During World War II, the technology market skyrocketed due largely to both the axies and the allies pursuing the "next big thing" that would assist in achieving their goals. Technology has always advanced during times of major conflict: missiles during WW2, the Long-Bow during the 100 Year War, Ironclad war ships during the Civil War and the Windmill.
Our present conflict has, as in tradition, initialized a technological revolution, but not in what everyone would expect. Currently, the absolute bread and butter on the financial markets right now are the companies that are focusing on Environmental Technology. Breakthroughs in this industry will more than compliment the United States, United Kingdom and Europe, in that it has the potential of making these nations incredibly independent and self-sustaining.
Green energy, health and wellness breakthroughs, environmental Industrial boom, all of this will be seen on a global scale before the end of the next decade. The reason behind this is derived from the rumored basis of our current conflicts: oil. Green energy is on the rise in order for nations to declare independence from this slick natural resource. Naturally, every other portion of the Green Industry will soon follow, changing the lifestyles of those living in developed countries in the northern hemisphere.
Until the global Stock Exchange reaches a level of stability, there is no telling how well the Green public companies will do. There are, however, a few companies that are going to do exceptionally well within the Green Industry, as economists have already labeled one of these companies as being "recession proof."
1. Enzyme Environmental Solutions (EESO:Pinksheet):
Since the recession, EESO has been offered three contracts with companies that are willing to purchase their formula for millions of dollars. EESO has also hired two new shift loads of people just to maintain the influx of orders from their new clients. With their financial base being one of the most stable bases on the market, nearly every broker has started to recommend EESO for a two year, long-term investment.
2. Patriot Energy (PGYC:Pinkseet):
Patriot Energy has recently developed a technology that will reduce the amount of CO2 emissions from vehicles up to 60%. This new breakthrough is possible by simply inserting a small device in the rear of your vehicle (done in factory), of which would only raise the overall price tag a maximum of 500.00. The only issue with this technology is its industry partner. PGYC is reliant upon the auto industry, and since this industry is no longer the dominate in the United States, PGYC is going to become a hit or miss in the year 2009, but a great investment between the years 2010 and 2011!
Tuesday, November 3, 2009
Sunday, October 25, 2009
How to use Google Finance to track stocks
If you are into any type of investing or are interested in the stock market at all, you are likely going to want to track stocks, at least to some degree. Fortunately, there are a lot of different options out there for you. You can go to the NASDAQ website itself to look up stock quotes. Yahoo! Finance is another popular website for those looking to track stocks. Another popular and effective website is Google Finance.
Google Finance is set up very nicely and intuitively. Right on the front page at http://www.google.com/finance there is a chart showing you a summary of how the market performed that day. This is good to see the overall trend of the market, and if you have any type of fund that tracks the market, you might not even need to do any looking beyond this. This front page will also give you articles showing some of the top news of the day.
If you scroll down, you can get a quick look at how the different sectors in the stock market performed for the day. If you own stocks in the basic materials or technology sector (or any other sector) you will be able to see very quickly how that sector of the market performed. Once again, this could also be important if you own a mutual fund of a particular sector, as it is important to see how things are going over time.
If you are looking to track an individual stock, it is fairly easy to find. There is a search bar at the top of the site, and you should be able to type the ticker symbol (for example, GOOG for Google) or the company name itself, and it will take you right to the stock information for that stock. On that page, you will get all of the key information that you need.
First and foremost, that page will tell you the stock price, and how the stock performed that day. It will tell you how many points up or down the stock is, and what percentage it is up or down by. It will also tell you important information about the company, such as the number of shares and the EPS. You will also be able to easily be able to see a graph of the stock price over any length of time, from the past day to the life of the stock. Everything about the stock is all in one place, making it extremely handy to use.
Google Finance is one of the best sources for users to track stocks on the internet. With just a few clicks, a user can see a graph of the entire stock market, see how each particular sector of the stock market performed, how different world markets performed, or all the information you would want to know about any particular stock or about the company itself. With all of these options, Google Finance is a great tool to use if you are interested in tracking stocks.
Google Finance is set up very nicely and intuitively. Right on the front page at http://www.google.com/finance there is a chart showing you a summary of how the market performed that day. This is good to see the overall trend of the market, and if you have any type of fund that tracks the market, you might not even need to do any looking beyond this. This front page will also give you articles showing some of the top news of the day.
If you scroll down, you can get a quick look at how the different sectors in the stock market performed for the day. If you own stocks in the basic materials or technology sector (or any other sector) you will be able to see very quickly how that sector of the market performed. Once again, this could also be important if you own a mutual fund of a particular sector, as it is important to see how things are going over time.
If you are looking to track an individual stock, it is fairly easy to find. There is a search bar at the top of the site, and you should be able to type the ticker symbol (for example, GOOG for Google) or the company name itself, and it will take you right to the stock information for that stock. On that page, you will get all of the key information that you need.
First and foremost, that page will tell you the stock price, and how the stock performed that day. It will tell you how many points up or down the stock is, and what percentage it is up or down by. It will also tell you important information about the company, such as the number of shares and the EPS. You will also be able to easily be able to see a graph of the stock price over any length of time, from the past day to the life of the stock. Everything about the stock is all in one place, making it extremely handy to use.
Google Finance is one of the best sources for users to track stocks on the internet. With just a few clicks, a user can see a graph of the entire stock market, see how each particular sector of the stock market performed, how different world markets performed, or all the information you would want to know about any particular stock or about the company itself. With all of these options, Google Finance is a great tool to use if you are interested in tracking stocks.
Saturday, October 17, 2009
Understanding investors' stock market choices
The stock market is a paradox. It is a big mystery to those who don't understand how it works. Yet it is actually as simple as ABC to those who are used to it and can understand its highs and lows.
