Year: 2017

There are 4 basic steps taken when applying fundamental analysis to a company, and these involve:-

1. Place the company in perspective versus the economy as a whole.
2. Place the company in perspective versus the industry sector it belongs to.
3. Evaluate the condition of the company.
4. Combine these results to guage the value of the company’s stock.

The Strength of the Economy as a whole

Obviously, in boom times, prices tend to be higher than in depressions. Therefore economists examine the economy as a whole as a starting point to the analysis – what is the environment in which ALL stocks exist? Is there rampant inflation? Are interest rates rising or falling? Are consumers burdened with massive debt? Is the currency exchange rate good for exports? By determining the state of the general economy, we construct a ‘frame’ within which stocks can be gauged.

Strength of the Industry Sector

Even the strongest company will fail if it’s sector is in trouble. For example, there were a large number of buggy whip makers at the turn of the last century, some possessing large cash balances, tight operations, and apparently excellent prospects. A old chestnut proclaims that ‘a weak stock in a strong sector is better than a strong stock in a weak sector’. A good recent example would be the telecom sector. Until 2000, even mediocre telecoms companies enjoyed massively overpriced stock prices. Now they have to function in the real world again, because the sector as a whole hit enormous trouble at the start of the new century.

 

Long term investing is usually based on the principles of ‘fundamental analysis’, which attempts to determine whether a company’s underlying strength justifies its stock price. To begin with, a stock is a ‘share’ of a company. If you own stock in Microsoft, for example, you have a real and legal claim to a percentage of the assets of that company. The assets might include land, machinery, profits from business operations and so on. Obviously, the more stock you hold, the more of the company you own. In one sense, therefore, the value of a stock should be tied to the value of the underlying assets. In the real world, other factors come into play, including the market’s perceptions of the company’s prospects.

For example, if the tiny imaginary company XYZ Pharmaceuticals, employing just 100 people, and turning over less than $2 million a year is currently valued at $4 million, what do you think would happen to the share price if the company announced it had invented a cure for cancer? That’s right. No extra profits as yet, but suddenly the share price zooms, because the market EXPECTS bigger things in the future. This is one reason why the market is sometimes referred to as the ‘great expectation machine’.

Fundamental analysis then, is the study of a stock’s features outside of any technical analysis (moving averages, Grail Indicators etc). This might include the perceived economic prospects of a company, the general strength of an entire industry sector, and the state of a company’s financial accounts. By focusing on the various statistics in a company’s accounts (such as the P/E ratio, cashflow etc) investors believe it is possible to determine if a stock is correctly valued.

College is such an adjustment. Not only do you have the first year of college classes to plan for but you also have the adjustment of college dorm life, parties every night, roommate issues and so much more. You don’t want to fail but you will find it hard to succeed at times, if you aren’t prepared for everything.

One of the things that a college freshman must do, if they live away from home, is plan a budget to live on while attending school. Most college freshman never even think about this until they go away to school and suddenly they realize they can’t just run into the kitchen anymore and ask mom or dad for twenty bucks. This little fact will often come to mind when most college freshman hit broke for the first time.

In order to avoid the broke factor, you need to plan ahead for the rainy day that will have you feeling uneasy. You need to develop a budget.

If you are lucky enough to have your parents footing the bill for college and recognize the fact that your parents don’t want you working your way through college, you can discuss your college budget with your parents. What may come as a surprise to you will be the fact that your parents will pay for books, school and a meal ticket but no more than $20 or $40 will be sent to you for a week’s allowance. If this isn’t enough, and it probably won’t be, then you need to find a job.

A great place to work when you are in college, is on campus in one of the student-oriented jobs available on campus. You might want to work in the student book store or in the food court on campus or somewhere else on campus. The reasons these jobs work well for students, of course, is because of the fact the college will work around your class schedule.

Many college students will also get a job waiting tables. However, if you are going to do this then it would probably be a good idea to restrict your work schedule to weekends. You will also have to be careful not to get too involved with the mix of employees who often run around after work until all hours of the night and morning. Remember, keep your studies in focus and work only for a little extra spending money.

If you are lucky enough to have parents who will pay you an allowance, then you probably want to negotiate for so much every two weeks. Don’t be tempted to get this allowance for the entire month because in a weaker moment, you may find that you spend your entire budget in one day shopping or partying. Have your parents deposit the money into a front-load credit card or into your bank account every two weeks and learn how to budget the money they send you.

As a college student, plan to budget your allowance for school supplies, the occasional outing with friends, pizza night and other activities as well as gasoline and other necessities for your automobile. You will be surprised at how quickly you will need to learn to budget when you live on your own.

College students don’t plan for a quick need for a budget because they don’t think about it before heading off to school. However, before you know it, you will have the strong need for a budget and you will need to take care of your money. So take the time to set a budget you can live by while you are in college.

In the day of state-wide lotteries, students don’t realize it but more college funding and educational scholarships are available than ever before. There are a lot of reasons you won’t receive those and the main reason is because you won’t take the time to find out about them.

Students who carry at least a 3.0 in college, have the opportunity to qualify for many college scholarships and financial aid if they choose to attend an in-state college and if they choose an out of state college, there is still funding available. Financial planning for college starts with parents helping their student find the appropriate resources. However, if students are on their own in planning for their future then the schools will offer assistance.

Financial planning for college starts with the student taking the initiative or the parents helping the student take the initiative to find out what’s available. It may surprise you to know that there are lots of scholarships available based on needs, college aspirations, sports and participation in the area of sports, based on grades and many other college scholarships. There’s a scholarship that you can receive if you just take the time to find out what it is and how to get it.

