The reason behind this letter is that there is universal feeling that payday loans are improper conduct as they offer money to people with no credit checks meaning that anyone who has a bank account and some level of income is eligible to apply. These loan companies also charge extremely high rates of interest which means that if terms and conditions are not met and the loan is not repaid within the agreed time limit of 14, 28 or 31 days, the financial implications are serious. Furthermore, there is currently no limit on the amount of payday loans a customer can apply for therefore even if they have not repaid their initial loan, they can continue to take out more loans, all the while incurring serious amounts of interest.

The football clubs are being asked by their fans to seek alternative sources of advertising income because they believe these practises are improper. The main lender coming under fire is Wonga who have the most presence on these websites however they are far from being the only concern. There are currently at least 200 payday lenders that are being investigated by the Office of Fair Trading for their dubious conduct. Wonga’s advertising spend has grown from £22,000 in 2006 to £16 million in 2011, therefore illustrating the huge financial weight behind these companies and also how much their popularity has grown over the years.

In January 2012, Transport for London excluded Wonga and other high cost lenders from its sponsorship, therefore setting a president for other industries. However the football industry still believes following suit would be difficult while other gambling and alcohol businesses are still permitted to advertise.

The fact that football fans have noticed and taken action to ban payday lenders from advertising on their club websites is interesting. This displays the distaste that regular people have for this industry which whilst operating without regulation, will continue to target customers that cannot afford their services and continue to exploit their customers through their high interest rates. Until the UK introduces regulations to the payday loan industry these companies will continue to spend large sums of money to get the best exposure for their brands.

In short, refinancing a mortgage involves going to a lender and renegotiating your original mortgage term at a different interest rate. Whether or not you decide to refinance depends a great deal upon your original financing terms, how affordable they are to you and whether or not they can be improved upon.

Since a home is such a valuable asset, it pays to look into all the pros and cons before deciding whether or not refinancing a mortgage is the best option to pursue.

Benefits of Refinancing

• You can take advantage of low interest rates: Because of today’s lower interest rates, many homeowners are discovering that it pays to refinance.
• You can build equity faster: If you’re paying a lower interest rate, then you’ll be able to build up your home equity more quickly. According to statistics from the Federal Reserve Board, refinancing a 30-year, fixed-rate loan of $200,000 from six percent to five-and-a-half percent can potentially save you as much as $7,560 over a 10-year period.
• You can change your length of mortgage: When you refinance, you can also increase or decrease the term of your mortgage agreement. Depending on how much you can afford, this can greatly impact your monthly payments, in addition to your interest rates.
• You can change from an adjustable-rate to a fixed-rate mortgage: By changing to a fixed-rate mortgage, you can refinance when interest rates are at their lowest and then lock into those rates for the duration of the loan.

Factors to Consider Before Refinancing

• Length of mortgage: Before refinancing, consider how long you’ve had your mortgage. Generally speaking, refinancing late in the life of your mortgage may not benefit you substantially. By the time you’ve owned your home for many years, you’ll have paid a great deal of interest and you’ll be at a point where you’ve started to seriously build up equity. If you refinance, you’ll be starting the process of paying interest instead of equity all over again.
• Prepayment penalties: Some lenders charge a prepayment penalty which may also apply to refinancing. That’s why it’s best to go over everything carefully with your present lender before making any changes to your mortgage agreement.
• Impending move: If you’re planning to sell your home within the next few years, refinancing may not be your best move. By using a break-even calculation guide, you’ll be able to determine whether or not you’ll save by refinancing.

In the end, it’s always best to consult with a reputable mortgage specialist before you make your final decision. By getting a professional opinion and using resources such as a mortgage calculator, you can decide whether or not refinancing your mortgage is the best option for your financial future.

Whilst few people enjoy wading through the small print, taking your time to find the policy which is right for your circumstances rather than simply plumping for the cheapest or most comprehensive one could save a lot of money in the longer term.

A common approach is to either scour the market to find the cheapest quote, or alternatively, simply pick the policy which seems to cover the most, regardless of cost. Both of these methods can end up costing more money, with the former at risk of not having enough cover in the event of a claim and the latter paying for unnecessary cover.

Overinsuring, or double-insuring, is also becoming increasingly common, as insurance can now be purchased from a number of places, causing policyholders to pay for cover they cannot claim.

For example, many banks now offer packaged deals and in return for a monthly fee account holders are provided with a number of extras, such as travel insurance, breakdown cover and personal effects insurance.

