Articles Archive for February 2008

Do not trust analysts and fund managers

28 February 2008 Michael Szumielewski 1 Comment Investing

People who are new to stocks often trust professional analysts and fund managers when it comes to their opinion about a certain stock. They think, that when fund manager Mr. X from “The X Superfond” buys the stock for his fund, it has to be a sure thing. Especially, if he talks about it publicly, you should be very careful, because that is the point when it gets dangerous. Let me explain a few things about funds to you, if you not already know the facts.

We as small investors are in a better position than we think. To buy a certain position takes weeks for a fund because they invest such large sums of money. That is a fact. Some funds have even such regulations, that they only can buy 10 stocks and every time they have to invest 1/10 of their fund. So if the market capitalization of a stock is 750 million dollar and the fund has to invest 50 million, you can be sure this will take some time. And what applies to buying also applies to selling. So if Mr. X says buy to us, he is almost possibly selling his position again.

One really annoying thing for fund managers is that they are measured by their performance. But not only once a year, but often even quarterly. We as long-term investor are OK with losses, because we know that the stock will be up in the next 18 months. But that is not enough for our fund manager. He hops from one hot stock to another praying for performance so he can keep his job. They are not interested in long-term performance, they are worried about the next 2 months when they have to show good results to their boss. They do not worry about the money, it is your money they spend, not theirs.

At last, funds have very strict regulations. Generally, funds are often to big to buy stocks from small companies with a small market capitalization. If they buy in, they would often simply double the stock. There are also regulations that for example a market capitalization below 500 million dollar is not allowed. Even if they would like to invest, they are just not allowed or much to big. Some restricted funds are also not allowed to buy foreign stocks or just invest in stocks listed in the S&P 500. But by this regulations they often miss great companies. That is also a reason why funds hardly ever outperform the market.

So grab your money and buy stocks yourself, you can do better than the professionals.

The Coffeehouse Portfolio

26 February 2008 Sören Zschoche 6 Comments Investing

“The most of us don´t need professional planer. We actually don´t need a complete elaborated plan, conservative money management isn´t difficult. In order to be your own stock exchange guru, you just need an array of goals, a few easy financial Investment-opportunities, realistic expectations, a time-frame, which allows your investments to develop, and a good aligned polygraph which conserves you of falling for buy recommendations of bounders.”

Jane Bryant Quin, “Making the most of your Money”

In 1998 the former broker of the investment house Salomon Smith Barney, Bill Schultheis released a small book with the title “The Coffeehouse Investor”. The book was very easy to read but despite that it clearly explained the bases of successful investing.

Bill uses 3 simple principles to build up a successful Portfolio :

  1. Saving : Start as early as possible and save your money consistently.
  2. Diversification : Spread your risk by buying more than just one fond, stock or bond issue.
  3. Index : The only thing you have to achieve is being on average, and you are the winner.

The simple Coffeehouse Portfolio consists of a 60:40 mixture of stocks and bond issues. Whereby the bond issues stake clones a medium-term corporate bond Index and the stock stake in the same parts the S&P500,Large Value Index, Small Index, Small-Cap Value Index, MSCI EAFE International Index, and the REIT Index. In the bear market of 2000 and 2001 when the Dow felled at 12 %, the S&P at 20 and the NASDAQ lost whole 50 %. This simple portfolio had an average performance of 5,3 % per year.

A possible Coffeehouse Portfolio

Just Relax and it will work at best

Investigations resulted in the fact that the performance of the coffeehouse portfolio is at best when you never justify it. You can check that by yourself on Bill´s website. So you can beat the market while you relax in a coffeehouse, drink some coffee and the only thing you have to do is nothing.

The Most Expensive 2 Euro Coins.

25 February 2008 Sören Zschoche 101 Comments Money

You think that every 2 Euro coin is worth 2 Euro ? I say that´s definitely wrong and perhaps also in your money bag there are treasures you did´t recognise before. So check it up because with a bit luck you´ll get the 400 fold of your coin back when you sell it to the right person.

For example the 2 Euro Vaticano proof of 2002 was recently traded to 400 € per coin. Although it´s very unlikely that you will find such a coin in your pocket the treasure hunt would be profitable, because there are many other 2 Euro coins which are worth more than 2 Euro. For clarification here are the top ten of the most expensive 2 € coins.

