Whether you invest in stocks or the foreign exchange market, your main gains will come from capital growth: This type of investor doesn't care about dividends. Instead, he or she wants to see the market price of his stock go up or the value of one currency go up against another.
This kind of operation has three good things about it. First, if you've made good decisions, you can make more money more quickly than if you just depended on dividends. For example, a person who buys 100 shares at $30 and sells them at a 10-point profit has $1,000 (less commissions) to show for a year's work. This is the amount of dividends that a $30 stock that yields 5% would pay out over nearly seven years.
Second, if you keep your investment for more than six months, your profit is considered a long-term capital gain. For many people, long-term capital gains are taxed at a maximum rate of 25%, which is less than the rates for straight income.
Lastly, even if your stock doesn't go up as much as you thought it would, it could still bring in a good amount of money.
This is, of course, a way to explain things. It doesn't help to act like you're in the business of capital growth if all you have to show for it is a small pile of dividends. The more reliable thing to do is to sell the stock that isn't making money (if you lose money, you can write it off on your taxes) and look for a winner. This definitely takes guts. There's nothing like a few growth stocks that don't grow to make a capital-appreciation man lose interest.
On the other hand, since World War II, the market has been going up and up, making it easier to find a company with good prospects and join it. And, as was said, an investor could wait five years for his 10-point gain and still be ahead of the plugger who collects dividends.
It's important to note that "capital appreciation" is an umbrella term for any change or improvement in a company's position that might be reflected in its market price. It could mean the start of a new company in a new industry, the coming of age of a speculative youngster from ten or twenty years ago, or even new signs of life in an old company.
a well-known veteran.
For example, the stock of Ampex, Inc., a small California company that makes high-quality equipment for the booming tape-recorder business, has more than doubled in value in the last few months.
Dozens of small companies (like Tracerlab, National Research, Beckman Instruments, etc.) that make electronics, precision equipment, and other products of current scientific research are also getting a lot of attention and seeing their prices go up.
Stocks like General Dynamics, which makes atomic submarines and Convair planes, Owens-Corning Fiberglas, which makes insulation, filters, textiles, and glass fibre boats, and Bendix Aviation, which is not a new company but is putting a lot of money into diversification and making new products, are riding waves of speculative interest. Dow and Minnesota Mining could also be in this group, but they might belong with older companies like Corning Glass, Goodrich, Union Carbide, Westinghouse, National Lead, Minneapolis Honeywell, and Eastman Kodak, whose youth and amazing technological resources have kept them at the top of the American business world for decades.
All of these are examples of growth stocks, which are the kind of investments that would tempt an investor who wants to see their money grow.
But a company's structure can also change in ways that are subtle and hard to see. In these situations, appreciation might not have anything to do with a new product or even the future of the company in its industry. Instead, it is the expected result of a merger, a spin-off (the distribution of assets), a reorganisation, or any of a number of other things that a corporation can do.
Talk of a merger between Bethlehem Steel and Youngstown Sheet & Tube made both stocks interesting options. U.S. Foil "B" (American Stock Exchange), which controls about 48% of Reynolds Aluminum; duPont, which has to sell 63 million shares of General Motors stock; Northern Pacific Railway, which has important oil interests in North Dakota's booming Williston Basin; El Paso Natural Gas, which has created a subsidiary called Rare Metals Corp. for uranium exploration and processing; and many others are all examples of stocks with potential capital-gains opportunities.
There is no way to know for sure if or how the gains will be made. When two companies merge, their stock prices have to change, which may help one or the other. Or, if people are excited about the prospects of the new company, the stock price may go up.
An asset that hasn't been developed yet, like Northern Pacific's oil or Inland Steel's interest in the Steep Rock iron mine in Ontario, could mean a big windfall in the future, which would be reflected in the stock prices or a capital distribution of cash or stock. A few years ago, Andes Copper, a subsidiary of Anaconda that does business in Chile, gave each share a capital distribution of $6. At the time, the market price of the stock was between $12 and $15.
Most gains on Forex come from capital gains, which happen when a trader hopes that the value of one currency will rise against another. Even though profits can be huge, it is worth
Having good Forex software can keep you from losing a lot of money.
