Daily Investment Tips

I found some interesting comparisons of returns of index fund and mutual funds.

From motley Fool website;

During the 1990s, the S&P 500 has provided an annualized return of 17.3%, compared with just 13.9% for the average diversified mutual fund.

And From Yahoo

In 1998, for instance, 85 percent of all mutual funds that were set up to beat the S&P 500 failed to meet that goal. When you think about it, that’s an amazing statistic — eight out of ten mutual funds didn’t beat the market!

Investing in a stock index fund guarantees that you’ll never outperform the overall but an index fund might give investors a higher return because of their cost advantage. Index funds have lower or zero fees, they also don’t hire expensive equity analyst. All that saving is passed to investors.

written by Constantine Njeru \\ tags: 1990s, Amp, Annualized Return, Cost Advantage, Equity Analyst, Guarantees, Index Funds, Investor Returns, Investors, Motley Fool, Mutual Fund, Mutual Funds, Statistic, Stock Index Fund, Yahoo, Zero Fees

James C. Boogle is the founder of The Vanguard group,  a mutual fund that allows retail investors invest in the movement of S & P 500. The fund owns 500 stocks — all the companies that are included in the index.

James C. Boogle is a champion of investing in index funds. He believes index funds have three advantages over the traditional mutual funds.

The Advantages of Investing in Index fund.

Low Cost fees – Vanguard funds don’t charge commission fees to buy into the fund

Higher return to investor – Vanguard funds don’t hire expensive stock analysts, don’t rapidly move in and out of position. This saves on operational cost. The money saved is moved that is distributed to investors as gains.

Stable Return. Vanguard fund never claims to beat the index. The returns are average but stable.

written by Constantine Njeru \\ tags: Amp, Boogle, Champion, Index Fund, Index Funds, Investment Tips, Investor, James C, Money, Mutual Fund, Operational Cost, Retail Investors, Stock Analysts, Stocks, Traditional Mutual Funds, Vanguard Fund, Vanguard Funds, Vanguard Group

Stephen Schwarzman of Blackstone group, a private equity firm. Schwarzman co-founded Blackstone Blackstone in 1985, with $400,000 seed capital. As of today Blackstone group has a market capital of over $38 Billion.

How has Stephen Schwarzman made so much money? DEBT!

Stephen Schwarzman strategy of making money is to is to use other peoples money to buy companies.

The following is a standard, textbook example that Stephen Schwarzman has designed to perfection:-

Suppose a company makes an annual profit of 10 million USD and is acquired by a private equity firm for 100 million USD, that is, at a price earnings ratio of 10, meaning that the private equity firm is willing to pay 10 times the company’s annual profit. To acquire the company the private equity firm invests 30 million USD of its own capital borrowing the remaining 70 million USD.

Now suppose that three years later the company still makes a profit of 10 million USD per year. The private equity firm has used the profits to repay 30 million USD of the loan (I’m abstracting from taxes here) and decides to sell the company for the same price as it has bought it, that is, 100 million USD. This may seem like a bad deal, but take a closer look at what happens. The private equity firm uses 40 million USD to repay the remainder of the loan and is left with 60 million USD. Thus, in three years the firm has doubled its initial investment of 30 million USD!

If the private equity firm manages to reduce costs and increase the company’s annual profits to 16 million USD, to keep things simple, and sells it again with a price earnings ratio of 10, that is, for 160 million USD, the profit for the private equity firm is 90 million USD (after repaying the 70 million USD loan), three times the initial investment. If, because of the increase in profits, it can convince buyers of a higher price earnings ratio, it will earn even more.

So, in this simplified example, regardless of whether the company being acquired is “turned around”, the private equity firm makes a substantial profit on its investment. The reason? Its ability to finance part of acquisition with debt.

Source Courtesy of Ivar Hagendoorn private equity

written by Constantine Njeru \\ tags: 10 Million, 100 Million, 30 Million, 60 Million, Blackstone Group, Closer Look, Initial Investment, Investment Group, Investment Strategy, Making Money, Money Debt, Much Money, Price Earnings Ratio, Private Equity Firm, Profits, Remainder, Seed Capital, Stephen Schwarzman, Textbook Example, Three Times

Warren Buffet is arguably the best investor in the world. Over the years Buffet has shared his ideas on investing. Most of this ideas are found in his annual letter to Berkshire Hathaway shareholders.

