Educational articles

When is the best time to buy resource stocks?

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If you’re investing in resource stocks, the best time to buy is usually not when commodity prices are at their strongest and everyone is excited about mining. The better opportunity tends to show up when a commodity has gone through a significant downturn, the market has turned pessimistic, but the underlying companies remain financially strong and the commodity is starting to stabilise. That’s because resource stocks are cyclical by nature. Profits can rise enormously when commodity prices rise, and fall …

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How rising US bond yields can affect the ASX

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Rising US bond yields are important for the Australian share market because the US Treasury market is effectively the benchmark for global interest rates. When the yield investors can earn from a relatively safe US government bond rises, it changes the return investors demand from almost every other asset, including Australian shares. The effect on the ASX is therefore not simply that “US rates go up and Australian shares go down”. There are several different channels working at the same …

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Why Central Banks Raise Interest Rates During Supply-Driven Inflation

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When inflation rises because of supply-side problems, it may seem strange for a central bank to respond by raising interest rates. After all, interest rates cannot produce more oil, repair damaged supply chains, increase crop yields, or make factories reopen. If inflation is being caused by a shortage of goods and services, the obvious solution would seem to be fixing the shortage rather than making borrowing more expensive. However, central banks sometimes raise interest rates during supply-driven inflation because their …

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Why Companies Care About Market Capitalization

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Market capitalization is one of the most important measures of a public company because it represents the total market value of the company’s outstanding shares. It is calculated by multiplying the company’s current share price by the total number of shares outstanding. For example, if a company has one billion shares outstanding and each share is trading at $100, its market capitalization is $100 billion. Although this number is often used by investors to classify companies as small-cap, mid-cap, or …

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Can Passive Investing Cause Overpriced Stocks?

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Passive investing has become one of the most influential trends in modern financial markets. Over the past several years, investors have increasingly moved away from actively selecting individual stocks and toward index funds. These investment products allow investors to own a broad collection of companies while paying lower fees compared with many actively managed funds. Although passive investing has many advantages, critics argue that its rapid expansion has created new risks for financial markets. One of the strongest arguments against …

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