What are the Risks Associated With Stocks?
Stocks are inherently risky, and an investor has risk of capital loss. As with most things in life, no risk yields no return. Theoretically, the greater the risk, the greater the potential return. A new company which has not established itself yet will have a decent chance of crashing and an investor can lose all invested capital. But — what if it takes off? Your potential gains in such a situation are potentially vast. There is a point when the rate of increased return per degree of risk begins to slow down. Continue reading...
How do I get IPO shares?
Participating in an IPO is generally limited to institutional investors. However, if you are a high net worth client at a brokerage firm that has access to the IPO, you may be able to purchase some shares. First, you need to know that investing in IPOs is considered speculative and only suitable for experienced investors will substantial assets. If you meet the criteria that your brokerage has for allowing IPO trading, which may include a minimum account balance of $250,000 or so, you may be allowed to submit an Indication of Interest (IOI), which is a document used to request shares in the IPO. Continue reading...
What are REITs?
REITs are pooled investments similar to mutual funds, but, like mutual funds, they can take many shapes. They invest in different kinds of real estate and real estate-oriented assets, depending on the REIT, and sell ownership shares to investors. REIT is an acronym for Real Estate Investment Trust. REITs are similar to mutual funds, except that they only invest in real estate properties and related companies and assets such as mortgages. REITs will define the scope of their investments and strategies in their prospectus, which may read something like “We invest only in commercial Real Estate” or “Only in residential houses in Las Vegas” while other REITs are very general. Continue reading...
Will My Spouse and Children Receive Social Security Benefits if I Die?
Spouses and children can and do receive social security benefits upon the death of a person who paid into the system. A spouse who is older than 60 will always be able to receive either a majority of the benefit that was (or would have been) paid to you, using their own age against the full benefit amount that was part of your benefit equation. Children, including dependent grandchildren, can receive a payment equal to 75% of your full benefit amount until they are about 18. Continue reading...
What is a Cash Conversion Cycle?
A business with a fast ‘cash conversion cycle’ can efficiently use funds and resources to fulfill the different needs of the business and to generate more business. In the simplest terms, the ‘cash conversion cycle’ is an accounting and efficiency model which measures how fast a retailer can disburse cash to suppliers and then receive cash from customers. To be more descriptive, the business would use cash from Receivables, to get Inventory (and cover Payables), sell that Inventory, and Receive cash again. Continue reading...
What is Unsystematic Risk?
Unsystematic risk is idiosyncratic or unique risk that does not reflect a direct correlation with the risk present in the market, or systematic risk. Most securities and portfolios experience risk and variations which are not attributable to the market as a whole, and this is known as unsystematic risk. Systematic risk, on the other hand, is the risk borne by all investors in the market, where broad changes in the market cannot be avoided through diversification of a portfolio. Continue reading...
What is Abnormal Earnings Valuation?
The abnormal earnings valuation method is one in which the future cash flows of a business are given significant weight in a valuation, especially when there are not many hard assets to use for valuation purposes. If a company is rich in human capital or has significant cash flows, whether or not it has many hard asset or book value, the Abnormal Earnings Valuation Model can be the most useful method for arriving at an accurate valuation of a business and its stock. Continue reading...
What is the role of asset allocation in my investments?
The single best control mechanism over the performance of your investments is the maintenance of an asset allocation strategy. When testing various methods of predicting and controlling returns in a portfolio, researchers found that having and maintaining an asset allocation strategy was the method that reaped the most predictable returns – with 80-90% accuracy. Asset allocation is the distribution of various asset classes and investments into a portfolio mix in a deliberate way to gain specific amounts of exposure to each investment. It is a practice used to diversify and manage risk. Asset Allocation is a dynamic process; it’s not something you do once and forget about. Continue reading...
How many investment choices should I have in my portfolio?
You can get substantial diversification through mutual funds and ETFs, but it is good to have increasing amounts of diversification the larger a portfolio is. Here are some general guidelines: If your portfolio is less than $50,000, probably 4-5 Mutual Funds will suffice. If your portfolio is from $50,000-$100,000, you might consider adding a few more exotic Mutual Funds or buying a couple of ETFs. Continue reading...
What is Off-Balance-Sheet-Financing?
A company might use this maneuver in order to keep their debt to equity levels in check. The most frequently used types of off-balance-sheet-financing are joint ventures, research and development partnerships, and operating leases. Continue reading...