Bond Ratings – Analyzing Bonds

Before investing in a bond, or any other investment vehicle for that matter, an investor should understand the risk involved in their purchase. A helpful ratings system has been established to help those interested in investing decide which option is the right one for them.

Bond ratings are established by three different bodies: Standard & Poor’s, Moodys Investors Services and Fitch Investors Services. The ratings vary from AAA, highest investment quality, to D where payment is in default. The three bond ratings services develop their ratings based on an in depth analysis of the company and their financial state. These ratings can help an investor determine if their purchase is a safe bet, or a risky venture.

A bond is a debt investment

Companies or governments borrow money from investors for a specified length of time and at a set interest rate to supplement their finances. In exchange for being allowed the use of the investor’s money, the bond issuer will pay the set interest rate. However, some companies are higher risk than others, such as a company that defaults on their loans and does not honor their bonds, resulting in a loss for the investor.

Generally, companies or governments with in an unhealthy financial situation are willing to pay more in interest to attract investors. This is why lower-rated bonds seem to pay off better, but the investor has to consider that they may not receive any return on their investment at all if the company defaults on the loan. While AAA bond ratings pay a lower rate of interest than D bond ratings, the investor is almost certain to actually receive the return promised by the bond issuing company.

Bonds Rating

Each investor receives a bond certificate from the issuing company

Stating the loan amount and the date it is to be repaid. A bond with a term of 2 years, for example, will mature at that time and the investor will receive their capital investment back along with any interest owing. Most companies will also pay interest in increments, resulting in a bi-annual or annual interest pay out for the investor.

Research and knowledge are just as important in bond investing as in stock trading. While the bond ratings can help the investor make a decision, they should also look into the company’s history and financial track record themselves before placing their loan in trust through a bond. A diversified portfolio could include a few high-risk, low-rated bonds, but must be balanced out with safer investments.

Buying On Margin Definition

Buying On Margin

In theory, buying stock on margin sounds like a great way to get rich quick. Buying on margin allows investors to “borrow” stock, with their brokerage effectively lending them the money to invest more heavily. However, like any type of credit, buying on margin can be a dangerous practice. It’s crazy how much we have advanced in terms of stock trading! But, it can also be very dangerous.

Buying Stock on Margin

As illustrated in the image above, think of buying stock on margin as a transaction on your credit card. You don’t have the money, but your credit card company is willing to pay for the purchase initially, and you will pay the bill later. Buying stock on margin allows investors to buy more stock than they actually have the money to pay for. Sure, you can hope that your stock will increase so much in value that it will cover the investment, but the stock market is anything but a sure bet. Buying stock on margin, or basically investing with your broker’s money allows you to gain more leverage, however any gains or losses have a greater impact on your portfolio than they otherwise would.

In order to open a margin account, the investor must deposit the margin amount into their account. This is the amount that the brokerage will use to determine how much credit they can advance to the investor. Margin purchases are secured by collateral such as cash or other securities. To use an extremely small amount as an example, if an investor deposited $100 into their account, buying stock on margin that is valued at $100 per unit, their brokerage might purchase 9 additional units on their behalf, for $900. The total investment becomes $1000. In this case, the investor used $900 in other shares from their portfolio as collateral for the additional units. If the investor’s stock drops in value, they must deposit more money to cover what has become a debt to their brokerage or lose the stocks they had put up as collateral.

If the stock in this case rose to $200 a share

The investor’s shares would now be worth $2000, allowing them to pay back the brokerage and still make a profit. However, the risk involved in this type of investment is simply too much for some investors to stomach. Looking at the situation conversely, if the company folded and the stocks lost all of their value, the investor would not only be out their initial $100, but owe the brokerage $900 as well. This makes buying stock on margin potentially very profitable, or very costly.

If an investor is unable to pay the debt in cash, the securities that they used as collateral may be sold off for less than they are actually worth as the brokerage attempts in any way possible to recoup their losses. Considering that the borrowed amount is also subject to interest, buying stock on margin is not the best investment tactic.

Some investors blindly walk into this type of arrangement without understanding how it works; anyone considering buying stock on margin must know the interest they will pay on the borrowed amount, the penalties they may incur if they default on the loan and the manner in which their collateral will be processed if their account is not in good standing. That’s why I call these accounts margarine accounts, because the brokerage house sure does get fat off of them.

