Similarities Between Playing Craps And Investing

November 16th, 2010 by admin No comments »

Do you know the difference between playing craps and investing in the stock market? In my opinion, absolutely nothing! There is very little difference between playing craps and investing in the stock market. Some stocks have a high risk factor with a possibility and expectation of a greater return, while other stocks have a lower risk factor, but also with an expectation of a lower return. Similarly, some craps bets have a higher risk factor with a greater win pay-off while other craps bets have a lower risk factor with a lower rate for the win pay-off.

There are many similarities between various types of stock investments and playing craps. For example, investing in stock options is extremely risky compared to investing in conservative, dividend paying securities, like Disney, Coca Cola or MacDonald’s. Stock options will allow you to make huge profits, but with a lot of risk. Investing in the conservative companies will have a lower risk, but will give you much lower profits. Of course, you can still lose money investing in conservative companies.

In craps, you can bet on a 2 or 12 which will give you the highest profit (pays 30 to 1), but it also has the greatest risk of losing (less than 3% probability of winning). Or, you can bet on the 6 and 8 which have lower win payouts, but also a lower risk of losing. As in investing in stocks, a craps player will have a chance to lose even on low risk bets.

Webster’s New World Dictionary, Compact School and Office Edition, defines “Invest” as “to put (money) into business, bonds, etc., in order to get a profit.” Webster’s Dictionary defines “Gamble” as “1. to play games of chance for money, etc. 2. To take a risk for an advantageous position.” By comparing the definitions of “Invest” to “Gamble,” one can ascertain that if you invest, you are putting money into stocks (business) or bonds or bank certificates of deposit in order to make a profit. If you “Gamble” (play craps), you are putting money (a wager) on a portion of the Craps table layout in order to win money. Depending upon how you invest and how you bet playing craps determines if you will have a greater chance of making money or a greater chance of losing your money.

If you listen to radio financial talk show hosts and their guests and you watch financed-based TV programs (CNBC), as well as read investment magazines and publications, you will notice similar philosophies for investing as we suggest in playing craps. Some of the comparisons are as follows:

1. “Investing always involves risk.” – - Don McDonald, nationally syndicated talk show host, 1/24/01. Bob Brinker of Money Talk has also said something to the same affect.

Translation: Playing craps always involves risk.

2. An advertisement by American Century in Smart Money Magazine, January, 2001, page 58, states in part as follows:

“It’s knowing teamwork and a disciplined approach can deliver solid, long-term results.” See also, Money Magazine, December, 2000, page 30.

Translation: Playing craps with a disciplined approach can deliver solid, long term results.

3. TD Ameritrade in their disclosure to investors about options (2008) state in part:

We know that options can be an important part of your investing strategy. . .

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses.

Translation: Playing craps is not suitable for everyone. Playing craps may expose individuals to potentially rapid and substantial losses.

If you apply investment techniques and sound business principles to playing craps, you should be able to minimize your losses while maximizing your profits (wins). Just remember – - as there is no foolproof strategy to investing, there is no foolproof strategy to playing craps.

To learn more about playing and winning at craps go to http://www.walkawaycraps.com

7 Savings Strategies For Retirement Planning

November 15th, 2010 by admin No comments »

Everyone is faced with a change of plan in this financial crisis. By focusing on these 7 strategies you can stay on track for financial recovery and a better retirement.

1. Consolidate all retirement plans, 401ks, IRAs, etc. and contribute the highest to the one that has matching contributions first. Saving money in retirement plans means saving on taxes and that’s cash in your pocket.

2. New baby or older children leaving the nest means an update to your will, life insurance, and 529 college savings plan. People overlook these areas where you can save money on premiums or college savings plans that are no longer used.

3. Use automatic transfers from checking to savings accounts to build up cash quickly for emergencies and get into the habit of saving. Building up a savings account can give you the opportunity to take advantage of inexpensive purchases later.

4. Don’t view this economic downturn as a negative, use it as an opportunity to buy more shares at less expensive valuations. Extra savings going to buy more shares at a cheaper price is always a winning investment plan over time.

5. Be open to your family about financial cutbacks in order to ease children’s anxiety. They notice how other children are being affected and need the reassurance that their parents are doing okay. The support of your spouse and family during difficult economic times is priceless.

6. Scared of adding money to the markets? Then go ahead with those remodel plans. Because of the economy there are more bidders for the job and cheaper materials available. Saving money in existing real estate can only increase the value eventually as long as you don’t go overboard with excessive renovation that it not in line with the area.

