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Margin of Safety Investing Strategy

Andrew — Tue, 12 Jan 2010 23:22:14 +0000

Margin of Safety is one of the most popular value investing strategies made popular by stock market legends like Benjamin Graham (father of value investing) and Warren Buffet.

Margin of safety is simply a value stock investing model where the investor assigns a margin of safety to his/her value assessments. In value investing, the investor estimates (or predicts) the intrinsic value of a stock. The concept is that every stock has an intrinsic value and price changes from this intrinsic value is just deviations resulting from the actions of market forces. The stock will often return to its intrinsic value when the market forces weaken.

Thus investors who buy stocks when the trading price is below the intrinsic value and investors who sell stocks when the trading price is above the intrinsic value will profit. But what make value investing difficult is predicting the intrinsic value of stock. There are no established rules for finding out this. Investors should develop their own strategies and models for this purpose, according to availability of information and analysis tools he has.

Many traders use different indicators like book value, open offer, P/E ratio, asset to liability ratio, institutional investments, investments in other companies, etc to finding the intrinsic value of the stock.Margin of safety investing strategy easily overcome this difficulty of predicting the intrinsic value. Investors assign a safety margin as percent of predicted intrinsic value (usually is 30 to 40 percent of intrinsic value).

Margin of safety investors only buy stocks when they are trading below margin of safety. In this way he/she can minimize the risk/error of predicting the intrinsic value. The more the percentage of margin of safety the lower the chance of risk, and the better the chance of profit. For example is the predicted intrinsic value of a stock is $10 and margin of safety is 30%, then the trader only buys the stock if the current trading price is below $7 ($10 – 30% of $10). If the actual intrinsic value is only $9, and the stock returns to this level, the investor will have a profit worth $2. The main advantage of margin of safety investing strategy is that it offers a margin rather than a fixed price to reduce risk.

It favors all type of investors, both experienced and novice investors, and does not necessitates any position sizing or market performance requirements. But the disadvantages are that it does not present any rules for assigning margin of safety and does not consider market factors. Also there is chance of substantial loss when margin of safety is less and scarcity of opportunities when margin of safety is high.

Is Real Estate The Right Investment Strategy For You?

Andrew — Tue, 12 Jan 2010 23:22:12 +0000

Smart investment strategies in real estate can help you earn good bucks. In fact, for quite a long time real estate has been a good source of wealth for several realty investors. But then, like any other business an investor must take judicious and efficient investment decisions to ensure profitable investment. Proper real estate strategies, for instance, under the present situation assists investors to figure out the strategy that can work for them.

Since in real estate business a huge capital is required initially, you must be in a fix deciding on the possibilities and returns. Following are a few convincing facts provided that can help you clear your doubts and worries. These will list the answers to the ‘why’s in your mind as far as real estate investments are concerned:

Cash inflow – The property or real estate that you buy may not necessarily start giving you cash returns exceeding the expenses. But if you have a careful strategy in place and map your progress well, the balance will soon tilt in favor of monetary returns, big time!
Leverage – The monetary leverage that these kinds of investments allow is huge! If you can get a loan for the principal, buy the estate and ‘flip’ it over to a potential party, you can have bulging pockets with the difference that you collect. But this benefit has two factors controlling it – quality of the estate you are investing in and a loan that isn’t too heavy for you to repay, if the deal goes wrong. Risk is involved, but if you are confident enough in your investment capabilities, go forward and take the mantle. The rewards you will reap might exceed your own expectations!
Debt Liquidation method – Instead of taking an official loan from the bank, obtain a no money down loan or move into a partnership with other people. Slowly as you repay, your ownership portion increases and after a period, you get a much larger piece of the pie than you had initially bargained for. The success of this strategy is also dependent on the intelligence with which you have made the investment.
Value Appreciation – When you make the investment, you should be aware of the possibilities of appreciation of value for the particular estate or property. The more the potential of value appreciation, the better returns you might get on the long run. Apart from external factors such as the enhancement of the quality of neighborhood, access points and others (which you cannot control), you can also help aggravate the physical properties of the estate, which will help you make a better sale when you intend to do so with the real estate.
Tax Benefits – Real estate investments has its share of mischievous benefits too! A load of tax avoiding pathways, albeit legitimate ones, are set open by real estate investments. Though this should not be the primary reason for you to take to real estate investments, it wouldn’t hurt to have this side-benefit as well.