Bank Of Canada- Effects On The Economy

Bank Of Canada

The Bank of Canada, which is a crown corporation, is responsible for all monetary policies. Most policies are implemented based on decisions related to altering the Canadian money supply, which is defined as the portion of Canadian household income considered liquid. This includes all forms of cash, money on hand and on deposit at any one of the banks, credit unions, or trust companies that can be readily accessed.

Bank Of Canada

The money supply is not under the direct control of the Bank of Canada because the private banking industry makes decisions relating to the deposited portion of money. Banks take deposits from Canadian businesses and individuals, then turn around and lend those funds to other businesses and individuals. Banks are fundamentally creating money because new funds are re-deposited, let us explain further.

Customer’s A, B, and C each deposit $50,000 into the bank for a total of $150,000. The bank in turn lends $100,000 to Customer D and $50,000 to Customer E. Customer D then re-deposits the $100,000 back into the bank and Customer E re-deposits the $50,000 into the bank – the process has in essence created money, yet really, there is still only the original $150,000 at play. Moreover, the bank has two factors that affect their ability to create money, interest and the economy.

Let’s look at these two factors in detail

Let’s start with interest. When the interest rate paid on financial assets increases, Canadians generally choose to keep a smaller share of their wealth in the form of cash currency, and a larger portion of their wealth as money on deposit with the financial institutions. When it comes to expanding their loan programs, the bank is limited by the requirement that they must retain reserves. Reserves are basically cash kept in vaults from deposits made by the different banks to the Bank of Canada; where it is kept on reserve to cover the portion of investments they are required to cover by law. The Bank of Canada is able to alter interest rates as well as the level of banking reserves by manipulating the money supply indirectly with amazing precision especially over the short term of 6 months or less.

One method that the Bank of Canada uses to manipulate the supply of money is called open market operation that involves Canadian Government Securities trading in the treasury bills markets and secondary bond market. When the Bank of Canada purchases Government Bonds it immediately creates an increase in the amount of money held by the general public, which in turn raises the banking system reserves, having an indirect effect on the total money supply. The additional demand puts downward pressure on bond yields and thus on the overall level of interest rates. To create the opposite effect the Bank of Canada simply sells the bonds they are holding, which then decreases the money supply and causes interest rates to raise. This ability is an incredibly powerful tool that the Bank of Canada has at their disposal. It is through this indirect control of the money that the Bank of Canada is able to influence the overall behavior of the Canadian economy. How you ask? Let’s look at an example.

When the Bank of Canada stimulates the monetary policy

In other words allows for an expansion of money supply, this will put downward pressure on interest rates because there is more money around to borrow and spend. When interest rates are lower, investment in business is strengthened and flourishes, as does the demand for housing, this essentially creates a trickle down effect that will eventually benefit the individual investor. As a result there is a rise in the overall demand for goods and services, which means the economy strengthens and achieves economic growth. In theory, with strong demand there should be increased jobs because an increase in output generally requires an increase in labor. On the contrary, when growth starts to slow or falter the result is a cyclical downturn that can result in high unemployment, and a lethargic economy in general. When there is a reduction in money growth, it acts like a tightening fist on the economy, which puts pressure on interest rates. This pressure results in the rates climbing, which can reduce investments because debt is now expensive, and the total demand for money is less.

During a time of high inflation the Bank of Canada will try to reduce interest rates in an effort to keep prices down and wages increasing

Now all that might seem pretty straight forward, but it’s not quite so easy because there is another component, the relationship between the Canadian and American financial markets. These strong links mean that the monetary policies made by the Bank of Canada also affect the exchange rate between the Canadian and US dollar. If the Bank of Canada has a monetary policy that compared to the US policy is significantly more expansionary, you will see the value of the Canadian dollar depreciate, or drop in relation to the American dollar. Alternatively if the Canadian monetary policy instead contracts, then you will see the Canadian dollar appreciate against the American dollar. The Canadian monetary policy works with a combination of interest rates and exchange rates. The Bank of Canada measures the combined impact of these two using what is called a monetary condition index, which translates to a 1% decline in short term interest rates that equals a 3% decline in the value of the Canadian dollar.

Although the Bank of Canada’s monetary policy is effective it is not without its own limitations

For example, it is unable to stimulate economic demand to reduce unemployment and at the same time restrain demand to combat inflation. It also cannot increase monetary growth rates in order to reduce the interest rates below those of the US while simultaneously stabilizing the Canadian-US exchange rate. Translated what this really means is that monetary policy decision that are made by the Bank of Canada more often than not require some type of trade off, some are more painful than others. Sometimes the tradeoffs involve conflicts in the shorter term and long-term effect of a certain policy. For example, a money supply growth that is continuous will initially cause an increase in production and thus jobs, but over the long term it will lead to a higher inflation rate with no lasting effect on production or employment. Equally, if there is a major reduction in the rate of money supply, it will ultimately reduce inflation no matter how strong a hold it has, this can take several years during which time both production and employment falter and fall.