However, many people may already have these types of in place and in the event of a claim, only one firm will be liable to pay out. Customers are also very unlikely to get a refund for any insurance on which they have overpaid if the company can show they were provided with all the relevant information at outset.

Identifying what isn`t covered by an insurance policy can be as important as understanding what is covered but yet this is one area which many people do not consider when taking out insurance.

Policy exclusions are one of the main reasons why a company may refuse to pay a claim so it is important to understand what it considers not to fall under their policy. Pre-existing conditions are a common exclusion often included in policy terms. This sounds confusing but simply means that anything that was wrong before the policy was taken out will not be covered if it gets worse. This could include medical conditions on health insurance or faulty appliances on homecare cover.

Even if the insurer does agree to pay out, many people get caught out by the amount which is paid. Many types of insurance carry something called an `excess` which is the amount the policyholder has to pay out of every claim. For some types of insurance, the excess can be quite high – such as car insurance – and one reason for a cheaper premium could be that the insurer has included a high excess automatically. It is usually possible to adjust the excess by asking the insurer to quote with a different amount.

It can also be very tempting to try and get the premium as low as possible by hiding any facts which could lead to the premium increasing. However, if the insurer finds out that any important information has been withheld, they may refuse to pay your claim completely. Any individuals who have needs which could push their insurance premium higher may find it cheaper to approach a specialised provider. Examples of this could include individuals with health problems or customised cars, both of which would be more likely to find a competitive quote with an insurer with more in-depth knowledge.

If an insurance premium is high, rather than take the risk of going without cover, it is often possible to spread the cost. One of the ways to do this would be to pay the whole amount to the insurer with a credit card such as the Virgin credit card, which provides flexibility for the policy holder to pay off the balance as their finances dictate, rather than a fixed monthly sum.

In this article, we’ll provide 5 money management hints to help investors make the most of their credit cards. Some of this information was found on Nasdaq.com, a helpful site for investors.

1. Don’t use your credit card to fund investments!

Some of you might be saying “duh,” but you know that investors have done this. Of course, the issue is that when you borrow capital, you take on even more risk than the original investment brought. If the investment doesn’t work out, now you have to come up with a way to pay off a hefty credit card balance before you’re buried in interest and penalties.

If you’re in a situation where the only way you can cover an investment is to charge your credit card, don’t take the investment. You shouldn’t invest more than you can afford to lose.

2. Watch your credit scores like you watch your stocks.

Yes, good credit matters even for high rollers! Whenever you apply for just about anything, from a credit card to car insurance to a cellular phone account, someone’s going to check your credit scores. You can bet your credit card company is regularly peeping at your credit scores to see whether your APR or your other terms should be changed.

As an investor, you need good credit to help with all your financial activity, but you’re risky for creditors, since investments are never a sure thing. You could lose thousands of dollars if you get stuck with higher fees and rates due to a credit mishap. So, take your credit scores as seriously as you take your stocks.

OK, maybe you don’t need to check your credit scores as often as you check your stocks, but don’t leave them on the back burner. You should either order your credit reports and scores every 6 to 12 months from the three major credit bureaus or sign up for a credit monitoring service that tracks your credit and lets you know about any big changes. These monitoring services come with identify theft insurance, too.

3. Hold on to your credit cards like long-term stocks picks.

You’re used to being ruthless when it comes to buying low and selling high, but you also understand the value of a long-term
investment. Well, your credit card accounts are long-term investments.

The formulas used to figure out your credit scores favor steady accounts that have withstood the test of time. If you open and close accounts like you buy and sell penny stocks, you’ll hurt your credit scores by shortening the lifespan of your average account.

Closing an account never boosts your credit scores. So, think of your accounts as long-term investments, and hold on to them as long as you can.

4. Take care of tax issues before they snowball.

As an investor, it’s normal to get into taxation tangles related to your investments. But watch out, because an unpaid tax bill could snowball into a harmful tax lien. Unlike every other damaging record, tax liens can stay on your credit report forever if you don’t pay them.

Like a broken mirror, a harmful tax lien can mean 7 years of bad luck. Even after you pay it, the record keeps reporting to your credit report for 7 more years!

5. Try to keep your total balances under 10% of your total limits every month.

Even when you pay off the balance in full every month, floating hefty balances on your credit cards can give your credit scores a beating. The credit score formulas reward consumers who maintain their total balances under 10% of their total limits every month. This is true even when the consumer’s credit limit is quite high.