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  1. Place : 2 Euro Vaticano 2002 Proof 401 Euro
  2. Place : 2 Euro Monaco 2007 BU Grace Kelly 302 Euro
  3. Place : 2 Euro Monaco 2001 BE 269 Euro
  4. Place : 2 Euro Monaco 2006 BE 189 Euro
  5. Place : 2 Euro Luxemburg 2005 Proof Henry+Adolphe 131 Euro
  6. Place : 2 Euro Vaticano 2005 BU Sede Vacante 116 Euro
  7. Place : 2 Euro Vaticano 2003 Proof 112 Euro
  8. Place : 2 Euro Vaticano 2006 Proof 100 Euro
  9. Place : 2 Euro Monaco 2004 BE 93 Euro
  10. Place : 2Euro Vaticano 2004 Proof 91 Euro

Note: The prices for the coins are balancing so don´t worry if you pay less or more now. For the currently prices you can use Ebay.

Enhancement in value of up to 15.000 %

Euro coins sometimes have an enormous virtu the so called starter-kits the bags in which the first Euro coins had been dumped had an enhancement in value from 100 to 15.000 % in the last 6 years. So if you bought a starter-kit of the Vatican in 2001 for 3.88 € and never opened it till today it would be worth 600 € that a betterment of 15000 %. The set of San Marino on the other hand had an enhancement in value of 5000 %. Also very coveted are Euro coins with min-defects for example when the wrong map is printed on the coin or wrong digits or rims can be seen.

But not every county in the EU got the Euro here is a map of the countries were the Euro was estimated as an official currency. Theses countries are the green ones.

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The difference between investing and speculating

24 February 2008 Michael Szumielewski 1 Comment Investing

Do you know the difference between being an investor and a speculator? Most people think, that at the moment of buying a stock they are investors. But after selling in 3 months with a 25% loss they should know that they are not, they are simply bad speculators. In fact, we talk about two absolutely different styles, so different like the night and day, or the men versus women of the financial world. They also typically attract specific personality types to each financial strategy, so not everybody can become a perfect investor or a perfect speculator.

A speculator is somebody who practices financial speculation, which involves the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives, or any valuable financial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via methods such as dividends or interest. Speculators are willing to take large, but calculated risks in search of large rewards over a short time period. Benjamin Graham once described speculation as “a rat race of trying to get the highest possible return in the shortest period of time.” Graham strongly believed investing should be in securities where the principal investment was reasonably safe and there were “satisfactory” returns.

An investor on the other hand is any party that makes an investment, which regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. They also purchase real estate, currency, commodity derivatives, personal property, or other assets, always in hopes of achieving capital gain, not as a profession or for short-term income. An investor has a fundamental “buy and hold” approach and is interested in long-term investments that provide a steady source of passive income. Typically the investor is the “boring” guy, because he is not concerned about the daily movements of the market.

So, why is knowing whether you are an investor or a speculator so important? It is simple, because knowing if you are an investor or a speculator is essential for developing an matching investment strategy for you. Know Thyself! It is not recommended to mix this two types of money making, unless you are very skilled and experienced. You should know your own risk tolerance and it should play an important role in your investment planning. Upon other terms, your risk tolerance is defined by your financial situation, investment knowledge/experience and of course your age. Financial risk also strongly depends on your personality, so again it is very important to know yourself before investing your money.

Reduce your investment risk with the Cost-Average-Effect

22 February 2008 Sören Zschoche 14 Comments Investing

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The cost average effect benefit from falling markets.Image we got 5000 USD and we buy GM shares, we buy our stocks at the first red point of the chart above to the price of 37 USD per share. But our investment doesn´t act like we wish it would and finally we sell our stocks at the second red point to the price of 27 USD per share. Bad thing we realised a falling share price of 27 % which would be a loss of 1350 USD.

But there is also a way how to make 1000 USD profit which would be a stock market return of 20 %, with same same amount of money and the same chart. In order to achieve that we use the cost average effect so let me explain. We assume that we start to buy our shares at the first red point to the price of 37 USD per share. But this time we just buy 27,02 shares with the amount of 1000 USD. Raid data recovery would say we always repeat that if the markets are falling and we believe that we have got a new depression. For this example I always bought shares with the worth of 1000 USD at the red marked points.