The Bank of Canada really does spend a great deal of time walking a tight rope between what’s good for the Canadian economy today and tomorrow, and what we can endure today for a brighter tomorrow on an economic level. For example, can we afford to put thousands out of work today to fight inflation now and five years from now? Or, if thousands are out of work will this have a more devastating consequence than inflation, such as the loss of homes? Just when you thought you had the full picture, along comes another limitation, the lack of understanding. Even today there are still many questions that remain unanswered relating to the mechanisms of how changes in
monetary policy really affect the economy.

The true nature of these interrelationships between real and imagined financial variables

The exact determinants to price setting and wage setting decisions are really not fully understood, and still remain more of a hypothesis than a proven theory. The Bank of Canada’s monetary policy is restricted by the government’s fiscal policy. Decisions made by the government relating to taxation and expenditure will affect the economy. If fiscal and monetary policies are not properly coordinated they can actually be trying to accomplish two different things and if they cross they can end up having little or no effect on the economy, instead damaging it. That is why since 1961 there has been a very detailed agreement between the Bank of Canada and the government that states “if any irreconcilable conflict should arise between the two the governor must either follow the publicly released directive of the minister or resign office. Even with such an agreement in place, tradition shows that except in the most acute situations the Bank of Canada should be able to set monetary policies independent of the government and other political pressures.

There is no question that creating monetary policy is a very contentious matter and disagreements often occur because of different perceptions about current economic conditions. For example, some might argue a recession has started while others see it quite differently. Much debate is undertaken before any changes are made to the monetary policy. The Bank of Canada plays an indirect role in the flow of money and a direct role in creating monetary policy. They may not be able to always make changes that will cause immediate economic results, but they are constantly looking into their crystal ball in an attempt to make the right decisions for the benefit of the economy now, and into the future. If your looking for more information about the Bank of Canada, you can check out their website here.

Simple Steps For Investing in Marijuana Stocks

Marijuana stocks


Simple Steps For Investing in Marijuana Stocks

Marijuana stocks

You have many avenues to turn when you are ready to start investing in marijuana stocks. You do not have to possess much experience, but you must have a desire to learn. The more you learn about the trading process, the more successful you are likely to be. Stocks can be fairly complicated in a few regards and this is the reason why it is an incredible plan to start your research ahead of schedule to build your odds at seeing profits with the right marijuana stocks.

Penny stocks can be a great start

It may be a good idea to find out what type of marijuana stocks you want to trade and how you are going to achieve this goal. A great place to start is with penny stocks and you will be able to break into the stock market without much investment when you go with penny stocks. This can help you to get more familiar with the terms and operations of the stock market. You may have a friend or relative with some trading background and this is a great person to turn to for advice on how to get started.

Find a mentor when buying marijuana stocks

You may have many questions along the way and having someone to answer these questions for you can be a big relief. If you find out the level of success that this person experiences with marijuana stocks you may be able to make a model to do similar things that can produce the same results for you. When you are ready for investing in marijuana stocks you have to decide the amount you are ready to contribute securely.

Don’t ever invest more than you can lose in marijuana stocks

You ought to never contribute all the more then you can securely afford to lose. This is a number that you will want to think about carefully and when you have some type of boundary you will not be tempted to invest more as you already have an investment number and plan in place. If you simply invest and then sit back and do nothing your results may not be as you expected. You need to take a look at marijuana market often and make adjustments as well. You will find that things can change on a daily basis and you need to be ready to roll with these changes. You have to be constantly aware of your stocks or you may not see any positive effects. Investing in marijuana stocks is a great way to have a way to make money on the side and many people find trading to be very exciting and fun.

Investing in stocks

Investing in stocks

If you are a new investor wanting to make money, or an experienced baby-boomer investor and you are struggling with questions like- How should I begin investing in stocks? – What are the things to keep in mind before I invest in a stock? – What kind of research is required to invest in stocks? – Which stocks should I invest in? How can I make money in stocks without taking a risk? You will be happy to note that you are not alone in facing these questions. Every investor faces the same questions. And there is no one particular answer to these questions. You need to figure out the answers yourself.