Therefore, the first step in understanding the choices that stock market investors make is to understand the stock market as a concept.
As the name implies, the stock market is actually a market. It is an avenue whereby individual and corporate investors come is the middleman between the buyer and seller of a stock. The stock broker is licensed by the Stock Exchange to buy and sell stocks. For each transaction, the stock broker gets a commission called a brokerage. together for the purpose of buying and selling stocks. It works like this: Mr. a has some stocks to sell. Mrs. B wants to buy those stocks. However, the two people above cannot deal directly with each other. They need to use the service of a stock broker. The stock broker
Meanwhile, stock market investors are not fools. Nor are they gamblers buying stocks just for the hell of it. They are shrewd business men and women. Therefore, it is to be expected that there are certain parameters on which stock market operators base their decisions.
These parameters include the ones discussed below;
1) Information:
Information is vital for stock market transactions. Investors keep themselves well-informed about what goes on in the global economy. Positive information makes them go after a particular stock. For example, information about a possible merger between a small company and a bigger one will make investors buy stocks of the smaller company because the prices are likely to rise.
2) Season:
Some stocks have an almost predictable seasonal cycle of high and low prices. For this reason, investors buy stock of certain corporations at certain times of the year and sell them at certain times too. The trick here is to buy when the price is low and sell when the price rises.
3) Innovation:
We live in a dynamic world. Change and innovation are very important aspects of life in the modern era. Therefore, investors are likely to invest in the stocks of a company with a new invention or new product. This is because, initially, the price of such stocks will be relatively low. As the product gains acceptance, the price will begin to rise.
4) Blue Chips:
This is the last refuse of the conservative investor. Blue chips are tried and tested stocks with reputable companies and products behind them. As a result, investors go after these stocks because the risk of loss is almost non-existent.
Of course, it goes without saying that there may be other reasons but the ones above are the reasons for investor's choices or the stock market.
Therefore, the first step in understanding the choices that stock market investors make is to understand the stock market as a concept.
As the name implies, the stock market is actually a market. It is an avenue whereby individual and corporate investors come is the middleman between the buyer and seller of a stock. The stock broker is licensed by the Stock Exchange to buy and sell stocks. For each transaction, the stock broker gets a commission called a brokerage. together for the purpose of buying and selling stocks. It works like this: Mr. a has some stocks to sell. Mrs. B wants to buy those stocks. However, the two people above cannot deal directly with each other. They need to use the service of a stock broker. The stock broker
Meanwhile, stock market investors are not fools. Nor are they gamblers buying stocks just for the hell of it. They are shrewd business men and women. Therefore, it is to be expected that there are certain parameters on which stock market operators base their decisions.
These parameters include the ones discussed below;
1) Information:
Information is vital for stock market transactions. Investors keep themselves well-informed about what goes on in the global economy. Positive information makes them go after a particular stock. For example, information about a possible merger between a small company and a bigger one will make investors buy stocks of the smaller company because the prices are likely to rise.
2) Season:
Some stocks have an almost predictable seasonal cycle of high and low prices. For this reason, investors buy stock of certain corporations at certain times of the year and sell them at certain times too. The trick here is to buy when the price is low and sell when the price rises.
3) Innovation:
We live in a dynamic world. Change and innovation are very important aspects of life in the modern era. Therefore, investors are likely to invest in the stocks of a company with a new invention or new product. This is because, initially, the price of such stocks will be relatively low. As the product gains acceptance, the price will begin to rise.
4) Blue Chips:
This is the last refuse of the conservative investor. Blue chips are tried and tested stocks with reputable companies and products behind them. As a result, investors go after these stocks because the risk of loss is almost non-existent.
Of course, it goes without saying that there may be other reasons but the ones above are the reasons for investor's choices or the stock market.
Saturday, October 3, 2009
How to get going in the stock market
We all know that the way to make money is to buy low and sell high. In this article I will show you a method of trading that will not allow you to miss out on any opportunity to make a profit.
Markets are driven by two emotions. Fear and greed. When the stock market is going up people start hearing about all the money that everyone else is making. They want to be in on the easy money so they buy shares causing the prices to go higher. This is greed. Soon enough the shares are over valued and people are making unwise decisions in buying as the market reaches the top. When the market is going up people believe that it will keep going up forever.
On the other side when the market is going down fear takes over. People start to see their hard earn cash disappear. So they sell, causing the prices to drop even further. Then the penguin syndrome takes over. As people see others selling they start selling as well causing the prices to drop even lower. Soon the shares are at a bargain and under valued. When the market is going down people cannot see the bottom because they are afraid to look down.
People are creatures of habit. And people are followers. That's why you only see a small percentage of people that are truly wealthy. To become wealthy you have to do what everyone else is not doing or is afraid of doing. You have to buy when everyone else is panicking and selling and you have to sell when everyone is excited and buying.
Now here is where you are going to have to follow me a little. Pay close attention. Re-read if you have too. The company you are investing in isn't as important as you think. Sure you want to pick one that's not going to go bankrupt but a majority of the companies that you invest in you will be selling shortly. You just want the money. So pick five companies that have good PE ratios (anything under 20 is good). The price doesn't tell you how expensive or cheap a stock is, the PE ratio tells you that. Make sure you have just as much money sitting on the sideline in cash as you have invested in the stock, your going to need it. Say you buy 100 shares in Apple at $90 a share. If the stock goes down to $87 buy another 100 shares. If the market isn't doing to well and people are selling the price will drop some more. So you buy another 100 shares at $84. Eventually the market will pick up because that's what it does, it moves up and down. The day the market stops moving we will have far worse problems than making money, the world probably just ended. So when the market goes back up and Apple moves to $87 again you sell the 100 shares that you bought at $84, taking $300 for yourself. Notice you do not sell unless its for a profit. If it goes back down, you buy some more. If it goes back to $90 you sell what you bought at $87. Get it?
