In October 1962, the late Mr. Edwin S.C. Coppock of Trendex Research Group in Texas (a company which provides services for brokers and investment bankers), wrote an article entitled "The Madness of Crowds".
"Crowds do too much too soon", he wrote. "They overdo. When they get an urge to speculate, their concerted demand forces prices up at a rate far greater than the growth of the company into which they are buying. Likewise, when they liquidate holdings or make short sales during a panicky decline, they ignore basic economic facts. They overdo because they are motivated by emotion rather than reason".
With this in mind Mr. Coppock and his staff set out to create a practical technique to aid long-term investors who wish to minimise risk. He consulted with members of the Episcopalian Church who told him that it takes between eleven and fourteen months for human beings to adjust to bereavement or recover from illness and operations. He then used this piece of information by including the time scale within his formula.
Mr. Coppock and his team evolved a five step procedure:
Step 1 - Calculate the percentage change of the index over the past fourteen months.
Step 2 - Do the same for the past eleven months.
Step 3 - Add the two percentage changes thus obtained.
Step 4 - Prepare a ten-month weighted moving total of the figures in step 3 and 'post' this figure to an arithmetic scale.
Step 5 - The final step is only taken when the resultant curve on the chart starts to rise after having been below the zero line.
The result of these workings is a single figure, either positive or negative. When shown alongside previous months' results, the Coppock indicator signals BUY or SELL signals for when the market is undervalued. In 1963 the Investors Chronicle decided to apply Coppock's principles to the Financial Times Industrial Index. They have been publishing their results every month since then online for free.
- You can view them in the Markets & Sectors > Markets section of the website.
- You can view June 09's IC/Coppock here
However, the IC/Coppock is slightly different in that one short-cut was made. Instead of averaging the percentage change over a fourteen and an eleven month period, they took the percentage change between the current monthly average of the Financial Times Index and the monthly average of that index twelve months ago. The calculation became easier to compute than the original and the world markets and sectors were added to teh Dow Jones and the Financial Times indicators.
How to interpret the indicators and spot BUY and SELL signals
At the bottom of every IC/Coppock puclication you'll see that the IC actually explains the indicator. To clarify it though, the first two columns in the table are self explanatory, showing the country index and its monthyl arithemtic mean. The following three need a little interpretation. The IC/Coppock Indicators are calculated each month and are included in the table along with the previous two months's figures. The indicators fall from positive to zero and then into the negative phase. When they turn upward whilst in the negative phase, you get a BUY signal. The indicators rise from the negative through zero and into the positives phase. When the indicators begin to fall whilst in the positive, you get a SELL signal.
The indicator is best applied to markets where 'wave motions' occur i.e. markets which rise and fall evenly over a regular period. Commodities and currencies are not ideal to apply Coppock as there are too many outside influences such as wars, frosts, Government intervention etc.
Some call the workers in London's financial sector the 'Masters of the Universe'. Quite a scary title if you're looking to ask for some work experience or an internship. Yet as this article explains, they aren't that scary and in fact are pretty much the same as everyone else in the country except for the larger income salaries.
To be a good investor you should have as much information as possible which is why it's my belief that to have a wide range of knowledge, across a broad range of angles will show interviewers, employers and colleagues that you have the skills needed to make a great investor.
This list provides descriptions of all major financial companies in which you can apply for internships within the UK during University.
It's always been my belief that the key to outstanding success is a strong foundation. So here's a list of the basic questions and answers I made a while ago when first investigating the world of finance.
The most common form of this is “offer for sale” where a company will produce a prospectus on the company describing what it does, who the directors are and forecasting the profits that they believe they will make. This prospectus announces the new issue of share's, sets a price for them and invites people to subscribe to the new issue. This price is often set low so as to encourage investors to subscribe to the new issue.
A company can also arrange for there shares to be placed with an initial spread of share holders by arranging privately to sell the shares to a range of investors. These placings are usually arranged by the companies broker and they will usually place them with there own clients or to large institutions.
A company doesn't always have to set a price for their shares, they can sometimes invite investors to apply for shares at a price that they are willing to pay. Once all applications are received for at least the total numbers of shares available, the company works out the Strike price which is the highest price at which the shares can be bought, all subscribers that applied for the shares at this price or higher will receive the shares. Anyone who applied at a lower price will get none.
This is when a company has a large spread of share holders and simply wants permission for the shares to be dealt on the market. It involves no initial raising of capital but it could lead to a way of raising capital in the future.
What are the advantages of holding shares?
By holding shares, you have the potential to share in the success of the company through Dividends or Capital Growth, the better a company does the higher the investment returns.
A dividend is a payment made to shareholders out of company profits. Not all profit is paid out in dividends. Some is reinvested in the company (sometimes all). But it is not necessarily a bad thing for the shareholder if dividends are not received. If profits are ploughed back into the company, the company may grow and in turn mean increased value of the shares. This is of course an advantage to the shareholder.
Capital growth occurs when a rise in the share price gives you the opportunity to sell your shares at a profit. Capital growth is not certain as it depends on what happens to the share price, which can be affected by a number of factors. It is also possible to have a capital loss if the share price falls.
What are the different types of share?