You need to research stocks

One of the most important things you need to do is research on stocks. If you don’t want to do research, then you should not be in the stock market as a retail investor. In that case, you should invest in mutual funds that have professional management researching stocks and investing in them on your behalf. Of course, they will charge their money, but they should ideally give you more return than the stocks that you bought without doing any research.

investing in stocks


Are you investing in stocks or trading stocks?

The second important thing is to understand whether you should be day trading. Day trading is nothing but gambling, to put it in plain words. Of course, your stockbroker will be very happy if you indulge in day trading as he or she sure to make money irrespective of your loss or profit. I have not seen a retail investor who has made money consistently in day trading. Day trading is a gamble that entices many people in the hope of making a few quick bucks, but most of them are  losers. If your stockbroker knew how to make fast money as in day-trading as a retail investor, he or she would have been doing it herself. He is doing what assures him good money.

Are you investing in stocks for the long term?

And finally, let’s discuss short-term vs long term investments. If you are investing for a short time, essentially you are gambling again. We will try to explain this with an example. If you have bought a stock and you believe its real value is much higher than its current price, and you will make money later when the market realizes the actual importance of the stock. However, as happens, the cost of a stock is also dependent on the liquidity situation and market sentiments.

Suppose the feelings turn negative and the stock market tanks. Most likely, your stock will also tank along with the market. If you are a short-term investor, you will have to get out of the stock after some time. If the market doesn’t turn around by then, you will have lost money on your investment. However, if you are a long-term investor, you will hold on to your stock. The market will recover one day, and you will be able to sell your stock at a price which is higher than the price you bought it for. Therefore, your chances of making money on stocks are high if you are a long-term investor. If your investment horizon is short, you should invest your money in other safer investment avenues.

Everything you should know about Berkshire Hathaway

Everything you should know about Berkshire Hathaway

berkshire hathaway

Berkshire Hathaway is a well-established name which stands as a parent company to various other businesses and the fact that it holds the rights and shares in the contributing setups has become a major reason why it has expanded in absolutely no time. So here is everything you need to know about Berkshire Hathaway.

What actually is Berkshire Hathaway?

It is a big name from the finance industry and also it has a good name in the international market. It is among the world’s largest revenue generating companies and that makes it a genuine hot topic to be discussed and be known about.

Berkshire Hathaway is a holding organization for a huge line of business setups, which is being well managed by its celebrated Chairman and CEO, Warren Buffett. Berkshire Hathaway is headquartered in Omaha, Nebraska and started as a gathering of material processing plants.

At the point when Buffett turned into the controlling investor in the mid 1960s, he started a dynamic methodology of occupying money streams from the center business into different ventures.

In 2017 Berkshire Hathaway had a market capitalization of near $488 billion, one of the main five biggest traded on an open market organization around the world.

Berkshire has been enjoying the limited liability advantage that it has as a parent company on all organizations that it holds. Protection backups have a tendency to speak to the biggest bits of Berkshire Hathaway, yet the organization now oversees several lined organizations everywhere throughout the world.

Analysis of Berkshire Hathaway

Market capitalization Is a big word from the finance industry and then the biggest conqueror of the market Berkshire Hathaway has made it range as an advantage.

As a result of Berkshire Hathaway’s long history of working in the international market and its list of great achievements along with sharp securities exchange ventures, the organization has become one of the biggest on the planet as far as market capitalization.

Berkshire stock exchanges on the New York Stock Exchange in two classes, one who offers and the other who shares. The company offers are noted at their high costs – in abundance of $250,000 per share in 2017.

The idea of using insurance flotations

At a very early stage in his profession Buffett very cleverly planned his way to utilize the “Surplus” from his protection auxiliaries to contribute somewhere else, predominantly into centered stock picks that would be held as long as possible. Buffett has since a long time ago shunned a broadened stock portfolio for a modest bunch of trusted speculations that would be over weighed with a specific end goal to use the expected return. After some time, Buffet’s contributing ability turned out to be noted to the point that Berkshire’s yearly investor gatherings turned into a famous hub for esteem contributing defenders and the concentration of extraordinary media examination.

Work history of Berkshire Hathaway

In 2017 Berkshire Hathaway investment trails and strengthened companies included GEICO, Dairy Queen, BNSF Railway, Lubrizol, Fruit of the Loom, Helzberg Diamonds, Long and Foster, FlightSafety International, Pampered Chef, and NetJets.

Also, the holding organization has a 38.6% stake in Pilot Flying, a 26.7% stake in the Kraft Heinz Company, a ~17% minority holding in American Express, 9.4% minority stake in The Coca-Cola Company (9.4%), and 2.5% minority stake in Apple, among other surely understood firms.

