working alongside our fellow directors and the management team to continue to transform GameStop. In addition, we intend to bring additional ownership perspectives to the boardroom.”

Short squeeze

Ever increasing share prices force short sellers out of their positions making them buyers in the “short squeeze”. This pushes share prices even higher, encouraging retail investors to buy in. This makes the stock price inflate so high it is almost laughable . This cycle continues as long as those who have gone short continue to be forced out of their position and those who have gone long still hold hope that stock prices will rise higher. 

While Citron Research’s $20 price target for GameStop could be correct for the long-term, the price rise from retail investors pushing GME have seen the share price rise to $60 in the short term. There simply aren’t enough shares to sell short.

There is one hedge fund that has hit the jackpot by going against the bearish consensus back in April 2020. The South Korean hedge fund, Must Asset Management, bought  4.6% stake in GameStop. The chief executive officer commented this morning “We have become less bullish and turned more neutral on GameStop. This stock will continue to be very volatile and unpredictable in the short term.”

Financial institutions were right but have majorly lost out by selling short. The hedge fund Melvin Capital Management suffered, overall being down 15% this year because of its GameStop short position. 

Is it too late to go long now?

The short answer is yes, it is too late. Looking at the fundamentals, this stock is definitely going to crash, and soon. We are unlikely to see a turnaround unless the company uses its newfound growth to invest in the business. A rumour on Reddit says GameStop could become the new centre for customizable gaming computers – making use of the remaining stores for consultations and gaming. This may just be a pie in the sky idea, whereas in reality online competitors such as OriginPC.com and DigitalStorm.com make a physical store a pretty unattractive option. After all, how many gamers would rather go to a store than order online? 

We can be reassured that GameStops success is not here to last as their market cap no way matches the height the stock price has reached. In this case the retailer was smart to buy back shares as the value has increased tenfold. It also now gives them the ability to sell their shares publicly at a much higher price. 

GameStop market cap from Seeking Alpha

What will stop GameStop rising higher?

As the price rise isn’t attached to the true value or performance of the company, the short squeeze will continue to push prices higher. Once this positive feedback loop is broken, the stock will crash. While GME stock could continue to run over $65, this will only be in the short term. 

Isn’t this market manipulation? 

The subreddit Wall Street Bets may be open to accusations of market manipulation. This could lead to Reddit itself or a regulatory agency closing the group. This is only a likely outcome if the stock crashes and a lot of investors complain, which is more than possible. This boost in small trader call buys causes gamma hedging which involves buying the underlying security to avoid risk similar to what market makers do to manipulate prices to increase. This market manipulation isn’t accountable to one individual so is likely to become a big issue. 

The GameStop bubble is a fantastic example of how retail traders can influence markets and cause growth that isn’t based on fundamentals. While some players are winners, others are losers. This just proves the risk playing with stock markets bring. Learn to trade risk-free with BullBear

Should I buy SolarEdge? | Biden boosts green tech stocks

This week we are going to look at a stock that isn’t so well covered in the press. SolarEdge is a renewable energy company that is a front runner of its sector. With Biden’s new commitments to green energy, how high will it grow?

SolarEdge Technologies, Inc. (SEDG) reached its yearly high this week at $377. The company’s share price has risen over 20% in the past few months seeing a massive year-on-year growth of 173.32%. Morgan Stanley rated the company as “overweight” with a target price of $354 meaning it is in a strong position to grow. This equates to a 19% upside from Wednesday’s closing price. 

If we compare the performance of SolarEdge against the S&P 500 we can see it is growing much faster than the top 500 companies in the US.

Price growth of Solar Edge (blue line) compared to the S&P 500 (grey line) from the Motley Fool.

News

SolarEdge has seen one big setback this year due to fresh competition. The renewable energy company has rocketed up from its low of $180 in September when Tesla launched a solar inverter, which was previously a market dominated by SolarEdge. 