Unfortunately, unlike your Average Joe, you may have had times when you had to use your personal credit card to move big chunks of money. Do the best you can to avoid these situations.

Jamie Scott from CreditDonkey says, “In the end, managing your credit cards isn’t all that different from the types of money management you’re already used to as an investor.”  She reminds you to manage risk, keep an eye on the numbers that matter, stay serious about your long-term strategies, tackle tax issues on time, and keep your debt under control.

You’re already an expert at those things, so when you apply the same attitude to your credit cards, you should be able to stay on top of them easily.

Here are some mistakes that can lower your rate of return in your tax lien or tax deed portfolio. These are mistakes that I, or one of my clients, or another investor that I know, has made in the process of investing of tax liens or tax deeds. I’m sharing them with you so that you do not make the same mistakes that we did when we were just beginning to invest in tax lien certificates and/or tax deeds. Hopefully you can learn from our mistakes.

Mistake#1: Doing your due diligence too soon before the tax sale
New investors are always eager to get started. They frequently want to start researching the tax sale properties right away, as soon as they can get the tax sale list. I also made this mistake when I first started; until I realized that I was wasting my time doing due diligence on properties that were never going to be sold at the tax sale. People can pay their taxes and remove their property from the tax sale list, sometime up until right before the tax sale. In my experience, at least half of the properties that are on the original tax sale list will not be there on the day of the sale. So if you start your due diligence early, many of the properties that you research will not be sold at the tax sale and you’ll be wasting your time. I’ve learned to wait until a few days before the tax sale and get an updated list from the tax collector, so that I’m only doing due diligence on the properties that are still on the list a couple of days before the tax sale. Of course if you’re going to a very large sale, you might need a week to do your due diligence, but you shouldn’t need longer than that.

Mistake #2: Not doing due diligence on tax sale properties
For tax liens this may be as simple as looking at the assessment information on the property and driving by the property to take a look at it. I myself have made the error of bidding on a tax lien on the assessment information alone and not actually looking at the property. Last time I did this, I wound up with a shack that was falling apart, and it was right next to a stream. It looked like if the stream flooded it would be washed away. Because everything around it was overgrown and it was hard to see from the road, I had a real hard time finding it. But the problem was I didn’t go look at it until after I had bought the lien. I should have looked at it before I bid.

Mistake #3: Not knowing the rules of the tax sale
Since every state, and in some states each county, has different rules regarding their tax sales, you need to know what they are ahead of time. I got an e-mail from a subscriber who had purchased a tax deed at an “upset” tax sale in Pennsylvania. Later he found out that there was a $200,000 mortgage on the property that he was responsible for. He didn’t do his due diligence on the property, so he didn’t know about the lien. He thought that he was buying a deed to vacant land and he didn’t know that a new home had been built on the property, and that there was a mortgage on it. So his first mistake was not doing the proper due diligence for a tax deed property.

But he also didn’t know that when you purchase a deed in the upset sale you are responsible for any liens or judgments on the property. Many counties in Pennsylvania have two different tax sales. The upset tax sale is held in the fall and the properties in that sale are sold subject to any liens or judgments on the property. Then if a property is not sold in this sale it goes to the judicial sale in the spring. The properties in the judicial sale are sold free and clear of any liens or judgments, so there is a big difference between purchasing a tax deed in the upset sale and purchasing a tax deed in the judicial sale. Know the rules of the tax sale that you are bidding at!

Mistake #4: Not knowing what you are bidding at the sale
I was at a tax sale in New Jersey where a new investor was bidding on some small utility liens. In NJ the interest rate is bid down and then premium is bid on tax liens. She bid large premium (a few hundred dollars) on a small sewer lien, which she won. When I talked to her after the sale, I realized that she did not understand how premiums in NJ work. You do not get any interest on the premium or on the certificate amount. She was not aware that she was not going to get any interest on the amount that she bid at the sale.

The reason that other investors were bidding big premiums on larger liens is because once they have the lien, they can pay the subsequent taxes and get the maximum rate (18%) on their subs. With small sewer liens, like the one that she got, the subsequent taxes that you get to pay are small, usually no more than $500 per year and you only get 8% on the first $1500. Although she didn’t loose any money, she was going to make very little on this tax lien!

