Financial Idea's Blog » How to Invest Stock

What’s A Dumb Financial Question?

mlarkin19 — Sun, 27 Jun 2010 03:36:12 +0000

Oh good, an easy question! ?

There isn’t one.
Say you came into my office and asked me a question, I explained the answer, and you nodded and went about your business, understanding a little bit of the answer but not really why or well enough even to remember a week later. Would I have done my job? Not really, or at least not yet.

That’s how a lot of information gets “shared” these days though. “Answers” are disseminated across the TV and the Web by people who know what they’re talking about and by people who don’t. Some of them are in official positions and so “should know” and others are not so official, like many bloggers, but could and do really know.

The opposite is also true,but what’s really important to you is, do YOU know? After all, it’s YOUR money.

Here’s my approach: you can ask me whatever financial questions you have. One-on-one. It’s not like you’re at a seminar with 100 other people, and you don’t want to raise your hand because the other questions seem far more advanced. Then you can ask me again, the same way or a different way. Next week you can call me and ask for a little more clarification. I might even encourage you to read another source on the topic as well.
I used to teach a series of technical courses at a community college, and I discovered early on that different people have different learning styles. So, I might explain a concept a certain way, and some of the people got it, and others didn’t, and they were all listening. Because of that, I made sure to tell them not only to ask questions about what I was saying, but if they really wanted to know what the textbook author was saying, to read another text from another writer on the same topic. That other author might be saying the same thing, but in such a different way that it “clicks” with a given person, the way the original information did not.
There are also different styles of learning. Some surveys have established that in the United States alone, some 70% of us are visual learners. The same surveys tell us that about 10% of us are auditory (listening) learners, so for example we might prefer storytellers to books. The remaining 20% of us are “kinesthetic” learners, meaning we learn best via one or more of the other of our five senses: touch, taste and smell. Many of us are a close combination of more than one of these.
The point here is that, because there’s more than one “right” way to learn, then by definition there can be no “dumb questions”. This is a difficult business to understand sometimes, and it’s my job to make sure that my clients who are serious about providing for themselves and their families in the future know what to do next.
Want to know more? Let’s talk, and create a plan that’s right for you and your family.

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How did dotcom companies become so overvalued in the late 1990s?

mlarkin19 — Thu, 08 Apr 2010 20:36:28 +0000

A great example of a dotcom company that suffered the classic fate of many in the 1990s was VA Linux.VA Linux specialized in hardware, computers and servers that used the Linux operating system as opposed to the Windows version. The founders, Larry Augustin and James Vera, had discovered a niche in the hardware business. In the throes of the internet boom, when a “back of the napkin” business model was considered too formal for the new paradigm, a profit-making tech company that was not traded publicly was unthinkable. Thus, VA Linux was cajoled into an IPO.

The VA Linux IPO was an extremely hot issue. In retrospect, it has become a good example of just how out of control the dotcom bubble became in 1999. On December 9, 1999, VA Linux shares went on sale at an offering price of $35. By the end of the trading day, they were selling at over $235. Later that week, they broke $300. Normally, a steep rise in share price is to be expected as unseasoned securities are snapped up and traded by speculators. A rise of almost 700%, however, would seem to suggest gross negligence on the part of the investment bank underwriting the issue. Not that the founders of VA Linux were complaining; in a single day, they had gone from owning a company of modest profits to paper millionaires - siliconaires, to use the lingo of the times.

Unfortunately, the VA Linux IPO came just before the dotcom bubble popped. Over the following year, Augustin and Vera watched their company shed value at an alarming rate. By April, their stock was down below $50. By December, it was trading for less than $10. In 2001, VA Linux flirted with becoming a penny stock. In 2002, the stock spent most of the year trading for less than a dollar. From 2001 onwards, VA Linux, renamed SourceForge Inc., reworked its business into a software development firm – a move that helped the company rebuild. In 2006, SourceForge recorded its first profit since its IPO. In 2008, the company has traded around the $1-3 range – a far cry from the $300 it once commanded.

This question was answered by Andrew Beattie.

Resource: http://investopedia.com

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Is Tech Stock Hot? Technology Financial Ideas

mlarkin19 — Sun, 21 Feb 2010 01:38:42 +0000

My goodness… I guess it’s time for that one again.

So, why do I say that? I mean, lots of gurus on the net are saying that. It’s simple, lots of gurus are indeed saying that, and lots of other gurus are saying that this sector is hot or that sector is hot, and you’d be foolish to ignore them (so they say). Other gurus are saying this sector is cold or that sector is cold, and you shouldn’t touch them with a ten-foot pole.

