As a trader , one of the most important things I try to do is to consciously cultivate my instincts by talking with other traders and investors as often as possible . It still amazes me how big the differences of opinion that exists about what people believe will unfold as we are in the new millennium. Many highly respected names are literally predicting an economic earthquake that a 10 on the Richter scale will measure , while others have looked at the exact same research claim that will be very mild. Effects As a trader I have to evaluate the data and develop a strategy that I feel not only gives me an edge , but provides a great deal of error while still being low risk !
In his book , "Business Without Economists " author William J. Hudson explains a theory worthy of any consideration traders . ( Especially now with Y2K just around the corner ) He explains :
1 ) The demand for answers will always be greater than the supply .
2 ) Therefore, the price will be high for answers .
3 ) therefore a very wide range of answers will emerge .
4 ) Therefore most answers are false , especially when tested against reality .
I have this statement on my computer as a reminder to myself that markets are very humble mechanisms . The main question we must constantly ask ourselves regarding all trading strategy that we enter as traders : " What if I'm right And what if I miss ? ?
As I assess the economic landscape and scan the marketplace for trading options , there is a fact that I should pay attention to : The name of the game is Managing RISK !
With this in mind , let's evaluate some of the important facts :
Many of the Commodity Markets bounced strongly from their twenty to thirty year lows .
When I cross reference this fact with the reality that inflation is back in the economy , it creates some very interesting commercial opportunities for the savvy trader OPTION . The key to a trading strategy in my opinion is that it is a low risk , because there are so many possible outcomes that may occur.
The purpose of this strategy is the need to eliminate the timing of minimizing the development of a method of my risk of loss. Before I provide you with the mechanics of these tactics leave me a weird possibility so we can get clearly illustrate a definition of traders RISK . Let's say you are convinced that on March 1, 2005 , you think that gold is trading at $ 3,000 dollars to be . Ounce ( I said weird ! ) Based on this scenario , even if you wholeheartedly agree , how could you trade this point and still takes very little risk ? Most people think that RISK is defined as being right or wrong on the outcome of a trade. , Is , however, a risk-sensitive trader only concerned with their exposure to chance of LOSS .
If you thought that gold would be traded $ 3,000 per ounce would enter the market and
very cheap to buy a pair of call options that would give you the right to buy at $ 500 per ounce gold. In this case , the most you could lose is the money you the options to buy and you but the obligation to buy at $ 500 between now and March gold would not have . Entitled However , only limited risk because you 're still a great deal of exposure LOSS . The reason for this is that if GOLD does not get to $ 500 you would lose all the money to buying options.
The way a professional would trade this scenario is that he would finance from OPTION SELL trade. When you SELL an option you are essentially creating an obligation that you are forced to stick to contract . For example, if you sell a $ 500 December Gold Call and receives money you have in fact agreed to deliver to the buyer's option at a price of $ 500 between now and December 2004 gold.
As a seller of this option , the most you can make is the premium you collected and you RISK upside is theoretically unlimited . If Gold is trading at $ 800 per ounce in December 2004 and you will have this option you are required to offset the supply of gold to the Option buyer at the originally agreed price of $ 500 per ounce . If this happens you would have in effect a loss of $ 300 per ounce on each contract you sold . Not very attractive , especially since each Gold contract is 100 grams in size . The loss is $ 30,000 per contract . That's a lot of risk !
The way to minimize risks is to SPREAD against other OPPOSITE options positions .
In the above example , let's say that a trader bought March 1 $ 500 Gold call option for a premium payment of $ 6.00 per ounce ( $ 600 ) . Each Gold contract is 100 grams so this trader would have to pay $ 600 per option . The RISK here is very clearly defined as $ 600 . However, if these same dealer now SOLD ( 1 ) GOLD December $ 500 Gold Call Option ( PLEASE NOTE THAT THE December OPTION is applied before the March Option ) and collected a premium payment of $ 300 , they have in fact reduced their initial risk for difference between the $ 600 they paid and the $ 300 he collected , or $ 300 .
Let me outline what this trader did. They have committed themselves to a price of $ 500 per ounce between now and December and the supply of 100 ounces of gold they have the right but not the obligation to hold 100 ounces of gold at $ 500 an ounce between now and March simultaneously. They have a bullish CALENDAR position by selling a call option on a nearby month and using the money they collected in the sale of the ability to finance their purchases of the Call Option in the month deferral option.
What this strategy is actually saying is that the traders believe that gold will make his move after December but before March. Although it does not seem very exciting now , this anticipated disruption occur in that time frame a trader who is positioned in this style would sit in the driver's seat . In essence, they would look at a maximum exposure of $ 300 with the possibility of unlimited upside potential . (Yes , I realize that with gold at $ 430 right now that possibility seems extremely small. ) It is this kind of trading tactic that makes much sense in markets that trade at a historical low .
The key to successful trading is to minimize if you want to get more information. Your Risk The closer you get to expiration the more information you have about the feasibility of this tactic . Most importantly, you played the game without exposing yourself to a lot of DOWN SIDE . That my friends is the path to long-term success in any highly leveraged transaction. As William J. Hudson mentioned ,
"Most answers will be false, especially when tested against reality ! " Worth thinking about .
Still another way to swing for the fences , without taking a large portion of the risks.
STUDY AWAY and let's be careful out there!
Dowjonesfully -
- Harald Anderson
THE RISK OF TRADE IS IMPORTANT , SO ONLY " RISK " funds should be used . The valuation of such may fluctuate , and as a result , customers can lose their initial investment . Under no circumstances should the content of this website be construed as an express or implied promise , guarantee or implication by someone you will benefit.
Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies . His goal in life is to become the kind of person that his dog already thinks he has become .
Friday, 29 November 2013
Wednesday, 27 November 2013
Understanding The Real Rate of Return!
There is an indicator more than any other which determines the health of an economy and this is the real rate of return . Moreover, this is the simplest of all indicators to understand because it determines the security of the assets. Next time you hear the talking heads discussing the nuances of the markets , filter what they say through your own understanding of the Real Rate of Return .
The Real Rate of Return is a number that determines the safety of principal . It is calculated by the current yield and subtracting the expected inflation . The result is the REAL return on giaranteed money from the government .
Interest rates are on the rise as we expected and this pressure has a huge amount of pressure on the stock market . The essential simplicity at work here is very , very basic. As interest on bonds yield 5.14% and inflation is estimated at 5 % . The difference is the real return (in this case we speak about 0.14 % ) . The real return is what sparks major rallies and declines on Wall Street.
The reason is that the Bond market is the largest financial market in the world . There are literally billions of dollars invested in debt denominated assets . These investors are primarily interested in the safety of their principal and take as little risk as possible . They historic welcome REAL Prices of returns that would be in the 2 % - 5 % per year. During the 1970s this indicator NEGATIVE went for a while indicating inflation was faster than the interest rate and bond investors actually had substantial rise. Negative return During this time there was a lot of " screaming and gnashing of teeth . "
It is always my estimation that the Federal Reserve chairman , Alan Greenspan 's main task is to maintain . Real return as high as possible HE has been very successful to do so. If you would WISE display its events through this indicator . More than a history of financial markets to read back The economic climate is remarkably different and change drastically as the real return on the safest investment is threatened . Opinions of people
An understanding of this simplicity is necessary for success in any kind of investing as IT is the basic building block from which all other analysis is based . Although it is always difficult to predict what will happen in the future , the one factor that you can count on is that when the real return there is a lot of sweat on the forehead of Money Managers who oversee the billions of dollars entrusted to them .
At present, keep your eye on this indicator and make your own forecast of inflation . You will realize that your ANALYSIS can be. Better than the big boys
Let us be careful other there !
Dowjonesfully ,
- Harald Anderson
Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies . His goal in life is to become the kind of person that his dog already thinks he has become
Monday, 25 November 2013
Investing 101: Risk Terminology - BETA
About thirty years ago , statisticians armed with all their statistical theories began to confront the financial markets. A handful of useful tools emerged that the average investor should know when they look at buying shares .
A secret that people "in the know " use " BETA " . " Beta " is a number that indicates the relative share of the market has been . However fleeting This number is also listed on most services offer so it is easy to get , but I often find that it is never defined . A BETA of 1.00 means that on average a stock has historically attuned to the markets swings both on the top and at the bottom . A BETA greater than 1:00 reflects above average market volatility , and a BETA of less than 1.00 indicates below average market volatility . When a BETA is less than zero , it shows that the stock moves in contrast to the general market , is in bull markets and increasing in the market bear .. It used to be that gold mining stocks would have negative betas . For example, Internet stocks have high betas .
Many of the analysts who stabbing your TV screen and recommendations BETA use as their primary screening device in the search for suitable investments . So the next time your broker calls with an investment recommendation , ask him what the BETA and enjoy the silence on the other end of the telephone . Send him a copy of this article !
Dowjonesfully ,
- Harald Anderson
Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies . His goal in life is to become the kind of person that his dog already thinks he has become
Saturday, 23 November 2013
Wit and Wisdom on Money, Wall Street and Success - Part #2
Here are ten more WISDOM packed GEMS that ooffer very unqiue insights into the world of trading and investing .
These quotes promote a philosophy that is easy to understand and sometimes hysterical.
In my 25 + years of investing I have hundreds of quotes related to Wisdom , Wall Street and Success collected . I submit this small selection with the hope that it will ease . Forces necessary for your future financial success Enjoy!
1 ) " If 40 million people say a foolish thing , it is not a wise man . "
- W. Somerset Maugham
2 ) " A thousand dollars on to earn an 8 % annual interest will grow to $ 43 trillion in 400 years , but the first hundred years are the hardest. "
Sidney Homer , A History of Interest Rates
3 ) " Everytime history repeats itself, the price goes up . "
- Anonymous
4 ) " In all recorded history , there is not an economist who has to worry about where the next meal would come from . "
- Peter Drucker
5 ) " A good trader must have three things : a chronic inability to accept at face value , to constantly feel restless , and humility have things .
- Michael Steinhardt
6 ) " to be confused with a bull market . Not brains "
- Humphrey Neill
7 ) " Financial genius is a rising stock market . "
- John Kenneth Galbraith
8 ) " The purpose of a market is to facilitate trade. "
- J . Steidl Peter Mayer
9 ) "Buy high , sell higher. "
- William O'Neil
10 ) "Managing your risk or it will manage you ! "
- Harald Anderson - Analyst at eOptionsTrader.com
Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies . His goal in life is to become the kind of person that his dog already thinks he has become
These quotes promote a philosophy that is easy to understand and sometimes hysterical.
