Tag Archives: investing strategy

Which Mutual Fund Calculator Should You Use?

Guest Article By Bhagath Varma

There is no dearth of financial calculators available on the internet and sometimes novice investors get baffled by the sheer number of calculator links that come up for a simple search query like ‘goal sip calculator’ or ‘goal calculators’. How does then one choose the calculator that will precisely provide an answer to what the investor was looking for in the first place?

There are many calculators available on the internet that can help you find answers to some of your financial planning queries. But here is a list of the basic must-try calculators that everyone should try because these will help you understand the need for a financial plan in the first place and how should you start working towards your financial goals in life.

  1. Inflation Calculator
  2. Goal SIP Calculator
  3. SIP Calculator

If you are one of those smart investors who has already started planning for his/her life goals and have a few SIPs in place, this calculator is the one for you. It’ll tell you the future value of your SIPs and you can compare that with what the inflation calculator gives you. If the future value of your SIP comes out to be more than what the inflation calculator gave you for the same goal, you are really smart! But if the future value given by the SIP calculator turns out to be lower than what the inflation calculator shows, you really need to step-up your SIP now else you will be staring at a shortfall when the time to fulfil your goal comes.

These calculators are all that one needs to take stock of things at present and build a sound financial plan for the future. Once the plan is ready you need to act upon it with earnest. There’s an informative site by the name Mutual Funds Sahi Hai that can help you understand mutual funds better and guide you to build a good investment plan for your future.

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The Need for Discipline in the Stock Market

Guest Article By Dr. Winton M. Felt

Good trading rules are important. However, even those who concoct great rules tend not to follow them. Most people lack the consistency necessary to stick to those rules even when things are going badly.

Make the decision. Will you be consistent in following your rules or not? Most people who invest or trade never make the decision. It is almost impossible to be a consistent winner in the stock market without the consistent application of good decision rules. Think about how the market reacts to news events. A new jobs report is released by the government that shows more people are jobless. Immediately, the market plunges. The debt of a foreign country is downgraded and panic hits the market. Stocks plunge in many sectors. What is going on here? Just as an EKG can tell a cardiologist some things about a person’s heart function, so we can consider the market to be connected to the nervous system of millions of investors.

There is a stimulus and a response. Depending on the nature of the stimulus, the response is reasonably predictable. The market reflects emotional states of the population. In order to profit in the stock market, it is necessary to avoid thinking like the rest of the population. When the population pushes the market down in a fit of panic selling, the negative attitude about owning stocks is at a peak. However, that is precisely the time when people should be most positive about owning stocks. The individual investor tends to feel the same way the population as a whole feels. To follow a set of rules with consistency, therefore, is difficult. It often forces a person to act contrary to his emotions.

Assume, for example, that you have just bought a stock with a fantastic story. Blixis Company (BLIX) has just discovered a permanent cure for the common cold and has patent rights to the serum. The stock is at $10 a share and you note that it has been closely following a rising trendline. You buy it for $10 when it is right on the trendline. You believe this stock is likely to go to at least $100 and that it will probably split several times before it stops climbing. After a week, the stock is at $15 and it is still moving along the trendline. One day you happen to be looking at the chart of this stock and you notice that it has fallen below the trendline. It is selling at $15 but the trendline is at 15.46. What do you do? Do you say to yourself that this is only a temporary bout of profit taking and decide to continue holding? Two days later the trendline is at $17 and the stock is still at $15. Do you tell yourself that “stocks fluctuate and you must give them room to do so” or do you sell? At $15, the stock is 11.76% below the trendline.

