Fortune Watch

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No matter how much you’ve read about trading, or how much experience you have as a trader, it is difficult to trade profitably in a volatile market environment like the one we are in now. A rising market is often perceived to reflect optimism and investor faith. Enthusiasm and rejuvenated interest in the markets rides high. Many investors have multiplied their money manifolds.

Now, is it time to quit? Will the bubble burst? The investor has many questions and very few options before him. Strategies for a rising market are crucial and much depends on the risk appetite of the investor.

Don’t sell into the panic. Don’t buy the greed. This is of course obvious to say, but harder to execute when it is actually happening. When you have extreme market conditions, the individual stock movements can be big and rapid, and they are not necessarily, and in fact, usually not at all, related to fundamentals or economics.

Will the upswing continue? This is a difficult question and much depends on the factors that contribute to the bull run. Many perceive the market to be over-heated and fear to set foot in it. Others view corrections as an opportunity to make quick money. But this calls for quick decision-making and considerable tolerance to risk.

The unfailing strategy is to buy great companies with long track records of rising stock prices and dividends. Pick them low and hold on. Over a long haul, such companies with good fundamentals will not fail you. It is not unusual to find some stocks faring poorly in a bull market and some doing exceptionally well in a bear market. A bull run implies a booming economy, low unemployment rate, high production of goods and low inflation.

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Microsoft is buying when Yahoo is at its nadir rather than when it was ridiculously overvalued. Besides, when you think about it, what other company might make Microsoft’s short list to buy to stay in the game with Google. AOL? Spare me.

Microsoft founder Bill Gates offered California-based Yahoo! An unsolicited takeover offer of $44.6 billion in its boldest bid yet to challenge Google Inc.’s dominance of the lucrative online search and advertising markets.

The offer - made when Yahoo’s share price had reached a two-year low - will be hard for Yahoo’s board to resist because the company’s financial outlook doesn’t instill much confidence. Luckily for Microsoft, it is probably paying half what it would’ve had to shell out a year ago, which is the main reason we’re seeing it.

Leading members of the committee scheduled a hearing on Friday after Microsoft offer. Microsoft and Google are locked in the equivalent of an “arms race” building up computing and storage capacity to accommodate more and more of the world’s web-based computing activities.

Microsoft’s bid to acquire Yahoo! is certainly one of the largest technology mergers we’ve seen and presents important issues regarding the competitive landscape of the Internet. Indeed Yahoo needs Microsoft’s protection and resources simply to as a brand, while Microsoft needs Yahoo’s Web-savvy to help it keep up with the ever quickening metabolism of high-tech.

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Look at any bear market and even at its lowest point you will find stocks that do quite well. Similarly, in any bull market there are stocks that do poorly. It is true that market risk – the danger that a declining overall market may affect your stock – is real. However, investors who have done their homework know the difference between a general market decline and something wrong with their stock.

There’s this bit in Harry Potter and the Chamber of Secrets when Harry and his friend Ron Weasely go into the dark forest and come upon a giant spider. When Ron, who is mortally scared of spiders, looks like panicking, Harry shuts him up with a stern “Don’t Panic.” A short while later, when the duo are attacked by a huge hoard of giant spiders, Ron turns to Harry and asks matter of factly, “Can we panic now?”

That’s the question that many people are asking about the economy, the continuing credit crisis in that country and the hastening collapse of the dollar. Back in August, when the sub prime crisis first broke, there was a worldwide panic but the US Federal Reserve stopped it by lowering interest rates and generally acting like it was determined to not let things get worse.

Lately, in a testimony before the congress, many seemed to suggest that the worst is yet to come and it could be a lot worse. They admitted that the credit crisis resulting from soaring defaults of sub-prime mortgages had become worse since it first broke in August. Bernanke predicted that growth would fall sharply at least over the next two quarters. He also said the crisis would worsen in the coming months and appeared to hint that the crisis on Wall Street could spiral into a full-blown recession.

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A Rate Cut appears to be the only way Wall Street may put the brakes on a steep decline next week, is anticipated from the Fed, and Friday’s monthly jobs data may trigger a comeback for stocks after their January dump. Even after this week’s two-day rally, stocks finished on Friday in the red and remain down sharply for the year so far.

The Federal Reserve’s meeting is expected to result in a reduction of 50 basis points in the fed funds rate, now down to 3.5pc.The central bank’s announcement will come only eight days after the Fed took emergency action on Tuesday and cut rates by 75 basis points. The move was surprising - not only for its size - but also because it came outside of a scheduled policy meeting.

The Fed acted as stocks were falling almost worldwide and about an hour before the market opened on Tuesday after a three-day holiday. The Federal announcement is expected on Wednesday, at the conclusion of a two-day meeting. A blizzard of economic reports, including data that may show contraction in fourth-quarter gross domestic product, and quarterly earnings from several Dow components, as well as a major speech by the president, will compete with the Fed and the jobs data for investors’ attention.

Investors on Wall Street and Main Street are likely to pay more attention than usual to the president’s remarks on his views of economy following this week’s decision on a tax-rebate plan.

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It’s easy to look back at everything that happened in recent history and say, “I saw that coming.” But how good are you really at predicting the future?

Wall Street’s top forecasters have some good news and bad news for 2008. Many think stocks will head higher but that unemployment will rise and the overall economy will slow.

In other words, 2008 is going to look an awful lot like 2007. Despite falling housing prices and the subprime mortgage meltdown igniting fears about a broader economic slowdown. Subprime mortgage meltdown? The worst is over.