7. Hire a financial advisor- if only to give you the peace of mind that you are doing the right thing. It may be a big expense but it also may give you additional insight as to where you can get ahead and in times like this, we all need some additional help into seeing where we can use our money wisely.

You may not be able to control the economy but there are some things that you can control. By following the 7 savings strategies above you will increase the cash in your pocket and do the best with what you have for a better retirement.

2009© Fern Alix-LaRocca CFP® All Rights Reserved

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Social Security Income – When Should You Start Receiving Yours?

November 14th, 2010 by admin No comments »

Social Security pays you a monthly income that’s annually adjusted to the cost of living (COLA) until you die. But Social Security permanently increases your benefits the longer you delay beginning them. But that poses the problem of when its best for you to begin them. And that’s what this article addresses.

First off, Social Security pays you a monthly benefit based on your 35 highest-earning years. That benefit determines how much you’ll be paid monthly when you reach your full retirement age (FRA). Everyone’s FRA was originally 65, but it’s adjusted slightly upward for those born later. For most boomers, it’s 66.

If you choose to begin receiving benefits earlier than your FRA, your monthly benefit is permanently decreased from your FRA benefit. If you choose to begin at age 62, you lose about 25% of your FRA benefits. Beginning between 62 and your FRA gives a proportionally intermediate decrease.

If you choose to wait beyond your FRA, Social Security will increase your FRA benefit by about 8% per year until you reach age 70. So, delaying until you reach age 70 will increase your FRA benefit by about 32%. Remember, all these benefit changes are aside from the yearly COLA.

Break even Age for Social Security Benefits Since you only receive your Social Security income while you’re alive, and delaying your benefit increases your monthly income, you might ask ‘when should I start my benefits to receive the most Social Security money before I die.’ That’d be easy to figure out if you know when you’ll die – which we don’t!

But here’s how you can make a guesstimate of when you should begin. First, Social Security has arranged for the change in its monthly paid benefit for delaying the start of anyone’s benefits, to give roughly the same amount of total payout if everyone dies at about age 81. So 81 is an approximate break even age for everyone. This age approximately corresponds to the remaining life expectancy of anyone reaching age 65.

So, no matter when you start your benefits, you’ll have received the same total amount at age 81. That means that if you live longer than 81, you’ll receive more for having delayed longer, since your ‘delayed’ monthly benefit is higher. But it also means that if you die before age 81, you’ll have received more for having started earlier despite a lower monthly benefit.

Choosing the best age for you to begin

Though 81 is an approximate statistical break even age for everyone, your own remaining life expectancy is a real guess. Nevertheless, if your state of health makes you a poor candidate for reaching 81, you probably should begin your Social Security early. Single men have a lower life expectancy then others; so many should consider taking their Social Security early.

On the other hand single women tend to live longer than men. Unless they have life-shortening health problems, they may benefit more by delaying their Social Security benefits.

Those that are married can play it both ways – and here’s how. Married men typically live longer than single men. And of course women tend to live longer than men. Also at the husband’s death, the surviving wife is eligible for 100% of his benefits – and vice versa.

Aside from any specific health problems to the contrary and assuming the husband was the higher earner, then assume he’ll die before the wife. For that scenario the wife should take her benefits as early as possible, while the husband delays at least to his FRA. When he dies, she’ll receiver his FRA benefits.

Hopefully this clears up the general trend to how things work.

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Treasury Stock

November 12th, 2010 by admin No comments »

Treasury Stock is defined thus: “Stock reacquired by a corporation to be retired or resold to the public. It is issued but not outstanding, and is not taken into consideration when calculating earnings per share or dividends, or for voting purposes.”

These are shares bought back by the issuing company, thus reducing the amount of the outstanding shares in the open market, including insiders’ holdings. Such repurchases are done with some objectives. Firstly, as a tax-efficient method to put cash into shareholder’s and thus ‘save’ the money that the company might have to pay as dividends. Secondly, when the company feels that the stocks are undervalued in the open market. Thirdly, this is an incentive compensation plan for employees. Instead of cash bonus, the employees will receive assets which are likely to grow faster than savings/fixed deposits in a bank account. And finally, a clever devise against the takeover threat, to protect the company.

These shares have certain limitations:

No dividend is payable on treasury stocks and they have no voting rights. The total amount can not exceed the maximum proportion of total capitalization, as per the laws of the country, governing such matters. On repurchasing the shares, they may be held for reissue or cancelled. When not cancelled, they are referred to as treasury shares. In reality, a repurchased share is company’s own share that has been bought back by the company under special circumstances, after being fully subscribed and paid.

