Investing in US markets
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13. Shares (common stocks)
With a dollar dealing account, you can deal easily in all types of US shares (or common stocks as they are often known) on all the main US markets.
The distinctions between these different main markets, and the securities they trade, are worth noting:
- NYSE (Big Board): Floor and electronic trading, in stocks of mainly larger companies.
- Amex (part of NASDAQ): Mainly for deals in so-called exchange traded funds (see later section).
- NASDAQ: Wholly electronic market. Many, though by no means all, of its listed companies are in the technology sector.
- Pacific Exchange: Trades in stocks and options of companies based in or around the West Coast.
- CBOE: This is the main exchange for trading listed options. Based in Chicago. Uses floor and electronic trading.
Although it is handy to know which exchange the stocks you hold are traded on, you can place an order without that knowledge. It is your broker's job to route your order to the exchange that's most appropriate and where the best price can be obtained. This will frequently be done using an automated system.
So much for the exchanges. What about the stocks themselves? US stock markets are considerably larger than even the most developed stock markets in Europe in terms of numbers of companies listed. To start with, this can be a bit overwhelming for UK investors.
It shouldn't be. As with UK shares, you just need to filter the available stocks to find those that match your criteria. The choice of criteria is up to you, but the following could be considered as useful guidelines:
- A solid valuation
The price you are willing to pay for a stock should be justifable on some rational basis, not based on a hunch. Do some fundamental analysis on the company. It might help to look for a low P/E relative to expected growth, consistent growth in profits, a sound balance sheet, and strong cash flow. - Good management
Look for management with a solid track record and one which, preferably, has a decent shareholding in the business. - Operates in an area of the country that is reasonably prosperous
Smaller US companies can be influenced by their local economy. - A solid technical position for the share price
Look at the price chart to determine key support and resistance levels, and trends.
Remember also that, just as in other markets, stocks move into and out of favour at different points in the market cycle and the favourites of the last bull market may be superseded by new ones next time round.
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