Ideally, investors trying to buy a reserve when the price has reached a level of support (at the level where the price is as low as it will go) and sell the shares when it hits a resistance level ( a level where the price is so high, since it go). This is easier said than done. Most investors end up losing by a continuous increase in hopes of a population to plummet first, or sell early so as to underestimate how high the price will go. In this article, we will focus on the two most popular strategies you can use to invest without having to worry about market timing.
Dollar cost average (DCA) is an investment technique designed to reduce exposure to risk associated with making a single large purchase. According to this technique, the shares of stocks are bought in a specific amount to a regular (often monthly), regardless of their current performance. The theory is that this will lead to greater yields in general, since fewer shares are bought when the cost is high, while largest number of shares were purchased while the cost is low.
An example of DCA would be as follows: If I want to buy 1200 shares of IBM stock using DCA, then I might decide to buy 400 shares of IBM per month over the next three months. Hypothetically, for a month, the price of IBM may be $ 105 per share, and then could drop to 95 U.S. dollars per share for two months, then increase to $ 100 for three months. If I bought all the shares during 1200 a month, I would like to have cost $ 105 per share. But for the dissemination of purchase for a period of three months, I could buy IBM at an average price of $ 100 per share.
The main drawback of using DCA is that you can not maximize its overall performance. If there is an indication that a particular stock is currently undervalued and could shoot up in price, which actually make less money than if using DCA had bought all shares in the beginning before prices skyrocketed. Therefore, it is not always a winning strategy to spread their purchases over a period of time.
Average value, also known as the average value of the dollar (VAD), is a technique of adding an investment portfolio to provide a higher return on similar methods such as dollar cost averaging random and investment. With the method, investors contribute to their portfolios so that the balance of portfolio rises by a fixed amount, regardless of market fluctuations. As a result, during periods of declining market, the investor makes more money, while in periods of market rises, the investor contributes less.
Here is an example of VAD: I want to invest in Yahoo using VAD. For the sake of argument, we will say that Yahoo is currently $ 10 per share. I determine that the value of that amount going to invest over 1 year will increase on average $ 1000 each quarter and make additional investments. If I use VAD, investing $ 1,000 to start.
If at the end of the first quarter, the share price has risen to $ 15 per share, meaning that the value of my investment is now $ 1500, meaning that you only need to invest $ 500 at the beginning of the second quarter in order to bring the total amount of my investment for the first and second quarter to $ 2000. Therefore, I am investing less as increases in stock price.
Average value of the dollar usually performs better than the average cost because the average value of results in less money is invested as the stock price rises, while the average cost of continuing to invest the same amount of dollars, irrespective of the share price. However, none of these strategies are necessarily complete the test. Make sure you know something about the company will invest in you before proceeding.
Wednesday, September 24, 2008
Wednesday, September 17, 2008
Invest in What You really Know
As investors, we believe it is possible to estimate a range of intrinsic value for a company based on its financial statements and filings. This can not be done, however, if you do not understand how a company makes money. For example, if you do not know anything about telecommunications equipment, you should not invest in Lucent Technologies. Why? Unless you understand the company's products, market, competitive strengths and weaknesses, you will not be able to project future cash flows.
In his lectures and writings, the famous investor Warren Buffett often discusses the concept of a "circle of competence." This circle of competition consists of all the companies with which the investor is familiar and thoroughly understood. An investor who has spent the last ten years as an inspector at a supermarket would have an edge when analyzing the financial statements of a chain of grocery stores; he or she will be able to identify the strengths and weaknesses of the company, evaluate the climate of competitive industry, and compare the performance of a prospective investment with an excellent grocer.
The size of an investor's circle competition is not as important as clearly defined borders. If you're unfamiliar with the insurance industry, not even attempt to evaluate the performance of a property and casualty. Similarly, if you do not understand the Internet, did not bother ordering the annual report of an Internet population. Depart from the circle of competition leads to potential investors-in the realm of speculation.
The discovery of investment ideas
How to find companies that you can understand? Take a trip to your local commercial and scouts from the shops to see what is popular. Pay attention to your children wherever you take for their return to school shopping. Peter Lynch, one of the most successful money managers in history, has some of his best investment ideas from listening to his wife and children after returning from errands. In fact, Lynch bought shares in Hanes after his wife brought home the newly introduced L'eggs discovered while in line buying at the supermarket, the investment made millions.