Mistake #5: Not starting foreclosure at the right time
In some states you are only given a certain time frame where you have to foreclose the lien if it does not redeem, or you loose your investment. If you don’t start the foreclosure proceedings as soon as the redemption period is over, you could loose your lien. But in other states, where you don’t have to foreclose right away, you are better off letting your lien go longer for 2 reasons. The first reason is that 99% of the time, when you start the foreclosure process the lien will redeem. The second reason is that the longer you hold the lien and pay the subsequent taxes, the more money you will make. Of course this only works in states were you could pay the subsequent taxes and get interest on your subs.

Article Source: http://www.articlesbase.com/investing-articles/five-mistakes-new-investors-make-when-buying-tax-lien-certificates-and-tax-deeds-672881.html

About the Author
Joanne Musa works with people who want to build an extremely profitable portfolio of tax lien certificates or tax deeds FAST. She is the author of the Tax Lien Investing Basics system for learning how to invest in tax lien certificates and tax deeds for maximum profit, and founder of Tax Lien Consulting LLC, a consulting company specializing in tax lien investing coaching and education. Go to http://www.taxlienlady.com for more information about tax lien investing.

If you want to invest in tax lien certificates, one of the first principles that you need to be aware of is redemption. A tax lien certificate is simply a lien that the county has sold to an investor for the delinquent taxes. The investor then waits for the property to “redeem,” which simply means that the homeowner has paid off the tax lien with interest and penalties to the investor. If the homeowner does not pay off the tax lien within a specified period of time, called the “redemption period,” then the investor has the right to foreclose on the property and potentially pick up a property at pennies on the dollar! So, from an investor’s point of view, it’s really win, win!

So, when could a redemption occur? It could occur the day after you buy the lien. It could occur weeks, months, or years later. It just depends on the situation.

Before you invest in tax lien certificates, you need to figure out the redemption period. This varies from state to state. Some states have very short redemption periods. Others have very long redemption periods. If you just want to get the very high interest rates (as much as 24%) that you can get from tax lien certificates, then visit states with long redemption periods. If you ultimately want to acquire dirt cheap property, then visit other states with shorter redemption periods.

Other states are more of a hybrid with regard to redemption periods. How can it be a hybrid? In Florida for example, you can foreclose on the property in as little as two years. However, you are not actually required to foreclose in Florida until the lien is seven years old. So, it really is the best of both worlds. If you want to keep letting the interest accrue, then you just let the lien sit. If you want to get the property, then you file a quick foreclosure after the two years.

During the redemption period, there may be pre foreclosure activities that you are required to do with your tax lien certificate. These could include giving the homeowner notice that you have the lien, filing court papers and giving notice in a newspaper and title searches. Don’t worry too much about this stuff. It is usually handled by an attorney who will do these things on your behalf. In nearly all states, the attorney fees will be added to the total value of the lien and reimbursed with interest at redemption.

However, it’s imperative that you understand your state and local laws extensively before you attempt to purchase tax lien certificates. In many areas, if you don’t follow the pre foreclosure activities to the letter, then your lien may be declared invalid and you will lose your entire investment.

Like anything else in tax certificate investing, redemption is a concept that you will see over and over. With this short lesson, you learned what to do and what to look for regarding redemption. Now do your research and go take massive action!

Article Source: http://www.articlesbase.com/non-fiction-articles/understanding-tax-lien-certificate-redemption-periods-56885.html

About the Author
Carlos Scarpero is an experienced real estate investor who specializes in land. On his blog at http://www.scarpero.com/real_estate, he discusses innovative and creative real estate strategies to make your real estate investing more profitable.

Buying Your First Tax Lien

Buying your first tax Lien can be a difficult task. Before you buy your first tax lien there are many things to consider. The purpose of this article is to help the reader understand some of the risk and rewards associated when buying tax liens.  Tax lien certificates can be a very profitable investment decision if done correctly. The key to tax lien investing just like investing in general is to be able to have a clear entry and exit strategy. However one area of preparation that one can not overlook is research.

Research Your Tax Lien Property

Research is arguably one of the most important areas of investing. Before investing in tax liens you want to be prepared to do a considerable amount of research on the property that the tax lien certificate is being sold for. Why? Because In some cases if you purchase tax lien and are awarded possession or if the property is not redeemed and you are deeded the property, but have not done your research then you can end up losing your investment if the property if not sellable. The property  may be considered worthless. For example if you’ve bought a property on a land mine field, it could be considered unsellable. This is why it’s important for you to conduct research to protect your investment.