Most investors in this situation would keep holding. However, if you are still holding, then you must face the fact that you probably do not have a strategy at all. You have bought a “story stock” and you are psychologically locked into it because you believe in its story. A strategy consisting of a set of decision rules enables a person to draw a line in the sand and say “this is where I pull the plug.” The probability of a person coming out ahead in the scenario described above, without his adhering to the dictates of a good set of decision rules, is not great. What if the FDA insists on additional data before clearing the drug? The stock would then plummet. It could take a year or more to acquire sufficient data to satisfy the FDA. What if while you are waiting another company comes up with a cure that is based on a slightly different process that will enable the company to manufacture its drug more cheaply than Blixis Company can manufacture its drug? If that were to happen, BLIX would probably plunge and you would still be holding the stock.

A consistent rule-following strategic investor times his purchase so he can buy when risk of further decline is minimal. He never becomes married to a stock. Finally, he always has an exit strategy, because unexpected bad things happen. In fact, these are the broad principles followed by stockdisciplines trader/investors. Beyond these general concepts, an investor/trader should have specific well-defined rules for buying and selling. For every buyer, there is a seller. One is more likely to make money on a transaction, and the other is more likely to lose money on the same transaction. Without strictly adhering to a sound strategy, guess which one you are most likely to be.

Copyright 2018, by Stock Disciplines, LLC. a.k.a. StockDisciplines.com

Dr. Felt has market reviews, stock alerts, and free tutorials at https://www.stockdisciplines.com Information and tools for computing stop losses are also at https://www.stockdisciplines.com

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The Right Ideology

A few days back I saw a tweet that stated that stacks that were selling for under $5 didn’t double in price any faster than those stocks selling for over $100. I responded to that tweet with the following comment: “This is very true. But I can buy more shares of stocks under $5 as long as the fundamentals are solid and the dividends are consistent.”

Well, that comment brought out all of the arrogant investors who felt that THEIR way was the only way. I get responses from “Why does more shares matter? Shouldn’t the total amount of dollars invested be what you look at?” to “…it depends on the company equity dilution plus never invest for dividend if u live in a high tax region like india where dividend are taxed @30 %”

The answer to the first response was – No, because I’m a dividend investor and dividends are what is key to me and my strategy. Doing anything else is just pure gambling in that you hope the stock price goes up. And if you want more shares you have to buy more stocks instead of just re-investing your dividends. This is the way you create a sustainable passive income stream.

The latter responder didn’t seem to know what my investment strategy and assumed that I just invested money willy-nilly into anything that paid a dividend. Again, if they had bothered to take the time to read and understand my investment strategy there wouldn’t have a point of them to bother to respond to my comment. Now I didn’t bother delving into their investment strategy because I wasn’t interested in their strategy. It was obvious that they were a value investor and that wasn’t the direction I was interested in going with my investments.

Why do I say they’re arrogant? Because nobody responded with a question asking my rationale for my statement. Everyone assumed that my investment strategy has to be like theirs. Many of those that responded I would presume were value investors (buy stock and wait for the stock price to increase). That’s fine for them. But that’s not my strategy. They could have accessed my blog (there is a link to it in my Twitter profile) and they would have been able to read the blog entry that detailed my investment strategy here and here. A lot of my tweets are about posts/articles on my blog. To fully understand what I am investing in and how I am investing, you’d have to follow my blog.

Lastly, I am NOT a financial planner or advisor. You need to complete your own due diligence and research in which stocks to buy. You need to determine your own strategy. This last part is important even if you have someone who manages your investments for you. Otherwise, you’re using someone else’s strategy for their purposes and not yours.

Due Diligence

Whenever you come across a company that you’re interested in investing into it is best to make sure that you do your due diligence before you invest. The reason you want to do this is to:

  1. Minimize the risk of losing your investment. All investments have an element of risk associated with them. But a smart investor wants to minimize that risk.
  2. Know something other than the company’s name and stock price. How is the company doing? Is it a good investment? This last point is based on your pwn investment criteria.

In order to do either of the above you need to access the company’s fundamental information. From there you need to be able to calculate certain benchmark data. There are many benchmark calculations that are suggested but in this post I will highlight the ones from the Income Statement. I may not look at all of these but these are the most common ones investors suggest.