Another way to get ideas investment is to go through your pantry, closets, laundry, garage and find the products they use regularly. Most of the labels contain information about the product's manufacturer. You may be surprised by what you find; what Tide, Pampers, Always maxi pads, Pantene Pro V, Charmin Toilette paper, Bounty paper towels, folders Coffee, Crest toothpaste, Pringles potato chips, Downy fabric softener, Oil of Olay, Bounce, Cascade, Cover Girl, Fixodent, Mr. Clean, PERT Plus, Pepto Bismol, Old Spice, Noxema, Millstone Coffee, Max Factor, Febreze, Giorgio Beverly Hills, head and shoulders, herbal essences , Gain, Ivory, Luvs, Joy, scope, Sunny Delight, Tampax, Zest, and Vidal Sasoon have in common? All of them are made by Procter and Gamble. Sara Lee is another company with well-known brand names including Hanes underwear, Hillshire Farm, Playtex, Sara Lee food, sportswear Champion, L'eggs, Jimmy Dean, ballpark Hotdogs, Kiwi Shoe Care, and Wonderbra.
Price still matters
Finding companies that are easy to understand is just the beginning. The circle of competence test should be merely a starting point to generate a list of investment opportunities on the basis of an investor individual strengths and viewpoints. A company must show an excellent economy, an attractive price and shareholder-friendly management. When discovered, this holy grail of investment insurance to produce stellar returns for the investor's pocket.
In his lectures and writings, the famous investor Warren Buffett often discusses the concept of a "circle of competence." This circle of competition consists of all the companies with which the investor is familiar and thoroughly understood. An investor who has spent the last ten years as an inspector at a supermarket would have an edge when analyzing the financial statements of a chain of grocery stores; he or she will be able to identify the strengths and weaknesses of the company, evaluate the climate of competitive industry, and compare the performance of a prospective investment with an excellent grocer.
The size of an investor's circle competition is not as important as clearly defined borders. If you're unfamiliar with the insurance industry, not even attempt to evaluate the performance of a property and casualty. Similarly, if you do not understand the Internet, did not bother ordering the annual report of an Internet population. Depart from the circle of competition leads to potential investors-in the realm of speculation.
The discovery of investment ideas
How to find companies that you can understand? Take a trip to your local commercial and scouts from the shops to see what is popular. Pay attention to your children wherever you take for their return to school shopping. Peter Lynch, one of the most successful money managers in history, has some of his best investment ideas from listening to his wife and children after returning from errands. In fact, Lynch bought shares in Hanes after his wife brought home the newly introduced L'eggs discovered while in line buying at the supermarket, the investment made millions.
Another way to get ideas investment is to go through your pantry, closets, laundry, garage and find the products they use regularly. Most of the labels contain information about the product's manufacturer. You may be surprised by what you find; what Tide, Pampers, Always maxi pads, Pantene Pro V, Charmin Toilette paper, Bounty paper towels, folders Coffee, Crest toothpaste, Pringles potato chips, Downy fabric softener, Oil of Olay, Bounce, Cascade, Cover Girl, Fixodent, Mr. Clean, PERT Plus, Pepto Bismol, Old Spice, Noxema, Millstone Coffee, Max Factor, Febreze, Giorgio Beverly Hills, head and shoulders, herbal essences , Gain, Ivory, Luvs, Joy, scope, Sunny Delight, Tampax, Zest, and Vidal Sasoon have in common? All of them are made by Procter and Gamble. Sara Lee is another company with well-known brand names including Hanes underwear, Hillshire Farm, Playtex, Sara Lee food, sportswear Champion, L'eggs, Jimmy Dean, ballpark Hotdogs, Kiwi Shoe Care, and Wonderbra.
Price still matters
Finding companies that are easy to understand is just the beginning. The circle of competence test should be merely a starting point to generate a list of investment opportunities on the basis of an investor individual strengths and viewpoints. A company must show an excellent economy, an attractive price and shareholder-friendly management. When discovered, this holy grail of investment insurance to produce stellar returns for the investor's pocket.
Wednesday, September 10, 2008
Making Money in Bad Companies
Sometimes you can make more money by purchasing the shares less attractive in an industry where cree que el sector is due to a change. While it is counterintuitive, a little simple mathematics can show why it makes perfect sense and can leave the astute analyst with much fat pocketbook. Such operations are for investors who have already built their entire portfolio and are financially viable in the foot, but should not represent a substantial portion of their assets and are best left to those who have a good understanding of economics and risks of the situation.