Keep in mind that the reason they’re saying what they’re saying is because they often are trying to sell you their newsletter with even more detail about whatever it is they’re touting, probably with recommendations you’ve never heard of. That can only mean it must be a great secret that hopefully you still have time to cash in on……right? They do this because it’s far easier to conduct their business at arm’s length with no regard for you or your unique purposes.

I, on the other hand, am one of the sort of financial professionals who wants to know about you and what you like, what you don’t like, and what you want your money to do for you. I want to know what you’re thinking so that I can understand what makes the most sense for you. I want to work with you and your family to educate you on how the markets really work in a one-on-one basis, so that you can participate fully in making your money go to work for you.

That said, let’s get back to the question…Is Tech Stock Hot?

Maybe it is! I mean, there are certainly some great companies in the tech sector, although they might not either be the ones that first come to mind, and they most likely are not the big secrets that the gurus will share to every buyer of their respective newsletters.

I know of a few companies which would be great additions to anyone’s portfolio…IF they like that sector, have the appropriate balance in other sectors and investment types, and really have a good purpose for owning that investment.

Hopefully in this really short topic, you can see that the question just IS NOT AS SIMPLE as the headline implies. It’s all dependent on you.

Want to know more? Let’s talk, and create a plan that’s right for you and your family.

Make an appointment at: http://whattoinvestinnow.com or email your questions to John@FinancialIdeasBlog.com

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Some Financial Advisors Are Doing Well In Today’s Economy

admin — Mon, 07 Dec 2009 18:36:54 +0000

Why is this? It’s because they have the presence of mind to step back and look at the big picture. Remember the chart in the last article (below) about saving money in an IRA for 50 years?

Look at the early years in that graph.

That was a test.

What are the early years? The first one, two, three? There’s hardly any difference between that and the start. “You mean I’ve been investing for three years with you now and I’ve hardly made anything? I’ll never get anywhere!”

If only I didn’t hear that, like, all the time! But that’s not the end of the “early years”. I’m not talking about 3 years, or 5 years, or 10 or 15 years. I’m talking about 20 years before you really see the difference in that case, after which the growth really starts to become noticeable and just accelerates from there. This is why you should start as early as possible, build a trusting relationship with a competent advisor, and then be almost impossibly patient. I’m not suggesting that you buy-and-forget. On the contrary, you should be working with an advisor who is not afraid to take time with you and educate you. What I’m suggesting is that you realize that it will take time, but if you do it, time will be on your side.

Now, what if you want your money to grow faster that what we see in the chart? Can you do that without saving anything more? It’s possible, but it involves more risk than you might be comfortable with. A much better approach is to continually add to that savings, every paycheck. If you budget properly, you’ll make that a key part of your planning and you’ll pay yourself first!

Let me say that again. Pay yourself first. I doubt that there are three more important words that anyone will ever say to you, unless they are “I love you”. You don’t need a new car as much as you need to have the choice to retire someday, preferably when you want to.

Want to know more? Let’s talk, and create a plan that’s right for you and your family.

John@financialideasblog.com

http://whattoinvestinnow.com

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Don’t Be Apprehensive About The Market!

admin — Mon, 09 Nov 2009 20:58:36 +0000

“Oh, my gosh! Did you see what happened in the stock market today? It was down almost 120 points!”

Ever heard that before? If you haven’t, you will. The question is: should you listen? The answer is: only if you like being really depressed one day and really excited the next day, because that’s typically what happens? Sometimes we get really good days back-to-back and sometimes really bad days a few times in a row, but that’s still not stepping back far enough.

Let’s say you’re 40 years old, and you started putting money into the stock market 20 years ago. The S&P 500 was trading at approximately 340 points, compared to nearly 10,000 today. Or maybe you’re 50 and your start was 30 years ago. The S&P 500 then was trading for about 100 points. So between 1979 and 1989, the market tripled. Between 1989 and 2009, the market grew by 33 times!

Isn’t that a better concept to stick in your mind than what most of the media is alarming you with lately? Like a market down about 33% in the past two years?

The only reason – at all – to be concerned about the short term in the market is if you plan to retire in the next few years. If you’re younger than that or if you like your job, you should be taking advantage of the magic of compounding returns to get you in a position where you have choices! Having the choice to work or not work is a whole lot better than needing to work to make ends meet. That’s when you might have no choice but to be really aggressive, which can hurt a lot if things don’t go the way you hoped.

And don’t listen to people who say you can’t be too conservative, because you can be! Remember my article (below) about the Rule of 72. If you put all your money into CDs right now, your money will grow at a rate lower than inflation. I don’t know about you, but I’d like my money to double sooner than three to four (or more) decades!