The coming year will be challenging for stock investors and you don’t need a crystal ball to make that prediction. However, since investing is always about future results, what do you think 2008 will be like for the stock market?

Odds are it will be very much like the latter part of 2007, at least through the first four to six months.

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Stocks fell in Thursday after the assassination of Pakistani opposition leader Benazir Bhutto and after the Commerce Department reported a weak increase in durable goods orders. The Dow Jones industrial average fell more than 100 points.

Bhutto’s assassination raised the possibility of increasing political unrest abroad, always an unsettling prospect for investors. Oil and gold prices rose following the news.

Witnesses said a man fired at Bhutto from close range, quickly followed by an explosion that the government said was caused by a suicide attacker. At least a dozen more people were killed in the attack.

Meanwhile, the government said orders for durable goods — big-ticket items from commercial jetliners to home appliances — rose by just 0.1 percent last month. Economists had been looking for a rise of 2.2 percent. Still, November saw the first rise in durable goods orders in the last four months.

The notion that the economy is slowing was also unnerving for the market.

The Labor Department said the number of workers seeking unemployment benefits showed a surprise increase last week. Applications filed for unemployment insurance rose by a seasonally adjusted 1,000 to 349,000. Economists had expecting the figure would fall to around 340,000 for last week.

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From knowing the business you are getting into to having some “fun money” to invest with, here are some tips on getting into Stocks and Bonds.

The stock market is something we read about daily, the exchanges from New York, London, Paris, Tokyo as well as places like Bombay and Shanghai. For many investing in the stock market is an unfathomable move and it’s unclear how to begin.

Tons and tons have been written on the methods and strategies of investing in the stock market and websites to get you started in the right direction. A good stock broker can advise you on putting together a portfolio reflecting your needs whether for conservative investment or ready for a certain amount of risk.

People like billionaire Warren Buffet cautions against investing in businesses you don’t understand. If you wish to invest in individual stocks, make sure you thoroughly understand each company those stocks represent. Another option is to get into exchange-trade funds or mutual funds, letting the fund management worry about buying into or selling off a portfolio of stocks.

When putting your capital into one or more companies, you need to keep your expectations realistic in regards to the length, time and growth that each stock will encounter. Some investments require time to produce long term gains so a sort of panic buying and selling can be disastrous.

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In years of answering people’s questions about investing, I’ve come to classify two major sources of problems: One, investing without thinking enough, and two, thinking too much about investments. We all know at least a few hypochondriacs who continuously suspect themselves to be suffering from dangerous illnesses and require frequent visits to specialists and get exotic medical tests done to allay their fears.

Similarly, there are a vast number of investment hypochondriacs who suspect their asset portfolios to be suffering from some dangerous disease. Generally, they believe that this disease can only be diagnosed by having a specialist examine the portfolio and test it by applying exotic formulae that will perform some magical analysis. Somewhat like its medical version, investment hypochondria, too, is encouraged by these specialists who claim to detect and cure exotic diseases suffered by investment portfolios.

One of the most popular type of diseases in this field is a faulty asset allocation. Many people are worried sick about whether their investment portfolios have the correct amount of money allocated to debt and equity. Periodically, I get asked about what the formula for calculating asset allocation is and sometimes I’m actually asked this not by a patient but by a budding specialist.

The problem, of course, is that there is no formula, nor can there ever be. Asset allocation is just a fancy term for investing according to your needs.

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A big rate cut by the Federal Reserve this week, or at a hint more cuts are coming, coupled with this weeks sub prime rescue plan could lift investor confidence and inspire a pre Christmas rally.

While most investors are banking on a cut of at least a quarter percentage points in the bench mark fed funds rate, many think a deeper reduction is needed to unfreeze credit markets and boost confidence.

On Thursday, President George W. Bush announced a plan to stern US home foreclosures, sending stocks surging on optimism it would keep the economy from sliding into a recession.

“The big focus next week is on the Fed meeting” The market was pricing in an interest rate cut, there was still speculation about how big such a cut would be and whether the Fed would also cut the discount rate.

Encouraging data this week, including a resilient payrolls report on Friday, eased some concerns about the economy, decreasing the likelihood of an aggressive 50-point-basis cut in the fed funds rate.

And with just a few more weeks left in the year, the Dow is up 9.3% so far in 2007. The S&P 500 is up 6.9% for the year to date and the Nasdaq is up 12%.

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A remarkable number of investors are deeply concerned about the size of the company to invest in. Unfortunately, unlike some other kinds of prejudices, not having a prejudice about size is not good. Let me explain. A few days ago I was talking to (or rather, I was being talked to) by a group of very enthusiastic investors. These were people who had dropped in to extract investment advice from me, despite my strong protestations that I had no advice to offer about any specific stocks.

However, it did not really matter because what they were interested in was displaying the high quality of the research that their brokers had provided them with. This research consisted, in its entirety, of a list of stocks that were about to go up. No actual reasoning and logic accompanied the list. In the olden days of the stock markets, this kind of research went under the term ‘tips’ but it has been re branded now

Anyway, one of things that struck me about the research-led investment strategies that they were discussing was the utter lack of any consideration for size. They consider the stock of a large company, with a high market value, and that of a company with a lower market value as alternatives to each other. This is so because the ‘research’ they are going by says that all these are likely to rise. This is deeply misguided way of evaluating stocks.

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