Choosing the right consolidation company is an important decision that you need to make during debt consolidation. There are both for-profit and non-profit debt consolidation companies operating in the market.

Debt consolidation in a non-profit way:

There are debt consolidation non profit firms that are certified by the IRS as charitable organizations that can help you in consolidating your debts. These companies have obtained 501(c)(3) charitable status from the IRS. Check the company’s ‘About us’ page to make sure that they are indeed a non profit organization.

How do they manage to work in non profit manner?

The word “non profit” may create an illusion in the mind of the customer. In this world where nothing comes for free, how can these companies survive as non profit? Well, the word non profit doesn’t necessarily mean that the service is free of cost rather it only means that there wouldn’t be any overall profit for the company at the end of the negotiation.

These debt consolidation non profit companies are normally funded by donation from the customers as well as creditors. Creditors would pay a percentage of the settled amount to the non profit organization for their services. Some companies may also charge nominal fees from the customer.

How would they help you?

The debt consolidation non profit companies don’t work very differently than the for-profit ones. You would be assigned to a case manager who would look into your debt situation and guide you accordingly.

You would then be presented with an agreement which would explain how your consolidation program would work and how much you would need to spend for it. Once you agree to the contract, the counselor would then negotiate with the creditors to lower your interest rates.

You are required to make monthly payments which then will be disbursed amongst your creditors to satisfy your debt obligation. The advantage of this program is that it will stop harassment from the creditors.

Anyway, even to do debt consolidation non profit way you must look at few companies before joining one since there can be many sham companies too. Hence, check out the past record as well the authenticity of the IRS certificate before joining their program.

This is a guest article by author Robin Williams.

Cyclical companies are companies who are strongly tied to the business cycle and their stocks move sharply up and down when economy turns around. Because of this, they require special handling by the intelligent investor.

Definition of a cyclical company

During recessions and economical downswings the stock market as a whole usually goes down, but a special type of companies suffers most: the cyclicals. Examples for cyclical companies are Caterpillar, US Steel, General Motors and International Paper, all makers of products with a fairly flexible demand curve. Automobile manufacturers, airlines, steel, paper, heavy machinery and hotels are the best examples. Examples for non-cyclical companies are Coca Cola, Proctor & Gamble, and Quaker Oats, all makers of products with a fairly inflexible demand curve. In bad times, people still have to eat and buy stuff for the household. Getting a new car on the other hand, can be delayed for some time.

Marc Thomson, a friend of mine who works at a big bank here in Munich, Germany, said last week: “A lot of our clients feel it now, the recession is hitting them hard. We’ve seen that before in downturns, but as usual, industries like the steel and automobile industry suffer the most and request new credits. ”

Chart for aviation support company AAR Corporation

Great opportunities ahead

When you look at charts of cyclical companies like the one above, there are always big up and downs. But when economy turns around, cyclicals can outperform growth companies and be great turnarounds. The problem is to catch the right moment of the cycle to buy. Take a second and analyse the chart of AAR Corporation for yourself and you will recognise that after this recession great opportunities will come ahead.

There are two problems when it comes to investing in cyclicals: timing and selection.

When it comes to timing, no one really can predict the economy as a whole and additionally cyclicals tend to doing well many months before the economy comes out of a recession. Best indicators seem to be interest rates and the companies’ financial ratios which show when demand goes up again, but also insider buying. It also helps if you know the industry. But all in all it is quite difficult to catch the best moment for the ride.

When it comes to selection, it makes sense to pick an industry that is due for a bounce. Choose the biggest company for more safety and smaller companies if you want to take some risk. These companies who suffered the most can produce the most impressive returns, but you have to make sure, they also don’t go bankrupt. More than usually, you have to check the balance sheet. An indicators that the company is healthy is for example a strong cash position.

If you do your homework well, I’m sure you can find plenty of good opportunities.

How to invest successfully

So, successful investing in cyclicals requires careful timing and a good selection. At this point, it’s time to make a watchlist and be prepared to invest when the recession comes to an end which no one know how long it will take. When taking action, take advantage of cost-averaging by buying the stock for several months and building up your position. To be save, you should also set a stop-loss limit to protect you from loses.