Tax Lien Foreclosure

After you have done your research it’s time for you to make your bid. The bidding process is different in different states so you will want to check with your local and county tax officials to find out more information on how the process works in your area. In some states once the redemption period has passed and the owner has not paid his property taxes, you can start the foreclosure process on the property. If successful you could end up with ownership of the property for only pennies on the dollar. This rarely happens, however when it does it can make your tax lien investment a very profitable one.

In conclusion after reading this article one should have been able to understand what to do when buying your first tax lien. One should be able to understand the importance of researching your tax lien property.  In addition you should have a better understanding of the general tax lien foreclosure process and know more about the general process of how to buy a tax lien.

Article Source: http://www.articlesbase.com/real-estate-articles/how-to-buy-a-tax-lien-certificate-777874.html

About the Author

For more information about how to get started in tax liens go to the Recommended Reading section of http://taxlienblog.blogspot.com

Tax lien certificates are a little known or understood investment type that can reap tremendous rewards for their owners. Essentially they combine the potentially high returns usually associated with riskier investments with the security offered by lower income financial instruments such as bonds.

Here is how they operate:

1. The investor purchases the tax lien certificate which is secured to the property it relates to – in effect the investor is paying the property tax on behalf of the property owner.

2. As an example, the tax lien may relate to real estate/land owned by someone who has not paid their property taxes. This is where you step in – by paying off the tax lien and getting a certificate in return. This certificate entitles you to (a) interest on the lein and (b) the amount of the tax.

3. Interest payable on the property is passed directly to the certificate holder. The entire billing & collection process is done by the government administration and paid to the certificate holder. The rate of interest on the lien varies but tends to be between 8% and 50% per year.

4. Research shows that over 98% of tax lien certificate holders receive payments to the value of their investment within two years – and if they do not, the tax lien certificate holder can end up owning the property for little more than the amount that was paid for the certificate.

While you may be forgiven for thinking that tax lien investments are reserved for the very rich and experienced, you would in fact be wrong. They are quite simple and can be obtained for as little as a few hundred dollars.

Some experts believe that tax liens are one of the best kept secrets within the investment world – they offer high returns on capital and it is an investment backed by the government itself. In fact, investment expert Robert Kiyosaki has mentioned the benefits of tax lien certificates in his Rich Dad Poor Dad books.

Consider these staggering advantages of investing in tax lien certificates:

Tax liens typically earn incredible rates of interest on your investment. Where else can you achieve typical rates of 15%, 25% and more per year on a low-risk investment?

The investor is never responsible for ensuring that the interest, taxes etc are collected by the non-payer. This is the duty of the government who will handle all of this on the investors behalf.

Should the non-payer fail to settle the monies owed, the investor has the legal right to foreclose on their land/real estate for an incredibly low fee. The length of time can vary between one to three years before foreclosure becomes a possibility.

Tax lien investing is fairly simple – and arguably a lot easier to understand than stocks (and certainly less risky).

As with all investments, it’s important to be well armed with knowledge and experience on your side plus an understanding of the potential problems you may face when deciding to put some of your capital into tax liens.

Below we outline some important considerations:

1. To uncover the most profitable tax lien opportunities can take somewhat more capital and research than standard ones. It involves visiting tax lien sales which can be time consuming – and before bidding on anything you should consider visiting the real estates mentioned in the tax lien sales. This can be harder than it sounds because the amount of information available is very basic.

2. Remember, that aside from buying the tax lien, you will also need to pay the taxes on the property until it is redeemed. Once you do invest in tax liens, you cannot retrieve your initial investment – instead you must wait till the lien is redeemed or the property falls into foreclosure.

Tax liens are wonderful things – high yields, the opportunity to pick up real estate for just pennies on the dollar and returns that are backed by the U.S. government. Start investigating them now before they become common knowledge.

Article Source: http://www.articlesbase.com/real-estate-articles/tax-lien-certificates-fat-investment-profits-backed-by-the-government-82519.html

About the Author
Tax Liens Exposed – Plus Six Additional Low Risk, High Return Investments That You Never Knew Existed. Free report! Stunning Investments That Offer Huge Payouts With Limited Risk!

By trading stocks, an investor is reliant on the share-price increasing in order to profit from his money. However, with forex trading, this is not necessarily the case, with a trader able to go long – bet on the currency increasing – or go short – bet on a drop.

Currencies are always traded in pairs with the value of one currency against the other the measure of the trade. One pair in the currency will increase against the other and if the trade is made the right way, money will be won, bet the wrong way and the trade is lost.

All trading is conducted through a broker and they will actually execute the deal. Most brokers offer their own trading platforms which are designed to make dealing as easy and hassle-free as possible, with many even offering a simulation account allowing practice in a real market environment without risking any money.