An example in the petroleum industry
Imagine being at the end of 1990 and of crude oil is $ 10 per barrel. You have some spare parts capital with which to speculate. It is his belief that oil soon skyrocketed to 30 dollars per barrel and that he would like to find a way to exploit their hunch. Usually, as a long-term investor that would deal with the company to better suit the economy and its capital in stocks, parking them for decades as they collected and reinvested dividends. However, to recall a technique taught in Security Analysis and really seek out the least profitable oil companies and start buying shares.
Why do this? Imagine you're looking at two oil companies fiction:
An example in the petroleum industry
Imagine being at the end of 1990 and of crude oil is $ 10 per barrel. You have some spare parts capital with which to speculate. It is his belief that oil soon skyrocketed to 30 dollars per barrel and that he would like to find a way to exploit their hunch. Usually, as a long-term investor that would deal with the company to better suit the economy and its capital in stocks, parking them for decades as they collected and reinvested dividends. However, to recall a technique taught in Security Analysis and really seek out the least profitable oil companies and start buying shares.
Why do this? Imagine you're looking at two oil companies fiction:
- Company A is big business. Oil is currently $ 10 per barrel, and its exploration and other costs are $ 6 per barrel, leaving a $ 4 per barrel profit.
- Company B is a terrible business in comparison. It has exploration and other costs of $ 9 per barrel, leaving only $ 1 per barrel in profits at the current price of 10 dollars per barrel crude.
Now, imagine that skyrockets crude to 30 dollars per barrel. Here are the numbers of each company:
- Company A earns $ 24 per barrel in profits. ($ 30 per barrel oil price - $ 6 = $ 24 in expenses profit).
- Company B earns $ 21 per barrel in profits ($ 30 per barrel oil price - costs $ 9 = $ 21).
Even if Company A makes more money in an absolute sense, their benefit only an increase of 600%, from $ 4 per barrel to 24 dollars per barrel compared with Company B, which increased its profits 2, 100%. These differences are likely to be reflected in the share price which means that although the first company is a business better than the second is a better balance.
More info
Normally, these operations are most successful in industries that depend on the prices of their underlying profitability, as producers of copper, gold mines, oil companies, etc. wild fluctuations in commodities may give rise to huge fluctuations in income of the company, which makes them good candidates. Of course, unless you are a professional, should not participate in these types of transactions, instead focusing on building long-term wealth through value-based, intelligent, discipline and investments that focus on harness to maximize profits at lower risk.
Wednesday, September 3, 2008
7 Signs of a Shareholder Friendly Management
Good corporate governance is important for its portfolio. When you are in business with people who are interested in ensuring that you, the shareholder, get a fair shake, is likely to have better results. Here are seven things you can find an owner-oriented company.
1. Clearly articulated with the dividend policy rationally justifiable
One of the most important jobs of management has been allocating shareholder capital. How excess profits are handled is extremely important, if reinvested in existing operations, used to acquire a competitor, expand into other industries, repurchase shares or increase dividends in cash to owners, the decision will have an impact substantial wealth of the owners. As Warren Buffett aptly illustrated in one of his letters to shareholders, however, this is not something that comes naturally to most executives. "The lack of ability that many CEOs have in the allocation of capital is not a small matter: After ten years in the job, a CEO whose company's annual revenue reserves equal to 10% of net assets have been responsible for deployment of more than 60% of the entire capital at work in the company. " When management articulates a clear and justified the dividend policy, shareholders are better able to make them responsible and judge performance. It also tempers the need to pursue overpriced acquisitions. An excellent example is the U.S. Bank, the sixth largest financial institution in the world. According to the company's annual report 2005, "The Company has focused on restoring 80 percent of profits to our shareholders through a combination of dividends and share repurchases. Consistent with the goal, the company returned to 90 percent of revenues in 2005. "
2. Management stock ownership guidelines
Everything else being equal, you want your capital managed by someone who has "skin in the game", so to speak. Shareholder friendly companies often require their managers and executives to own shares in the company worth several times their base salary. This ensures that those who are thinking primarily as owners, not employees.