The Future of Berkshire Hathaway

While coming close to birthday celebrations, CEO and Chairman Warren Buffet reported he would be prevailing at Berkshire Hathaway by a group, contained one CEO and 2-4 speculation supervisors.

In 2011 it was declared that Castle Point multifaceted investments director Todd Combs would end up noticeably one of these venture supervisors; alongside Peninsula Capital Advisors Ted Wechsler. Smorgasbord still can’t seem to name his CEO substitution.

Buffett’s Berkshire Hathaway contributed $4.25 billion for a half value stake in the $23 billion utilized buyout of Heinz two years prior, alongside an accomplice, Brazil’s 3G Capital.

Berkshire made a moment $5 billion value speculation with 3G when Kraft revealed its arrangement for the ketchup creator in March.

Berkshire (ticker: BRKA) now is perched on a 25% stake in the new Kraft Heinz (KHC) – about 326 million offers – worth $25 billion in light of Kraft’s current offer cost of $77, bringing about a pickup of nearly $16 billion.
Berkshire is continuing its own hunt for the Giant acquisitions that it can make in the international market which marks its really bright future.

How To Start Investing With Any Kind Of Budget

How to start investing with any kind of budget

start investing

Before this month, the Dow Jones Industrial Average hit 22,000 for the very first time, strengthening this current bull market even more. But if you are among the many who are not quite certain what those number mean, you might still be wondering just where to begin.

The fantastic thing is that now more than ever, automated investing — or even “robo-advisory” — resources are simply a couple clicks away. Acorns, Wealthfront, and Betterment are only a couple of the newest investment programs that democratize investments by providing a simple on boarding process for aspiring new investors. This squashes the current stigma of the stock market being only for the rich and famous. That age is over — now, all spare change is welcome!

So you want to learn how to invest? Great!

Whether you are seeking to improve your savings by a couple bucks or a couple hundred bucks, there are a couple of strategies to consider before you dip your feet in the water.

Start by asking yourself where you stand now. Do you have a student loan or credit card debt? If that’s the case, understanding the rates of interest of these loans can give you a better understanding of a few things. Should you be paying these loans down first, or is the interest rate low enough that you feel your investment returns will beat the interest paid on these loans.

As an example, a credit card is almost always a debt burden that will be impossible to outperform. It will probably make more sense to spend cash paying off that debt prior to investing. The average credit card interest rate of 16 percentage is much greater than the typical seven percent return on investment — thus making the decision a fairly simple one.

Get your goals down on paper

There is no time like the present to write down your short and long term targets. Knowing what type of savings you would like to achieve in the near future — like an emergency fund or holiday fund — can help you comprehend what you can realistically manage to put toward investing. Generally, the stock market is a strong long-term investment plan. Money placed in the stock market should never be removed unless absolutely needed Identifying what you want your cash to achieve for you (and by when) is useful before starting out.

Don’t let emotions get the best of you

Investing is a gradual and continuous race which normally requires some meticulousness — not just in setting money aside, but preventing any psychological choices as the stock exchange goes up and down. Emotional investing can create a disaster in your portfolio. Consider automated buying in tools or online advisory solutions, for example LearnVest and Ellevest. These can help you navigate what makes the best sense for you personally.

Consider not doing it yourself

When mobile programs and internet tools are not your thing, and you are feeling ready to become serious about investing, consider working with a certified financial planner or an investment adviser. They will help you through the steps and stick with you while you reach your fiscal objectives and life goals — if that means a marriage, new condominium, livelihood, infant, or any of the above!

It’s different for everyone

Keep in mind that investment isn’t a one-size-fits-all pursuit. Just like the majority of money-related challenges, it boils down to where you are and where you need to go financially. This may be just as much of a lifestyle choice as a financial decision.

There are lots of approaches to begin investing with any kind of budget. There are lots of online and program based platforms which makes it easier than ever. All you need to do is get learning and get started. When you do, it is going to get incrementally easier as you gather more experience, and also you will thank yourself later down the road as you become more financially stable. If you have any questions about my website or article, feel free to head to my contact page and drop me a line!

The Greatest Investors In The World

The Greatest Investors In The World

Great investors are the backbone of the financial world.They have definitely reaped the benefits from their hardwork and determination. These investors differ quite a bit in their investing strategies. But the one thing they all have in common, is that they can definitely beat the market. They didn’t get rich trading penny stocks, they earned their money with smart investments and a heavy emphasis on educating themselves.