Unlike share-dealing, brokers do not charge fees or commission for placing the trade, they make their money through the bid-ask spread. For every deal, there are two prices, the buying price and the selling price, with the deal being opened at one price and then closed at the other price. Therefore, in order to make a profit, one price has to move past the other. It is possible for a currency to move in the right direction but for money still to be lost on the deal as the bid-ask spread was too wide. It is therefore far preferable to find a broker offering a tight spread in order to maximise profits.

Speaking of profits, there are plenty to be made in forex. However, there will also be losses and even more of these than profits. A maxim in the market worth sticking to is `do not place trades that you cannot afford to lose`. Every trader, no matter how experienced, will continue place losing trades. The trick to remaining profitable is to limit your losses, know when to quit and do not allow the lost trades to affect future deals.

When on a losing streak it is very easy to throw good money after bad, in the vain hope that the market will eventually turn and a deal will `come good`. It is equally as easy to get caught up in the moment whilst winning trades, to keep going until eventually the inevitable happens and money is lost. Every successful trader therefore has a strategy mapped out, which he sticks to, no matter how trading goes. A tool to help prevent the temptation of deviating from the plan is the use of stop losses. This automatically closes a deal when a certain level is reached and can be used to collect profits or prevent significant losses, the level is specified at the outset by the trader.

There are many factors which affect the currency market and the most profitable traders keep up to date with forex information in both the news and by following blogs of successful dealers.

The simplest answer is that the value of any stock (or other asset) at any time is it’s market clearing price, ie the price at which the amount sellers are willing to sell matches the amount that buyers are willing to buy. That is, a stock’s value is its market price.

More academically, the value of a stock is said to be the sum of the future discounted income it will generate. A block of capital is exchangeable for an income flow, and vice versa. Eg you might deposit $100 with a bank in return for $5 a year interest; should you wish you can get your $100 back in return for giving up the $5 a year cash flow.

‘Discounted’ means that money today is generally worth more than in the future, eg instead of $100 today I’d need (say) $105 next year to of equal worth. With regard to stock valuation that raises the question of what rate to discount the future income flow, eg the rate of inflation, the rate of return on guaranteed government bonds…?

But even after deciding which discount rate to use, a more fundamental problem remains, ie that forecasting future discounted cash flow is impossible because we cannot accurately prophesize the future.

Security Analysis (6th Edition), Benjamin Graham & David Dodd First published in 1934, Security Analysis is one of the most influential financial books ever written. Selling more than one million copies through five editions, it has provided generations of investors with the timeless value investing philosophy and techniques of Graham Dodd.

As relevant today as when they first appeared nearly 75 years ago, the teachings of Benjamin Graham, “the father of value investing,” have withstood the test of time across a wide diversity of market conditions, countries, and asset classes. Graham is acknowledged as a major influence by Warren Buffett(!) who wrote the foreword.

This new sixth edition, based on the classic 1940 version, is enhanced with 200 additional pages of commentary from some of today’s leading Wall Street money managers. These masters of value investing explain why the principles and techniques of Graham and Dodd are still highly relevant even in today’s vastly different markets.

Financial institutions hire highly compensated analysts in the attempt to make just such prophesies, but the science remains (to put it mildly) inexact.

Efficient market theory goes along with the first definition above in saying the value of a stock is its market price. The market price is determined by the rational decisions of a large number of players, who between them have access to all the knowable information concerning the stock.

Efficient market theory, ie market price, probably provides a decent estimate of stock values, most of the time. Unfortunately, it too is imperfect, as shown by crashes. How can the correct price be X at one moment and substantially lower a few minutes later?

This suggests the true value of a stock is its market price plus or minus some “error factor”, which, at times, can be quite significant. And it’s likely this error factor is largely determined by the psychology of the so-called rational players. In a booming market over-confidence results in a general over-valuation of market prices. But in less favorable times fear results in under-valuation. These errors can continue, and move price further from value, for quite some time.

The lesson is that success in the markets may depend as much on psychological astuteness as number crunching ability.

For investors, who buy and hold for longer periods, it may not matter too much. To be invested for the long term will generally return the historical long-term market average. Investing little and often gives the advantage of dollar cost averaging, ie allowing you to get more for your money when prices are cheaper, thus reducing the average portfolio cost.

For traders, looking to profit from shorter term price movements, being able to gauge the market “mood” represents opportunity.