In this article I share some of the investment gems by Warren Buffet.These ideas can used as an investment guide to investing in stocks.

1. Buy and Hold.

This idea of buy and hold is synonymous with Warren Buffet. He buys into company’s and seems to hold the stocks forever.

2. Buy Stocks That You Understand.

Buy into companies which you understand their products and services. Warren Buffet is quoted saying “Stick to what you know. Bill Gates is a good friend, and I think he may be the smartest guy I have ever met. But I don’t know what this little things do. So I didn’t invest in Microsoft.

3. Always Have Spare cash

The reason why Buffet seems to do better then the rest is because he always has spare cash. During periods of crisis, he uses the extra liquidity to take advantage of opportunities.

4. Buy When Everyone is selling and Sell when everyone is buying.

He was quoted in 2009 saying “When it’s raining gold, reach for a bucket, not a thimble.”

5. Don’t Be Fooled By the Media Buzz / Euphoria

Charlie Munger his trusted lieutenant was quoted “avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be.”

6. List down your reasons for buying a stock.

When your force yourself to write down your reasons for buying a stocks it prevents you from making dumb decisions.

7. Understand The Behaviour of the Crowd

A simple rule dictates my buying: Be fearful when others are greed and greedy when others are fearful.

8. Understand The Value in the Business

As he said in 2009 letter to investors, “In the end, what counts in investing is what you pay for a business — through the purchase of a small piece of it in the stock market — and what that business earns in the succeeding decade or two.”

written by Constantine Njeru \\ tags: Berkshire Hathaway, Berkshire Hathaway Shareholders, Bill Gates, Buy And Hold, Buy Stocks, Charlie Munger, Crowd, Dumb Decisions, Euphoria, Futures, Good Friend, Greed, Investing In Stocks, Investment Gems, Investment Guide, Lieutenant, Liquidity, Media Buzz, Stock Market, Warren Buffet

Successful investing in stocks is never easy because of the many factors that affect a stock. In this article I outline the 10 factors that you need to go through before buying  a stock.

1. Understanding the Services or Products the company sells.

Buy stocks of companies that you understand. If you cant figure out what the company sells it is impossible to understand the companies financial s.

2. Understand How to read a  Companies Balance sheet and Income statements.

Drop by your local library and borrow a simple guide to accounts or economics  and read pages on business finance. If you cant crack it on your own hire a tutor.

3. Understanding the Sector / Industry

Understand the number of players in the sector and the position of your target company. If the company is the market leader it has advantages.

4. Understand how the company will make you money.

Figure out why the company will outperform. How they launched new products that will do well? Are they expanding abroad or into new markets? These are the factors that keep a company stock rising.

5. Understanding that stocks go up and down.

Its important to know stock prices do not go up in a straight line. Stocks prices sometimes go down. When they they drop don’t panic and sell.

6. Take advantage of free online tools.

Free online tools such as Google finance and yahoo finance can help you a great deal in doing your stock purchase research.

7. Investing for dividends.

Some stocks are in mature industries. These stocks have few opportunities for price appreciation. But the good thing about them is that they pay annual dividends. Such industries are mining, oil and tobacco.

8. We All Mistakes.

Even after going through the best research mistakes will be made. When you realise you made a mistake the best thing to do is to cut your losses. Sell the stock and invest the money in a new stock.

9. Diversify You Stock Purchases

You have heard it since you were a kid “Don’t put all your eggs in one basket.” Don’t put all your money in one stock, spread the money in different stocks. This will protect you from large losses.

10. Have an exit strategy.

Have a targeted share price you want to reach before selling all or part of your position? If you reach your target share price, stick to your initial plan and cash out at least some of your position.

While this stock investment guide is by no means exhaustive, it will certainly help you begin your thought process when making a decision to buy a specific stock or not.

written by Constantine Njeru \\ tags: Balance Sheet, Business Finance, Buy Stocks, Buying Stocks, Company Stock, Dividends, Eggs In One Basket, Free Online Tools, Google, Income Statements, Investing In Stocks, Investment Guide, Line Stocks, Local Library, Market Leader, Mature Industries, Price Appreciation, Stock Prices, Stock Purchase, Stock Purchases, Straight Line, Target Company

They say the Degree you have matters. According to the National Association of Colleges and Employers, the following Degrees had the highest starting salaries :-