In my 25 + years of investing I have hundreds of quotes related to Wisdom , Wall Street and Success collected . I submit this small selection with the hope that it will ease . Forces necessary for your future financial success Enjoy!
1 ) " If 40 million people say a foolish thing , it is not a wise man . "
- W. Somerset Maugham
2 ) " A thousand dollars on to earn an 8 % annual interest will grow to $ 43 trillion in 400 years , but the first hundred years are the hardest. "
Sidney Homer , A History of Interest Rates
3 ) " Everytime history repeats itself, the price goes up . "
- Anonymous
4 ) " In all recorded history , there is not an economist who has to worry about where the next meal would come from . "
- Peter Drucker
5 ) " A good trader must have three things : a chronic inability to accept at face value , to constantly feel restless , and humility have things .
- Michael Steinhardt
6 ) " to be confused with a bull market . Not brains "
- Humphrey Neill
7 ) " Financial genius is a rising stock market . "
- John Kenneth Galbraith
8 ) " The purpose of a market is to facilitate trade. "
- J . Steidl Peter Mayer
9 ) "Buy high , sell higher. "
- William O'Neil
10 ) "Managing your risk or it will manage you ! "
- Harald Anderson - Analyst at eOptionsTrader.com
Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies . His goal in life is to become the kind of person that his dog already thinks he has become
Thursday, 21 November 2013
Wit and Wisdom on Money, Wall Street and Success - Part #1
I love to collect them as concisely promote a philosophy that is easy to understand quotes.
In my 25 + years of investing I have hundreds of quotes related to Wisdom , Wall Street and Success collected . I submit this small selection with the hope that it will ease . Forces necessary for your future financial success Enjoy!
1 ) "Money is really not so important . Is a guy with fifty million dollars happier than a man with $ 48 million ? "
- Milton Berle
2 ) "With money in your pocket , you are wise and you are handsome and you sing well too. "
- Yiddish proverb
3 ) "Money is always there, but to change the bags. "
- Gertrude Stein
4 ) " Spend at least as much time researching a stock as you would choosing a refrigerator . "
- Peter Lynch
5 ) "Wall Street has a unique hysterical way of thinking the world will end tomorrow, but will be fully recovered in the long term , then later to believe a few years the immediate future is bright , but it stinks in the long term . "
- Kenneth L. Fisher , Wall Street Waltz
6 ) " central bankers have been brought up pulling the legs of ants . "
- Paul Volker , former Federal Reserve Chairman
Quoted by William Grieder , Secrets of the Temple
7 ) " Good judgment is usually the result of experience and experience is often the result of poor judgment . "
- Robert Lovell
Quoted by Robert Sobel , Panic on Wall Street
8 ) " When you realize that you are riding a dead horse the best strategy is to dismount . "
- Sioux Indian Proverb
9 ) "To know and not to do is not to know . "
- Zen Saying
10 ) " Amateurs Focus On Rewards ! Professionals Focus on risk! "
- Harald Anderson - Analyst and Founder eOptionsTrader.com
Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies . His goal in life is to become the kind of person that his dog already thinks he has become
In my 25 + years of investing I have hundreds of quotes related to Wisdom , Wall Street and Success collected . I submit this small selection with the hope that it will ease . Forces necessary for your future financial success Enjoy!
1 ) "Money is really not so important . Is a guy with fifty million dollars happier than a man with $ 48 million ? "
- Milton Berle
2 ) "With money in your pocket , you are wise and you are handsome and you sing well too. "
- Yiddish proverb
3 ) "Money is always there, but to change the bags. "
- Gertrude Stein
4 ) " Spend at least as much time researching a stock as you would choosing a refrigerator . "
- Peter Lynch
5 ) "Wall Street has a unique hysterical way of thinking the world will end tomorrow, but will be fully recovered in the long term , then later to believe a few years the immediate future is bright , but it stinks in the long term . "
- Kenneth L. Fisher , Wall Street Waltz
6 ) " central bankers have been brought up pulling the legs of ants . "
- Paul Volker , former Federal Reserve Chairman
Quoted by William Grieder , Secrets of the Temple
7 ) " Good judgment is usually the result of experience and experience is often the result of poor judgment . "
- Robert Lovell
Quoted by Robert Sobel , Panic on Wall Street
8 ) " When you realize that you are riding a dead horse the best strategy is to dismount . "
- Sioux Indian Proverb
9 ) "To know and not to do is not to know . "
- Zen Saying
10 ) " Amateurs Focus On Rewards ! Professionals Focus on risk! "
- Harald Anderson - Analyst and Founder eOptionsTrader.com
Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies . His goal in life is to become the kind of person that his dog already thinks he has become
Tuesday, 19 November 2013
How to Analyze the Veracity of Investment Newsletters
When trying to analyze whether a promotional ad for an investment newsletter or a market timing investment trading system is worthy of investigation , the following questions:
Does the strategy have a track record ? Without really making you to be in the game your emotions. All of us want to believe that if someone says something it must be true. Yet the sad fact is the truth is probably the exact opposite . Most advertisements and promotions are put in print for self interests first , and everything else second . One needs to look on the web with a skeptical eye something. The minimum that an investment that should give you a track record . The longer the track record is better . Something that has worked for a matter of months is usually not long enough to be considered . Successful in the trading world Some promoters do not release their track records because they say that " past performance is no guarantee for the future." This is true, but certainly no returns are no guarantee for the future too . Some promoters do not release their track records because they saying " we used to do a track record , but subscribers got upset if the strategy lost money when they registered although it made money over an annual period . "That may be the case , but it is also part of the game . Subscribers can not expect to make money from day money one in trade a long-term strategy . This may , however, obvious record in track . And some not initiators their track records just loose because they do not have one or they have poor . it's as simple as that no matter what they say .
Is the track record that they promote in real time or was simulated in a computer based on data from the past? What does this really mean ? Real time means that the trading signals that were used to record the track results actually in the time were generated at that time. In reality . Most track records on investment websites are not real-time , even if they say they are . Even if they do not use a computer and it was done by hand , as the data from the last five years , but the website is only a year old then it can not be. Why is this so important ? Because trading is not trading as human emotions are removed . No greed , no complacency , no panic, no hysteria . Almost all computer - generated trading programs fail miserably when actually implemented or because the data was too short a period or the human factor was ignored . That is assuming that the person who input the data did it without human emotion . I once had a friend who told me he had a system that is 80 % per month for the last 6 months . He said he implemented six months in real time. I asked how much he had invested in this strategy . He said nothing because he paper trading . I said there is no such thing . He went on to tell what paper was trading me. I replied that I knew what he thought was paper trading , but it is not trade , because if you paper trade your emotions are not in the game . Human greed and ego has a way to make you believe something to be objectively without really looking at the data . But once the actual real money has drastically changed the complexion of the risk situation .
How can you tell if the job is in real -time as they lie about the fact that in real time ? This is not always easy , but there are some basic tell tale signs . If it is a short term system that very few transactions and often risking say 10-50 times a month. However, a 80-90 % commercial success rate , which is almost statistically impossible. Most day traders and position traders do well if they win 40-50 % of the time . If they risk more and do not use tight stops , then the win loss ratio goes up , but the size of drawdowns or the size of the biggest loss has to go up. Longer term trader a slightly better win loss ratio , but only if their risk is also greater . To submit a general statement the greater the income ratio is the more I would be skeptical .
What if the track record is a combination of partly historical and partly tested back signals realtime signals . How do I analyze it? The first thing to look at is if the win loss ratio is changed by the track record period drastically. For example, if a 5 year period , and the promoter claims that the trade signals went live two years ago, the win loss ratio changed dramatically just six months ago , beware . The most difficult to detect on the web when you are being scammed on a hypothetical track record , because there is no real way to tell when a track record websites removed has been edited or revised. Some websites use an independent tracking site , but there are no real ways for a consumer to know other than that .
I hope the previous ideas will help to determine fact from fiction in the world of investment newsletter promotions.
John McKeon
Rye, NH
Does the strategy have a track record ? Without really making you to be in the game your emotions. All of us want to believe that if someone says something it must be true. Yet the sad fact is the truth is probably the exact opposite . Most advertisements and promotions are put in print for self interests first , and everything else second . One needs to look on the web with a skeptical eye something. The minimum that an investment that should give you a track record . The longer the track record is better . Something that has worked for a matter of months is usually not long enough to be considered . Successful in the trading world Some promoters do not release their track records because they say that " past performance is no guarantee for the future." This is true, but certainly no returns are no guarantee for the future too . Some promoters do not release their track records because they saying " we used to do a track record , but subscribers got upset if the strategy lost money when they registered although it made money over an annual period . "That may be the case , but it is also part of the game . Subscribers can not expect to make money from day money one in trade a long-term strategy . This may , however, obvious record in track . And some not initiators their track records just loose because they do not have one or they have poor . it's as simple as that no matter what they say .
Is the track record that they promote in real time or was simulated in a computer based on data from the past? What does this really mean ? Real time means that the trading signals that were used to record the track results actually in the time were generated at that time. In reality . Most track records on investment websites are not real-time , even if they say they are . Even if they do not use a computer and it was done by hand , as the data from the last five years , but the website is only a year old then it can not be. Why is this so important ? Because trading is not trading as human emotions are removed . No greed , no complacency , no panic, no hysteria . Almost all computer - generated trading programs fail miserably when actually implemented or because the data was too short a period or the human factor was ignored . That is assuming that the person who input the data did it without human emotion . I once had a friend who told me he had a system that is 80 % per month for the last 6 months . He said he implemented six months in real time. I asked how much he had invested in this strategy . He said nothing because he paper trading . I said there is no such thing . He went on to tell what paper was trading me. I replied that I knew what he thought was paper trading , but it is not trade , because if you paper trade your emotions are not in the game . Human greed and ego has a way to make you believe something to be objectively without really looking at the data . But once the actual real money has drastically changed the complexion of the risk situation .
How can you tell if the job is in real -time as they lie about the fact that in real time ? This is not always easy , but there are some basic tell tale signs . If it is a short term system that very few transactions and often risking say 10-50 times a month. However, a 80-90 % commercial success rate , which is almost statistically impossible. Most day traders and position traders do well if they win 40-50 % of the time . If they risk more and do not use tight stops , then the win loss ratio goes up , but the size of drawdowns or the size of the biggest loss has to go up. Longer term trader a slightly better win loss ratio , but only if their risk is also greater . To submit a general statement the greater the income ratio is the more I would be skeptical .