SolarEdge price chart from summer 2020 to present from Yahoo Finance

Of course the big news that affects green stocks is Bidens pledge to support green energy solutions. This news presents a great opportunity for the solar technology company and a huge turnaround from the previous office. While President Trump promoted the use of high-polluting fossil fuels, President Biden has imposed a moratorium on oil in the Arctic National Wildlife Refuge and advocated a $2 trillion green energy plan to “achieve a carbon pollution-free power sector by 2035.” He has also extended the solar investment tax credit for another two years to encourage more widespread implementation of solar energy solutions. With the recent changes made by Biden, hours after his inauguration, green technologies should be more favourable! Biden made a bold move rejoining the Paris climate agreement that Trump had dropped out of. People see him setting a precedent of action and restoration, making many US stocks rally

Furthermore, renewable energies are becoming more cost effective, Garvin Jabusch, investor at Green Alpha Advisors, remarks the cost of generating electricity from solar methods has reduced by 90% over 10 years. Making solar energy creation much more affordable and therefore attractive will surely boost the growth of this sector and SolarEdge’s stock price.

Analysts consensus on buy or sell from Yahoo Finance

Buy or Sell?

Not sure whether now is the right time to sell? If you think recent events are overhyping the potential of SolarEdge then selling high and buying again at a lower price will be the best route to maximise profit. 

Looking to buy? Now might be a little late to enter the game, with the company price much higher than the industry average indicating an adjustment is on the way. 

However, expert analysts overall see SolarEdge as a BUY. 

Price Forecast

In the short-term the stock will fall (over the next 2 months) as a bearish pattern was detected with a triple moving average crossover. Whereas longer term the stock will rise and then flatten, with the possibility of the price even falling in a few years time. So depending on how long you want to hold SEDG stock determines whether now is a good time to buy.

NasdaqGS:SEDG Earnings and Revenue Growth January 19th 2021

Overall SolarEdge has a sunny future ahead (pardon the pun). Although slightly negative over the current year, longer term the company will see considerable growth. 

Growth EstimatesSEDG
Current Qtr.-46.70%
Next Qtr.-2.10%
Current Year-9.50%
Next Year15.90%
Next 5 Years (per annum)20.00%
Past 5 Years (per annum)33.18%
Growth prospects for SolarEdge from Yahoo Finance.

Not sure whether to buy or sell? Try our risk-free trading app to understand more about the markets before you risk your hard-earned money. 

Trading 101: How to diversify your portfolio

Diversifying your portfolio follows the basic advice of ‘don’t put all your eggs in one basket’. If you diversify you mitigate risk and prevent you from losing money. 

You can diversify across assets and different asset classes. Diversifying your assets includes investing in a range of shares or ETFs. There are many different investment types to diversify your portfolio with: bonds, property, art, crowdfunding shares, P2P lending, and cash. You can also consider diversifying across industries and national economies by investing in companies from different countries and categories.

Why diversify?

Diversifying is the best way to guard against risk. There are two types of risk you need to be aware of:

  • Specific risk: the risk in investing in any particular asset which includes: competition, company success, and industry conditions. You can gain an understanding of the level of specific risk by analysing the past volatility of that particular stock or the industry as a whole.
  • Systematic risk: the risk to a market, asset class or financial system. This is the downturn in the stock market, recessions or depressions. These tend to be more general movements in the economy. 

Diversification protects against specific risk by reducing your exposure to a particular stock or industry and reduces vulnerability to problems companies and industries can face. 

In downtimes diversification is even more important as you are protecting yourself from fragile industries and companies that will go bust. Systematic risk also induces less dramatic market downturns, where diversification can insulate you from risky companies that may bring large losses. 

How to diversify

It is as simple as spreading your investments across a number of different shares. If you want to go the extra mile you could measure your risk and appropriately mitigate against it by following these targets:

  • Limit each stock to holding more than 10% of your portfolio
  • Invest in at least 15 different stocks
  • Invest in at least 2 ETFs
  • Invest across at least 5 different industries
  • Spread your investments across the globe
  • Invest in at least 1 alternative

You can do some research and decide which industries and countries carry the highest risk so you can include these as part of your portfolio,  but make sure to limit how much investment you weigh on the most vulnerable of assets. It can be tempting to invest more heavily in an industry you are familiar with or has high potential such as green energy or emerging tech companies, but even these will carry their own risk and potentially earn you great losses. Perhaps the UK cuts funding for green technology or maybe a change in data privacy laws limits the growth of some tech companies. 

ETFs

You should build a portfolio of stocks which are different in a variety of ways: industry, company growth stage, country and reliance. 

A great way to diversify your portfolio if you are unsure how to pick specific shares is investing in an ETF which provides you with diversification across a whole stock index like the FTSE 100 or the S&P 500. You can put the bulk of your investment into ETFs and reserve a portion of your funds for investing in riskier but potentially more profitable individual stocks. 

