Do I really need to know how many Market Makers my stock has? This will give you an idea of how many Market Makers are available to soak up shares or cash for the specific stock. This is simply another element of liquidity, and just because a stock has more MM's than another does not mean that it is currently more liquid, it just means that it has more potential to be liquid. More MM's may allow for smoother trade when volume does come to a stock, while less MM's will make for choppier, more volatile trade. Why is the number of trades a stock does in one day important? This is the number of times cash and stock exchanged hands for the specific trading session, in this case, the last trading session before the Newsletter came out. In our opinion, this is the number one measure of liquidity. We usually need to see numbers in the 100 or better range before we even look at a stock. Once we have our eye on it, we usually like to see a stock continue doing at least 25 trades per day, although we are not opposed to holding stocks that do less than this for a while, until volume returns. During slower months of the year, we can lower the bar a little bit for these stocks. Be sure to look at the trades per day over a longer period of time and match big days with their price action to gain a better perspective. Understanding the liquidity of a particular stock requires comprehensive knowledge of price, authorized shares, shares outstanding and float, the number of registered Market Makers, and the number of trades per day as well as share and dollar volume all in relationship to each other. |
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particular equity. Stocks with tighter bands tend to be more stable, while stocks with wide ranging prices over the last year may be less stable, more dangerous and volatile. Stocks with wide ranging 52 week bands that are currently very close to the bottom of that range may be in the midst of a downward spiral that ends with all investors loosing everything. These are the kinds of stocks that should be very lightly weighted in your portfolio, and are stocks in which you should probably have shorter time horizons. Stocks with a tighter range, that are in the upper half of the band tend to be more stable, are seen as higher quality, and can stand more weight and time in ones high risk portfolio. Should I know my stocks Company Officers? This is the first place you look to try and determine the seriousness of the company. The shear amount of management is important, but what is more important is the history of each figure. Try doing a search in the SEC database for each member of management, and you may be surprised at what you find. Often, we find someone who has ran many a business strait into the ground time and time again. These are obviously the ones to avoid. If you really want to do some digging, try running a Google search on these individuals. |