Ten of the most successful investors in the world:

It is not an easy feat to be branded the best investor in the world.These individuals have earned a lot of money for themselves and they also have a huge factor in the prices of stocks on the market, especially ones they own.

The following is a list of the most successful investors in the world:

best investor in the world

1.Warren Buffett-($58.5 Billion)

-He is known as the Oracle of Omaha.
-He runs a holdings company called ‘Berkshire Hathaway’.
-He runs his business incredibly well and makeswonderful stock picks.
-You can check out some of his strategies I have written out here.

Greatest investors in the world
2.Prince Alwaleed Bin Talal-($20-30 Billion)

-He has been branded the most influential Arab in the world.
-He made his great fortune as the founder of the Kingdom Holding Company.
-He invests mainly in Hotels,Real Estate,Media,Entertainment and also Technology.

ICahn Enterprises

3.Carl Icahn-($24.5 Billion)

-He is the owner of Icahn Enterprises.
-He has invested in the Gaming Industry,the Rail Car Industry,Food Packaging ,Metals,Real Estate and Home Fashion.

4.Ronald Perelman-($14 Billion)

-He is the founder and owner of MacAndrew & Forbes Holding Company.
-He invests in many things among them, Panavision cameras and Revlon cosmetics.
-He has been wise in breaking down his investment into various industries and this is one of the reasons he has been able to amass such huge amounts of wealth.
-His wealth has come though at the expense of his family life.He has been married five times.

greatest investors in the world

5.Mikhail Prokhorov-($10.9 Billion)

-He is a native Russian.
-He has been the chairman for Russia’s top producers of nickel and palladium.
-He is a sports fan and the owner of Brooklyn Nets basketball team.

6.Philip Anschutz-($10 Billion)

-His story is quite captivating.
-He bought his dad’s drilling company and started drilling in wyoming.His profits from this venture were very impressive and gave him enough capital to start investing.He invested in various trades including Real Estate.
-He is currently the owner of a few soccer teams.

7.Harold Simmons-($10 Billion)

-He is the one responsible for creating leveraged buy outs(LBO’s).

8.August Von Finck-($8.4 Billion)

-He was one lucky guy.
-He inherited his grandfather’s insurance company which he later sold.With this large amount of money,he started investing heavily in other trades.Among his favourites are Real Estate and Industrial sectors.

9.Suleiman Kerimov-($7.1 Billion)

-He started his enterpreneurial journey with the little money he earned at his accounting job.He transformed his small investment into a multi-million company.

10.Edward Johnson-($9.3 Billion)

-He runs Fidelity Investments.

My conclusion and some popular quotes from the greatest investors in the world

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”-Warren Buffett.

“We’re getting hurt but I’m a long-term investor.”-Prince Alwaleed Bin Talal.

“You learn in this business…if you want a friend,get a dog.”-Carl Icahn.

A good student learns from the experiences of those who walked before him.These investors of all time set their standards which form a base for future investors.

Investing In Stocks – Things You Need To Know

 Investing In Stocks – Things You Need To Know

investing in stocks

A stock is an equity investment that represents some kind of ownership in a company and gives you the right to a portion relative to your holdings in the corporation’s earnings and assets. They don’t really issue actual “shares” anymore. Presently, share ownership is basically electronically recorded. These shares are held in a street name generally by your brokerage. Investing in stocks is a highly rewarding endeavor. In fact, it is best to recognize all of your investment plans as a business. This is what Benjamin Graham (Warren Buffett’s stock market mentor) highly recommended. Before buying your first stock, you should master the fundamentals of investing in said stocks. This article won’t make you a great investor overnight. You learn how to invest after years of experience and knowledge.

How do you purchase or buy stock?

The first time you go to purchase stocks can be confusing. When you sell or buy stock, you’re actually executing a trade. The time to execute your trade varies from broker to broker as well as market to market. Trades are in essence instant, unless you are trading a stock that has very low daily volume. You won’t actually notice a large price difference in the duration between placing your order and the execution.

After placing an order, your broker will most likely route the order through their sophisticated computer networks to acquire your shares. In some circumstances your order may never leave the broker .Your brokerage might need to clear out the shares of the corporation they own so they sell you the stock themselves.

There are four primary ways to invest your money in stocks

Investing through brokers: These are the intermediaries who bring together buyers and sellers when executing trades. The brokerage operations are done by a professional security market analyst. Brokers are licensed to act on behalf of the buyer and seller. Brokers also inform and consult the client on risk related matters.