Diversifying to reduce systematic risk can include investing in different asset classes. Asserting control and being smart by diversifying will preserve your portfolio and mitigate against risk over time. Why not learn to invest risk-free with BullBear.

This is not investment advice and should only be used as research and entertainment purposes only. All investors should make their own decisions and take on their own risks. If in doubt speak to a professional investment advisor. 

How much of my income should I save or invest?

If you are thinking about saving or investing some of your income, you’ve come to the right place! There is no set rule on how much to put away as the amount will really depend on your goals and financial situation. Read on to see how you can work out your goals and how to save for them. 

Investing is the best way to grow wealth over a long-time. If you started planning how to save and invest your income, you could achieve your financial goals! Investing is a great way to overcome inflation and makes your money work for you rather than letting it lie dormant in a savings account. Wondering how much money to set aside? Read on.

Some fun facts to get you in the mood…

  • 9% of Brits have no savings at all.
  • The average person in the UK has around £7,000 saved.
  • Only 3% of people in the UK invest in stocks and shares ISA.
  • 33% of Brits own shares.
  • 75% of millennial’s and gen Zer’s consider investing compared to 40% of the silent generation.
  • Most people (55%) invest due to the poor interest rates on savings accounts.
  • 73% of men consider investing compared to 61% of women.
  • On average, people hold their shares for 0.8 years.

Should I save or invest?

The answer is both! 

First of all it is good to get an understanding of the difference between saving and investing. Most people will do a mix of both as they can serve different purposes, but again this is all down to your personal circumstances and could be wildly different to anyone around you. 

Saving is the concept of putting money aside to save for something like a holiday or house deposit or in case of emergencies. Most saving involves putting your money into savings accounts held with a bank or building society. Most people save a portion of their money no matter how small, as it is a long-term way of purchasing things you want and making sure you aren’t living paycheck to paycheck. Putting your money in a savings account is safe, and having your money out of reach helps a lot of us actually stay disciplined enough not to dip into it!

Investing is using some of your money to grow more money –  to build profit. This may take the form of investing in stocks and shares or property. Typically, you should not invest money you are not willing to lose as there is a lot of risk involved in investing. Investing should be a means of growing your wealth but should not be relied upon. 

How do I decide how much to put away?

Set up an emergency fund that will cover around three months support – including rent, food and other essentials. By having a pot of money in case something goes wrong or life takes you by surprise you can be protected against the worst and give you the reassurance that you have three months to find another income source say, if you were made redundant. 

Save regularly to reach your goals. If your circumstances allow, saving at least 10% of your monthly income will help build up funds to spend on more expensive and infrequent expenses. This could cover anything from buying gifts at christmas to saving for a wedding or your first home. It is all about what you want to do in life. 

Pay off debt first. Not everyone is in the position to save, if you are under money pressure then deal with this first! There is no point saving for a holiday if you are building interest with unpaid credit cards. 

When is it better to invest rather than save?

How much you want to invest really depends on what your financial goals are over the short, mid and long term. I know it can be scary thinking 10 or even more years ahead, but you will thank yourself in the long run. 

Your short-term goals will cover what you want to do in the next few years and it is best to build up the money to do this in a savings account. Putting money into investments will reap a much greater reward than keeping it in a savings account. You should be aware however, that the interest you earn on savings will not match inflation rates. This means the buying power will reduce, if only a little.

Whereas, longer-term goals may benefit from you investing rather than saving. You should consider how much risk you are okay with. If you wanted to pay for a wedding in five years, how gutted would you be if you couldn’t because you lost all your money in a risky investment that didn’t pay off. It is typically safer to invest over long periods (10 years plus) when fluctuations in markets will be smoothed out and the growth of your initial investment will dominate. Over long time scales, investing will bring you a much greater return on your money and overcome the negatives of inflation that affects savings. Whether you invest in high growth stocks or sturdy-growing ETFs is up to you, but it is worth diversifying your investments due to the risk involved with investing in a single stock or commodity. 