The possession of these shares does not confer any special rights to the company such as right to vote, pre-emptive rights as a shareholder, the benefit of cash dividends etc. In case of liquidation of the company, no proceeds are apportioned. In short, it is as good as un-issued capital and hence it is not classified on the balance sheet. To be classified as an asset, it needs to have probable economic benefits. The ordinary share capital stands reduced by the amount equivalent to the aggregate of such shares.

In a just and efficient market, buying back its own share to convert them into such shares has no effect on the share price. For example, if the price of one share of the company is $100, and if the company buys back 100 shares for $10000, its cash holdings stands reduced by $10000 but 100 less shares are outstanding as well, and the value per share remain unchanged. But this could result in change of certain financial ratios, such as earnings per share stands increased. But the value per share remains unchanged, as the market risk increases by the same amount.

In USA, buybacks are covered by certain laws. Accordingly, the company that intends to repurchase the share should not use more than one broker to acquire shares per each day. A repurchase may not be the first trade of the day nor can it be made in the last ten minutes of the trading day. A repurchase price may not be bid at a price higher than the highest independent bid or last price of the last trade. Repurchases per day may not exceed 25% of the average daily volume of the previous 4 calendar weeks. This restriction is however, not applicable to block purchases not effected by a broker-dealer.

Some companies retain shares o use later. These are known as treasury shares. The company may release such shares in to the market, to enable them to acquire money for a project, or research and expansion. There are many companies that hold a good chunk of the shares in this category.

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What is the Stock Market?

November 11th, 2010 by admin No comments »

Definition

At the stock market, stocks of listed companies are dealt. The term stock market is used for the overall stocks sold and bought at stock exchanges. A group of organizations can constitute a stock exchange to perform share dealings. For example, USA NASDAQ and NYSE are stock exchanges.

Functionality

In the stock exchange everyone can participate with respective stocks. It doesn’t matter where it is based or how much stock the trader possesses. In the stock market, small investors to big traders everybody trade together. The price of a stock depends on the demand and supply of that particular stock. In stock markets, the share dealing is done by a middleman. The person is known as a share broker. The seller and buyer mutually decide the price of the trade. There is an open place in the stock market for trading and the process is known as open outcry. Here traders gather and wildly shout their individual quote to sell their stock. In this kind of auction (the ‘verbal bid’) the bidding price changes simultaneously and stops only when a bid is singled out as the highest. The other type of trading is virtual and performed on the computer. In this type of exchange, traders sitting on computer terminals bid through computers within a network.

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Know When to Sell Stock

November 10th, 2010 by admin No comments »

It can be difficult to know when to sell a stock. It can be even more difficult to know when to sell a winning stock.

Selling is a numbers game, just like buying. There is always a point in which you should sell a stock. This point often depends on the stock performance and the company.

For example, you have a stock that has performed very well in your portfolio. You are debating simply taking your profits or waiting a little longer until you know whether or not the stock has peaked. What do you do?

There are signs that indicate the direction a stock is about to take. Start by looking at the company. If the company’s data — sales, cash flow, revenue — begin to show signs of trouble, it could mean that something has changed with the company that will eventually affect the stock price in a negative way.

If the company is beginning to cut or eliminate dividends, you should reconsider your investment. Dividend cuts are usually a signal of financial difficulties.

There is no reason to wait for a decline in revenue or a market panic to unload a stock. You can go ahead and sell while you have a healthy profit. After all, that is the idea in investing — a profit.

Just like setting a floor on a stock price to sell once it falls below a certain level, you can set an upper limit on a stock. The idea behind the upper limit could be that you are afraid that a stock won’t be able to stay above a certain price level. The slightest bump could send the price into a nosedive. You believe that this is the absolute highest the stock could go.

Or perhaps you are just looking to make a certain return on the stock. Once you have hit that level, you will be ready to move on. After all, you want to buy low and sell high.

There are events that can predict the fall of a stock. Watch for your stock becoming increasingly popular in the media. This isn’t always a good thing. The popularity may lead to a frenzy of inexperienced investors who bid up the price. Once the hype dies down, the market will collapse. There is a chance that the price could fall below your profit level.

You can also keep your eye on the growth of the stock. Growth stocks grow, it is what they do. When they start to slow, or even stop growing, you should move on. Growth stocks that aren’t maintaining their growth are not generally a good investment.

If you don’t want to sell out, just take part of your profit out of the stock. You could sell back down to your original investment, taking the profit and letting the rest grow. You have made your profit and have secured it. If the stock starts to slow or show signs of failure, you can then sell it all. If it happens to go down a bit, you haven’t lost your entire profit.