The Importance of Location In Your Real Estate Investment Strategy

Andrew — Tue, 12 Jan 2010 11:15:16 +0000

Regardless of what real estate investment you have, you’ll find that the location of investment real estate matters regardless of the type of investment it falls into. When you first start researching, you’ll find that real estate in some locations is in demand and in other areas, nothing is selling and nothing is able to be rented out. The fact is the location is crucial in making your real estate investment strategy a successful one.

Long-Term Investments/Rentals
If the property you are considering purchasing is a rental unit, you will want to make certain the property is in a location that is considered to be desirable. What makes an area desirable? It depends upon the type of property. If it is for commercial use, you will want to make certain the property is located in an area where a certain type of business is more apt to rent. For example, if you have a property that is more suited for retail and it is located five-miles outside of town on a back road, you are less likely to be able to rent the property for its highest and best use. If the property, however, is located on a main street, it makes the property much more desirable.

If it is a housing rental, you will again want to make sure the property is in a desirable location. If you find the property is located next door to a warehouse that works twenty-four/seven, you may find tenants are less likely to stay with all the noise nearby. Housing rentals located in a desirable location should be part of your real estate investment strategy.

Short-Term Investments
Short-term investments can also play a major role in your real estate investment strategy. This would be when you purchase a property and resell just a short time later. This can be a very profitable venture for many and some investors see as much as a $10,000 to $20,000 profit on properties they’ve invested less than $50,000. However, when you are planning on short-term investments as part of your real estate investment strategy, you must make sure you do the proper research.

Knowing the real estate market in the area is a crucial part of your strategy. The key is to “flip” these properties quickly and if you choose a location where real estate is not selling quickly, you may end up losing money on the deal. By choosing a desirable location, you’ll find that properties may be increasing in value rapidly due to the sales volume in the area. This will help you increase your profit when you sell.

As part of your short-term real estate investment strategy, you will also want to make sure you do repairs and renovations as quickly as possible and as cheaply as possible. This will help you to maximize the return on your property as the repairs and renovations will instantly help the property to appreciate in value.

What you will find in your real estate investment strategy is that there are no specific rules to what makes a great investment. There are a lot of factors involved, including the financing details, rental history, and what is currently listed on the market. However, in order to maximize your profits, your real estate investment strategy should include determining whether or not the location is satisfactory and profitable to invest in.