There are a number of different types of shares, the most commonly bought is ordinary shares and these are the shares that people refer to when they talk about the share price of the company. Ordinary shares give the owner a share in the company's dividend the right to vote, attend the annual general meeting and to receive copies of the accounts. The holder may also benefit from company specific perks such as discounts on products.
In contrast to ordinary shares, preference shares have a fixed rate or amount of dividend, which must be paid before any dividend can be paid to ordinary shareholders.
Preference shares may be cumulative in which case any arrear dividend (for example, if profits are insufficient to meet a fixed dividend of 10%, then an arrear dividend results) has to be made up in future years before dividends on ordinary shares can be resumed.
Non-cumulative preference shares on the other hand do not pay arrears and any arrear dividend is lost for good.
Preference shares can also be participating which means that they participate in a given proportion of the dividends paid on ordinary shares over and above their fixed rate of dividend.
Redeemable preference shares may be redeemed for cash at either a fixed or determinable date or at the discretion of the issuing company.
Preference shares may also be convertible, i.e. capable of being converted into ordinary shares at a future date.
It is possible to have a preference share combining the above options, for example, a cumulative, redeemable participating preference share.
These shares only receive a dividend once preference shares have received their fixed rate of dividend and ordinary shares have received a specified dividend.
What are Market Indices?
A Market indice is a benchmark of the value of a range or market of shares, an indice allows you to see what the overall performance of the market is and allows compare an individual shares performance against the general trend of the market.
When people refer to the current level of “the market” in the UK they are often referring to the FTSE 100
This is an index of the largest 100 UK Companies by market capitalisation. The price of the index is updated every minute so that you get a constantly updating level of the total market.
FTSE 250-This lists the 250 largest companies after the FTSE 100
FTSE 350-This is the list of the largest 350 companies and incorporates the FTSE 100 & the FTSE 250
FTSE Actuaries All Share-
This is the most comprehensive stockmarket index and covers a far wider range of companies it accounts for over 90% of the companies on the market. The index is an arithmetic mean of over 800 shares and fixed interest stocks. These are segregated into industrial sectors allowing you to track the performance of a particular sector and the companies that make it up.
Which factors affect the share price of a company?
The share price will be influenced by a large number of factors, many of which are outside the company's control.
The factors may include:
* The financial performance and prospects of the company;
* The performance and prospects for the industry in which the company operates;
* Political, general economic, financial and Stockmarket conditions, particularly where the company operates or is listed;
* The perceptions of investors about the above factors;
How do you trade shares on the Stockmarket?
As a private investor in order to buy and sell shares on the Stockmarket you need to use a Stockbroker. There are three types of service offered by stockbroker that you could use:
This gives broker or investment manager complete authority to buy and sell shares for you without obtaining your prior approval. This will be in the context of a carefully-designed brief, a clear framework for your portfolio manager to use when making transactions on your behalf. The advantage is that your manager can therefore act instantly on changes in the market, rather than spending valuable time trying to contact you. You will receive a contract note every time a transaction is made and detailed reports will be sent to you regularly.
A second kind of advisory service gives you access to this advice, but still allows you to control your own portfolio and manage your own bargains. Essentially you simply call your professional and ask whether he or she shares your view on whether you should buy or sell a particular share.
Execution only services are generally the cheapest as they do not require advice or management - you simply tell your stockbroker to buy and sell shares for you. Because of the increasing knowledge of investors and the wider access to these services the use of execution only stockbrokers has increased dramatically over recent years.
Most execution only brokers allow you to trade over the telephone or over the internet.
The internet has changed the face of share trading for the private investor as today's on-line trading platforms allow you instant access to the market at the touch of a button.
What are the costs of buying and selling shares?
The costs of buying and selling shares will depend on the type of service that you are using and the broker that you are using, for an execution only service you will have two costs to take into account.
* The broker commission on shares bought & sold
* SDRT (Stamp Duty Reserve Tax): This a government tax on all share purchases which is currently 0.05% of the transaction value
* TM Levy, this is only on trades over £10,000 and is collected by the Panel of Take-overs and mergers(POTAM), who oversea all take-over and mergers within the UK.
How are share prices displayed / quoted?
All share prices are quoted with a “two way price": a bid and offer spread which is the price that you can buy (the offer) and the price that you can sell (bid) the particular share. This price will update constantly throughout the market opening hours which for UK shares is 8.00 to 16:30.
The ‘width' of the spread will be different for particular shares depending on the ‘Liquidity of the Shares' i.e. how easy it is to buy and sell the shares and how much volume is being traded large stocks such as Vodafone will have thousands of trades going through and will therefore often have very tight spreads.
When can you buy and sell shares?
The opening hours of the London Stock Exchange are 8.00 – 16:30 Monday to Friday you can buy and sell shares throughout this period.
And there you have it, a list of all my first FAQ's. On that bull point we leave it until next time...
The financial world can be daunting. Towering buildings in the sky dwarf any passerby and corporate giants dominate news channels at all times. These 'masters of the universe' (although as of recent standards this is very much arguable) control the flow of money around the world, and although money itself may not completely make the world go round, it certainly does help. The reason I'm interested in gaining a Financial Career is twofold: Firstly I've always been interested in 'the bigger system'. Secondly, a probable unhealthy appetite for wealth.