Still confused about the right thing to do? Let’s talk, and create a plan that’s right for you and your family.

Email: John@financialideasblog.com

1.888.379.4352 Extension 1000

Technorati Tags: Financial Ideas, how to invest in stock, How to Invest Stock, Interest Only, play the stock market, recovering economy, Stock investing, Stock Market advice, stock trading, US finance, What to Invest In, what to invest in now, young investors

What’s The Difference Between A Stock And A Bond?

admin — Thu, 22 Oct 2009 17:52:07 +0000

This poses an interesting question because it highlights how many people really have no idea about the different type of investment “vehicles”, as they are often called.

*You know what “equity” is, right?

Especially if you own a home, it’s the difference between what you owe and what you own. If you have a $300,000 house and you owe $200,000, then you have $100,000 in equity, or ownership.

Stocks are much the same thing, except that what you own is (typically) a VERY small piece of a major company. In most cases, you’ve already paid for it in full, and therefore you own it outright with no debt. (It is possible to borrow ownership, but that’s a level 200 course).

This is why stocks are often called equities, and vice versa. Think of yourself as a part owner, you can attend the annual meetings and vote on issues as requested by the board of directors – using what are known as “proxy statements”.

You will probably have a very limited impact on the direction of the company unless you own 5% or more of the outstanding stock, what most people buy stocks for is to either a) participate in the growth of the stock price or b) get paid cash dividends as a reward for owning the stock.

In an ideal situation, both will happen, at which point you have to be clear on why you own the stock – is it for the growth, in which case you might want to sell it for a profit – or is it for the dividend (read: the cash flow) in which case you might not want to sell it.
A bond, on the other hand, has NOTHING to do with ownership. A bond is like your mortgage loan or your car or other loan. It is an agreement between you and another party by which the lender gets paid a fixed amount of interest for a fixed period of time. The cool part is that YOU are the lender. YOU are the bank! These are generally not as exciting as stocks, but that can be a good thing! Being the lender instead of the borrower can be a very positive and eye-opening experience!

So, what is a mutual fund then? Fortunately this is easy. A mutual fund is a basket of various stocks, or a basket of various bonds, or in some cases, both. Which of those 3 general approaches, and which specific investments are held by the mutual fund are defined by the fund’s prospectus, which states what their objective is, and what they can and cannot do, so that other people can hold them accountable for doing what they say they will.

Mutual funds are often a little more expensive than individual stocks and bonds, simply because you’re dividing your money among many different investments, a form of diversification, rather than having everything in one basket.
Further questions?

Email me at: John@financialideasblog.com

or go to http://www.whattoinvestinnow.com

Technorati Tags: Bonds, Compound Interest Formula, how to invest in stock, How to Invest Stock, Rule of 72, Stock Market, stocks and bonds, What to Invest In

I’m Not Convinced, “I Just Don’t Want To Play The Stock Market”

admin — Wed, 07 Oct 2009 02:55:13 +0000

Of course you don’t, I understand that completely. I don’t “play” the market either. I don’t even know where the phrase “playing the stock market” even comes from. Although I have to acknowledge that it is very common terminology, I think it is not only misleading, but a widespread cause of misunderstanding about what an investor is actually doing.

A true investor is actually taking a very calculated, well-researched and probably even mostly safe although not guaranteed position that owning a piece of a company, or piece of a group of companies, or maybe even a piece of the debt that a company or a government owes, will pay that investor enough of a return to warrant the associated risk that comes with making that move.

On the other hand, “Playing The Market” is the same thing as gambling, whether it be on high-risk stocks that could go through the roof, or on horses or at the casino or the lottery, where in order, your chances of profiting go downhill and fast. (I once had a professor in college tell my class that we each individually had a better chance of being randomly chosen to be a U.S. Senator than we had of winning the Super Lotto Jackpot!).

So then, is trading stocks something a novice should get into? I’d argue you could ask the same question of someone who’d been doing it for many years. The answer in both cases is a resounding “NO” unless you don’t have anything else to do. The idea of not working and instead being a “day trader” works for fewer than 20% of those who try it, and the successful ones don’t have time to go to the bathroom. If that’s the life you want, so be it, but most people are really good at something else, and if they’re really lucky, they also like doing that something else. In my opinion, they should do that thing, whatever it is.

I happen to like investing, not for anything even remotely like day trading, but because of the bigger picture of using what I know to help others get to their goals – there’s a lot of satisfaction in that, at least for me. That’s why I do it.