Investment Strategies for the Stock Market

Andrew — Tue, 12 Jan 2010 11:13:33 +0000

When it comes to Investment Strategies for the Stock Market most people believe that there is only one safe strategy.
‘Buy and Hold’
The reason why most people believe that this is the safest investment strategy for the stock market is because that is exactly what their financial advisers have told them. Have you ever heard the phrase
“The key to successful investing is Time In the Market NOT Timing the Market”
I believe that this is a lazy approach to investing and is really just an excuse to hide the fact that some financial advisers have no idea what the market is doing. Wouldn’t successful investors use multiple investment strategies for the stock market? If the market is at a record high and there is a chance of a correction then surely there is something that you can do (other than selling your stocks) to protect some of your profits?
The reason why financial advisers don’t want you to know about any other investment strategies for the stock market (other than buy and hold) is because it isn’t in their interest for you to know about them. They want you to remain reliant on their advice and have you feel as if the stock market is a very scary and dangerous tool – only to be tamed by the so called experts.
What is your opinion? I certainly believe that at times the stock market can be very scary and dangerous but like any thing; the more you educate yourself the more comfortable you will feel with it.
So what are some Investment Strategies for the Stock Market other than buy and hold?
Let’s have a quick look one very simply investment strategies that can be used to great effect on any stock market.
Covered Calls
This is one of the most effective, low risk investment strategies that can be used on the stock market. The basic idea to sell call options on a stock that you own. What? I hear you saying. In simple terms it means that you are renting out your shares for a monthly premium and in return you are giving somebody the option to buy your shares at a predetermined price that is higher than what you paid for them.
Let’s say you own 1000 XYZ shares that are worth $15.00 each. People will pay you a monthly premium to have the option to buy these XYZ shares at a predetermined price within a predetermined time frame.
For instance someone might offer you $500 for the right to buy your shares at $16.00 within the next month. Why would they do this? Because if the shares happen rise up to $18.00 they will be able to buy 1000 XYZ shares at a $2.00 discount per share ($18-$16).
The great thing about this strategy is that both parties can win e.g. If this was to happen you would be happy too because you would get to keep the $500 premium and you would also make $1.00 from every share that you sold because you bought them at $15.00 and sold them at $16.00.
What happens if the share price was to go down?
If the share price was to go down from $15.00 to $13.00 then you would still get to keep the $500 premium which would reduce your paper loss from $2.00 per share to $1.50 per share.
Writing covered calls (or renting out your shares) is one of the most commonly used investment strategies by the rich. It is a great low risk low risk investment strategy for the stock market that everybody deserves to know about.
So there you have it a simple investment strategy for the stock market that can help increase your cash flow and also gives you downside protection. What more could you ask for in a stock market investment strategy? So next time you see your financial adviser ask them about covered calls and see what response you get. My bet is they probably won’t even know what you’re talking about because their university course didn’t teach that subject.

What is Capital Growth Investment Strategy?

Andrew — Tue, 12 Jan 2010 11:11:54 +0000

Capital growth investment strategy is a widely accepted and followed portfolio management strategy. As the name suggest, the strategy aims at capital growth, maximizing portfolio value, over time. Before we start, here is the danger signal – capital growth strategy is a high risk investment strategy which requires great investment discipline and money management. A portfolio which follows capital growth strategy is mainly comprises of equities. Often more than 60 to 70 percent capital is invested in stocks, preferably growth stocks. Remaining portfolio can be constituted of low profit low risk investments such as fixed income securities, money market funds, cash, and/or precious metals like gold to limit overall portfolio risk. The exact portfolio capital allocation depends on many things like individual profit goals, risk tolerance, risk capital involved, portfolio size and investing experience. Many times one can see capital growth portfolios which allocate more than 90 percent capital to equities. Capital growth investors often prefer small and mid cap stocks over large cap stocks, because these show greater growth and are expected to offer increased return over time. Diversification of portfolio is important in capital growth strategy and is achieved by investing in different products like stocks, options, futures, ETFs, funds, bonds, etc. Portfolios which allocate most (all) of the capital to equities achieve diversification by investing in different industry stocks, different markets, using derivatives to hedge risks, and by investing in both high growth high risk stocks and low profit low risk stocks.Capital growth investment strategy is a long-term strategy, which may or may not require periodical reassessments and rearrangements of portfolio allocations. Investable stocks are found using various growth investing tools and strategies. Active portfolio management is recommended for experience investors, to replace low performing investments with high performing ones. But remember, active management often requires greater costs. The advantages of capital growth investment strategy involve faster increase in asset value and better chance of profit than most other investment strategies. The disadvantages include higher risk, unpredictable returns and high volatile portfolio. With capital growth strategy, market entry and exit timings are very important; and there are too many market, risk and economical factors to be considered. The silver lining is ‘irrespective of frequent ups and downs, the equity market shows almost steady growth in long-term; which is higher than most other financial markets’.