  1. Net Revenue (Revenue – COGS)
  2. Gross Profit Margin (Gross Profit – Operating Expenses)
  3. Operating Margin (Operating Income /Revenue)
  4. Post-Tax Income (Pre-Tax Income – Income Tax)
  5. Net Income Margin (Net Income/Revenue)

I may not check each and everyone but I am interested in a company’s Gross Profit and their Net Revenue. This tells me how well the company is doing in its market niche and how well they are managing/controlling their operations. The benchmark for these is up to each individual investor to establish. I usually don’t calculate these for single companies but as a comparison between multiple companies.

I have limited funds available to invest so that if the other criteria benchmarks are relatively close with each other I use these benchmark data to narrow down my selections. The reason that I use benchmarks, even though I am a dividend investor and growth in stock price is secondary, because I want to make sure that the company will be around for the long-term. I’m not looking to invest for the stock price to jump up within a relatively short time. I’m looking to capture a passive income for the long-term. Once I buy a company stock I’m reluctant to sell unless the company cuts their dividend payout 2 times.

Here are some other calculations you can use to narrow down your selections:

7 Ways on How to Invest For Your Retirement

Guest Article By Kivale Joshua

Investment Plan for Your Retirement

There so many investment plans available out there. The following points will guide you to choose the most appropriate one for you with lesser risks and commitments to manage. The points are based on the fact that, after a while they are going to be appreciating business ventures for your retirement.

1. Annuity

Annuity is a plan whereby an insurance company in exchange for purchase price enters into a contract to pay an agreed amount of money every year while the annuitant is still alive.
Annuitant- is the person on whose life the contract depends.
Annuity- is the amount of money paid to the annuitant.

The benefits of an annuity especially when used in connection with retirement provision is that it would ensure that the retiree has an income for a convenient number of years. The best type of annuity is deferred annuity because it gives you life time benefits.

2. Bonds

A bond is a loan to either a government or a corporation, whereby the borrower agrees to pay a fixed sum of interest usually semi-annually, until your investment in full. Treasury bonds are secure, medium to long-term investments that typically offer you instant payment every six months throughout the bond maturity. Treasury bonds have a fixed rate meaning that the interest rate determined at auction is locked in for the entire life of the bond. This makes treasury bonds predictable, long term source of income.

3. Exchange Traded Funds (ETFs)

Exchange traded fund is an investment fund traded on stock exchanges just like stocks. An ETF holds assets such as stocks, oil future, foreign currency, commodities or bonds and generally operates with an arbitrage mechanism to keep its trading close to its net asset value, although deviations can occasionally occur. These assets are divided into shares where shareholders do not directly own or have direct claim to the investments in the fund.
ETF shareholders are entitled to a proportion of the profits such as earned interest or dividends paid.

4. Stocks

In Kenya the main stock market is Nairobi Stock Exchange (NSE). A stock market is a place where public limited companies and other financial institutions, come to buy and sell bonds and other derivatives. NSE acts as a third-party broker and allows investors to buy and sell shares independently through share dealing platforms. You can directly and indirectly invest in stocks. Direct investment means that you buy shares from a company and become a shareholder while indirect means you invest in more than one company therefore spreading the risk. Indirect investment is done through an open-ended fund and the money is secure so that even the company defaults the money is still safe.

5. Mutual Funds

Mutual funds are some of the most overlooked yet probably the easiest way to invest much more than both stocks and bonds. A mutual fund is a pool of money, often from similar minded investors. You can sell your shares when and if you want. All shareholders of the fund benefit from the fund and share in any losses. There are five categories of mutual funds where you can choose the one which best suits you.