There are always good deals on the stock market. If you look around, chances are that you can find a better deal with less risk. Just because you are currently happy with your investments, doesn’t mean that you should stop looking for good investment prospects.

When to sell is an art, just like buying. Sometimes it is beneficial to sell a stock when it is still at the top of its game. If you wait, you could lose your profits.

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Company Profiles – Solvay

November 9th, 2010 by admin No comments »

The Pope Worked for this Company, I found that interesting fact on wikipedia (1) and when checking, it proved to be right, although he was not the Pope back than but just Karol Wojtyla

People who work for Solvay will certainly know the complete story as it is part of the history and culture of the company.

Solvay is divided into three segments: Pharmaceuticals that make up about 27% of the revenue, chemicals (32%) and plastics (41%).

Nearly thirty thousand employees work for this company in about 50 countries in all continents of the world. Nearly 50% of the sales comes from outside Europe. Part of the strategy is to develop more business in the BRIC-countries.

The name Solvay goes back to a “autodidact” entrepreneur and chemist who improved the so-called Leblanc process. His name is also linked to a business school in Brussel, which he founded in 1903. (1)

The end-users of the company are divided in many many categories of which healthcare (29%) and construction and architecture (13%) and the auto industry (11%) determine the highest share. In the chemical sector (9%) the company supplies to companies like BASF and DOW.

The complexity of this business becomes clear when further detailing each sector. Although the company is focusing on specific specialties in each area. For healthcare there are two therapeutical areas: cardio-metabolica and neuro-sience. A recent example of a development in that area is medicine against schizofrenia (bife prumox) which is in the process of acceptance by the DFA in the US.

The pharmaceutical sector is in constant change noticeable by the continuous mergers in the sector (see: Sanofi-Aventis). Solvay has introduced the “transformation taskforce 2015.” The annual report is not offering detailed information about the challenges, but the last three years results show stabilized earnings (816, 817 and 828 million euros for the years 2005 to 2007).

“Our values”. What are they? In the list of values besides: ethical behavior, respect, client-orientation and teamwork, there is one value that is unique: responsible in delegating (verantwoord delegeren in Dutch – (2)). This is interesting because it is not used often, and it tells something about the organization. Delegation is one of the main organizational / management principles. A mayor problem is often that delegation is done, without the necessary space in the organizational structure in terms of mandate. Managers delegate, but there is no responsibility at a lower level in the organization. In the end such a system may collapse as a house of cards. This organization tackles this issue.

Sustainability. There is no company escaping this one and Solvay is pursuing the “green-chemistry” status for their production plants.

Recent development include the friendly takeover of the biotechnology form Innogenetics. The last general shareholders meeting was held on the 13th of may and presided by Mr. Christian Jourquin, Chairman of the Executive Committee.

Hans Bool

(1) - http://en.wikipedia.org/wiki/Ernest_Solvay

(2) - Annual report 2007

Hans Bool writes articles about management, culture and change. If you are interested to read or experience more about these topics have a look at: Astor White

Stock Analysis Skills – Foundational Strategies

November 8th, 2010 by admin No comments »

Investing in stocks is a profitable venture any day. To do well in stock trading, you need to understand the basic strategies that savvy investors have employed to create massive wealth. Fortunately these strategies can be learned. If you can commit yourself to understanding the basic ABC strategies, the rewards that will attend your efforts will by far surpass your wildest imagination.

The basic ABC formula is a strategy I consider very vital and fundamental to stocks analysis, this is because without it, you cannot have a full grasp of what the capital market is all about. Stocks trading can be such an interesting endeavor if you can apply yourself to practical and common sense thinking.

Companies are listed on the floor of Stock Exchanges across the globe according to the services and products they offer. They’re further sub-listed into sub sectors/industry for clarity and impact purposes. Therefore, if you were looking for a company in any Stock Exchange, all you need to do is to go to the industry sector and pronto you’ll find it. The pattern of listing companies into sectors makes it easy for analyst zero down their analysis to the basics.

The first thing you have to take into consideration is to take a close look at all the companies one after the other, seven vital researches you must carry out includes

1. Find out what each company is doing.

2. Find out what period of the year each company will be most favored to do more business.

3. Find out sector leaders amongst the companies in every sector.

4. Find out what each sector is all about.

5. Find out which company commands the highest trade volume in each sector per time and why?

6. Find out the job descriptions of each sector.

7. Find out for instance if Government pumps money into a sector, which company will profit more.

8. Find out what each company is doing.

It is surprising that people invest into companies without having a clue to what such a company is involved in terms of company location, pedigree, background and what line of business they are involved in. In stocks analysis, this knowledge is very critical to success.