You do this for as many companies as you like. Just don't panic and don't break down. If the market seems like its never going back up again just relax and buy some more cheap stock. And don't get greedy when your stock is going up. Don't think your stock will continue to go up forever. Sell it if you can make a profit. Don't think of the market going down as a bad thing, think of it as an opportunity to make money. And that's why you buy and sell the same stock on many different levels. This way you don't miss an opportunity to make some cash. Don't just buy and hold, that will get you average results. Do what others aren't doing and you will be where others are not.
Markets are driven by two emotions. Fear and greed. When the stock market is going up people start hearing about all the money that everyone else is making. They want to be in on the easy money so they buy shares causing the prices to go higher. This is greed. Soon enough the shares are over valued and people are making unwise decisions in buying as the market reaches the top. When the market is going up people believe that it will keep going up forever.
On the other side when the market is going down fear takes over. People start to see their hard earn cash disappear. So they sell, causing the prices to drop even further. Then the penguin syndrome takes over. As people see others selling they start selling as well causing the prices to drop even lower. Soon the shares are at a bargain and under valued. When the market is going down people cannot see the bottom because they are afraid to look down.
People are creatures of habit. And people are followers. That's why you only see a small percentage of people that are truly wealthy. To become wealthy you have to do what everyone else is not doing or is afraid of doing. You have to buy when everyone else is panicking and selling and you have to sell when everyone is excited and buying.
Now here is where you are going to have to follow me a little. Pay close attention. Re-read if you have too. The company you are investing in isn't as important as you think. Sure you want to pick one that's not going to go bankrupt but a majority of the companies that you invest in you will be selling shortly. You just want the money. So pick five companies that have good PE ratios (anything under 20 is good). The price doesn't tell you how expensive or cheap a stock is, the PE ratio tells you that. Make sure you have just as much money sitting on the sideline in cash as you have invested in the stock, your going to need it. Say you buy 100 shares in Apple at $90 a share. If the stock goes down to $87 buy another 100 shares. If the market isn't doing to well and people are selling the price will drop some more. So you buy another 100 shares at $84. Eventually the market will pick up because that's what it does, it moves up and down. The day the market stops moving we will have far worse problems than making money, the world probably just ended. So when the market goes back up and Apple moves to $87 again you sell the 100 shares that you bought at $84, taking $300 for yourself. Notice you do not sell unless its for a profit. If it goes back down, you buy some more. If it goes back to $90 you sell what you bought at $87. Get it?
You do this for as many companies as you like. Just don't panic and don't break down. If the market seems like its never going back up again just relax and buy some more cheap stock. And don't get greedy when your stock is going up. Don't think your stock will continue to go up forever. Sell it if you can make a profit. Don't think of the market going down as a bad thing, think of it as an opportunity to make money. And that's why you buy and sell the same stock on many different levels. This way you don't miss an opportunity to make some cash. Don't just buy and hold, that will get you average results. Do what others aren't doing and you will be where others are not.
Friday, September 25, 2009
How to Choose and Maximize Your ETF Fund - Part 2
In above example the investor has obtained at a cost of $520 the right to bur 100 Coca Cola Co. (KO) shares for $51.70 each. The party on the other side of the transaction has received $520 and has agreed to sell 100 Coca Cola Co. (KO) shares for $51.70 per share if the investor chooses to exercise the option.
If the price of Coca Cola Co. (KO) does not rise above $51.70 before December, the option is not exercised and the investor loses $520. Instead, if the Coca Cola Co. (KO) share price rises to $80 and the option is exercised, the investor buys 100 shares at $51.70 per share when they actually worth $80 per share, thus realizing a gain of $2,830 ($8,000 5,170).
By and large, ETFs are profitable if an investor has a long-term horizon because the more the ETF is held, the lower are the costs incurred for the investors since it is not traded on a constant basis. In general, when buying ETFs, investors should set a clear investment horizon and be aware of the cost involved.
If the price of Coca Cola Co. (KO) does not rise above $51.70 before December, the option is not exercised and the investor loses $520. Instead, if the Coca Cola Co. (KO) share price rises to $80 and the option is exercised, the investor buys 100 shares at $51.70 per share when they actually worth $80 per share, thus realizing a gain of $2,830 ($8,000 5,170).
By and large, ETFs are profitable if an investor has a long-term horizon because the more the ETF is held, the lower are the costs incurred for the investors since it is not traded on a constant basis. In general, when buying ETFs, investors should set a clear investment horizon and be aware of the cost involved.
Thursday, September 17, 2009
How to Choose and Maximize Your ETF Fund - Part 1
Exchange-traded funds (ETFs) are closed-end investments purchased on an Exchange. They are passively managed funds which mirror the performance of specific indices by tracking the performance of the individual stocks that comprise each index. The major advantages of ETFs are (1) low cost structure, (2) tax efficiency and (3) ability to be traded throughout the day. Yet, an even greater advantage is the ability to buy and sell options on many ETFs, which offers investors the flexibility to execute more sophisticated trading strategies that transcend simple ownership of the ETFs.
Investors, who expect a market rally in an underlying index, buy call options on a corresponding ETF, and acquire the right to buy shares of the ETF at a specific strike price. Call holders are not forced to exercise the options, but if they do, the call writers are obligated to sell shares at the strike price. If the option is not exercised due to the index moving in the opposite direction than the buyer's expectations, the call holder loses only the premium paid to enter the contract, while the call writer of the option contract gains the premium either way.