What if the track record is a combination of partly historical and partly tested back signals realtime signals . How do I analyze it? The first thing to look at is if the win loss ratio is changed by the track record period drastically. For example, if a 5 year period , and the promoter claims that the trade signals went live two years ago, the win loss ratio changed dramatically just six months ago , beware . The most difficult to detect on the web when you are being scammed on a hypothetical track record , because there is no real way to tell when a track record websites removed has been edited or revised. Some websites use an independent tracking site , but there are no real ways for a consumer to know other than that .
I hope the previous ideas will help to determine fact from fiction in the world of investment newsletter promotions.
John McKeon
Rye, NH
Sunday, 17 November 2013
Is a SEP Plan Right For Your Business
A September, a special type of IRA . Under a September, the plan the employer creates an IRA account for each eligible employee, hence the name SEP - IRA . A September financed exclusively by contributions from the employer. Employees do not contribute to their SEP - make IRA retirement account . All the money that goes into a Sept. automatically belongs to the employee. Thus, the employee is entitled to his SEP IRA account to take money when it stops working for the company .
Any size business can a Sept. fix, but the September pension is usually used by the self-employed and small businesses with few employees . The SEP IRA rules dictate that if the company contributes to an employee , ( ie , the owner ) , then the company should contribute proportionately to all employees. With few exceptions , anyone who works included in the Sept. However , for now you can exclude from participation in the plan in September everyone :
o Has not worked for the company for three of the last five years .
o Has not reached the age of 21 during the year for which contributions are paid.
o Received less than $ 450 in fees ( depending on the cost of living adjustments ) in the course of the year .
SEP IRA contributions to each employee for 2004 may not exceed the lesser of $ 41,000 or 25 % of wages for W2 recipients ( 20 % of income for sole proprietors ) . Limiting the Sept. IRA contribution goes to $ 42,000 for 2005 , and is subject to cost of living adjustments for later years . SEP - IRA rules do not provide for additional catch-up contributions for those 50 years or older .
A growing number of self-employed people are leaving the SEP - IRA for a newer type of retirement plan called the Solo 401 ( k ) or Self-Employed 401 ( k ) . The two main reasons for the switch are 1 ) they are generally much more contribute to a Solo 401 ( k ) then they can include a Sept. IRA , and 2 ) Loans are allowed under a Solo 401 ( k ) , while loans are prohibited under a SEP - IRA .
Example : Henry , age 52 , a broker received compensation of $ 60,000 income as an independent in 2004 . In 2004 he was able to contribute to a Solo 401 ( k ) versus a maximum of $ 11,152 under a Sept. IRA . A maximum of $ 27,152
However , the Solo 401 ( k ) do not work for companies with employees . So , if your company is planning to hire employees or currently has a few employees , the SEP IRA may be your best choice as a retirement plan that is inexpensive and easy to operate .
Daniel Lamaute , CEO of Lamaute Capital , Inc. specializes in setting up retirement plans . You can visit to access a free calculator that will help estimate your maximum contribution may be under different plans.
Friday, 15 November 2013
Value Investing
By definition , value investing is the process of selecting stocks that trade for less than their intrinsic value . A value investor will be selected stocks with lower than average price - to-book or price -to - earning ratios . Of course it is not as simple. Value investing is the cornerstone of long-term growth . Those who practice it survive the ups and downs of the market and are more likely to emerge wealthy than those who drive the market, basically , because of the higher quality of the companies under the terms of the value investor. Value investing is mainly concerned with getting the most profit at the lowest cost . The basis of value is profit. Value investing is an investment style which favors good stocks at great prices over great stocks at good prices . Value investor extraordinaire Warren Buffett has used this style to become a billionaire .
It is important to keep that value investing is not concerned with how much in mind the price of a stock has risen or fallen se , but what is the "intrinsic " or inherent value of the stock , and is currently trading under that price , ie at a discount to the net asset value. The key point here is that if we look at shares traded at or above their intrinsic value , the only hope of obtaining value is based on future events , because the share price represents what the company is worth . However , when it comes to stocks that are undervalued , or available at a discount , unforeseen events are important in that without new revenue or additional earnings , the shares are already " ready " to return to the inherent value that they have back.
The question is , of course, is " why stock prices do not always reflect the true value of the company and the intrinsic value of the shares ? " In short , value investors believe that stock prices often mistaken as indicators of the underlying value of the company and its shares . The efficient market theory suggests that stock prices always reflect all available information about a company , and the value investors refute this with the idea that investment opportunities are created by disagreements between the current stock prices , and the calculated intrinsic value of that inventory.
Finding value stocks
Value investing is based on the answers to two simple questions :
1. What is the true value of this company?
2. Its shares can be purchased for less than the actual (intrinsic ) value ?
Obviously, the main point here is , " how is the net asset value determined accurately ? " An important point is that companies are undervalued and overvalued regardless of what the global markets are doing . Every investor should be aware of and prepared for the inherent volatility of the market, and the simple fact that the share prices will fluctuate , sometimes quite significantly. Benjamin Graham has often said that if investors are not prepared to accept without becoming littered with panic , a decrease of 50 % in value then perhaps invest not for them ... or rather , successful investing , because it often takes considerable losses in a particular security before profits are made , because the idea that value investors do not try to time the market , and focus on the underlying fundamentals of the companies. Moreover, the quality of the companies targeted by the screening methods value investors may be in the long run , less volatile and sensitive to market " panic " than the average stock.
This is also a two- way road of species. On the one hand, there is no point in worrying about depressions , upturns , and recoveries due to the underlying quality of the investment value . On the other hand , investment should be made only in companies that can thrive and do well in any market environment . Do solid investment research and making equally solid investment decisions will be much more than trying to predict the markets take investors .
How many different files ?
In terms of diversification , there are many differences exactly how many shares a solid portfolio should be made up . My personal opinion is that there should not be as much stock as part of a normal mutual fund. Many will disagree with this , but what it's worth , I think that owning a portfolio of 100 , 200 or even more companies not only serves to reduce the risk but it really is the possibility of reward is limited. Also, as Warren Buffett has said many times, the more companies you own, the less you know about each one.
As I write this , there are 42 pieces featured in our portfolio . This number may well grow in the coming months , because it may decrease in number , but keep one thing in mind , from the thousands of companies available for purchase, only a very small percentage meet the stringent requirements of the diligent value investor . This is both a blessing and a curse . Very often , there is just nothing to buy , and this is fine . To avoid falling into the trap is to reduce your wishes for a stock when there is simply nothing to the normal requirements . This is how much an investor has fallen into making bad investment decisions , stabbing money in companies not really sufficient for their portfolio , and it will certainly have a long term effect on earnings
Wednesday, 13 November 2013
Tyranosaurus Rex
Everyone knows T Rex was the most feared of all dinosaurs . He could and did everything to kill for food or maybe stupid meanness in his path. His brains was very small and he did not survive .
There is a T - Rex among us today and it is disguised , but it is killing us in a different way . This T - Rex is killing and eating our retirement portfolios . You may have noticed that your Stocked has lost some of its value during the last 3 years . Something or someone is nibbling away at it . It has gotten so bad that many people do not even want to look at their monthly statements . Is there a way to the beast , whatever its name , love the whole eat anything ? Yes, there is .
Currently there is an advance on the stock market and you have been told by the talking heads on CNBC - TV that the bull market has resumed and it is best to " put some money you might need in the market Do not lose this opportunity . to do what you have lost . " back
This is a very sneaky T - Rex . It is in the bushes and you may have not seen . If you still currently own any shares you want to protect the beast them. If this is a new bull market you would like to participate . OK , buy something , but you should know where to hide to walk to the T - Rex comes out . How ?
Now , I said now , you need to decide how much you are willing to risk here, not where you were 3 years ago . Do not try to "even" get . That you can not. Since this market is rising you should be following every stock you can open with a stop - loss order . It would be 8%, 10 %, 15 %. Anything you feel comfortable. Do not try to outsmart the beast . Listen to his return and have your protection in place so that it will be automatically activated when T - Rex returns.
None of us knows how long you'll be able to graze in the green pastures will be. It should only be days but can take months or longer. If you are careful the monster will not get you . The market itself will tell you when to run for shelter. Not recommended . That is the wisdom of a stop-loss protection .
Take a few moments to your stock and mutual fund companies in 2000. Find the price at that time for any problem . If you had posted a loss would all much protection you saved ?
In a bear market the best offense is a good defense . Do not let T - Rex get .
Best selling all of Thomas ' book , "If it does not go up , do not buy ! " Has helped thousands of people make money and keep their profits with his simple 2 - step method . Read the first chapter and receive his market letter and discover why he's the man that Wall Street does not want you to know . Copyright 2004
Monday, 11 November 2013
Lobster Trapping for Investment Ideas
Recently , my family and I took a trip to Maine to visit . To family During our stay , we toured the rocky shore lines and took in the beautiful architecture of the old towns.
One sunny morning , three generations of Ward Laws aboard a lobster boat and went on a guided lobster trapping excursion.
We quickly learned lobstermen lead a life of hard work and regulations.
In the course of many years, lobstermen and state officials Maine certain criteria to protect lobsters and ensure greater development. With the rules , lobstermen look for " keepers . "
A " holder " is a lobster between 3.25 and 5 inches measurement of his eye socket at the end of the back shell . In addition to the accurate measurements , the lobster eggs not wear nor it can be a notch in the tail ( which indicates that it is a dam) . The notch is cut from previous lobstermen who breed of lobster is observed .
If the lobster does not fit the criteria , it is removed and placed back into the waters .
As an investor , you are constantly looking for " keepers . " At your disposal is a wealth of information to determine . The quality of a position
Depending on your predetermined goals ( including risk tolerance and time horizon ) , you can use a number of instruments. If the position does not fit such benchmarks , consider to move to a more suitable position .
For example , among the many rules of measurement , an investor looks at a mutual fund beta ' s . Of course , the management of the fund , cost, asset allocations and historical performance should play a role.
For bonds , an investor maturity, coupon , the yield to maturity (or call ) , price appreciation and regard . An investor must also determine the type of bond . Do you prefer a municipal , treasury , or corporate bonds ?