Finding An Investing Strategy That Suits Your Needs

Andrew — Tue, 12 Jan 2010 09:33:16 +0000

Choosing an investing strategy can be one of the hardest things an investor does. Many investors also change their investing strategy from time to time depending on market conditions and other contributing factors. An investing strategy should accurately reflect your investing goals, your available funds, and your personal investing style. There are three basic investing strategies and each has hundreds, if not thousands of variations.
A conservative investing strategy is perfect for investors who are afraid of taking risk and losing money. A conservative strategy may involve investing in certificates of deposit, money markets, bonds, and possibly certain mutual funds, such as bond funds. Conservative investing doesn’t have as much potential for high returns as the other two strategies, but you aren’t as likely to lose much principal (your invested money) due to price variations.
A moderate investing strategy offers generally higher returns than a conservative strategy, but is less risky than an aggressive approach. A moderate strategy can include a mix of mutual funds, or a mix of individual stocks, bonds, and a money market. If you choose the individual securities route, a good moderate investment mix could be 5-10% money market, 30-50% stocks, and 30-50% bonds. A moderate investor can rest assured that he or she has good earning potential without a huge risk.
The last of the three basic investing strategies is the aggressive strategy. An aggressive strategy has potential for extremely high returns, depending on the market’s performance. An aggressive strategy also involves a significant amount of risk. An investor is more likely to lose principal when using an aggressive strategy. An aggressive strategy will most likely include 70-80% stocks, 20-30% bonds, and probably very little notable money market or cash reserves. Although 70/30 and 80/20 is very risky, some investors would say this split is only moderately aggressive. A very aggressive portfolio may include 90% or more stocks.
When choosing an investment strategy you should determine three very important things: how much risk you willing to take, how much earning potential you want, and how concerned you are with losing principal. Once you’ve made a firm determination of these three things, you can choose an investing strategy that meets those needs.
Another option is simply to educate yourself in a wealth education area. Many people want the quick money and find that the real fast money is in longer term education towards wealth.

General Stock Market Investment Strategies

Andrew — Tue, 12 Jan 2010 09:33:09 +0000

Pretty much every investor uses one of three general investment strategies. These are: fundamental analysis, technical analysis and buying and holding the market.

A brief examination of each of these techniques will help an investor decide which best suits their personal profile.

Fundamental Analysis
The most straightforward approach of fundamental analysis is a basic examination of a stock versus the value of the company and its expected future earnings. Based on the company’s financial publications it should be relatively easy to determine weather a stock is undervalued, overvalued or somewhere in-between. The trader assumes that the market price will correct itself and the price per share will consequently go up or down, unless there are any unforeseen events or hidden value traps.

Technical Analysis
Using technical analysis, the investor makes an attempt to predict future share prices based on the direction of the market, trading volumes and past prices. This approach assumes that the market and individual stock prices loosely follow discernible patterns, or at least stay within a certain bandwidth of it. Once the beginning of a pattern is identified, the remainder of the pattern can theoretically be predicted, hopefully well enough to yield returns in excess of the general market. Research has shown that solely using technical analysis as your strategy, does not work well. Yet, there are some indicators such as pivot point resistance or support levels that can actually hold up, most likely due to the wide acceptance and adoption of the method under the professional traders.

Buying and Holding the Market
The approach of “buying and holding the market” is to have a portfolio that could hold it’s benchmark against the market performance. For this strategy the investor buys a basket of stock that resembles the stock market or the S&P 500 assuming that the overall direction of the market performance is upward. The investor buys a large number of diversified stocks and does not need to buy every single stock in the index, although that could be achieved by buying stocks of an S&P 500 Index mutual fund. This approach can be used as a benchmark performance tool, as no other investment approach is valid unless it’s able to outperform the stock market over the long run. In the event that investment approaches do perform above market performance with the same risk, the difference is called excess return, which represents the added value of the used investment approach.

The investment approach you decide to use depends on your conceptual view of the two principal stock market theories. In the light of the efficient market theory, the stock price reflects all publicly available information about the company in question, which results in the trading price coming very close to the true value of the share price. Meaning that on average the price reflects the fair value of the stock, but not all the time, as variations of this price can exist.

On the other hand, there’s the school of thought that these prices are unpredictable and too random, and cannot be used to generate excess returns. In that case, there is no point in using the fundamental approach seeking stocks that are selling under their actual value. Alternatively, one could concentrate more on developing a more efficient portfolio, instead of selecting a certain kind of stock. This would be a portfolio that provides returns closest to the market’s return at a specified level of market risk. The investor simply determines the amount of risk that is acceptable and builds the portfolio based accordingly.