Example
We assume that today an investor instructs a broker to buy on December a call option contract on Coca Cola Co. (KO) with a strike price of $51.70. The broker relays these instructions to a trader at the Chicago Board Options Exchange (CBOE). This trader then finds another trader, who wants to sell on December a call contract on Coca Cola Co. (KO) with a strike price of $51.70, and the strike price for an option to buy one share is assumed to be agreed at $5.20. One stock option contract is a contract to buy or sell 100 shares, according to the law in the United States. Therefore, the investor must arrange for $520 to be remitted to the exchange through the broker. The exchange then arranges for this amount to be passed on to the party on the other side of the transaction.
Investors, who expect a market rally in an underlying index, buy call options on a corresponding ETF, and acquire the right to buy shares of the ETF at a specific strike price. Call holders are not forced to exercise the options, but if they do, the call writers are obligated to sell shares at the strike price. If the option is not exercised due to the index moving in the opposite direction than the buyer's expectations, the call holder loses only the premium paid to enter the contract, while the call writer of the option contract gains the premium either way.
Example
We assume that today an investor instructs a broker to buy on December a call option contract on Coca Cola Co. (KO) with a strike price of $51.70. The broker relays these instructions to a trader at the Chicago Board Options Exchange (CBOE). This trader then finds another trader, who wants to sell on December a call contract on Coca Cola Co. (KO) with a strike price of $51.70, and the strike price for an option to buy one share is assumed to be agreed at $5.20. One stock option contract is a contract to buy or sell 100 shares, according to the law in the United States. Therefore, the investor must arrange for $520 to be remitted to the exchange through the broker. The exchange then arranges for this amount to be passed on to the party on the other side of the transaction.
Wednesday, September 9, 2009
Basic stock market investing tips
There are many ways available to successfully invest your money and make it grow. One of these is to invest in the stock market. However, as with most types of investing, there is risk associated with investing in the stock market and it pays to do some research prior to starting. This way, you will have a basic idea of what is required and have an understanding of what you are doing and the risks involved.
For conservative investors with a low risk tolerance, one of the best ways to invest is through a mutual fund. These are funds of money which track a certain stock market index or group of companies.
The stock market can obviously go up and down and one of the best ways to invest is to take a long term view and invest some money each month. Your investment can then effectively be put on autopilot with money being invested on a regular basis. This is a less stressful way of investing because if the stock market goes down you will effectively be buying more for your money each month. To be effective it has to really be done over a number of years and the best time to cash out is when the stock market is high.
For those with a higher risk tolerance, you could consider investing in individual shares. This is obviously more risky than mutual funds, since the fortunes of companies can rise and fall and companies can go out of business. It is therefore essential to undertake some research prior to investing.
You should learn fundamental analysis, which is the assessment of a company's financial position over a number of years. In this way you can identify fundamentally sound companies which have the best prospects of being successful.
You don't need to do a full depth analysis, but at least set up a spreadsheet showing revenue, net profit/loss, net asset value and profit/loss per share for the previous five years. In this way you can gain an understanding of the company and how it is performing over time. It is not a guarantee of success but identifying fundamentally sound companies should improve your chances.
It is also important to have an idea of technical analysis which can be use in conjunction with fundamental analysis to greatly increase your chances of making money. There are many different forms of technical analysis available and the trick is to find one that you understand and are comfortable using. Typical examples include bar charts, candlestick charts and relative strength. One of the best is Point and Figure charting which tends to provide fairly clear buy and sell signals.
If you use fundamental and technical analysis together you will have a good chance of obtaining a return on your money by investing in the stock market. If you have some time, researching your investments is also an interesting and stimulating exercise.
For conservative investors with a low risk tolerance, one of the best ways to invest is through a mutual fund. These are funds of money which track a certain stock market index or group of companies.
The stock market can obviously go up and down and one of the best ways to invest is to take a long term view and invest some money each month. Your investment can then effectively be put on autopilot with money being invested on a regular basis. This is a less stressful way of investing because if the stock market goes down you will effectively be buying more for your money each month. To be effective it has to really be done over a number of years and the best time to cash out is when the stock market is high.
For those with a higher risk tolerance, you could consider investing in individual shares. This is obviously more risky than mutual funds, since the fortunes of companies can rise and fall and companies can go out of business. It is therefore essential to undertake some research prior to investing.
You should learn fundamental analysis, which is the assessment of a company's financial position over a number of years. In this way you can identify fundamentally sound companies which have the best prospects of being successful.
You don't need to do a full depth analysis, but at least set up a spreadsheet showing revenue, net profit/loss, net asset value and profit/loss per share for the previous five years. In this way you can gain an understanding of the company and how it is performing over time. It is not a guarantee of success but identifying fundamentally sound companies should improve your chances.
It is also important to have an idea of technical analysis which can be use in conjunction with fundamental analysis to greatly increase your chances of making money. There are many different forms of technical analysis available and the trick is to find one that you understand and are comfortable using. Typical examples include bar charts, candlestick charts and relative strength. One of the best is Point and Figure charting which tends to provide fairly clear buy and sell signals.
If you use fundamental and technical analysis together you will have a good chance of obtaining a return on your money by investing in the stock market. If you have some time, researching your investments is also an interesting and stimulating exercise.
Tuesday, September 1, 2009
Intermediate guide to the stock market - Part 1
So you've started investing in the stock market. You've opened an account, made some trades, and maybe even made a little money. Congratulations - you're on your way to taking advantage of the greatest money machine in existence!
But maybe you've realized that to pull money from the market consistently, you will need more than a little luck.