And with respect to stocks , if you have been an investor for a number of years you know the drill . Between fundamental and technical analysis , you have to withdraw from the waters . Several pitfalls
It is important to know the criteria for your portfolio . Remember, some positions are keepers , while others may be discarded.
Wardlaw is involved in the field of investments and insurance for over twelve years . Conviction of the author is that familiar life elements best illustrate practical investment strategies, not typical investment jargon
One sunny morning , three generations of Ward Laws aboard a lobster boat and went on a guided lobster trapping excursion.
We quickly learned lobstermen lead a life of hard work and regulations.
In the course of many years, lobstermen and state officials Maine certain criteria to protect lobsters and ensure greater development. With the rules , lobstermen look for " keepers . "
A " holder " is a lobster between 3.25 and 5 inches measurement of his eye socket at the end of the back shell . In addition to the accurate measurements , the lobster eggs not wear nor it can be a notch in the tail ( which indicates that it is a dam) . The notch is cut from previous lobstermen who breed of lobster is observed .
If the lobster does not fit the criteria , it is removed and placed back into the waters .
As an investor , you are constantly looking for " keepers . " At your disposal is a wealth of information to determine . The quality of a position
Depending on your predetermined goals ( including risk tolerance and time horizon ) , you can use a number of instruments. If the position does not fit such benchmarks , consider to move to a more suitable position .
For example , among the many rules of measurement , an investor looks at a mutual fund beta ' s . Of course , the management of the fund , cost, asset allocations and historical performance should play a role.
For bonds , an investor maturity, coupon , the yield to maturity (or call ) , price appreciation and regard . An investor must also determine the type of bond . Do you prefer a municipal , treasury , or corporate bonds ?
And with respect to stocks , if you have been an investor for a number of years you know the drill . Between fundamental and technical analysis , you have to withdraw from the waters . Several pitfalls
It is important to know the criteria for your portfolio . Remember, some positions are keepers , while others may be discarded.
Wardlaw is involved in the field of investments and insurance for over twelve years . Conviction of the author is that familiar life elements best illustrate practical investment strategies, not typical investment jargon
Saturday, 9 November 2013
Economic Survival in the 21st Century - the Three Key Questions to Ask
In this " special report " , I want to pose a few important "philosophical questions " to my readers in the first place - . Our Federal Reserve Chairman , Alan Greenspan , addressed the effects and implications of an aging population on things such as social security again in a speech that he made last Friday . Readers may recall that I briefly mentioned this issue in my June 24 comment I urge you to securely store this global phenomenon of population aging on the back of your sentences If you're like most people , you earn your living by producing a certain thing - . . as a consumer or . a service that the masses want Let's face it - how many people really " hit the rich" by being pure traders or investment managers , the stock market and other financial markets are certainly very important to us investors / traders , but these " super secular trend " ? the aging of the population worldwide will affect every aspect of our lives , whether it is losing our relative competitiveness on the world stage , increasing pension and healthcare costs , or even a potential fundamental change in our political system .
The second question I want my readers to think about the possible end to the era of cheap energy prices - an era in which we actually enjoyed for the last two decades without thinking of the long-term consequences . The United States, with less than five percent of the world's population, which is currently annually consume about 25% of the energy in the world . Supply is maturing , while demand continues to surge - as illustrated by the increasing demand from China and India . In the meantime , spare energy - producing capacity and stock levels are at all-time lows - potential for a perfect storm ?
Finally, I want my readers the following question : What kind of investor are you? What investing style do you take and what investing style you are most comfortable with ? Can a contrarian and buy when the crowd is selling or are you just a follower who is only comfortable when you fit in ? These are simple questions - but these are questions that you really need to ask to make in investing in the long -term real money yourself . If my readers take the time to think about these three questions or problems - and ultimately have a firm grasp of even one of the problems - then you will be a much better economic situation than most Americans five to ten years from now .
To begin with, what are the possible consequences of the " aging population " phenomenon ? Readers my recall that in my June 24 commentary , I said, " Assuming that the current level of benefits will remain in the future and based on the level of taxation is not an issue , then the public benefits for retirees would forward increase dramatically going . at the very end , Japan and Spain will see a more than 100 % increase in their spending on pensioners . Clearly, this is not sustainable . Either things like defense or education spending should be cut , or the above countries need to increase their taxes. Neither scenario is optimal . Borrowing more of their money is not a long term solution . Cutting funding in defense and education will be the future of a country life , and raising taxes will place an enormous social and financial burden for the population of the developed world - where the taxes are already at historically high levels Think about this : . If you're a bright, young , French industrialist and were forced to 60 % of your income to pay taxes to support the elderly, what would you do Why , would you vote with your feet and move to another country that is more tax-friendly and business - friendly - and so will other great talent that a major contribution to the French economy may have been the governments of the developed world recognizes this - . but there are no easy solutions .
" This picture is grimmer when one takes note of a study conducted by the Bank Credit Analyst . In that study , the BCA predicts that by the year 2050 , the percentage share of the developed countries of the world will fall more than 30 % in 1950 to less than 14 % - . or approximately equal to the population of the Muslim countries of the world Similarly Yemen are more populous than Germany in 2050 , while Iraq will be 30 % more populous than Italy ( Iraq is less than 40 % of . the size of Italy today) Russian population is expected to continue to fall - . at such a rate that the population of Iran even higher to that of Russia, in 2050 India will be the most populous country in the world , and Pakistan will only lay the U.S. with about 50 million people . If the developed countries of today do not choose to work harder or be more efficient , they will eventually lose their comparative advantage , as the younger population of the world is inherently more hardworking , energetic , innovative and creative in the globalized world of today, this will be a killer for the average worker in the developed countries - . especially when the language barrier is eliminated ( the successful commercialization of the universal language translators expected to happen in ten to fifteen years ) I am . generally optimistic , such as the abolition of the language barrier will greatly enhance business opportunities and efficiency, but a person like the average American worker is losing his or her comparative advantage in the global workforce . availability of a huge range of labor should also drive down wages in the global market - and probably increase the maldistribution of wealth in today's developed countries " .
As I have said before, there are no easy solutions . If the average American sees an increase of 10 years in his or her life , he or she can in the current normal retirement age of 65 retire reasonably or logically ( which was established during the Roosevelt administration during the 1930s ) without placing an unnecessary load on the system? The answer is likely to apply to his or her new life the same work "None. " - Year - to - pension - years - ratio , the average American should probably work around five to six more years - making a revised normal retirement age 70 years or so . Moreover, all these analysis based on outdated distribution of the population in the form of a pyramid - where the younger and more able workers representing a majority of the population ( and where the elderly represent only a small minority of the population) . The pyramid distribution has historically facilitated government support of the elderly - as the monetary and social costs are shouldered by a relatively large younger population . The current experience of Europe and Japan suggests a more even distribution of the population of these countries are moving forward - as the birth rate in those countries are now eerily below the replacement rate of the population. The situation in the United States is currently not as drastic ( given our relatively lax immigration ) , but we are moving towards the same direction . So to maintain the current standard of living in retirement I think the general population will not have to work , but work more hours in the present ( and save more ) only longer as well.
The situation is alarming when one considers that the total population of China and India is more than one third of the world population. The number of unemployed in China is greater than the entire population of the United States . The competition for relatively unskilled work will continue , and it promises to accelerate going forward. The average American who does not stay ahead of the curve or not to keep pace with the trend will find his or her work outsourced - not to mention the average wage is driven down by global competition . I , for one, believe that this ongoing trend of globalization, the world will , as hundreds of thousands of people will finally be empowered as they climb out of absolute poverty (again, a better place more than half the world's population lives on less than two dollars a day ) - and as the prices of consumer goods are further driven down . The average American will probably disagree , but the trend of globalization and " offshoring " will not stop . The last time the United States provided military and economic isolationism we had a Great Depression and later World War II. I honestly do not think this is a coincidence .
The general trend of aging and globalization will have a profound impact on all Americans . Ultimately, I think all Americans will benefit - although it is not clear for people who lose their jobs can be today . For the uninitiated and limber , you will not only survive , but thrive in this " new interesting times . " Imagine a market for your product that is more than ten times the size of the population in the United States . China and India has historically disappointed - as citizens of countries that historically have been too poor for many goods and services U.S. consume. Globalization and offshoring will all change . A world more economically equalizer also means a much safer and less conflictual world .
Now, I want a similar concern of all Americans hold - as the era of cheap energy ( basically the cheap energy prices as experienced by Americans for the last twenty years ) comes to an end . While I think oil prices will fall in the short term ( ie for the next few months ) , I am long-term bullish on both oil and natural gas prices (I will only discuss oil in this commentary ) . Consider the following:
The world supply of oil is flattening . Readers may not know this , but the United States today produce enough oil to about 40 % of total domestic demand. The United States also had 22.7 billion barrels of proven oil reserves from January 1, 2004 , eleventh highest in the world . According to the Energy Information Administration (EIA ) , the United States produced about 7.9 million barrels per day in 2003 . This is down sharply from the average 10.6 million barrels in 1985 . The peak of domestic oil supply somewhere in the 1970s . Today , the total domestic production is at 50 -year lows - and still falling .
While Saudi Arabia ( the world's top exporter and contains 25 % of the reported world reserves) and has claimed that there will be no supply problems for decades , they have not been transparent data with their reserves . According to Simmons & Company International , five to seven key areas in Saudi Arabia produce 90 % to 95 % of its total oil production - all but two fields are very old - the last major discovery reported in 1968 . The reserves data was last published in 1975 - when Saudi Aramco was distributed by Exxon , Mobil , Chevron and Texaco . In that report , best world experts established that all important areas at the time contained 108000000000 barrels in recoverable reserves . If this is true , then the peak of supply in Saudi Arabia will come soon. Moreover , if the report is correct, then there really is no " plan B " ( unlike in the 1970s when the center of power shifted from the Texas Railroad Commission to OPEC due to the peak of supply in the United States) - crude oil prices will rise .
The " last frontier " for the production of oil (namely the North , Siberia and Alaska ) is now aging. Most companies are now struggling to even maintain their current level of production .
Global demand for oil continues to increase . Oil demand in the early 1990s remained relatively flat ( around 66-68000000 barrels per day ) , but in the next ten years to today , global oil demand increased by 14 million barrels per day . Today , the total global demand for oil exceeds 82 million barrels per day . The energy "experts " who predicted in the early 1990s, a slowdown in the demand for oil and who wrote from demand growth in developing countries were dead wrong.