Another thing I hear from a few people is that since they either own their own business or are above average in their corporate career, or even that they’re in a very intellectually demanding job, that it only makes sense that they are smart enough to do their own investing. That almost makes sense, until you consider once again that good investing takes time and patience, which is not what makes people like that successful in their day job. Good investing also requires separating yourself from all emotion, and none of us are very good at not being emotional about our money.

The bottom line is that you need a coach, a mentor, an emotionally uninvolved professional who can take a step back and help you see the big picture for yourself, help you define your goals, and help you reach them. This you can do by being involved in things like the stock market, while at the same time not “playing the market”. If you would like to have a further conversation regarding this please leave your name and email address above, or visit http://www.whattoinvestinnow.com/.

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How Can I Educate Myself About The Stock Market?

admin — Wed, 07 Oct 2009 02:52:32 +0000

Learning the Rule of 72

Before we go there, I think the first question here really is: “Why should I even invest at all?” The underlying answer that most of us have to that question, even if we don’t say it, is: “That’s too risky. I know people who have lost everything doing that. I’m not that dumb, I’ll just save in a savings account.”

Learning the Rule of 72

So the first answer to educating yourself is to ask yourself: “Do I know what the Rule Of 72 is?” and “How does it affect me, anyway?”

What Is The Rule Of 72?

The Rule Of 72 goes back at least many hundreds of years. Luca Pacioli, an Italian mathematician, referenced it sometime during the 15th century as a convenient way to determine how long it takes your money to double, assuming you know the interest rate it earns. Luca didn’t explain the rule much, meaning it probably goes back even further than that, but the principle still holds true today.

Here’s an example: start with any amount of money; let’s say $100.00 to be simple. You invest it at 10%. Using the simplest of math, you take 72 and divide it by 10, and you get the number 7.2, which means your money will double to $200.00 in 7.2 years.
If you have $100.00 and you invest in at 7.2%, you take 72 and divide it by 7.2, and you get the number 10, which means your money will double to $200.00 in 10 years.

The same exact principle is true if you start with $100.00 or $100,000.00. That’s all the harder it is.

Now, is it accurate? Well, not precisely. The Rule Of 72 is a good general estimation if you assume that your interest compounds once per year, when actually it might compound monthly or daily – but if it does, that’s only to your benefit. There are financial calculators which are much more accurate, but this is a simple idea that gives you a good general working answer.
How Does It Affect Me, Anyway?

Let’s assume you really are thinking like our hypothetical person at the start of this article, and you “know better” than to get into the stock market, so you just dump some money every month into a savings account. Don’t get comfortable with the idea that you’re better off than people who don’t save at all – you are, but is it enough? Let’s see.

So you’re in savings account that, in today’s market, probably pays you somewhere between 0.2% if you’re like most people and maybe 3%, if you’ve got a lot of assets and your mortgage there, too. If you’re in the latter of those two groups and earning 3%, then we take 72 and divide it by 3, and we get….ouch, 24 years for your money to double.

If you’re in the former group and earning 0.2%, well, you’re looking at having your money still double all right, and in only 3,600 years!
Cool, huh?
If you have any personally driven questions or concerns please leave your name and email above or visit: http://www.whattoinvestinnow.com.

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Invest For The Long-Term? What’s That? I’m Young!

admin — Mon, 28 Sep 2009 23:52:59 +0000

Okay, one of most common pieces of “conventional wisdom” out there regarding investing goes like this: Young people can be really aggressive, and they should! They might hit it really big, and if not, well, who cares? They’re young and have plenty of time to start over and do it right the next time.
Technically, that’s correct, and yes, it’s true that hindsight is golden! In this case, here’s why: it’s almost impossible to adopt that mindset and simultaneously hold the thought in your mind that you’re going to get older and someday not have plenty of time to start over. Instead, what we humans do is talk ourselves into believing that we’ll do it right the next time. But wait a minute – why not just take the pressure off for your whole life and do it right the FIRST time? If you’re past that, okay, take some of the pressure off the rest of your life and get started doing it right!

What’s doing it right? Oh, that’s easy, we find the next Microsoft, like those lucky people did back in 1985 or so. The key word there is “lucky”. There’s nothing wrong with getting lucky, but there’s a lot wrong with having that as a plan, and I can assure you the original Microsoft investors had no idea how good it would get. I can also tell you that some current investors are still in love with that and can’t sell the Microsoft they have when that’s not very likely to happen again.

Doing it right involves getting the emotion out of the game, yet we have a tendency to put our heads in the sand on the topic of getting older. I know, when you’re in high school, and up until you’re maybe in your late twenties or maybe until when you first get married, you don’t get older. I know this. It was true for me. But the clock doesn’t stop, which means we either get on the train now, or watch it leave the station without us.