Investors believing that the market is not efficient for the reason that buyers receive, perceive and evaluate information differently, causing the prices to deviate from their true value can look for undervalued stocks through diligent analysis. Going forward, this would enable them to outperform the benchmark of buying and holding the market. As backed by many studies it’s safe to assume that the market is often inefficient and therefore there are numerous ways of outperforming the market with your portfolio. Your excess returns can generally be 2 -6 percent at a risk free rate.

Anything higher is most likely an abnormal return, which is the out-performance over the risk-adjusted return. Just beware, as this can also be a negative abnormal return. Nevertheless a small consistent excess return can also lead to great wealth.

Successful Forex Trading: Forex Hates Procrastinators

Andrew — Sun, 03 Jan 2010 02:26:35 +0000

What have you put off today? Something important you had to do that you ended up not doing? Well i am sorry to say this but Forex doesn’t like you very much, it won’t actually come out and say this, but it will definatley show you by eating all your money.

Why do lazy people flounder in the forex market?

1. They put off getting a broker too long and then often make a bad choice.

2. They don’t do any research or engage in education and therefore end up gambling.

3. They clutter up informative blogs and forums with their incessant whines about how forex is a scam and can anyone lend them $20 because they are good for it.

4. They are often emotional about trades and will either get too excited after a good trade or try to take revenge on the market after a bad loss.

Does this look like a successful traders mindset to you? Of course it isn’t. Are you guilty of any of these things? If you are get it sorted ASAP, not or my sake, but for your own. It isn’t my money you are gambling away. “But i thought forex is investing not gambling?” Thank you! I don’t gamble in forex, i invest, many other traders i know invest as well. Whats the difference? Education my friend, education. We know what we are doing, and make educated decisions about where we want our money, a forex gambler wakes up in the morning and just decides then and there where he is going to flush away some more money. They don’t research, they don’t even know what a chart looks like, they just go with uneducated gut feelings.

But let’s stop talking about forex gamblers before i have a stroke, what about successful traders?

1. They research brokers and then choose one and stick to it until the broker gives them reason not to.

2. They are always learning. What is a better indicator to use? What have i done wrong in the last week? This is the kind of thing that sharpens their trading sword so sharp it could cut space and time.

3. They don’t post often, they might not ever post on a forum or blog. To them forex is about learning and they would rather listen then speak. Humble eh?

4. They keep their cool. They know that a win can turn into a loss and the other way around within the next 5 minutes. They have the experience and they have already set up their trades to accomodate for a turn in fortune. They are in control. Well mostly.

So the main point of all this text is to realize that if you can’t even bother having a shower when you wake up in the morning, how are you ever going to be successful in something as demanding, but equally as rewarding as forex? You aren’t because forex hates you.

Is There a Perfect Investment Strategy for 2010?

Andrew — Sun, 03 Jan 2010 02:26:19 +0000

Welcome to
Ultimate Investor

The best investing strategy is easy to state: Buy low and sell high.

It sounds so simple, but it seems people have a lot of problems figuring out how to really apply this to their own life. Unfortunately, many people will buy the hot stocks of the day and then sell if they believe they are losing money.

Here are some tips on how to apply the best investing strategy to your own personal investment plan.

Take emotions out of the investment process. Just because an investment might drop overnight does not mean you should panic and sell. Likewise, if you attend an investment seminar, do not get your checkbook caught up in the rah-rah of emotions. Before making an investment decision, make sure you check your emotions to verify they are not getting in the way. Investment decisions should be made upon facts.

Buy what you know. World-famous investor Warren Buffet offers this advice over and over again. It seems to work for him, so apply it to your own life.

If you are a fashion consultant, learn more about the industry trends. You will feel more comfortable investing in what you know because you can apply your own experience to the decision.

Invest for the long term. Investments can peak and dip sometimes in a span of hours. If you try to capitalize on every peak and dip, you will drive yourself crazy watching the market and trying to react in time. Instead, make decisions that you believe are going to net you results over a larger period of time.