No new refineries have been built in the United States in the past two decades , even as refineries are closed each year during the same period. Refining capacity from 1981 to mid- 1990 also dropped dramatically ( this author estimates that a reduction of about 6 million barrels per day of refining capacity in that period ) . Since 1994 , however, an expansion of refining capacity in existing refineries has contributed to an increase in refining capacity of 15.0 million barrels per day to 16.7 million barrels per day (from today ) . Despite this expansion , however, the domestic refining capacity is still stretched to the limit, as used in refineries in the U.S. is now averaging nearly 90 % - leaves no cushion room if something unexpected happens .
There are three factors at work that will contribute to a continuous rise in the world price of oil - the maturation of supply, growing demand , and the lack of a cushion in refining capacity and low inventories . The "culprit" is usually labeled as China , but it is interesting to note that the United States virtually no domestic energy (in terms of conservation and encourage the development of alternative fuels ) has had for the last twenties. However , China 's demand has skyrocketed in recent years. It is now the second largest oil consumer , who just surpassed Japan for the title . Oil demand in China has more than doubled in the last 10 years (until today 6 million barrels per day ) , and this huge increase is expected to continue , especially given the fact that the demand for oil in China is still a humble 2 barrels per person per year (compared to 25 barrels per person here in the United States) . It is interesting to note that the number of cars in China alone amounted to 700,000 as late as 1993 and 1.8 million as late as 2001 . Today , the number of cars in China totaled more than 7 million - and this number could have been if not intervene for the Chinese government in limiting the number of cars that can be sold be much higher and driven each year . Now the most scary part : Current oil demand in India is only 0.7 barrels per person per year - given this fact , the demand for oil in India potentially explode in the next decade - barring a massive global economic recession or depression .
I believe that my readers should be aware of the current energy supply / demand situation are made . Given the above , what is the best course of action for the average American ? What about the best course of action if you are the head of an engine company like GM or a pilot employed by a legacy airline like Delta ? What about the best course of action for a mutual fund manager or a commodity fund manager? Since there are no easy solutions , there should be no simple answers not . In the short term ( three to five years ) , the Americans will have to pay if we want to drive gas-guzzling SUVs , and legacy airlines like Delta will have to continue to save money by cutting labor costs is likely to continue as their first priority. Costs A further improvement of the extraction technology should help , but the serious development of alternative fuels will have to start now . I also believe that the next serious decline is caused by a combination of an " oil shock " and a rise in interest rates . Readers can the relative strength chart that I developed in my August 15 commentary shows the AMEX Oil Index versus the S & P 500 and the huge potential inverse head and shoulders pattern recall . In that chart For now , the relative strength line bouncing around the neck ( the line on that chart ) - possibly even for a few years - but once the relative strength line break convincingly above the neckline , crude oil prices could rise to $ 80 or even to $ 100 a barrel . I hope that my readers would not be surprised if the gas price at the pump increases to $ 4.00 per gallon five to six years from now .
Finally, I ask the following question to my readers : Have you taken the time to learn more about your psychological makeup and how it is your investment or trading decisions affect learning ? What kind of person are you when it comes to the market? Are you a so-called buy- and - holder, a swing trader or a day trader ? An independent thinker , a contrarian , a momentum investor or just a follower ? I ask these questions because of my following considerations :
This author believes that we are currently in a secular bear market in domestic ordinary shares. While I believe that this current rally still more room to go, I think a cyclical bear market will come in due time - this upcoming cyclical bear market may even take us back or below the lows that we hit during October 2002 . If this is true, then a buy-and - hold portfolio would certainly not work - unless your mining stocks in natural resources or precious metals.
When this cyclical bull market tops out , will tell you to buy more or to hold your shares . All your friends , family , and the popular media The bears and all bearish thoughts will be ostracized and rejected . This has happened in every bull market in all throughout human history . If you would be able to stay in cash now , in cash at the top end comes or you will not be able to resist and buy in , because you are afraid " to leave the train station without you , "so to speak ?
Most people are not naturally good day traders or swing traders . To be , even in the last , well, you need a huge amount of dedication and discipline .
Investing or trading was dominated by emotions and always will be . My thinking in starting has always been that if I can get to buy now , my readers will continue to sell a much easier decision for them and cash when the DJIA reaches 11,000 or 12,000 or so - as Unlike those in cash and remain off for the remainder of this secular bear market. 99 % of Americans are simply not disciplined and dedicated enough to stay in cash during a secular bear market - not to mention stay in cash in the whole of a secular bear market and the buying and holding of shares during the whole of a subsequent secular bull market . The average human psyche is simply unable to do so. Because of this , I sincerely believe that success would mean catching the swings to the right or nearly right moments . Within the next five to ten years in the stock market ( for most people ) For readers who just can not resist , I will continue to have a number of common shares recommend appropriate times , but in no way should my readers take my advice as gospel and in no way should my readers already their eggs in one basket. If you are a person who can stay in cash for the next ten years and wait for the Dow Industrials has a P / E below 10 and a dividend yield of more than 5 % , then more power to you - you either already rich who do not need how to make money than in the market or you are a very disciplined and independent thinking person . Most Americans simply can not do - but I'm here to help .
Henry To , CFA , is co-founder and partner of the economic consultancy , Market Thoughts LLC, an adviser to the hedge fund Independence Partners , LP . is a service provided by MarkertThoughts LLC, offers twice a week designed for a comment about the stock market and the economy beyond the headlines to feed subscribers. This comment is usually focused on the fundamentals and technicals of the current stock market , but also individual sector and stock analyzes - as well as more general investing topics such as the Dow Theory , investing psychology , and financial history .
The second question I want my readers to think about the possible end to the era of cheap energy prices - an era in which we actually enjoyed for the last two decades without thinking of the long-term consequences . The United States, with less than five percent of the world's population, which is currently annually consume about 25% of the energy in the world . Supply is maturing , while demand continues to surge - as illustrated by the increasing demand from China and India . In the meantime , spare energy - producing capacity and stock levels are at all-time lows - potential for a perfect storm ?
Finally, I want my readers the following question : What kind of investor are you? What investing style do you take and what investing style you are most comfortable with ? Can a contrarian and buy when the crowd is selling or are you just a follower who is only comfortable when you fit in ? These are simple questions - but these are questions that you really need to ask to make in investing in the long -term real money yourself . If my readers take the time to think about these three questions or problems - and ultimately have a firm grasp of even one of the problems - then you will be a much better economic situation than most Americans five to ten years from now .
To begin with, what are the possible consequences of the " aging population " phenomenon ? Readers my recall that in my June 24 commentary , I said, " Assuming that the current level of benefits will remain in the future and based on the level of taxation is not an issue , then the public benefits for retirees would forward increase dramatically going . at the very end , Japan and Spain will see a more than 100 % increase in their spending on pensioners . Clearly, this is not sustainable . Either things like defense or education spending should be cut , or the above countries need to increase their taxes. Neither scenario is optimal . Borrowing more of their money is not a long term solution . Cutting funding in defense and education will be the future of a country life , and raising taxes will place an enormous social and financial burden for the population of the developed world - where the taxes are already at historically high levels Think about this : . If you're a bright, young , French industrialist and were forced to 60 % of your income to pay taxes to support the elderly, what would you do Why , would you vote with your feet and move to another country that is more tax-friendly and business - friendly - and so will other great talent that a major contribution to the French economy may have been the governments of the developed world recognizes this - . but there are no easy solutions .
" This picture is grimmer when one takes note of a study conducted by the Bank Credit Analyst . In that study , the BCA predicts that by the year 2050 , the percentage share of the developed countries of the world will fall more than 30 % in 1950 to less than 14 % - . or approximately equal to the population of the Muslim countries of the world Similarly Yemen are more populous than Germany in 2050 , while Iraq will be 30 % more populous than Italy ( Iraq is less than 40 % of . the size of Italy today) Russian population is expected to continue to fall - . at such a rate that the population of Iran even higher to that of Russia, in 2050 India will be the most populous country in the world , and Pakistan will only lay the U.S. with about 50 million people . If the developed countries of today do not choose to work harder or be more efficient , they will eventually lose their comparative advantage , as the younger population of the world is inherently more hardworking , energetic , innovative and creative in the globalized world of today, this will be a killer for the average worker in the developed countries - . especially when the language barrier is eliminated ( the successful commercialization of the universal language translators expected to happen in ten to fifteen years ) I am . generally optimistic , such as the abolition of the language barrier will greatly enhance business opportunities and efficiency, but a person like the average American worker is losing his or her comparative advantage in the global workforce . availability of a huge range of labor should also drive down wages in the global market - and probably increase the maldistribution of wealth in today's developed countries " .
As I have said before, there are no easy solutions . If the average American sees an increase of 10 years in his or her life , he or she can in the current normal retirement age of 65 retire reasonably or logically ( which was established during the Roosevelt administration during the 1930s ) without placing an unnecessary load on the system? The answer is likely to apply to his or her new life the same work "None. " - Year - to - pension - years - ratio , the average American should probably work around five to six more years - making a revised normal retirement age 70 years or so . Moreover, all these analysis based on outdated distribution of the population in the form of a pyramid - where the younger and more able workers representing a majority of the population ( and where the elderly represent only a small minority of the population) . The pyramid distribution has historically facilitated government support of the elderly - as the monetary and social costs are shouldered by a relatively large younger population . The current experience of Europe and Japan suggests a more even distribution of the population of these countries are moving forward - as the birth rate in those countries are now eerily below the replacement rate of the population. The situation in the United States is currently not as drastic ( given our relatively lax immigration ) , but we are moving towards the same direction . So to maintain the current standard of living in retirement I think the general population will not have to work , but work more hours in the present ( and save more ) only longer as well.
The situation is alarming when one considers that the total population of China and India is more than one third of the world population. The number of unemployed in China is greater than the entire population of the United States . The competition for relatively unskilled work will continue , and it promises to accelerate going forward. The average American who does not stay ahead of the curve or not to keep pace with the trend will find his or her work outsourced - not to mention the average wage is driven down by global competition . I , for one, believe that this ongoing trend of globalization, the world will , as hundreds of thousands of people will finally be empowered as they climb out of absolute poverty (again, a better place more than half the world's population lives on less than two dollars a day ) - and as the prices of consumer goods are further driven down . The average American will probably disagree , but the trend of globalization and " offshoring " will not stop . The last time the United States provided military and economic isolationism we had a Great Depression and later World War II. I honestly do not think this is a coincidence .