What you need is a Portfolio Management Strategy.
Many full time day traders lose money quite regularly, and you should be wary of this type of strategy, especially if you don't plan on spending several hours each day trading stocks. A much safer approach would be to build a core portfolio of strong, reliable stocks, and to risk only a small fraction of your account in riskier strategies.
For the long term, some of the best types of stocks for a core portfolio would include index funds, large cap stocks, and some carefully chosen smaller stocks.
But maybe you've realized that to pull money from the market consistently, you will need more than a little luck.
What you need is a Portfolio Management Strategy.
Many full time day traders lose money quite regularly, and you should be wary of this type of strategy, especially if you don't plan on spending several hours each day trading stocks. A much safer approach would be to build a core portfolio of strong, reliable stocks, and to risk only a small fraction of your account in riskier strategies.
For the long term, some of the best types of stocks for a core portfolio would include index funds, large cap stocks, and some carefully chosen smaller stocks.
Monday, August 31, 2009
How to Protect Yourself From Ponzi Scheme
Ponzi schemes are nothing new in the marketplace. Unscrupulous fund managers have always sought to dream up new ways of playing shell games with investor's money. Bernard Madoff's massive fraud exposed last year is simply the latest in a long history, though perhaps most shocking due to its sheer scale. The cost associated with this scheme is estimated to be somewhere in the neighborhood of 50 billion dollars. That's enough money to prop up a failing auto industry.
Who can forget the Ponzi scheme cooked up by Samuel Israel that was uncovered in 2004? Israel's company, Bayou Investments, bilked investors of over 450 million dollars. In the end, his fund was nothing but another elaborately concocted scheme. How can we avoid falling prey to the these Ponzi schemes?
Two words: Due Diligence.
It takes a back seat to the bad news, but some investors managed to escape getting bilked by the likes of Israel. Prudent investors decided to hire an investigator before parting with their nest eggs. The investigator recently spoke on NBC's Dateline regarding his detective work. He uncovered false educational credentials for Israel and a history of drug and alcohol abuse. Further research revealed an illegitimate accounting firm underpinning the fund.
A closer inspection of Madoff's scheme would have revealed similar tell-tale clues. A little due diligence could have saved untold investors. What should you be looking for when doing your own fact checking and how can it save you from a sophisticated scheme like Madoffs?
1) Any investment that offers amazingly consistent "too good to be true" yields is suspect. Madoff's fund relied on historically volatile trading practices but produced rock solid results. Don't just let people sell you a fund, make them prove it's worth. If you don't understand their explanation, find a neutral, knowledgeable party to evaluate it.
2) Be aware of the hard sell. If fund managers are courting you for your retirement dollars with free lunches, fancy gifts, or slick sales pitches be skeptical. Madoff frequently enticed clients by telling them the fund was "closed" but he could manage to "get them in".
3) Be sure to dig, dig and dig some more. Is the person approaching you properly licensed? Ask for their credentials; contact the issuer of those credentials whether it is the American Institute of Certified Accountants, the National Association of Personal Financial Advisers or other legitimate organization. Find out who employs them and where your funds go once in the hands of their company. Madoff buried his Ponzi scheme behind layers of "feeder funds". Follow the trail all the way to the top and start asking your questions there.
4) Finally, take a good look at the people who are supposed to be monitoring the company. Contact the SEC (Securities Exchange Commission) and ask for any information regarding the fund. By 2005 Madoff's fund already had a letter on file from a concerned financial advisor that the fund was a "Ponzi scheme". Further, Madoff's comptroller for the phony firm was based off-shore - most legitmate operations take care of this accounting in-house.
Who can forget the Ponzi scheme cooked up by Samuel Israel that was uncovered in 2004? Israel's company, Bayou Investments, bilked investors of over 450 million dollars. In the end, his fund was nothing but another elaborately concocted scheme. How can we avoid falling prey to the these Ponzi schemes?
Two words: Due Diligence.
It takes a back seat to the bad news, but some investors managed to escape getting bilked by the likes of Israel. Prudent investors decided to hire an investigator before parting with their nest eggs. The investigator recently spoke on NBC's Dateline regarding his detective work. He uncovered false educational credentials for Israel and a history of drug and alcohol abuse. Further research revealed an illegitimate accounting firm underpinning the fund.
A closer inspection of Madoff's scheme would have revealed similar tell-tale clues. A little due diligence could have saved untold investors. What should you be looking for when doing your own fact checking and how can it save you from a sophisticated scheme like Madoffs?
1) Any investment that offers amazingly consistent "too good to be true" yields is suspect. Madoff's fund relied on historically volatile trading practices but produced rock solid results. Don't just let people sell you a fund, make them prove it's worth. If you don't understand their explanation, find a neutral, knowledgeable party to evaluate it.
2) Be aware of the hard sell. If fund managers are courting you for your retirement dollars with free lunches, fancy gifts, or slick sales pitches be skeptical. Madoff frequently enticed clients by telling them the fund was "closed" but he could manage to "get them in".
3) Be sure to dig, dig and dig some more. Is the person approaching you properly licensed? Ask for their credentials; contact the issuer of those credentials whether it is the American Institute of Certified Accountants, the National Association of Personal Financial Advisers or other legitimate organization. Find out who employs them and where your funds go once in the hands of their company. Madoff buried his Ponzi scheme behind layers of "feeder funds". Follow the trail all the way to the top and start asking your questions there.
4) Finally, take a good look at the people who are supposed to be monitoring the company. Contact the SEC (Securities Exchange Commission) and ask for any information regarding the fund. By 2005 Madoff's fund already had a letter on file from a concerned financial advisor that the fund was a "Ponzi scheme". Further, Madoff's comptroller for the phony firm was based off-shore - most legitmate operations take care of this accounting in-house.