GoalSituationSave or invest?
Buy a carIf your car is on the brink you will need to think about buying a new one soon!Save – you will need the money soon.
Go on holidayIf you enjoy holidays in exotic locations each year – consider the cost.Save for this summer and consider investing for the next few. Maybe you could afford the Carribean rather than Bognor Regis if you invest.
Put down a deposit for a homePerhaps in 5 – 10 years time you’d like to buy your own home.A mixture or save and invest. Your plans would be set back if you didn’t achieve this goal but you want to be able to achieve it as soon as possible.
Support childrenChildren are expensive and need supporting for almost 20 years. Similar to the above, it would be a disaster if you couldn’t support a family in the short to mid term, but perhaps investing to help support them flying the nest would work. 
Enjoy retirementThis might be close or very far off, consider if you want to retire early and what sort of retirement you want. Invest – you have a long time for your money to grow.

How much you invest will also depend on your income and your career prospects. If you’ve just started your own business and it will take five years to break even then investing would not be sensible at this point. But if you are jumping up your career ladder and don’t see yourself spending that much in the short to mid term then investing would be extremely beneficial. It is a spectrum after all – controlled by risk-appetite, situation and goals. 

Calculating how much to invest

Making a plan

  1. List and total up all your outgoings: rent, food, expenses, travel, paying off student loans or car payment plans. These are the things that you cannot avoid paying for. 
  1. Then list and calculate how expensive achieving your goals are and on what timescale, this could be: buying a car, buying a house, marriage, retirement. If you want to opt-in for a pension scheme, consider this here. 
  1. Next consider how much you currently earn and how much this might change over the future. What salary increase are you expecting? Will you share your income with your partner?
  1. Consider your risk appetite. Typical investments return 6.5% per year but this could be more conservative or high risk if you decide. 

Let’s use an example: 

  1. Say you have an annual income of £40,000 and live in London. Your rent, expenses and activities such as entertainment and holidays costs you half of your income. 
  2. You are in a relationship and are hoping to get a start-home together in the next five to ten years. You should then look at the likely cost of achieving your goal, whilst considering those that may contribute such as a parent or partner and account for inflation and rising house prices. You will share the cost with your partner, so for a £800,000 home, your half of the deposit will cost you £60,000 as you are a first-time buyer. You also want to put away 10% each month as an emergency fund
  1. You should also consider how your income may grow, if you are a high-achiever and are likely to be promoted regularly then you may see a salary increase of 10% a year – the average is 4% per year. You also use a retirement calculator that suggests building £700,000 in capital to retire at 68. This will mean saving £500 per month if you start at age 25. Most people need a retirement income of two thirds of their salary.  
  1. You want to invest with the typical risk which is 6.5% annual rate of return. You invest in various stocks with fairly low volatility. 

Income: £40,000, increase 4-10% pa

Essential expenses: £20,000

Goal: £60,000  deposit in 5-10 years

Outgoings: £6,000 pension, 9% salary on student loan

Investment return: 6.5%

How much to invest? 

If you invest the remainder of your income, you can afford your goal at the end of year 5!

YearSalaryExpensesOutgoings (student loan & pension)SavingsRemainder to InvestInvestment Worth
140000200009600400064006400
2428002000098524280866815631.42
3457962000010121.644579.611094.7627447.3394
449001.722000010410.15484900.17213691.393242028.67316
552431.84042000010718.865645243.1840416469.7907259569.00028
656102.069232000011049.186235610.20692319442.6760780275.4503
760029.214072000011402.629276002.92140722623.6634104369.6518

What rules are out there?

The rule of thumb is to invest 10-15% of your income.

The 50/30/20 rule suggests saving 20% of your income. With 50% for essentials, 30% for discretionary spending and 20% for savings. But this allocation is flexible depending on your income and expenses, where a high earner will have less than 50% for essentials, someone with dependents will have higher than 50% for essentials. If you’re in your 20s or 30s and can earn an average investment return of 6.5% a year, you’ll need to save about 20% of your income to gain the financial independence to actually enjoy life. 

The 4% rule states you could, in theory, use 4% of your savings to live on indefinitely. Following this rule means you need to save 25 times your annual expenses to support yourself. Sadly there are no risk free investments that give you 4% return and this also doesn’t consider changes to inflation. If you saved 20% of your income it would take you 41 years to be financially independent. 

% of Income SavedTime Required To Save 25x Annual Income
1%100 years
2%86 years
5%67 years
10%54 years
15%46 years
20%41 years
25%37 years
50%26 years
75%21 years
90%19 years

Start saving as much as you can until you are comfortable – then start investing. Remember investing just 1% of your income will return you 6.5% of it over one year. If you are in doubt, seek advice from a professional. 

If you are considering investing your money. Learn how best to invest with BullBear!