The general trend of aging and globalization will have a profound impact on all Americans . Ultimately, I think all Americans will benefit - although it is not clear for people who lose their jobs can be today . For the uninitiated and limber , you will not only survive , but thrive in this " new interesting times . " Imagine a market for your product that is more than ten times the size of the population in the United States . China and India has historically disappointed - as citizens of countries that historically have been too poor for many goods and services U.S. consume. Globalization and offshoring will all change . A world more economically equalizer also means a much safer and less conflictual world .
Now, I want a similar concern of all Americans hold - as the era of cheap energy ( basically the cheap energy prices as experienced by Americans for the last twenty years ) comes to an end . While I think oil prices will fall in the short term ( ie for the next few months ) , I am long-term bullish on both oil and natural gas prices (I will only discuss oil in this commentary ) . Consider the following:
The world supply of oil is flattening . Readers may not know this , but the United States today produce enough oil to about 40 % of total domestic demand. The United States also had 22.7 billion barrels of proven oil reserves from January 1, 2004 , eleventh highest in the world . According to the Energy Information Administration (EIA ) , the United States produced about 7.9 million barrels per day in 2003 . This is down sharply from the average 10.6 million barrels in 1985 . The peak of domestic oil supply somewhere in the 1970s . Today , the total domestic production is at 50 -year lows - and still falling .
While Saudi Arabia ( the world's top exporter and contains 25 % of the reported world reserves) and has claimed that there will be no supply problems for decades , they have not been transparent data with their reserves . According to Simmons & Company International , five to seven key areas in Saudi Arabia produce 90 % to 95 % of its total oil production - all but two fields are very old - the last major discovery reported in 1968 . The reserves data was last published in 1975 - when Saudi Aramco was distributed by Exxon , Mobil , Chevron and Texaco . In that report , best world experts established that all important areas at the time contained 108000000000 barrels in recoverable reserves . If this is true , then the peak of supply in Saudi Arabia will come soon. Moreover , if the report is correct, then there really is no " plan B " ( unlike in the 1970s when the center of power shifted from the Texas Railroad Commission to OPEC due to the peak of supply in the United States) - crude oil prices will rise .
The " last frontier " for the production of oil (namely the North , Siberia and Alaska ) is now aging. Most companies are now struggling to even maintain their current level of production .
Global demand for oil continues to increase . Oil demand in the early 1990s remained relatively flat ( around 66-68000000 barrels per day ) , but in the next ten years to today , global oil demand increased by 14 million barrels per day . Today , the total global demand for oil exceeds 82 million barrels per day . The energy "experts " who predicted in the early 1990s, a slowdown in the demand for oil and who wrote from demand growth in developing countries were dead wrong.
No new refineries have been built in the United States in the past two decades , even as refineries are closed each year during the same period. Refining capacity from 1981 to mid- 1990 also dropped dramatically ( this author estimates that a reduction of about 6 million barrels per day of refining capacity in that period ) . Since 1994 , however, an expansion of refining capacity in existing refineries has contributed to an increase in refining capacity of 15.0 million barrels per day to 16.7 million barrels per day (from today ) . Despite this expansion , however, the domestic refining capacity is still stretched to the limit, as used in refineries in the U.S. is now averaging nearly 90 % - leaves no cushion room if something unexpected happens .
There are three factors at work that will contribute to a continuous rise in the world price of oil - the maturation of supply, growing demand , and the lack of a cushion in refining capacity and low inventories . The "culprit" is usually labeled as China , but it is interesting to note that the United States virtually no domestic energy (in terms of conservation and encourage the development of alternative fuels ) has had for the last twenties. However , China 's demand has skyrocketed in recent years. It is now the second largest oil consumer , who just surpassed Japan for the title . Oil demand in China has more than doubled in the last 10 years (until today 6 million barrels per day ) , and this huge increase is expected to continue , especially given the fact that the demand for oil in China is still a humble 2 barrels per person per year (compared to 25 barrels per person here in the United States) . It is interesting to note that the number of cars in China alone amounted to 700,000 as late as 1993 and 1.8 million as late as 2001 . Today , the number of cars in China totaled more than 7 million - and this number could have been if not intervene for the Chinese government in limiting the number of cars that can be sold be much higher and driven each year . Now the most scary part : Current oil demand in India is only 0.7 barrels per person per year - given this fact , the demand for oil in India potentially explode in the next decade - barring a massive global economic recession or depression .
I believe that my readers should be aware of the current energy supply / demand situation are made . Given the above , what is the best course of action for the average American ? What about the best course of action if you are the head of an engine company like GM or a pilot employed by a legacy airline like Delta ? What about the best course of action for a mutual fund manager or a commodity fund manager? Since there are no easy solutions , there should be no simple answers not . In the short term ( three to five years ) , the Americans will have to pay if we want to drive gas-guzzling SUVs , and legacy airlines like Delta will have to continue to save money by cutting labor costs is likely to continue as their first priority. Costs A further improvement of the extraction technology should help , but the serious development of alternative fuels will have to start now . I also believe that the next serious decline is caused by a combination of an " oil shock " and a rise in interest rates . Readers can the relative strength chart that I developed in my August 15 commentary shows the AMEX Oil Index versus the S & P 500 and the huge potential inverse head and shoulders pattern recall . In that chart For now , the relative strength line bouncing around the neck ( the line on that chart ) - possibly even for a few years - but once the relative strength line break convincingly above the neckline , crude oil prices could rise to $ 80 or even to $ 100 a barrel . I hope that my readers would not be surprised if the gas price at the pump increases to $ 4.00 per gallon five to six years from now .
Finally, I ask the following question to my readers : Have you taken the time to learn more about your psychological makeup and how it is your investment or trading decisions affect learning ? What kind of person are you when it comes to the market? Are you a so-called buy- and - holder, a swing trader or a day trader ? An independent thinker , a contrarian , a momentum investor or just a follower ? I ask these questions because of my following considerations :
This author believes that we are currently in a secular bear market in domestic ordinary shares. While I believe that this current rally still more room to go, I think a cyclical bear market will come in due time - this upcoming cyclical bear market may even take us back or below the lows that we hit during October 2002 . If this is true, then a buy-and - hold portfolio would certainly not work - unless your mining stocks in natural resources or precious metals.
When this cyclical bull market tops out , will tell you to buy more or to hold your shares . All your friends , family , and the popular media The bears and all bearish thoughts will be ostracized and rejected . This has happened in every bull market in all throughout human history . If you would be able to stay in cash now , in cash at the top end comes or you will not be able to resist and buy in , because you are afraid " to leave the train station without you , "so to speak ?
Most people are not naturally good day traders or swing traders . To be , even in the last , well, you need a huge amount of dedication and discipline .
Investing or trading was dominated by emotions and always will be . My thinking in starting has always been that if I can get to buy now , my readers will continue to sell a much easier decision for them and cash when the DJIA reaches 11,000 or 12,000 or so - as Unlike those in cash and remain off for the remainder of this secular bear market. 99 % of Americans are simply not disciplined and dedicated enough to stay in cash during a secular bear market - not to mention stay in cash in the whole of a secular bear market and the buying and holding of shares during the whole of a subsequent secular bull market . The average human psyche is simply unable to do so. Because of this , I sincerely believe that success would mean catching the swings to the right or nearly right moments . Within the next five to ten years in the stock market ( for most people ) For readers who just can not resist , I will continue to have a number of common shares recommend appropriate times , but in no way should my readers take my advice as gospel and in no way should my readers already their eggs in one basket. If you are a person who can stay in cash for the next ten years and wait for the Dow Industrials has a P / E below 10 and a dividend yield of more than 5 % , then more power to you - you either already rich who do not need how to make money than in the market or you are a very disciplined and independent thinking person . Most Americans simply can not do - but I'm here to help .
Henry To , CFA , is co-founder and partner of the economic consultancy , Market Thoughts LLC, an adviser to the hedge fund Independence Partners , LP . is a service provided by MarkertThoughts LLC, offers twice a week designed for a comment about the stock market and the economy beyond the headlines to feed subscribers. This comment is usually focused on the fundamentals and technicals of the current stock market , but also individual sector and stock analyzes - as well as more general investing topics such as the Dow Theory , investing psychology , and financial history .
Thursday, 7 November 2013
Evaluating A Money Manager
The information in this article will not be future money managers honest , but it will help you find the one that is right for your situation to find . There are four criteria that you should consider before you manage your money. Someone
1 ) Philosophy - This is the thought theology used by the money manager to grow your money . In other words , ( s ) he will focus on stocks, options , mutual funds , annuities , a mix of investment , etc. ? Does this philosophy coincide with your risk tolerance ? If stocks are too risky , concentrating in that arena a manager is not for you . The philosophy also alerts you to their performance .
2 ) Performance - We all know the markets are not stagnant . They go up, they go down . No investment manager can predict with absolute certainty the market. But , they perform well , or even above average, in their specialty . For example, a stock -oriented money manager in the current market environment have performance numbers that would take . Even Warren Buffet knowledge You want so long to take part a performance possible . To be honest, one should market cycle gives you a decent indication of the performance of the manager in his / her area ( s ) of expertise .
3 ) Process - This is the means that the manager uses to select the securities portfolios . For example , (s) he has to rely
only in home study or work ( s ) he take research
from external sources ? If so, who are they and are they used? At what frequency
4 ) Personnel - In addition to experience of the manager know, you would be wise to do everything you could learn about the people in the office . Who actually manages the portfolio ? His / her experience ? How long is ( s ) he has been in business ? Who will manage when ( s ) he your account is not in the office , on vacation, on a business trip ?
Some people would say cost is one of the criteria . I say it is, but to a lesser extent . In more than 30 years in this business , I can guarantee that paying the highest commission does not necessarily lead to receiving the best advice . Paying the lowest commission does not necessarily lead to receiving the worst advice .
Cost comes in the form of fees and commissions . ALL money managers rely . Costs , initially , may not be in your criteria because it is often the only determining factor . That will make you think spies and can result in not having a
winning team that works for you . Make the above four parameters of your
primary criteria and the cost will take care of themselves .
How ? You record a charge . If you are not familiar with that price , negotiate . All fees and commissions are negotiable . If the manager refuses to negotiate , then and only then , do cost a member of the team criteria .