Monday, August 24, 2009
How to use Standard & Poor's 500 Index - Part 2
The total-return calculation of the S&P 500 Index has progressively become highly appreciated by the Association for Investment Management and Research's (AIMR) and the Securities and Exchange Commission. In order to calculate the total returns for any equity security of the S&P 500 Index for a given time period, an indexed dividend is added to the closing S&P 500 Index value for that period and the total is divided by the closing S&P 500 Index value at the beginning of the time period.
To calculate the indexed dividend, which is the dividend distribution of the companies in the S&P 500 Index, the total daily dividends for all of the stocks in the Index for a given time period are added. The total is converted into an indexed number by being divided by the Index divisor, which is the basis for comparability at any given time, and for any required adjustments due to changes in the equity composition of the Index. The calculations of the Indexed Dividend are based on the ex-dividend date and not on the payment date in order to consider any the market price adjustment occurring for the dividends.
The formula used to calculate the indexed dividend is:
Total Daily Dividends / Index Divisor = Indexed Dividend
What makes S&P 500 Index attractive is its high liquidity. This is due to the fact that S&P 500 comprises of a great variety of companies from several industries, which offers to investors the opportunity to buy stocks from Technology, Healthcare, Financial Services and Telecommunications sectors at a low cost since there is no need for active management to track, analyze and pick stocks.
By and large, S&P 500 Index tracks also a large number of mutual funds, which employ short sales of securities listed in the S&P 500. By applying leverage through futures contracts and stock and index options, S&P 500 Index has become one of the world's most popular trading tools.
To calculate the indexed dividend, which is the dividend distribution of the companies in the S&P 500 Index, the total daily dividends for all of the stocks in the Index for a given time period are added. The total is converted into an indexed number by being divided by the Index divisor, which is the basis for comparability at any given time, and for any required adjustments due to changes in the equity composition of the Index. The calculations of the Indexed Dividend are based on the ex-dividend date and not on the payment date in order to consider any the market price adjustment occurring for the dividends.
The formula used to calculate the indexed dividend is:
Total Daily Dividends / Index Divisor = Indexed Dividend
What makes S&P 500 Index attractive is its high liquidity. This is due to the fact that S&P 500 comprises of a great variety of companies from several industries, which offers to investors the opportunity to buy stocks from Technology, Healthcare, Financial Services and Telecommunications sectors at a low cost since there is no need for active management to track, analyze and pick stocks.
By and large, S&P 500 Index tracks also a large number of mutual funds, which employ short sales of securities listed in the S&P 500. By applying leverage through futures contracts and stock and index options, S&P 500 Index has become one of the world's most popular trading tools.
How to use Standard & Poor's 500 Index - Part 1
Standard & Poor's 500 Index (S&P 500) is a stock index, which tracks changes in the value of a hypothetical portfolio of 400 industrial stocks, 40 utility stocks, 20 transportation companies stocks and 40 financial institutions stocks. The total of 500 different stocks is weighted proportionally to each stock's market capitalization relatively to a particular base period. S&P 500 Index accounts for the 80% of the total market capitalization of the New York Stock Exchange (NYSE), while two contracts on S&P 500 are traded on the Chicago Mercantile Exchange (CME).
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The base-weighted aggregate methodology used by S&P 500 is a set of combined variables, namely price and number of shares. By multiplying the stock price by the number of common shares outstanding, investors may calculate the market capitalization of a company. Then, they find the corresponding indexed number, which represents the results of each calculation and they can understand how the Index tracks the particular stock over time.
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The base-weighted aggregate methodology used by S&P 500 is a set of combined variables, namely price and number of shares. By multiplying the stock price by the number of common shares outstanding, investors may calculate the market capitalization of a company. Then, they find the corresponding indexed number, which represents the results of each calculation and they can understand how the Index tracks the particular stock over time.
Thursday, August 13, 2009
What you can learn from the Stock Market Crash - Part 2
4) HOWEVER, DON'T LET THIS SCARE YOU AWAY FROM STOCKS
Are you wondering how I can talk about stocks going to zero in one breath and then encourage you to own them in the next? The reason is that you will never earn large investment gains over the long term by investing in bonds or bankCDs . Just be sure to recognize the risks involved in stock investing, especially during severe bear markets, and allocate your money to this asset class accordingly. And always remember one of the most important and ironic truths of investing: asset classes that are hated by investors now typically outperform in future periods.
5) DON'T LIMIT YOURSELF TO "LONG-ONLY"
Most people invest in the stock market by owning mutual funds or holding shares in individual stocks. There's a fundamental problem with this: "long-only" investment vehicles like these only enrich investors during rising markets. I encourage you to add other investing tools to your investment toolbox so you can profit during all kinds of markets. Read up and learn how to short stocks. Learn how stock options work. Start small and gradually develop experience with these other types of investments, and you will become an all-weather investor.
6) STAY HUMBLE. RESPECT THE UNPREDICTABLE NATURE OF THE MARKET
The sectors, markets and companies that may seem like great investment opportunities today quite often end up being grave disappointments to investors who follow the herd. Remember tech stocks in 1999? Or real estate in 2006? Both seemed like great sectors at the time.
Markets can be highly counterintuitive, and risks are often only visible after the fact. Try to avoid consensus investment thinking, and don't fixate on the risks that are obvious to investors today. Instead, train yourself to anticipate what risks investors are likely to think about in the future.
