Daily Investment Tips

Investment valuation in new age internet companies is soaring. Facebook is valued at $50 billion, Twitter is valued at $10 billion and Groupon is chasing a $25 Billion IPO. For some jittery investors it feels like 1999, and they are saying this  is a new tech bubble.

Is it really a Tech Bubble?

It feels like one. All bubbles, stock market, real estate, commodities e.t.c happen during a period of high liquidity. The more money flows into an asset class the higher the price of that asset rises.

In the tech bubble of 90s, the bubble got in gear when investment funds started raising money to invest in then technology companies. Just like then, we see Goldman Sachs e.t.c raising billions to invest in the new age technology companies. Source NYtime article.

Tech Bubble Prediction

When it comes to prediction, history is a good guide. In any bubble there are a few winners and many losers. In the tech bubble of 90s we saw Amazon, Yahoo & Ebay emerge while a string on losers Webavan, Akamai, Jupiter networks and many other were trashed in the dustbin of history.

Today, the bet is on internet companies with a competitive advantage (business model that cannot easily be copied) like Facebook & Twitter to emerge victorious. On the other hand companies like Groupon & others whose model can be easily copied might not make it.

The challenge for investors is picking winners. The situation is best summarized in NYTimes article:-

As cash continues to pile up, the fear is that all this money cannot be put to work responsibly. With only a few perceived “winners,” some investors must be choosing losers or paying too much.

 

written by Constantine Njeru \\ tags: Amazon, Asset Class, Competitive Advantage Business, Dustbin, Ebay, Facebook, Goldman Sachs, History Today, Internet Companies, Investment Funds, Investment Valuation, Jittery Investors, Liquidity, Losers, Money Flows, New Age Technology, Prediction History, Raising Money, Technology Companies, Twitter

China’s foreign exchange reserves rose to a record $2.85 trillion at the end of 2010, an 18.7 per cent increase year-on-year, sparking concerns about the country’s already excessive liquidity, analysts said. Compared with nearly $2.65 trillion in foreign reserves by the end of September, the figure increased by $199bn in the fourth quarter, marking the fastest rate on a quarterly basis in 2010, according to a statement from the People’s Bank of China released on Tuesday January 2011, China Daily reports.

China Forex Reserves for 2011

If China forex reserves keeps at that pace, Chinese forex exchange reserve could rise by $1 trillion in 2011.

written by Constantine Njeru \\ tags: Bank Of China, China Daily, Chinese Forex, Exchange Reserve, Foreign Exchange Reserves, Forex Exchange, Forex Reserves, Fourth Quarter, Liquidity, Pace, Quarterly Basis, Rose, Trillion

The popular wisdom when it comes to home ownership is that taking a mortgage and buying a house is better than renting. After all at the end of the mortgage the house is yours! But I strongly believe this is a Myth! If you consider the following advantages of renting instead of taking a mortgage.

1. Renting Can save you money

Depending on certain markets where the monthly rent is lower than the monthly mortgage payments. A smart renter can take the money they save by renting and invest it somewhere else. The saved money can be used to invest in stocks, bonds and other vehicles that have a better rate of return.

2. Location

In buying a home you are locked into the area, for better or for worse. While by renting you retain the freedom to move around.

3. Liquidity

Buying a house is buying into an illiquid asset. If you find yourself in an emergency, e.g a divorce or medical bill, you won’t be able to sell the house immediately. To make a sale you may need to take a fire sale at a lower price to get the money you need.

4. Interest Payment.

If you calculate the the total interest plus principal to be paid during the life of the mortgage you will see the final cost will be 2 to 3 times the original price.

5. Spendthrift

One unique element in growth of mortgages in the last few decades is the growth of mortgage refinance. Banks promised mortgages owner they can always tap into their equity to get more loans to travel, shop and buy cars. Mortgages have allowed home owners to treat the house like an ATM machine. Home owners were always drawing money from their equity to live a larger, bigger lifestyle. Without a mortgage many would have exercised restrain in their spending.

written by Constantine Njeru \\ tags: Atm Machine, Buy Cars, Buying A Home, Buying A House, Fire Sale, Home Ownership, Interest Payment, Liquidity, Medical Bill, Monthly Mortgage Payments, Mortgage Banks, Mortgage Refinance, Mortgages, Myth, Other Vehicles, Popular Wisdom, Rate Of Return, Renter, Spendthrift, Stocks Bonds

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