1. Petroleum Engineering  $86,220

2. Chemical Engineering  $65,142

3. Mining & Mineral Engineering $64,552

4. Computer Science  $61,205

5. Computer Engineering  $60,879

6. Electrical/Electronics & Communications Engineering $59,074

7. Mechanical Engineering $58,392

8. Industrial/Manufacturing Engineering $57,734

9. Aerospace/Aeronautical/ Astronautical Engineering $57,231

10. Information Sciences & Systems $54,038

I loved a post by darwin finance who explains how a high starting salary does not mean high salary for the rest of your working life. Read it at darwin finance

written by Constantine Njeru \\ tags: Aerospace, Amp, Association Of Colleges, Astronautical Engineering, Best Paying Degrees, Chemical Engineering, Colleges And Employers, Communications Engineering, Computer Engineering, Computer Science, Darwin, Electrical Electronics, Highest Paying Degrees, Highest Starting Salaries, Industrial Manufacturing, Information Sciences, Manufacturing Engineering, Mechanical Engineering, Mineral Engineering, National Association Of Colleges And Employers, Petroleum Engineering, Starting Salary

Warren Buffet is the best investor in the world, when measured by ability to accumulate money. His investment advice on the best time to sell you shares can be found on the following quote by him.

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. By Warren Buffet

By greedy he means when the market is in a bull frenzy and every Tom, Dick and Harry is buying stock. When everyone is buying prices tend to go well above their true value and that is when a smart investor should be thinking of selling.

written by Constantine Njeru \\ tags: Attempt, Best Time, Buying Stock, Frenzy, Investment Advice, Money, Quote, Sell Stocks, Smart Investor, Stocks Shares, Tom Dick And Harry, True Value, Warren Buffet

Another word for financial crisis is making money. Because during financial crisis clever investors roam like vultures looking for opportunity to make money.

History of Making Money In a Financial Crisis

Back in the early 1990? George Soros pounced on British financial crisis, shorting the British pound and walking away with a cool US$ 1 Billion in the process. In the late 90′s he rode the Asian crisis all the way to the bank. The then malaysian Prime Minister referred Soros as “A Criminal”

When the US housing market crashed back in 2007 many sub prime moergage borrowers were crying but one hedge fund manager was having a laugh. John Paulson a hedge fund manager in New York had bet against the sub prime market and made billions.

The two above investors made money by shorting the market. Talk to your financial advisor and see how you to can profit from fianancial crisis.

written by Constantine Njeru \\ tags: 1 Billion, Asian Crisis, Billions, Borrowers, British Pound, Financial Advisor, Financial Crisis, George Soros, Having A Laugh, Hedge Fund Manager, Investors, Making Money, Malaysian Prime Minister, Money Back, Money History, Opportunity, Pounced, Shorting The Market, Sub Prime Market, Us Housing Market

John Paulson famously made a cool US 3.5 billion in 2007. He was among the few who had seen the housing boom was built on sand and bet against it.

How did he see it.

In a Wall street journal interview, I found this Paulson quote

“Where is the bubble we can short?” He was asking his staff. They found it in housing.

I think that is the one example on how to make money. Find a bubble and short it!

In the same interview Paulson gave a vague assessment of the market

He’s also betting against other parts of the economy, such as credit-card and auto loans. He tells investors “it’s still not too late” to bet on economic troubles.

Not to fast that was way back in January 2008.

written by Constantine Njeru \\ tags: Auto Loans, Bet, Credit Card, Economic Troubles, Economy, Housing Boom, How To Make Money, Investors, John Paulson, Market Predictions, Quote, Wall Street, Wall Street Journal

Litigations have become a fact of modern life. When people are facing litigation with a potential of hefty fine they tend to ask whether asset protection can work when one is facing litigation.

According to some lawyers. In some cases, yes, although asset planning options are ordinarily narrowed under such circumstances. Asset Protection is a vaccine, however, not a cure, and it is best viewed as preventive medicine. It is very difficult to purchase fire insurance once the fire has started. It is advisable to have the legal restructuring completed before litigation is even on the horizon. It can, however, be very helpful during and after litigation, as well.

So, consult with your lawyer for the best cause of direction.

written by Constantine Njeru \\ tags: Asset Protection, Circumstances, Fire Insurance, Horizon, Insurance, Lawyer, Lawyers, Litigation, Litigations, Medicine, People, Preventive Medicine, Protecting Your Assets, Restructuring