7) SAVE MORE
I apologize for closing this essay with such an unpalatable final piece of advice, but the easiest way to make up for investment losses is to increase your personal savings. Most investors will need a combination of investment returns and significant savings to reach their financial goals, whether those goals are early retirement, a certain level of net worth, or a college fund for a young child. When your investment returns have been below your expectations, you can make up the difference by spending less of your income and allocating the extra savings to these longer-term goals.
We may live in a society that collectively saves and invests very little of its discretionary money, but if you save aggressively, take prudent risks, and remain mindful of the various strengths and weaknesses of stocks as an asset class, you will achieve your financial goals. Good luck!
Are you wondering how I can talk about stocks going to zero in one breath and then encourage you to own them in the next? The reason is that you will never earn large investment gains over the long term by investing in bonds or bankCDs . Just be sure to recognize the risks involved in stock investing, especially during severe bear markets, and allocate your money to this asset class accordingly. And always remember one of the most important and ironic truths of investing: asset classes that are hated by investors now typically outperform in future periods.
5) DON'T LIMIT YOURSELF TO "LONG-ONLY"
Most people invest in the stock market by owning mutual funds or holding shares in individual stocks. There's a fundamental problem with this: "long-only" investment vehicles like these only enrich investors during rising markets. I encourage you to add other investing tools to your investment toolbox so you can profit during all kinds of markets. Read up and learn how to short stocks. Learn how stock options work. Start small and gradually develop experience with these other types of investments, and you will become an all-weather investor.
6) STAY HUMBLE. RESPECT THE UNPREDICTABLE NATURE OF THE MARKET
The sectors, markets and companies that may seem like great investment opportunities today quite often end up being grave disappointments to investors who follow the herd. Remember tech stocks in 1999? Or real estate in 2006? Both seemed like great sectors at the time.
Markets can be highly counterintuitive, and risks are often only visible after the fact. Try to avoid consensus investment thinking, and don't fixate on the risks that are obvious to investors today. Instead, train yourself to anticipate what risks investors are likely to think about in the future.
7) SAVE MORE
I apologize for closing this essay with such an unpalatable final piece of advice, but the easiest way to make up for investment losses is to increase your personal savings. Most investors will need a combination of investment returns and significant savings to reach their financial goals, whether those goals are early retirement, a certain level of net worth, or a college fund for a young child. When your investment returns have been below your expectations, you can make up the difference by spending less of your income and allocating the extra savings to these longer-term goals.
We may live in a society that collectively saves and invests very little of its discretionary money, but if you save aggressively, take prudent risks, and remain mindful of the various strengths and weaknesses of stocks as an asset class, you will achieve your financial goals. Good luck!
Sunday, August 9, 2009
Intermediate guide to the stock market - Part 2
Index funds (also known as Exchange Traded Funds) are stocks which track a given index, like the S&P 500, the Dow, or the Nasdaq. They allow you to own an entire market in one stock, and they have a great history of beating most mutual funds over the long term. You can buy many different markets using index funds. For example, you can buy index funds which track: clean energy, agriculture, water, the performance of the dollar verses other currencies, oil, stocks in China, in India, in emerging markets like Eastern Europe and Latin America, and a huge variety of other types of markets!
You can find information about index funds at www.etfconnect.com
While you can't go wrong with a portfolio of index funds, you can do yourself a huge favor by buying shares in large companies. Many large companies, such as Johnson and Johnson, Procter and Gamble, Wal-Mart and General Electric have a long history of not only paying reliable dividends, but also increasing their dividend every year. The power of this cannot be over emphasized. Take, for example, General Electric. The dividend yield on their stock is currently around 4%. But, they have a 30 year history of increasing their dividend by around 12 percent per year. So you can expect the yield on your initial investment to double after six years, to 8%! After 12 years, the yield on your initial investment has become 16% - and this does not take into account the power of compounding. If you were to reinvest the dividends received, your investment would generate over 20% on your initial investment in dividends alone.
To see the dividend history of a company, you can use Yahoo! Finance's "Historic Prices" feature, on the information page of a stock.
Once you have this core portfolio of high quality, sensibly chosen index funds and large dividend paying stocks, use the remaining amount in your portfolio to choose some high quality smaller stocks to give your portfolio the power of growth. To find smaller companies, use a stock screener, and specify a market capitalization of no more than a billion dollars. To be sure you're choosing quality companies, check out the "More Ratios from Reuters" link near the bottom of the company page on Google Finance. Make sure all the ratios on this page are nearly the best in the industry, and be sure the company is not too expensive (look for low price ratios compared to its industry, like the p/e, p/s, p/b, and price to free cash flow - all at the "More Ratios from Reuters" link).
With the proper portfolio construction, you can depend on your portfolio to generate great returns in a variety of market conditions. Decide the risks you're willing to take, arrange your portfolio as described here, sit back, relax, and watch your money grow!
You can find information about index funds at www.etfconnect.com
While you can't go wrong with a portfolio of index funds, you can do yourself a huge favor by buying shares in large companies. Many large companies, such as Johnson and Johnson, Procter and Gamble, Wal-Mart and General Electric have a long history of not only paying reliable dividends, but also increasing their dividend every year. The power of this cannot be over emphasized. Take, for example, General Electric. The dividend yield on their stock is currently around 4%. But, they have a 30 year history of increasing their dividend by around 12 percent per year. So you can expect the yield on your initial investment to double after six years, to 8%! After 12 years, the yield on your initial investment has become 16% - and this does not take into account the power of compounding. If you were to reinvest the dividends received, your investment would generate over 20% on your initial investment in dividends alone.
To see the dividend history of a company, you can use Yahoo! Finance's "Historic Prices" feature, on the information page of a stock.