6. Real Estate

Real estate is a retirement investment plan you should never overlook. Landon said ‘look for what’s going to give you the most bang for your back’. Real estate as a front is a very lucrative opening. However, one must research the market and know the current and emerging trends in the sector. The location of the real estate matters a lot and should be well selected. Some of the major locations can be near universities, developing towns or big company sites. In any investment capital becomes the main organ to jump start the investment. Research on different financial organizations and try to compare their payment and funding terms. You can still opt to become a Real Estate Trader. A real estate trader is one who buys property with the intention of holding them for a short period and sell to make a profit.

7. Pension Plan

Pension plan is a retirement plan that requires an employer to make contributions into a pool of funds aside for a worker’s future benefit. The pool of funds is invested on the employee’s behalf, and the earnings on the investment given to the worker upon retirement. In Kenya even self-employed workers can still contribute to the social security fund to help them when time comes.

Retirement is a process where every living worker must come to terms to. Retirement is just like any other investment but a more crucial one since when you retire you productivity goes low due to health and age. You can start now and by the time you retire have significant benefits that can help you live a befitting like after retirement. Take a step today and plan to invest for your retirement now and be a happy retired worker living a good life and building the economy even at old age.

KIVALE JOSHUA
https://www.upwork.com/o/profiles/users/_~017745077c7c727711/
visit my profile on the above link to contact me for more well researched content writing.

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What is my investment strategy?

In discussing investments with others I am asked what is my investment strategy? I am going to try to outline my strategy here but you must remember that the strategy is a bit broad and in special cases I will make exceptions to certain criteria.

I only invest in:
1. Long standing, existing businesses. I tend to avoid emerging/startup companies and IPO’s.
2. Companies that pay dividends. This is the rule that is pretty much set in stone. No dividend then no investment from me.
3. Companies that have a dividend yield of between 2.5 to 5%.
4. Companies that have at least a 5 year history of dividend payouts.
5. Companies that show a positive dividend growth.
6. Companies that are rated at Average or below in risk and Average and above in returns.
7. Companies whose stock price allows me to maximize the quantity of share that I own.

The above points are all relative. Such as the dividend yield. If a company is paying out a dividend of $6/share and it’s stock price is $200, this gives me a yield of 3%. This passes my criteria.for dividend yields but does not pass my ability to maximize the number of shares that I own because I am limited by my investment budget. If I have only $200 to invest each month, buying the one stock for $200 only gets me that 1 share. But if I can buy another stock that sells for $50/share and pays 3% dividend yield I can get 4 shares. The dividends I can get will be the same for both at $6 but when I re-invest the $6 I can only get 0.03 shares of the $200/share stock but 0.12 shares of the $50/share stock. I try to maximize shares owned and maximize dividends earned.

I am focusing on the growth of my stock investments based on share growth in addition to any increase in stock price value. Share growth is more critical to me than share price growth. I will increase my position with a specific stock if the share price drops or increases no more than 10%. If the share price increases more than 10% I will just hold and wait for the next DRIP.

I’ll be detailing my different strategy points in later postings.

Rule#1 by Phil Town

This is another book that I seriously recommend that you read. The book is called Rule 1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week! written by Phil Town.

In this book Phil Town goes through the different calculations and math of determining the best investments that meet your strategy and criteria. He expalins things in terms that anyone can understand. He also explains how he’s used the different calculations and what his criteria is that he used. This book is one that every newbie investor must have in their library.

Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage by Mary Buffett & David Clark

When I first started to invest seriously I knew very little but started to access different article and forums to learn whatever I could. I found very quickly that forums/groups had limited benefits (I deal with this in other past posts and will in future posts), One of the things I did learn was the different books that I should acquire and read.

One of the first books pertaining to investing that I acquired was Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage. This book was co-authored by Warren Buffett’s former daughter-in-law and one of his avid followers.

This books breaks down the different financial documents that are used by public companies to explain the current condition of the company. They also explain what conditions and criteria Warren Buffett uses to evaluate these businesses and how he determines which ones he decides to invest in and which ones he doesn’t. This is definitely one that you need in your library.