Parents who can afford to send their kids to college will often fail to check out the scholarships available. After all, if they can afford to send their kids to college, why check on financial aid—right? However, even if you can afford to pay for college, it’s crazy to pay for it when you have a student who has earned the right to have a college scholarship.

Students across America will be introduced to more and more lottery-initiated scholarships and it is time your child used what was set aside for kids who earned these scholarships. In addition to lottery-sponsored scholarships, each year hundreds of scholarships go unused simply because no one took the time to find out about them. The money is there waiting to fund someone’s education. Isn’t it time someone spent it for its intended use?

I often read articles from financial gurus, such as Gail Vaz Oxlade, Dave Ramsey, and various others, who endorse budgeting by using the envelope system. For the most part, the envelope system involves using only cash, and dividing your cash into labeled envelopes according to your budget. The envelopes are assigned to typical spending areas including: groceries, gas/travel, entertainment etc.

I really like the envelope system… in theory. In practice I’ve never found the envelope system to be practical. I find myself short in one area so I slip a bit from a different envelope, and of course change almost never winds up back in the appropriate envelope. Two days I’ve failed miserably to maintain this system.

When I am being really “good” with my finances I use a modernized version of the envelope system. I purchase gift cards from the stores that I commonly buy my necessities from. I keep one for gas, groceries, entertainment, a calling card, pharmacy etc. I also keep a bit of cash on hand for incidentals. I have found this approach to be more practical. It eliminates my biggest problem of robbing Peter to pay Paul, and I also don’t need to worry about returning the change to proper envelopes. This approach also creates a mind frame of looking at these floating expenses as fixed monthly expenses. Load each card once a month with your budgeted amount. This also forces you to stay within that amount.

It is important that you keep an amount of cash on hand as well for incidentals. It is important to define what this can be used for ahead of time. Can you use it if a friend unexpectedly comes from out of town and you want to go out – or is it reserved for more emergency situations such as your car won’t start and you need a cab? Having these boundaries set will cut down on frivolous use of this fund. Keep a small amount on you but leave most of it at home to cut down temptation.

This system can be very helpful when trying to stick to a budget. The most important aspects to making your budget work are foresight, will power and realistic expectations!

Just like with dieting, don’t let one mistake end your whole journey!

AT THE HEART of sound investment theory is a simple calculus known as the Power of Compounding. I know – it sounds like the punch line to a joke you might overhear at a CPA convention. But believe me, there’s nothing nerdy about it.

What the bean counters know is this: If you put your money in an investment with a given return – and then reinvest those earnings as you receive them – the snowball effect can be astounding over the long term. This is particularly true in retirement accounts, where your principal is allowed to grow for years tax-deferred or even tax-free.

This is how it works. Suppose you have Rs. 10,000 in your bank account and decide to put it into an investment with an 8% annual return. Over the space of the first year, you earn Rs. 800 on your investment, giving you a total of Rs.10,800. If you leave those earnings alone, rather than pull them out to spend, the second year would deliver another Rs. 864, or 8% on both the original Rs. 10,000 and the Rs. 800 gain. Your two-year total: Rs.11,664 and climbing.

As you can see by playing with the numbers, compounding produces modest – if steady – gains over the first few years. But the longer you leave your money in, the faster it begins to grow. By year 20 in our example, your money would have quadrupled to more than Rs. 46,000. If you had invested Rs. 20,000, it would have soared to more than Rs. 93,000.

Of course, the power of compounding also works for cash accounts such as money-market funds. But if you adjust the interest rate downward to 4%, you’ll see what you’re giving up: Your 20-year return on that Rs. 10,000 drops to around Rs. 22,000. Now dial the interest rate up to 10%, the average historical return of the stock market. At that rate, your Rs. 10,000 investment balloons to a rich Rs. 67,275.

The lesson is this: The longer you leave your money invested and the higher the interest rate, the faster it will grow. That’s why stocks are the best long-term investment value. Of course, the stock market is also much more volatile than a savings account. But given enough time, the risk of losses is mitigated by the general upward momentum of the economy. We’ll show you why in the next lecture.

JUDGING BY THE FACT you’ve taken the trouble to find this Web page, our guess is you don’t need a lot of convincing about the wisdom of investing.

You’ve probably been beaten over the head with the notion that you need to start early to fund your retirement or send your kids to college. And you’ve likely heard your fill about the fortunes being made in the stock market — some of them by people you figured were severely challenged by mowing the lawn, let alone investing wisely.

But even if you are enthusiastic about getting started, jumping in can be daunting. That’s why this set of investing courses begins with a simple dose of encouragement: With enough time and a little discipline, you are all but guaranteed to make a considerable amount of money in the markets. You merely need patience and a willingness to put your savings to work in a balanced>portfolio of securities tailored to your age and circumstances.

To see why, you have to understand how investing works. It’s not about throwing all your money into the “next Infosys,” hoping to make a killing. And it has nothing to do with getting a stock tip from your brother-in-law and clicking over to your Demat account to buy as many shares as you can get.

Investing isn’t gambling or speculation. It’s taking reasonable risks to earn steady rewards. As we’ll see, it works because buying stocks and bonds allows you to take part in the relentless growth of the world’s economy, which hardly follows a straight line, but does trend up over time. It’s also true that the longer you stay invested, the faster your money will grow. This neat trick — called the Power of Compounding — is a mathematical certainty, something you can bank on.