Budget, plan and know. The best investment strategy is to stay knowledgeable. You need to understand your own budget, how much you can invest, how much you can afford to lose, how long you have to invest and more. Put some effort into planning your financial future by first understanding where you are now.

Almost all investment choices have some risk, but also have some great possible rewards. Understanding your own tolerance for risk will help you select the investments that are best for you. Keep up to date on what your investments are doing to make sure they still fit your own personal preferences.

The best investing strategy will be different for every person. But keeping in mind that some of the best tips for selection involve understanding your own personality and your own situation will help you get a great start to building your wealth.

Educate Yourself. Don’t expect to be a Stock Market Professional Overnight. You don’t have to spend a fortune, but invest a bit in yourself. After all, if you want to either make money now or build a pension pot for later in life don’t you think it’s a good idea to know what you’re investing in!

That process can start with a few books, keep this site bookmarked and read the articles on a regular basis, after all this site is FREE!!! so you may as well take advantage of it.

There are also a few sites you may wish to check out. These can help you get up the ladder in a very short space of time. The one we found very good is LS Trader.

LS Trader is run by Phil Seaton who has made his fortune in the markets. He has devised a system which enables you to follow his system and takes less than an hour of your time per week!

Why do we like it? Firstly it’s based on a systematic and Structured technique which can be done on your PC or Mac at home in less than an hour a week. It is a Trend Following System which identifies trends as soon as they start. The system identifies the best time to enter the market and tells you exactly when to exit…

This is invaluable. Every Sunday you receive an email detailing exactly what to do , all you have to do is follow the system. It’s really that simple. Check out LS Trader Now!

Choosing a Forex Broker That Wont Rip You Off

Andrew — Sat, 02 Jan 2010 01:07:43 +0000

At the best of times Forex currency trading can be a risky business with a huge potential for profit or loss. As a fulltime trader i have seen the best and the worst that the forex market has to offer, the dizzying highs of large wins, and the gut wrenching lows of people going bust.

You might be a forex trader yourself, or maybe you are just curious about how forex markets work, whomever you are, you need to learn how to seperate the legit forex brokers from the scam merchants. The internet has a great deal of genuine forex dealers offering quality services, it is also unfortunately infected with just as many thieves dressed up as companies who will gladly take your money and then dissapear. This fear of being taken advantage of puts a lot of people off the idea of trading forex, this shouldn’t be the case.

Now there are a few key differences between stock markets and forex markets that you are going to have to learn:
1. Forex has no centralised exchange house.
2. Forex trading is 24/7.
3. Forex is a largely unregulated market.

Looking at that list, it kind of seems that the forex market is akin to a wild west town full of outlaws and gunslingers. In this market there is noone to complain to, noone who will hold your hand. So how can you find the genuine dealers amid all the garbage? Do not trust any broker whose reputation cannot be confirmed, and whose company is not tied to the forex market.

The attraction of the forex market can be overwhelming. The scent of huge profits often overpower the common sense of the average person. They enter eagerly, just waiting to invest their life savings.Lying in wait are the scammers with huge promises, they capture the new investors money, and suddenly dissapear.

The good news is, is that many genuine forex brokers do actually exist. Easy-Forex, Oanda, and many more have proven track records that justify their positions in the market. Usually if a company is small, has no affiliation to forex or a financial institution, then stay away. Also a word on looking for reviews about brokers online. You can find honest reviews on forex brokers online, however there seems to be a habit of late of competing forex companies, and/or traders engaging in negative marketing of each other. Dig deeper and you will usually find an honest answer.

So remember:

1. Validate the companies reputation.
2. Make sure they are tied to the forex legitimately.
3. If the company is small and unheard of, stay away.
4. Finally if the broker has a proven online track record, a legitimate financial institution affiliation, and a few good reviews, give them a try.

My ultimate advice is, if unsure, invest the smallest amount you can, and find out for yourself. This is how i usually used to find brokers, and it worked for me.