Investing through an IRA/RRSP: This method offers a larger selection for investment within the account as compared to an employer sponsored plan like the 401k. In most cases you can buy different individual stocks. Additionally you can decide to trade options. You can decide not to do any of these things and choose a robo-advisor (a computer-powered investment manager) — to manage all the operations for you.

Investors can invest through mutual funds as well as exchange traded funds or index funds. Through a fund, you’re actually buying a portfolio of investments instead of a single stock. For instance, an S&P 500 index fund, invests in about 500 of the largest U.S. corporations; it is classified as a “large cap” fund for that matter (“cap” can be described as the valuation of companies).

Investing through a direct stock purchase plan or even dividend investment plans: Direct stock purchase plans (DSPP) are investment services that allow an investor to purchase stocks directly from a company or even through a transfer agent. It is critical to note that not all corporations offer DSPPs, and the plans most of the time are restricted based on when an investor can purchase shares. Through the use of this plan you can avoid costly commissions.

Investing through a 401k plan or 403b plan if you work for a nonprofit organization: Your retirement money can vary depending on the type of savings account you have. For a long-term goal like a retirement plan, most people want to invest mostly in stocks which have a high chance to earn more than inflation. Including some cash or bonds to your portfolio can greatly help in reducing the volatility of your general portfolio. A well-diversified portfolio for instance with a mix of stocks, commodities and bonds can provide the highest returns.

Advantages of investing in stocks

  •  Stocks are very easy to buy these days. This has been made even easier by discount online brokerages.
  •  It is a way of maximizing your wealth. Money cannot grow significantly sitting in a savings account.
  •  It is a better way to hedge against inflation.

Types of Stocks

1. Common stocks 

When investing in stocks, you basically acquire an ownership role in the actual business. You also acquire ownership in net earnings and available dividends resulting from the firm’s operations. Equities (stocks) have been the highest returning asset group and have produced the most wealth out of any other investment.

2. Preferred Stocks

This is a special type of stock which pays higher dividends but has limited upside. The difference between common and preferred stocks is that common stock provides shareholders with voting rights but there is no guarantee of dividend payments. On the other hand the preferred stocks give no voting rights although it usually guarantees a dividend payment.


Finding good “value” stocks

These are stocks for companies that have low price to earnings ratio, low price to sales ratio and low price to book ratio. In other words, these stocks are under priced when compared to other companies in the market. Many investors opt to invest in common stock rather than preferred stock. The growth (and loss) potential for this asset is relatively higher. If you are interested in some strategies that the greatest investor of all time Warren Buffett uses, check out my previous article here.

The following are some of the steps you can employ when investing in stocks:

1. Determine what kind of investor you are and what sector you’d like to focus on

It is important to consider investing from the sector which you know best. You can either choose the stocks yourself or request that an advisor do it for you. It all depends on you, the investor. There are numerous investment styles out there and you need to find one that suits you!


2. Choose either mutual funds or stocks

Mutual funds allow you to purchase small portions of different stocks in a single transaction. Think of mutual funds like a basket filled with different types of stocks. ETFs and Index funds track an index; for example, a S&P 500 fund replicates that index through purchasing the stock of the companies inside of it. After investing in the fund, you also own some small pieces of the companies. You are allowed to put several funds together in order to build a diversified portfolio. For individual stocks, you can purchase a single share or even few shares if you are interested in a specific company. Try to diversify your portfolio if you choose to go the individual investment route as a portfolio that is not diversified is subject to a lot of risk if the sector tanks.

The advantage of mutual funds is that sometimes they are inherently diversified. This lowers your risk. They are however unlikely to increase as much as some individual stocks might. There is also an issue arising right now that is really shining a light on some of the fees that mutual funds are charging and how investors would be better off going elsewhere.

3. Opening an account

After analyzing your budget and the type of investment vehicle you want to get into, it is very important to open up an account so that you can begin trading. In case you’re opening a new account, you need to take into account the brokers that have relatively low account minimums and low fees. This will save you a lot of money in the end, especially if you are deciding to trade.

4. Carry out proper Research

In conclusion, research is very critical before you decide to invest in a stock. This is made to help you with the basics of trading. You can’t predict the market, although you can do as much as possible to direct your portfolio towards [positive returns. This means that researching past performance, recent news and analyst ratings and the companies quarterly and annual reports is imperative. This information should be available in your broker’s website.

If this article hasn’t helped you enough, feel free to check out this great Youtube video I found!