Most of all, never forget the up-and-down nature of the economy. And be careful, some cyclical companies die when it finally comes to a economic slump, because of bad management which thought the good times will go on forever and building up a cash reserve is not necessary. When you decide to invest in a cyclical company, you have to follow the news about the global economy and the industry the stock is in. Also cyclicals are not suitable for long-term purposes because of no protection in recessions. Buy-and-hold doesn’t work here. Please keep that in mind.

Compound interest is one of the most interesting things in the financial world. If you truly understand how it works, it can make you a lot of money. Check out this impressive quote:

Compound interest is the greatest mathematical discovery of all time.”
Albert Einstein

Compound interest can be explained as the adding of accumulated interest back to the principal. Interest is earned on interest. Compounding depends on three factors: percentage, basis and time.
Example: You have a bank account with $10000 in it and get 4% interest per year. After the first year you have $10400, but ten years later you already have $14802.44. Sounds great, doesn’t it?

Even 0.5% make a difference

Let’s take the example from above and modify the percentage to 4.5%. After ten years you have $15529.69. That means that you get 10.77% more than with a percentage of 4%. Amazing. Always seek for that extra 0.1% to 0.5% when searching for a good investment. Over time it changes a lot and you will see the difference.

The more you have, the more you will get

It’s true, rich people get richer. We earn $400 in our first example, but with a basis of $20000 we would have earned $800. The higher the basis, the higher the profits. Don’t forget to make regular payments into your savings account, so your basis gets bigger. Ideally you save money for a reason, for example your retirement. Then you need the endurance letting the money where it is for let’s say 20 years. But trust me, the motivation is great to pay in every month, because you will see amazing results and retire completely without financial problems.

Time is on your side

How long you let your money earn money is up to you, but the longer the better.
Remember, you earn money by doing nothing. And the money you earned by letting it earn more money will earn you even more money. You just put money in your account and watch it grow over time. If you don’t need the money, let it multiply. Be disciplined and patient enough and don’t touch this money.

The three factors have to work together

The whole concept of compound interest sounds great, but it is dependent on the three factors. They have to work together well, or you will get poor results. Basically, it is up to you how long you can do without the money you put in your account. It is also your choice how much you put in,dependent on how much money you have, of course. To get the max, the basis and time should be relative high, because the third factor “percentage” is aligned with risk. You get a small percentage with little to no risk but every percentage point more goes hand in hand with more risk. It is essential to find the right balance.

Sometimes it is magic

To conclude this article, here is a amazing example on compound interest at work:
“If the Native American tribe that accepted goods worth 60 guilders for the sale of Manhattan in 1626 had invested the money in a Dutch bank at 6.5% interest, compounded annually, then in 2005 their investment would be worth over €700 billion (around USD $1,000 billion), more than the assessed value of the real estate in all five boroughs of New York City. With a 6.0% interest however, the value of their investment today would have been €100 billion (7 times less!).”

Sources: Wikipedia

Stock investing is hard work and inexperienced and untrained beginners have a lot of difficulties when investing for the first time. For some it looks easy during bull markets and incredibly tough during bear markets. But the main target is to make money even if the market is in a bad condition.
Of course there are always people who give expensive but useless advice about investing. I am sure, you heard of “Buy low and sell high”, which is indeed quite useless, because how would one know what is the expected low and the expected high of a stock. Some people just give wrong advice and you can get into serious financial trouble following their ideas.
Here are three stock investing misconceptions that you should definitely avoid:

Wrong: Low price stocks are better than high price stocks

A widespread misconception is that a low price stock should be preferred to a high price stock, for example a $100 stock vs. a $10 stock. This is wrong. The value of a company is expressed by its market capitalisation (stock price * number of stocks), whereby the real value of a company differs from this value. It must be calculated by analyzing the company. So, the assumption that low price stocks are better is wrong because every company has a different number of stocks on the market. The price of the stock is the effect, not the cause.