This article will not cost all the problems of money management or related problems . However , it will at least start you thinking in the right direction and keep
your money in your pocket until you are ready to hand over his .
2004 ( c ) This article may not be reprinted without the permission of the author who can be reached
GUARANTEED! Turn your salary in a cash flow geyser . Dollar $ ign Newsletter provides proven wage stretching money management tips , tools , techniques and strategies to increase . Your personal cash flow This is YOUR failsafe money management program
Tuesday, 5 November 2013
IF - The Wonders of Investing
If it seems as if all investors are selling , who is buying ?
If trading has become entertainment for you , it may be time to focus on profits.
If your stock has reached an annual low , can it go lower?
If your stock has reached an annual high can it go higher ?
If all TV analysts jumped off a bridge , would anyone care?
If your portfolio is based solely on fundamental analysis , perhaps it's time to learn . Technical analysis
If I said you had a beautiful wallet , would you hold it against an index ?
If you are tired of losing value on the long side , maybe it's time to learn . Both sides of the market
If you do not have a written financial plan , you should.
If you could put aside $ 205 at the beginning of each month for thirty-five years , with a 11 % annualized return can save you more than $ 1 million .
If you stopped to look at your portfolio statements , does that mean that your game plan is off ?
If a fool and his money are easily separated , the two introduced ?
If buy and hold is your philosophy , why do you need a broker
If a tree falls in the forest , is the ruin of the fair for the day ?
If someone invented a computer program for investments was 100% right had , we would never know .
If you think the market capitulated , you're not selling . In a state of hysteria
If 1,000,000 lemmings jumping, they can all be wrong ?
If you want to know what Greenspan thinks about the economy , the times he smiles.
If you expect nothing from your portfolio , you will not be disappointed.
If you are a rational investor , you can benefit from an irrational market?
If you manage your money , including the government , would your neighbor money and spend it on stock options that expire this week .
If you are confused with the opinions of the media , make your own .
Wardlaw is involved in the field of investments and insurance for over twelve years . Conviction of the author is that familiar life elements best illustrate practical investment strategies, not typical investment jargon .
If trading has become entertainment for you , it may be time to focus on profits.
If your stock has reached an annual low , can it go lower?
If your stock has reached an annual high can it go higher ?
If all TV analysts jumped off a bridge , would anyone care?
If your portfolio is based solely on fundamental analysis , perhaps it's time to learn . Technical analysis
If I said you had a beautiful wallet , would you hold it against an index ?
If you are tired of losing value on the long side , maybe it's time to learn . Both sides of the market
If you do not have a written financial plan , you should.
If you could put aside $ 205 at the beginning of each month for thirty-five years , with a 11 % annualized return can save you more than $ 1 million .
If you stopped to look at your portfolio statements , does that mean that your game plan is off ?
If a fool and his money are easily separated , the two introduced ?
If buy and hold is your philosophy , why do you need a broker
If a tree falls in the forest , is the ruin of the fair for the day ?
If someone invented a computer program for investments was 100% right had , we would never know .
If you think the market capitulated , you're not selling . In a state of hysteria
If 1,000,000 lemmings jumping, they can all be wrong ?
If you want to know what Greenspan thinks about the economy , the times he smiles.
If you expect nothing from your portfolio , you will not be disappointed.
If you are a rational investor , you can benefit from an irrational market?
If you manage your money , including the government , would your neighbor money and spend it on stock options that expire this week .
If you are confused with the opinions of the media , make your own .
Wardlaw is involved in the field of investments and insurance for over twelve years . Conviction of the author is that familiar life elements best illustrate practical investment strategies, not typical investment jargon .
Sunday, 3 November 2013
5 Ways To Protect Your Bond Portfolio From Rising Interest Rates
The Federal Reserve recently raised its target federal funds rate for the first time since March 2000 . This could be just the tip of the iceberg , though, as many experts believe rising inflation and a strengthening economy will spur continued rate hikes in the near future .
This is bad news for bond investors , since bonds lose value as interest rates rise. The reason for this stems from the fact coupon rates for most bonds are fixed when the bonds are issued . So , if rates rise and new bonds with a higher coupon rate become available , investors are willing to pay for existing bonds with lower coupon rates . Less
So what can you do to protect if rates rise? Your fixed income investments Well, here are five ideas to help you and your portfolio to weather the storm.
1. Treasury Inflation Protected Securities ( TIPS )
First issued by the U.S. Treasury in 1997 , TIPS are bonds with part of their value is linked to inflation. As a result , if inflation rises , so will the value of your TIPS . Since interest rates rarely move higher unless accompanied by rising inflation, TIPS are a good hedge against higher rates . Because the federal government gives TIPS, they carry no credit risk and are easy to purchase , either through a broker or directly from the government on
TIPS are not for everyone , though. First, while inflation and interest rates often move in tandem , their correlation is not perfect . This makes it possible rates could rise even without inflation moving higher . Second , TIPS generally yield less than traditional Treasuries . For example , the 10 - year Treasury note recently yielded 4.75 percent , while the corresponding 10-year TIPS yielded only 2.0 percent . And finally , because the principal of TIPS increases with inflation , not the coupon payments , you will not benefit from the inflation component of these bonds until they get mature.
If you sense to you , try to keep them on a tax-sheltered account like a 401 ( k ) or IRA . Decision TIPS Although TIPS are not subject to state or local taxes , you are required to pay not only the interest you receive , but also on inflation annual federal taxes - based main profit , even though you receive no benefit from this profit until your bonds mature.
2. Floating rate loan funds
Floating rate loan funds are mutual funds that invest in adjustable-rate commercial loans . These are a bit like adjustable-rate mortgages , but the loans are issued to large companies who need short-term financing . They are unique in that the interest on these loans , also called " senior secured " or " bank" loans , adjust periodically to mirror changes in market interest rates . If rates rise , so do the coupon payments on these loans . This helps bond investors in two ways: ( 1 ) it gives them more income as interest rates rise and ( 2 ) it keeps the principal of these loans stable , so they do not suffer the same decline that most bond investments affects when rates increase .
Investors should be cautious , though. Most variable rate loans are made to under -investment grade companies . Although there are provisions in these loans to help ease the pain in the event of default , investors are still looking for funds that a broadly diversified portfolio and a good track record for avoiding troubled companies have .
3. Short -term bond funds
Another option for bond investors is to shift from medium and long -term bond funds in short - term bond funds ( those with an average maturity between 1 and 3 years) their business. While the prices of short-term bond funds do fall when interest rates rise , they do not as fast or as far as their longer -term cousins fall . And historically , the decline in value of these short-term bond funds is more than offset by the proceeds , which gradually increase as rates climb.
4. Money market funds
If capital preservation is your concern , money market funds are for you . A money market fund is a special type of mutual fund that invests in very short-term money market instruments . Since these instruments usually maturing within 60 days , they are not affected by changes in market interest rates . As a result , funds that invest in them are able to maintain a stable net asset value , usually $ 1.00 per share , even when interest rates keep climbing .
While money market funds are safe , their yields are so low that they hardly qualify as investments. In fact, the seven-day average yield on money market funds is only 0.70 percent. Since the average management fee for these funds is 0.60 percent , it is not a genius to see that putting your capital in a money market fund is only slightly better than stashing it under your mattress . However , because the interest rates on money market funds track changes in market interest rates with only a short delay , these funds could be so much more than 0.70 percent by the end of the year as the Federal Reserve continues to interest rate increases as expected .
5 . Bond ladders
" Laddering " your bond portfolio simply means buying individual bonds with staggered maturities and hold until they mature them. As you hold these bonds for their full term , you will be able to redeem the nominal value , regardless of their current market value them. This strategy allows you to not only prevent the ravages of higher rates , but you can also use to your advantage to these higher rates issued by reinvesting the proceeds from your maturing bonds in new bonds with a higher coupon rate . Diversify your bond portfolio under 2 years old , 3 year and 5-year Treasuries is a good start to a laddering strategy . If rates rise, you can then broaden the ladder to include longer maturity bonds.
David Twibell is President and Chief Investment Officer of Flagship Capital Management , LLC , an investment consulting firm in Colorado Springs , Colorado . Flagship provides portfolio management services to high - net worth individuals , businesses and non - profit organizations
This is bad news for bond investors , since bonds lose value as interest rates rise. The reason for this stems from the fact coupon rates for most bonds are fixed when the bonds are issued . So , if rates rise and new bonds with a higher coupon rate become available , investors are willing to pay for existing bonds with lower coupon rates . Less
So what can you do to protect if rates rise? Your fixed income investments Well, here are five ideas to help you and your portfolio to weather the storm.
1. Treasury Inflation Protected Securities ( TIPS )
First issued by the U.S. Treasury in 1997 , TIPS are bonds with part of their value is linked to inflation. As a result , if inflation rises , so will the value of your TIPS . Since interest rates rarely move higher unless accompanied by rising inflation, TIPS are a good hedge against higher rates . Because the federal government gives TIPS, they carry no credit risk and are easy to purchase , either through a broker or directly from the government on
TIPS are not for everyone , though. First, while inflation and interest rates often move in tandem , their correlation is not perfect . This makes it possible rates could rise even without inflation moving higher . Second , TIPS generally yield less than traditional Treasuries . For example , the 10 - year Treasury note recently yielded 4.75 percent , while the corresponding 10-year TIPS yielded only 2.0 percent . And finally , because the principal of TIPS increases with inflation , not the coupon payments , you will not benefit from the inflation component of these bonds until they get mature.
If you sense to you , try to keep them on a tax-sheltered account like a 401 ( k ) or IRA . Decision TIPS Although TIPS are not subject to state or local taxes , you are required to pay not only the interest you receive , but also on inflation annual federal taxes - based main profit , even though you receive no benefit from this profit until your bonds mature.
2. Floating rate loan funds
Floating rate loan funds are mutual funds that invest in adjustable-rate commercial loans . These are a bit like adjustable-rate mortgages , but the loans are issued to large companies who need short-term financing . They are unique in that the interest on these loans , also called " senior secured " or " bank" loans , adjust periodically to mirror changes in market interest rates . If rates rise , so do the coupon payments on these loans . This helps bond investors in two ways: ( 1 ) it gives them more income as interest rates rise and ( 2 ) it keeps the principal of these loans stable , so they do not suffer the same decline that most bond investments affects when rates increase .
Investors should be cautious , though. Most variable rate loans are made to under -investment grade companies . Although there are provisions in these loans to help ease the pain in the event of default , investors are still looking for funds that a broadly diversified portfolio and a good track record for avoiding troubled companies have .