Warren Buffett Strategies – What You Need To Do In 2018

Warren Buffett Strategies – What You Need To Deploy In 2018


Warren Buffett Strategies

If you wish to invest like Warren Buffett, then it is important to understand the basic principles he follows for investing in companies. You might wonder how complicated it is to understand the investment strategies that he follows. I’m here to tell you it’s not hard at all, Buffett follows a list of very simple but intriguing investing fundamentals prior to choosing a company.
By carefully following these principles, you will soon be able to buy stocks like Buffett that will turn out to be extremely profitable over the long haul. You may not become as rich as the man himself, but you will definitely increase your net worth following his simple strategies.

1) Buffett finds companies that are undervalued


The first step for Buffett is to search out companies that have healthy financial statements in terms of profitability and the annual turnover. But there is a catch, their stocks are undervalued in the market, and the public does not properly foresee the market potential of the company operating so well in terms of its products and services. To understand the scenario, it is important to go through the financial statements of the past five years of the company that you have chosen to invest in. The picture becomes even more clear if you analyze the accounts of the last ten years of the business if it has been in the market for that long. This strategy clearly points out the fact that if you want to invest like Warren Buffett then you have to pick a company that has been operating in the market for at least five years or more. Therefore, the market’s new entrants are a poor strategy for making a safe and worthwhile investment according to Buffett.


2) Buffett picks companies with a competitive edge


Buffett shows his keen interest in companies that are either enjoying a monopoly in the market, or if they have a product or service which has an edge over the rest of the competitive companies in their industry. Therefore, to buy stocks like Buffett you will have to screen the market for such companies that meet the above-mentioned criteria of being a profitable company, having a monopoly or close to in the industry, and having products that simply trump the competitors.


3) Buffett likes consistently profitable businesses


Warren Buffett makes sure that any company he invests in is generating profits in a consistent manner. You can find this out by analyzing the past financial statements of the company. A positive  situation indicates that the management is making efforts in improving the operations of the company and for coping with the dynamic external factors prevailing in the market. The profitability can easily be judged by simply looking at the profitability ratios of the business for the past three to five years. Moreover, there are a few other things that you can look at to tell if the company is running smoothly; these include the annual amount of dividends distributed by the company among its stakeholders and the issue of bonus shares to employees. To be deserving of your investment, the company must have the quality of generating huge profits.


4) Buffett doesn’t like debt


 Buffett prefers the companies that run themselves more on equity as compared to borrowed funds. What this means is that the company  must hold a low debt-equity ratio, which indicates that its earnings will not fall victim to huge interest that is usually charged on debts. Lower debt means that all the earnings made at the end of the year are free from the liability of paying back a principal amount along with an additional amount known as the markup. The most ideal situation that one may find is a huge company running on 100% equity, because the development and growth require huge funds – resulting in borrowing.


5) The price must be right


It is important to understand this if you want to invest like Warren Buffett; it states that one must evaluate the worth of the shares of a company as per its profitability and see if it is being sold at a rate close to your estimated value. The ideal value that you calculate can also be named as the intrinsic value of the stock and if this value is below the company’s total market capitalization, then it means that the public has undervalued the stock. It is very hard to correctly ascertain the intrinsic value of the company, as it requires skill and a good backhand speculation to turn your observation into a successful investment. However, Warren Buffett does not find it hard to figure out what the company can earn him.


According to Warren Buffett, if the intrinsic value is more than 25% of the company’s market capitalization, then it is worthy of investing. But if not, then he stays away from such a company where things might not work out in his favor due to the overpriced asset valuation. Warren Buffett’s intrinsic value calculation is probably the most prized possession of any value investor. In short, Buffett calculate a stocks intrinsic value by estimating the company’s future cash flows and discounting them by a ten year federal note. More about this intrinsic value calculation can be found at a website called BuffettsBooks.

Warren Buffett Quotes

6) You must know the business


The most important strategy Buffett uses is to pick a business that you understand well. In simpler terms, select the market that is easily predictable compared to some newly defined markets. Warren Buffett has always opted for companies that are in FMCG, energy and IT business, and have a proven historical record of favorable returns.


6) Summing it up


On the crux, it would be right to say that to buy stocks like Warren Buffett you have to get a little bit technical. But this is absolutely appropriate, because you will reduce your chances of being left empty handed with no returns. By following the investment fundamentals that Warren Buffett practices for growing his wealth, you will minimize your risks without reducing your chances of a huge return from the investment. Hopefully these starting points have provided a nice foundation for your investment strategies. If you’d like to talk more about Buffett strategies, feel free to drop me a line on my contact page!