So where are we going with this? Be serious about doing the right things for yourself and the ones you love. That doesn’t mean having a grave expression or being uptight instead of having “fun” gambling on the next hot stock tip, it means getting together with someone who can create a plan for you, be your coach in building that plan, help to hold you accountable when you need it, yet also encourage you to take some chances later when you can, because you’ve been committed to the idea of someday having choices.

Choices! How cool is that? Maybe that’s what it’s all about! Getting rich is nice, but that’s a very relative and personal concept. The first thing is to do what you have to do so that you can avoid being overly aggressive because you’re much older and still way far behind. How much better it is to be in a position where you can walk away from that corporate job and open your own flower shop. Whatever motivates you!
JUST START NOW.

Visit: http://whattoinvestinnow.com

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Fed’s Say U.S. Recovery Is Underway

admin — Thu, 24 Sep 2009 23:54:59 +0000

By Mark Felsenthal and Alister Bull

WASHINGTON (Reuters) – The Federal Reserve on Wednesday upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession, while reiterating its promise to hold interest rates very low for a long time.

The Fed also said it would slow its purchases of mortgage debt to extend that program’s life until the end of March, in a move toward withdrawing the central bank’s extraordinary support for the economy and markets during the contraction.

The U.S. central bank, as widely expected, held its benchmark overnight lending rates at close to zero percent.

“Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn,” the Fed said in a statement after its two-day policy meeting.

“Conditions in financial markets have improved further and activity in the housing sector has increased,” it said.

U.S. government bond yields ended lower on the news that the central bank had reiterated a pledge to keep rates ultra-low for an extended period.

“I think it confirms that the economy still needs a little bit of help and that rates aren’t going to go up anytime soon,” said Alan Lancz at Alan B. Lancz & Associates in Toledo, Ohio.

But a stock market rally fizzled on concerns the Fed was setting the stage for pulling back from its efforts to stimulate the economy. The Dow Jones industrial average ended down 81.77 points or 0.83 percent at 9,748.10.

“There’s still a lot of problems with mortgages, the hou

sing market in general as well as the banking sector,” said Dan Faretta, a market strategist at Lind-Waldock, a brokerage firm, in Chicago.

The Fed said it would gradually slow the pace of its purchases of mortgage-related debt in order to promote a smooth transition in markets as the Fed has been the biggest buyer.

But it made clear it would purchase the full amount of $1.25 trillion in agency mortgage-backed securities. In its August statement the Fed had said it would buy “up to” that amount, but dropped those two words on Wednesday.

At least one member of the Fed’s policy-setting committee had proposed curtailing mortgage-backed securities purchases, saying they provide too much of a boost as recovery takes off.

The Fed doubled the size of its balance sheet to more than $2 trillion as it flooded financial markets with money during the crisis last year.
Some policy-makers worry the bloated balance sheet risks triggering inflation if the Fed waits too long before removing its stimulus measures and raising interest rates.
However, the U.S. central bank on Wednesday played down concerns about price pressures in an economy where the jobless rate is at a 26-year high and factory capacity is greatly underutilized.

Policy-makers said inflation would remain subdued for some time with substantial slack in the economy dampening cost pressures, and with long-term inflation expectations stable.

In August the Fed had noted rises in energy and commodity prices, but dropped that reference this week, suggesting that worries about inflation had diminished.

The Fed has maintained its support for the economy, even after cutting interest rates to near zero, through a campaign to buy $300 billion of longer-dated U.S. government bonds and $1.45 trillion of mortgage-related debt, in order to keep lending rates low.

The Fed opted in August to taper down the U.S. Treasury debt purchases by the end of October, and had been expected to opt for a similar gradual withdrawal for its mortgage debt buying which initially had been scheduled to close at year-end.

The U.S. central bank must walk a delicate path between acknowledging the recovery evident in the economy, and assuring investors that it remains attuned to the risks of a double dip recession as policy stimulus fades next year.

This means exiting in time from aggressive steps aimed at boosting growth to avoid igniting inflation as the economy picks up steam, while not smothering the recovery in the process.

Recent data has pointed to turnarounds in manufacturing, housing markets and consumer sentiment, and many analysts expect strong growth in the third quarter after four quarters of contraction. However, with unemployment at a 26-year high of 9.7 percent, most analysts nevertheless expect consumer spending to remain weak and damp the recovery.

Reporting by: Alister Bull, Mark Felsenthal, David Lawder and Ellis Mnyandu and Ryan Vlastelica in New York; Editing by Simon Denyer
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