option

Trading stocks online can look like a great way to build wealth. But it’s fraught with risks, and only really works when stock prices are rising steadily. Investors who see early success in a bull market can face devastating losses when markets retreat.

Today, you often see references to trading stocks online in the media, as if there’s something magical about entering buy and sell orders over the Internet, or making buy and sell decisions with the help of computer programs or Internet-based services.

You can, of course, cut your brokerage costs by trading stocks online through a discount broker. These brokers’ commissions tend to be lower than what you would pay by trading over the phone. However, if you are trading so much that this slight cut makes a material difference to your long-term returns, then your main problem is excessive trading, not high commissions.

Instead, we recommend that investors spend more time focusing on what they buy and how it fits in their portfolios. As their holding periods grow longer, chances are their profits will improve, as well. The Internet gives investors lots of information on publicly traded companies, including press releases, newspaper articles, company web sites and stock charts.

[ofie_ad]

...

With bonds yielding just 2% to 3%, we believe that income-seeking investors are better off sticking with high-quality utility stocks, such as these four electricity generators. All have consistently posted strong earnings, and have long histories of raising their dividends. Unlike bond-interest payments, which are taxed as regular income, their dividends qualify for the dividend tax credit. They also have greater capital-gains potential. TRANSALTA CORP. $20 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 197.8 million; Market cap: $4 billion; Price-to-sales ratio: 1.3; SI Rating: Average) operates over 50 electrical-power plants in Canada, the United States and Australia. TransAlta uses coal to generate 60% of its electricity, and owns three coal mines (two in Alberta and one in Washington State). This helps keep its costs down. Natural gas fuels 30% of the company’s electricity production, and hydroelectric and other sources account for 10%....

EMERA INC. $20 (Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 112.3 million; Market cap: $2.2 billion; Price-to-sales ratio: 1.7; SI Rating: Average) generates and distributes electricity to roughly 600,000 customers in Nova Scotia and Bangor, Maine. Over the past few years, Emera has steadily expanded into new areas in order to cut its reliance on Nova Scotia, which still accounts for 85% of its revenue. It owns 12.9% of the Maritimes & Northeast natural-gas pipeline and 50% of a hydroelectric facility in Massachusetts. Emera has also expanded into the Caribbean region. In January 2007, it paid $22 million for 19% of the main power utility in St. Lucia. Last September, it bought 25% of Grand Bahama Power Company for $41 million. In April 2009, Emera formed a partnership with Algonquin Power Income Fund (Toronto symbol APF.UN), which owns or has interests in 41 hydroelectric facilities in Canada and the United States. Emera will pay $27.6 million for a 9.9% stake in Algonquin, with an option to buy an additional 5% of the fund over the next two years....

GENNUM CORP., $5.43, Toronto symbol GND, has dropped its friendly takeover bid for rival chipmaker Tundra Semiconductor Corp. (Toronto symbol TUN) after Tundra accepted a higher offer from U.S.-based Integrated Device Technology Inc. Gennum will now receive a $5-million (Canadian) break-up fee from Tundra. To put this figure in context, Gennum lost $800,000 U.S., or $0.02 U.S. a share, in its first fiscal quarter, which ended February 28, 2009. Gennum is still a buy for long-term gains....

MASTERS ENERGY, $1.92, Toronto symbol MSY on Toronto, has become the target of a second takeover offer. This week, Sun Century Petroleum, a Calgary-based private company, offered $1.95 a share in cash for each Masters share. On March 2, 2009, Masters received a friendly takeover offer from ZARGON ENERGY TRUST ($16.10, symbol ZAR.UN on Toronto). Zargon is offering Masters’ shareholders a cash option and a units-plus-cash option. Under the cash option, Zargon will pay $1.83 for each Masters common share tendered until it reaches its maximum cash payout. Any remainder will be paid in Zargon units. Under the second option, each Masters common share may be exchanged for 0.12 of a Zargon unit. This option will also be pro-rated according to Zargon’s unit and cash maximums....

Many aggressive investors find stock option investing hard to resist. However, the vast majority of investors lose money with options. An option is a contract between a buyer and a seller that is based on an underlying security, usually a stock. The buyer pays the seller a fee, or premium, for certain rights to the stock. In exchange for the premium, the seller assumes certain obligations. Options trade through stock exchanges, and each options contract is for 100 shares of a particular company. So one contract quoted at $5 will cost you $500 (before commissions). Each contract has an expiration date, which gives it a limited life span (usually less than nine months). The strike price (or exercise price), is the price at which the buyer can exercise their rights under the contract. There are two types of options:...

BOMBARDIER INC., Toronto symbols BBD.A, $3.39, and BBD.B, $3.32, has received a firm order for 20 of its new CSeries regional jets from Lease Corporation International Aviation (New Buildings) Limited. Lease Corporation is an Irish company that leases aircraft to Singapore Airlines, British Airways and other major airlines. The deal is worth $1.4 billion, and Bombardier will probably begin delivering the planes in 2014. (All amounts except share price in U.S. dollars) Moreover, Lease Corporation has an option to buy 20 more jets, though it will probably wait until it has received most of the initial order before it exercises the option. To put this contract in perspective, Bombardier earned $1 billion, or $0.56 a share, in the fiscal year ended January 31, 2009. That’s more than twice the $479 million, or $0.26 a share, it earned the previous year. The year-earlier figures exclude the writedown of an investment....

Veolia Environnement, $21.08, symbol VE on New York (Shares outstanding: 472.5 million; Market cap: $10.0 billion), is a Paris-based utility. Veolia helps clients manage water, waste, energy and transportation. The company has operations throughout the world, and its clients include towns, cities and states, as well as private and public companies. Veolia first sold shares to the public at $39, and began trading on New York in October 2001. In 2003, it changed its name from Vivendi Environnement to Veolia Environnement. Veolia operates through four subsidiaries:...

If you are interested in gold investing, we recommend staying away from buying gold bullion, coins (unless you collect them as a hobby) or certificates representing an interest in bullion. Unlike stocks, commodity investments like gold bullion do not generate income. Instead, they come with a continuing cash drain, for management, insurance and so on. However, if you do want to hold bullion as part of your gold investing, then SPDR Gold Shares are a relatively low-cost and liquid way to do it. SPDR Gold Trust, symbol GLD on New York, is an investment trust that aims to reflect the performance of the price of gold bullion, less the trust’s expenses. SPDR’s sole assets are gold bullion, and, from time to time, cash. Expenses for SPDR Gold Shares are 0.4% of assets per year....

MASTERS ENERGY $1.73 (Toronto symbol MSY; SI Rating: Speculative) (403-290-1785; www.mastersenergy.com; Shares outstanding: 15.4 million; Market cap: $26.6 million) jumped over 40% recently after it received a friendly $41.4-million takeover offer from ZARGON ENERGY TRUST $15.05 (Toronto symbol ZAR.UN; SI Rating: Speculative) (403-264-9992; www.zargon.ca; Units outstanding: 18.6 million; Market cap: $279.9 million). To fund the purchase, Zargon plans to pay out a maximum of $5.7 million in cash. It will also issue up to 1.49 million trust units. Zargon is offering Masters shareholders a cash option and a units-plus-cash option. Under the cash option, Zargon will pay $1.83 for each Masters share tendered until it reaches its maximum cash payout. Any remainder will be paid in Zargon units. Under the second option, each Masters common share may be exchanged for 0.12 of a Zargon unit. This option will also be pro-rated according to Zargon’s unit and cash maximums....