  • 1000 / 37 USD = 27,02 Shares
  • 1000 / 26 USD = 38,46 Shares
  • 1000 / 21 USD = 47,61 Shares
  • 1000 / 18 USD = 55,55 Shares
  • 1000 / 19 USD = 52,63 Shares

So in March 2006 we got a total amount of 221.27 shares iand if we say we would sell them now at the green point for the price of 27 USD we got an amount of 5974,29 USD.
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Sounds good but what´s the catch ? The problem is first of all that you also have to pay more charges for your trader when you trade more. The second thing is that you probably will be very sad when the quotation climbs up just after you bought your first tranche with the price of 37 USD, because you could have earned more. But conservative investors are definitely on the safe side with this principle because you can´t misdo much except you buy a company which crashes. Otherwise you can be happy if the stocks are getting cheaper, because you can afford more shares.

The new United States five-dollar bill

21 February 2008 Michael Szumielewski 76 Comments Money

The new US five-dollar bill

Did you know that the US $5 bill has been redesigned and will be issued on March 13, 2008? Well, it turned from green to purple, but I am sure Abraham Lincoln will not be upset ;) The Bureau of Engraving and Printing enhanced security for the new bills, so they are harder to fake and easier to check. I recommend you to visit the official homepage so you know how to differ fake money from real U.S. currency. “Printing fake bills can be a lot more complicated then just getting a few machines and a bunch of printer cartridges like HP toner.”

You can look up the new features in a nice flash animation on portfolio.com. The new features are two new watermarks on both sides of the bill and an embedded security thread, which moved from the left of the portrait and is now located on the right side. The new $5 bill will remain the same size, but the color and images changed a bit. The color goes from a light purple in the center of the bill and blends into gray near the edges. This design update adds complexity to the bill to make counterfeiting more difficult. The Great Seal of the United States, a American symbol of freedom, has been added to the background and Lincoln’s portrait and vignette have also been changed. There are also a few other features like microprintings and of course the serial numbers.

The new money will be introduced on March 13, 2008 but of course you will not have to exchange your old $5 bills for new ones. Nevertheless, you will come across the $5 bills soon, because the “average life” of a $5 bill in circulation is 16 months before it is replaced due to wear, says the Bureau of Engraving and Printing. Approximately 9 percent of all paper currency produced by the U.S. Treasury’s Bureau of Engraving and Printing today are $5 bills. In fact, you can even still pay with U.S. banknotes from 1861, they are still redeemable today at full face value and will continue to be legal currency. The United States has never devalued its currency, so owning $5 bills seems like a quite sure thing to me.

How to get rich Part II

20 February 2008 Sören Zschoche 5 Comments Getting rich

So what the man did was the following, he knew that he didn´t earn as much money as others did but he also knew that others spent more money. Others work hard to earn more money just that they can spend more, but he wanted to work hard to save more money. He said that there is nothing more important as saving your money because if you don´t do that you will always work for the money but if you do it your money your money will work for you one day.

But saving money isn´t as easy as it seams, it really takes a long time and requires very much self discipline till you are the perfect depositor. The most important thing is that you really want to become rich but here are some other tricks to save money the man told me.

  • 1. Never leave the house with money you don´t essentially need.
  • 2. Break your EC and Credit Card(s) in two pieces you don´t need them anymore.
  • 3. When you have to buy something always look for the cheapest.
  • 4. Always remember one saved dollar is one earned dollar.

OK when you hear that it really sounds like the man had a very boring life, but he said that after a while you don´t even want to spend your money and get addicted to it somehow. Also you start to disdain the people who trow their money out of the window in the hope that the society respects you. You have to realise that money isn´t a toy you could rescue a child from the hunger death just for one dollar.

Saving money is the most effective and safest way of getting rich which is often very underrated by the people. Also the time value of money plays a very big role, like this short calculation shows.

For example if you start to save your money with the Age of 25 and you get 10 % interest rate till the age of 65 you got 4,868,518.11 USD. Otherwise if you start to save your money with the age of 55 you will just receive 175,311.67 USD.supertoll.PNG

Next time I will show you in which ways your money can work for you and where you get 10% interest rate.