Once you have this core portfolio of high quality, sensibly chosen index funds and large dividend paying stocks, use the remaining amount in your portfolio to choose some high quality smaller stocks to give your portfolio the power of growth. To find smaller companies, use a stock screener, and specify a market capitalization of no more than a billion dollars. To be sure you're choosing quality companies, check out the "More Ratios from Reuters" link near the bottom of the company page on Google Finance. Make sure all the ratios on this page are nearly the best in the industry, and be sure the company is not too expensive (look for low price ratios compared to its industry, like the p/e, p/s, p/b, and price to free cash flow - all at the "More Ratios from Reuters" link).
With the proper portfolio construction, you can depend on your portfolio to generate great returns in a variety of market conditions. Decide the risks you're willing to take, arrange your portfolio as described here, sit back, relax, and watch your money grow!
Wednesday, August 5, 2009
What you can learn from the Stock Market Crash - Part 1
With most global stock markets down 30-50% year to date, and many individual investment accounts down even more than that, now is a particularly good time to see if there are any lessons we can learn from a period that, quite frankly, has been an awful experience for almost all investors. Here are seven lessons to take away from the recent stock market crash:
1) ALWAYS BE LIQUID
No matter how good things may seem in the market, and no matter how confident you are in your future, always keep a healthy amount of liquid assets available at all times. These assets can be in the form of cash, short-termCDs or money market funds. Ideally, this money should be in addition to a fully funded 6-12 month emergency fund. You never know when you might need extra capital for an attractive investment opportunity, or to fund a large unplanned liability, or to support your family during an unexpectedly long period of unemployment. And most importantly, you never want to be in a position where you are forced to sell your long-term investment assets during a severe market correction.
How much liquidity is the right amount? A good rule of thumb is to keep 20-30% of your investment capital in risk-free, shorter-term interest bearing investments, but I often suggest to people to keep up to two years of expenses in readily available, liquid form.
2) AVOID CATASTROPHIC LOSSES AT ALL COSTS
If you happen to suffer losses of 50% in a mutual fund or in your retirement account (something not uncommon to many investors this year), a curious thing happens: in order to get back to even, you will need to double your money. And assuming an average annual return of 7% (which is looking more and more like an optimistic assumption for stock market returns going forward), doubling your money will take you roughly ten years of compounding time.
Recognize that it can take many years to claw back to breakeven after heavy losses. When you decide what percent of your investment dollars to allocate to stocks, particularly when you are nearing retirement age, keep this concept in the very front of your mind. During certain periods of aninvestor's life, stocks can be far riskier than you might think.
3) ANY STOCK CAN GO TO ZERO (OR GET VERY CLOSE)
A year or two ago, it would have seemed laughable that a company like AIG, trading at above $70 a share with all of its enormous competitive and economic advantages, could have close brush with bankruptcy and have its stock nearly wiped out. And yet that is exactly what happened: the stock is down 97% from its all time high and thecompany's prospects are permanently impaired.
Unfortunately, this isn't as unusual an occurrence as it may seem, especially during severe bear markets. So far in 2008 alone, several airlines, a number of retailers (including Circuit City and Linens'N' Things) and more than 20 financial companies (including major names like Lehman Brothers, Bear Stearns and WaMu Bank) fell into bankruptcy. And in each of these cases, stockholders were left either with nothing or very close to nothing. As a stockholder, you are the first to be wiped out if a serious event occurs to a company in which you hold stock. Respect this fundamental risk inherent in owning stocks.
1) ALWAYS BE LIQUID
No matter how good things may seem in the market, and no matter how confident you are in your future, always keep a healthy amount of liquid assets available at all times. These assets can be in the form of cash, short-termCDs or money market funds. Ideally, this money should be in addition to a fully funded 6-12 month emergency fund. You never know when you might need extra capital for an attractive investment opportunity, or to fund a large unplanned liability, or to support your family during an unexpectedly long period of unemployment. And most importantly, you never want to be in a position where you are forced to sell your long-term investment assets during a severe market correction.
How much liquidity is the right amount? A good rule of thumb is to keep 20-30% of your investment capital in risk-free, shorter-term interest bearing investments, but I often suggest to people to keep up to two years of expenses in readily available, liquid form.
2) AVOID CATASTROPHIC LOSSES AT ALL COSTS
If you happen to suffer losses of 50% in a mutual fund or in your retirement account (something not uncommon to many investors this year), a curious thing happens: in order to get back to even, you will need to double your money. And assuming an average annual return of 7% (which is looking more and more like an optimistic assumption for stock market returns going forward), doubling your money will take you roughly ten years of compounding time.
Recognize that it can take many years to claw back to breakeven after heavy losses. When you decide what percent of your investment dollars to allocate to stocks, particularly when you are nearing retirement age, keep this concept in the very front of your mind. During certain periods of aninvestor's life, stocks can be far riskier than you might think.
3) ANY STOCK CAN GO TO ZERO (OR GET VERY CLOSE)
A year or two ago, it would have seemed laughable that a company like AIG, trading at above $70 a share with all of its enormous competitive and economic advantages, could have close brush with bankruptcy and have its stock nearly wiped out. And yet that is exactly what happened: the stock is down 97% from its all time high and thecompany's prospects are permanently impaired.
Unfortunately, this isn't as unusual an occurrence as it may seem, especially during severe bear markets. So far in 2008 alone, several airlines, a number of retailers (including Circuit City and Linens'N' Things) and more than 20 financial companies (including major names like Lehman Brothers, Bear Stearns and WaMu Bank) fell into bankruptcy. And in each of these cases, stockholders were left either with nothing or very close to nothing. As a stockholder, you are the first to be wiped out if a serious event occurs to a company in which you hold stock. Respect this fundamental risk inherent in owning stocks.
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