3. Short -term bond funds
Another option for bond investors is to shift from medium and long -term bond funds in short - term bond funds ( those with an average maturity between 1 and 3 years) their business. While the prices of short-term bond funds do fall when interest rates rise , they do not as fast or as far as their longer -term cousins fall . And historically , the decline in value of these short-term bond funds is more than offset by the proceeds , which gradually increase as rates climb.
4. Money market funds
If capital preservation is your concern , money market funds are for you . A money market fund is a special type of mutual fund that invests in very short-term money market instruments . Since these instruments usually maturing within 60 days , they are not affected by changes in market interest rates . As a result , funds that invest in them are able to maintain a stable net asset value , usually $ 1.00 per share , even when interest rates keep climbing .
While money market funds are safe , their yields are so low that they hardly qualify as investments. In fact, the seven-day average yield on money market funds is only 0.70 percent. Since the average management fee for these funds is 0.60 percent , it is not a genius to see that putting your capital in a money market fund is only slightly better than stashing it under your mattress . However , because the interest rates on money market funds track changes in market interest rates with only a short delay , these funds could be so much more than 0.70 percent by the end of the year as the Federal Reserve continues to interest rate increases as expected .
5 . Bond ladders
" Laddering " your bond portfolio simply means buying individual bonds with staggered maturities and hold until they mature them. As you hold these bonds for their full term , you will be able to redeem the nominal value , regardless of their current market value them. This strategy allows you to not only prevent the ravages of higher rates , but you can also use to your advantage to these higher rates issued by reinvesting the proceeds from your maturing bonds in new bonds with a higher coupon rate . Diversify your bond portfolio under 2 years old , 3 year and 5-year Treasuries is a good start to a laddering strategy . If rates rise, you can then broaden the ladder to include longer maturity bonds.
David Twibell is President and Chief Investment Officer of Flagship Capital Management , LLC , an investment consulting firm in Colorado Springs , Colorado . Flagship provides portfolio management services to high - net worth individuals , businesses and non - profit organizations
Friday, 1 November 2013
Investors: Avoid These 5 Common Tax Mistakes
For many investors , and even some tax professionals , sorting through the complex IRS rules on investment taxes can be a nightmare . Many pitfalls , and the penalties for even simple mistakes can be severe. As April 15 rolls around , keep the five common tax mistakes in mind the following - and help make a little more money in your pocket.
1. Not compensate
Normally , if you sell for profit , you owe taxes on profits an investment. One way to reduce the tax burden is to be part of the investments you lose sales . Then you can use those losses to offset your winnings.
Say you have two files . You have a $ 1,000 profit per share is the first , and a loss of $ 1,000 on Monday. If you sell your winning stocks, you have to pay income tax on the $ 1,000 . But if you sell the stock will be offset by profit $ 1,000 $ 1,000 of your loss . That is good news from a tax perspective , because it means you do not have to pay over one of the two positions were not taxed.
Sounds like a good plan , right? Yes , it is, but be warned that it can be a bit complicated . According to what is often called " wash sale rule , " as lost within 30 days of the sale of these shares to buy , you can not deduct the loss . In fact, not only you will be excluded from the acquisition of the shares , you will be excluded from buying stocks that are " virtually identical " to it - a vague term that is a wrong source both for investors and tax professionals . Finally , the IRS task that you must meet along the long - term benefits and short-term , the loss before .
2. Miscalculating the basis of mutual funds
Calculate the gain or loss from the sale of an individual stock is fairly simple. Your basis is simply the price you paid for the shares ( including commissions ) , and the gain or loss is the difference between your institution and the net proceeds of the sale . However, it is much more complex in the treatment of the FCP .
When calculating your base after the sale of a mutual fund , it's easy to forget to factor in the dividend and capital distribution reinvested in the fund you . IRS consider the benefits as taxable income for the year is given . As a result , you have to pay taxes on them . By not adding benefits to your base, you will end up reporting rates greater than you get from the sale , and end up paying more tax than necessary .
There is no simple solution to this problem , except for keeping good records and are diligent in organizing and distributing dividend information . Additional paperwork can be a headache , but it would mean more money in your pocket at tax time.
3. Do not use fiscal resources management
Most investors hold their investment for a long time . Therefore, they are often surprised when they get hit with a tax bill for short - term gains made by their sources . From the sale of shares acquired by a Fund result that less than a year , and is passed to the shareholders report profits of their own - even if they never sell mutual fund shares from them .
Recently, mutual funds are more focused on effective tax administration. These funds not only tried to buy good companies , but also shares the tax burden for shareholders by reducing stockpiling for a long time . By investing in these funds toward " fiscal management " back , then you can increase your profits and save yourself some headaches related to taxes . Worthwhile, however , an effective tax funds must include two components : a good investment results and lower taxable distribution to shareholders .
4. lack of time limit
Keogh plans , traditional IRAs and Roth IRAs are a great way to stretch and investing for your retirement in your future. Unfortunately , millions of investors gems slip through your fingers by not IRS before the deadline . For Keogh plans , the deadline is December 31. For traditional and Roth IRA , you have to contribute . You until April 15 Mark the date in your diary and make the payment on time .
5 . Investing in the wrong place Accounts
Most investors have two types of investment : tax advantages , such as an IRA or 401 ( k ) , and tradition . What many people do not realize is that the right kind of property in each account they can save thousands of dollars in unnecessary taxes every year.
In general, much of the investment in the production of taxable income or capital gains in the short term are billed tax advantages while investing dividends or long-term capital production should be organized in the traditional account .
For example , let's say you own 200 shares of Duke Power , and intend to keep for years. Shares This investment will be a line quarterly dividend , which will be taxed at 15 % or less and long-term capital gain or loss when it was finally sold , which will also be making taxed at 15 % or less. Since this file has a tax incentive , there is no need to protect favorable tax account them.
Unlike most of the funds and corporate bond funds produced a steady stream of interest income . Since then, this income is not eligible for special tax treatment as dividends , you need to pay taxes on the marginal rate . Unless you are in a low tax bracket , which in the account tax benefits the Funds involves meaningful because it allows you to set far in the future , or perhaps completely avoidable . Them from paying taxes
David Twibell is Chairman and Chief Investment Officer of Flagship Capital Management , LLC , an investment consulting firm in Colorado Springs , Colorado . Leading service portfolio high-net - individuals, businesses and non-profit organizations .
1. Not compensate
Normally , if you sell for profit , you owe taxes on profits an investment. One way to reduce the tax burden is to be part of the investments you lose sales . Then you can use those losses to offset your winnings.
Say you have two files . You have a $ 1,000 profit per share is the first , and a loss of $ 1,000 on Monday. If you sell your winning stocks, you have to pay income tax on the $ 1,000 . But if you sell the stock will be offset by profit $ 1,000 $ 1,000 of your loss . That is good news from a tax perspective , because it means you do not have to pay over one of the two positions were not taxed.
Sounds like a good plan , right? Yes , it is, but be warned that it can be a bit complicated . According to what is often called " wash sale rule , " as lost within 30 days of the sale of these shares to buy , you can not deduct the loss . In fact, not only you will be excluded from the acquisition of the shares , you will be excluded from buying stocks that are " virtually identical " to it - a vague term that is a wrong source both for investors and tax professionals . Finally , the IRS task that you must meet along the long - term benefits and short-term , the loss before .
2. Miscalculating the basis of mutual funds
Calculate the gain or loss from the sale of an individual stock is fairly simple. Your basis is simply the price you paid for the shares ( including commissions ) , and the gain or loss is the difference between your institution and the net proceeds of the sale . However, it is much more complex in the treatment of the FCP .
When calculating your base after the sale of a mutual fund , it's easy to forget to factor in the dividend and capital distribution reinvested in the fund you . IRS consider the benefits as taxable income for the year is given . As a result , you have to pay taxes on them . By not adding benefits to your base, you will end up reporting rates greater than you get from the sale , and end up paying more tax than necessary .
There is no simple solution to this problem , except for keeping good records and are diligent in organizing and distributing dividend information . Additional paperwork can be a headache , but it would mean more money in your pocket at tax time.
3. Do not use fiscal resources management
Most investors hold their investment for a long time . Therefore, they are often surprised when they get hit with a tax bill for short - term gains made by their sources . From the sale of shares acquired by a Fund result that less than a year , and is passed to the shareholders report profits of their own - even if they never sell mutual fund shares from them .
Recently, mutual funds are more focused on effective tax administration. These funds not only tried to buy good companies , but also shares the tax burden for shareholders by reducing stockpiling for a long time . By investing in these funds toward " fiscal management " back , then you can increase your profits and save yourself some headaches related to taxes . Worthwhile, however , an effective tax funds must include two components : a good investment results and lower taxable distribution to shareholders .
4. lack of time limit
Keogh plans , traditional IRAs and Roth IRAs are a great way to stretch and investing for your retirement in your future. Unfortunately , millions of investors gems slip through your fingers by not IRS before the deadline . For Keogh plans , the deadline is December 31. For traditional and Roth IRA , you have to contribute . You until April 15 Mark the date in your diary and make the payment on time .
5 . Investing in the wrong place Accounts
Most investors have two types of investment : tax advantages , such as an IRA or 401 ( k ) , and tradition . What many people do not realize is that the right kind of property in each account they can save thousands of dollars in unnecessary taxes every year.
In general, much of the investment in the production of taxable income or capital gains in the short term are billed tax advantages while investing dividends or long-term capital production should be organized in the traditional account .
For example , let's say you own 200 shares of Duke Power , and intend to keep for years. Shares This investment will be a line quarterly dividend , which will be taxed at 15 % or less and long-term capital gain or loss when it was finally sold , which will also be making taxed at 15 % or less. Since this file has a tax incentive , there is no need to protect favorable tax account them.
Unlike most of the funds and corporate bond funds produced a steady stream of interest income . Since then, this income is not eligible for special tax treatment as dividends , you need to pay taxes on the marginal rate . Unless you are in a low tax bracket , which in the account tax benefits the Funds involves meaningful because it allows you to set far in the future , or perhaps completely avoidable . Them from paying taxes
David Twibell is Chairman and Chief Investment Officer of Flagship Capital Management , LLC , an investment consulting firm in Colorado Springs , Colorado . Leading service portfolio high-net - individuals, businesses and non-profit organizations .
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