3. Strong managers who are loyal to shareholders, not management
The Governing Council should know their main job - to protect the interests of shareholders, not management. Throughout the financial history, it seems that most of corporate scandals have occurred when a board was too comfortable with the executive team. This phenomenon is understandable, when working with people you like and respect, it is certainly easier to take friendship club atmosphere rather than a fight club antagonistic. How can we know whether the directors are on your side? Look for some key signs:
4. The equity and voting rights Aligned
In most cases, does not bode well for the management of possessing 2% of the population, but control 80% of the votes. These agreements can lead to unbalanced class of shareholder that the abuse was alleged in Adelphia.
5. Limited related-party transactions
Does the company leases all its facilities of a real estate company owned and controlled by the family of the CEO? Are all the napkins in his chain of pizza bought the granddaughter of the founder? Despite the fact that some transactions with related parties can actually be good for business, be aware of situations that could give rise to conflicts of interest. Taking our last example: shareholders will get the lowest possible price in its infancy, or the CEO is going to feel like helping out the granddaughter of the founder of paying more than they know it could get elsewhere?
6. Reasonable and restricted stock options and executive compensation
If the CEO is paid $ 100 million, may be perfectly justified if the company is among the top performers during his tenure. If companies has been reduced, the talent is jumping ship, shareholders are revolting, and a huge pay package has been announced, there may be very real problems of corporate governance.
7. Open and honest communication
As the owner of the company, you are entitled to know the challenges and opportunities facing your company. If management is reluctant to share information, may indicate a tendency to regard shareholders as a necessary evil rather than the true owners of the company. In most cases, your portfolio will be better if you steer clear.
1. Clearly articulated with the dividend policy rationally justifiable
One of the most important jobs of management has been allocating shareholder capital. How excess profits are handled is extremely important, if reinvested in existing operations, used to acquire a competitor, expand into other industries, repurchase shares or increase dividends in cash to owners, the decision will have an impact substantial wealth of the owners. As Warren Buffett aptly illustrated in one of his letters to shareholders, however, this is not something that comes naturally to most executives. "The lack of ability that many CEOs have in the allocation of capital is not a small matter: After ten years in the job, a CEO whose company's annual revenue reserves equal to 10% of net assets have been responsible for deployment of more than 60% of the entire capital at work in the company. " When management articulates a clear and justified the dividend policy, shareholders are better able to make them responsible and judge performance. It also tempers the need to pursue overpriced acquisitions. An excellent example is the U.S. Bank, the sixth largest financial institution in the world. According to the company's annual report 2005, "The Company has focused on restoring 80 percent of profits to our shareholders through a combination of dividends and share repurchases. Consistent with the goal, the company returned to 90 percent of revenues in 2005. "
2. Management stock ownership guidelines
Everything else being equal, you want your capital managed by someone who has "skin in the game", so to speak. Shareholder friendly companies often require their managers and executives to own shares in the company worth several times their base salary. This ensures that those who are thinking primarily as owners, not employees.
3. Strong managers who are loyal to shareholders, not management
The Governing Council should know their main job - to protect the interests of shareholders, not management. Throughout the financial history, it seems that most of corporate scandals have occurred when a board was too comfortable with the executive team. This phenomenon is understandable, when working with people you like and respect, it is certainly easier to take friendship club atmosphere rather than a fight club antagonistic. How can we know whether the directors are on your side? Look for some key signs:
- Directors hold separate meetings without management present.
- Board compensation is reasonable and not excessive.
4. The equity and voting rights Aligned
In most cases, does not bode well for the management of possessing 2% of the population, but control 80% of the votes. These agreements can lead to unbalanced class of shareholder that the abuse was alleged in Adelphia.
5. Limited related-party transactions
Does the company leases all its facilities of a real estate company owned and controlled by the family of the CEO? Are all the napkins in his chain of pizza bought the granddaughter of the founder? Despite the fact that some transactions with related parties can actually be good for business, be aware of situations that could give rise to conflicts of interest. Taking our last example: shareholders will get the lowest possible price in its infancy, or the CEO is going to feel like helping out the granddaughter of the founder of paying more than they know it could get elsewhere?
6. Reasonable and restricted stock options and executive compensation
If the CEO is paid $ 100 million, may be perfectly justified if the company is among the top performers during his tenure. If companies has been reduced, the talent is jumping ship, shareholders are revolting, and a huge pay package has been announced, there may be very real problems of corporate governance.
7. Open and honest communication
As the owner of the company, you are entitled to know the challenges and opportunities facing your company. If management is reluctant to share information, may indicate a tendency to regard shareholders as a necessary evil rather than the true owners of the company. In most cases, your portfolio will be better if you steer clear.
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