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Price Earnings Ratio

November 6th, 2010 by admin No comments »

Thousands of company shares are quoted in stock exchanges such as NYSE,NASDAQ etc. One of the key ratios reported for these quoted shares in newspapers is what is called the P/E ratio. Thus is an acronym for Price Earnings ratio. In this ratio, the market price of shares of a public corporation is compared with its basic EPS and expressed in the price/earnings (P/E) as follows: Current market price of shares / basic earnings per share = Price/earnings ratio. Price is the most recent price quoted for the share. Earnings per share is the earning that a company has generated in a year, divided among all the shares that are issued. Assume that Company Z earned $15 M in 2007. Also assume that the company has issued and outstanding five million shares. Divide $15M million by 5 Million shares to arrive at earnings per share of $3. Further let us assume that the price is $60. The P/E ratio therefore is $60/$3= 20. Stated differently, the company’s shares are priced at 20 times the most recent earnings per share. Like any other statistic the number should be understood in the correct perspective.

The ratio would be different for different companies in different industries. At a macro level, this depends broadly on what the market collectively is willing to pay for a company’s future earnings. If the expectation is that the industry will do better in the future, the ratio would be higher. If the market, expects the growth to be lower, the ratio would tend to be lower.

The reciprocal of the P/E ratio is called the earnings yield. In this example, the ratio is 20. The earnings yield is 1/20 that is 5%. This is also the earnings expressed as a percentage of the price asked for. A comparison of the individual company’s PE should be compared to the average for the industry. Assuming the industry average is 30 and company z is 20. Company Z shares would be a good buy, if we can understand why it is lower than the industry average. This is a method that is used by bargain hunters.

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Rolling Stocks

November 5th, 2010 by admin No comments »

Rolling stocks have a very clear and identifiable historical pattern, they are stocks that roll up and down in repeated waves like a roller coaster. These rolls may become predictable.

If you look at the chart of a rolling stock you can draw a line across the peak and along the bottom. The area between these two lines is called the channel. The upper line is commonly referred to as the resistance level and the lower line is referred to as the support level. It is in this area that you will want to buy and sell your stock. Selling your stocks is the key. When investing in the stock market, it is not when you buy that counts, it’s when you sell. You should know when you are going to sell your stock before you even buy them. Knowing when you are going to sell before you buy the stocks helps eliminate the emotional factors of fear or greed that sometimes push or pull us. As you become more familiar with rolling stocks the nervousness of being an investor will subside.

Here is an example of how one could have profited using this concept. Forget about commission amounts since they vary depending on who you use. And keep in mind that a Good ‘Til Canceled order ( GTC ) is an order that instructs the broker that the order shall remain in effect until it is filled (either bought or sold at a predetermined price) or canceled by you.

Let’s take a look at WEIDER NUTRITION INTL’A’ ( WNI ). If you have ever lifted weights or picked up a body building magazine, you would be familiar with this company which has been around over 40 years (although it has not traded publicly all of those years).

Over a period of 6 months you could have bought and sold shares of this rolling stock on 4 different occasions. Each time you bought and sold this stock you would have taken in a profit of at least .50 per share. A support level of $3.25 and a resistance level of $4.10 had been established. A good entry point was at $3.50 while a good exit price would have been at $4.00. You were not going to be buying at the lowest possible price or selling at the highest point. Why? When you buy into a roller, you will always want to insure that the price has reached the lowest level and has now begun its move back up. You cannot determine the absolute bottom until you see it going back up. The same holds true for the high point but you have already addressed this by knowing when you were going to sell the stock prior to even buying it.

Now suppose you purchased $2,000 worth of WNI @ $3.50 per share on 12/31/99. You would have owned 571 shares. After that you would have immediately put in your GTC order to sell @ $4 per share. On 01/11/00 the stock price hit $4 and your GTC would have triggered the sale of your 571 shares for a .50 profit per share.

You would then multiply the profit you made on each share of .50 cents by 571 to see that you made $285.50 on the transaction. If you divide the $285.50 into the original $2000 initial investment total, you made a 14% return in only 12 days.

Larry Potter is a recognized authority on the subject of trading and has been publishing his newsletter, Stocks2Watch®, since January of 1998. Each evening, his newsletter contains picks for the next day and always includes a free trading tip.

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