Wrong: Stocks that have fallen will rise again

We see the traders attitude here, because when a stock falls e.g. 25% on a single day, some will speculate that there will be an up rise of e.g. 5% the next day. This effect has been observed many times, but we discuss long-term investing here, so it is clearly a misconception. Stocks usually fall for a reason, even if it is not clear for everyone. But fallen stocks will rise only when the factors which led to the fall are corrected. For example, if a stock fell, because the company announced that it will suffer from a recession for the next years and earnings are down, then it won’t rise before those factors change to normal again.

Wrong: The stock market is a place where you can get rich quickly

By investing intelligent you can for sure get rich on the stock market, but this is not supposed to happen quickly. Many people behave like gamblers on the market by making quick, impulsive and blindfold decisions. They lose money and again behave like being at the casino by increasing the amount of money in the game in the intention to wipe out their loses. Logic is dominated by emotion and the game is soon over.
However this misconception can be changed into a perfectly true advise: “The stock market is a place where you can get rich as quickly as possible”. This does not mean “Get rich slowly”, it means that you can get rich as quickly as possible. With the assumption of a historical return of 10% a year and a few years of your time, you get pretty good results. Never forget that the most important thing in investing is not to lose your money.

All in all, there are always intelligent people with experience, who know what they are talking about. Do not follow the loudest voice in the crowd, search for the smart ones.
But most of all, always check thoroughly every advice which is given to you, because in the end it is your hard-earned money which is at risk.

Warren Buffett the legend of the capital markets has some very intelligent investment principles. His principles aren´t very complex and you probably don´t have to be a mathematical or a social science genius to understand them. But in order to apply them you need a very conservative, clear and analytical character. Also you should read very much about value investing especially every opus Benjamin Graham and David Dodd ever wrote, so don´t think it´s a quick there´s quick way to become a superinvestor. However when you did that these 5 rules will put the final touch on your investment style.

1. Buy the boring not the pompous ones.

Invest your money in companies and business models you understand and which are needed by the world. Warren Buffett for example buys confectionery manufacturers, drink producers, producers of clay-bricks or if he really wants to have something exciting, assurances.

The Reason: Because these companies are always needed they will always grow just like the population of world does so actually you can´t do wrong really much.

2. Beware a cool head and have patience.

If you think Warren Buffett would sell one of his stocks just because it falls in price you are definitely wrong. Because actually he does exactly the opposite he buys new ones.

The Reason: Warren Buffett always buys his stocks to a very cheap price if you want to know how he does that read the chapter margin of safety. So when these cheap companies get even more cheap he is the happiest man in the world because he can buy more share of fools to an even better price.

3. Watch out for fortresses.

Mr. Buffett says you should buy castles with a big castle moat. Translated that means Warren Buffett buys companies with a very good business model which can´t be copied so easily. His companies should be something like a monopole just like Coka Cola, Gilette or Microsoft.

The Reason: The main problem of the capitalism is the profit margin when the margin is too high it attracts others who also want to participate in it and the margin falls. In order to circumvent that Warren buys companies which can´t be copied so easily.

4. Concentration instead of diversification.

Many people say you should diversify and spread the risk on at least ten different stocks. Warren Buffett says diversification is something for people who don´t know what they do.

The Reason: If you know that a stock is really cheap and you make a snap why should you also buy other stocks?

5. Don´t hit every ball !

Take your time by finding good stocks and wait until they get even more cheap. Sometimes Warren Buffett even waits 2 or 3 years before he buys a stock.

The Reason: Finding a good company isn´t that difficult much more difficult is to find a good company to a good price. So Warren Buffett looks for an interesting company and waits, waits and waits until he can buy the company for the price he want´s to pay.

Today’s article is about the reason to invest in a particular stock and the important fact, that just because a stock went up, it doesn’t mean you are right. One could argue, that when something works, the reason is unimportant, but that’s just not true. For example, if you jump into a lake and don’t know how deep the water is, there are two options: you break your neck or you enjoy your bath. Got it?

There are a lot of bad reasons to buy a stock, almost to much to mention. Let’s discuss a few.

Buying/Selling a stock because it went up/down: This is a common mistake. As written in Do not listen to Mr. Market, the stock market suffers from huge fluctuations regularly. If you want to buy a stock, don’t buy it when it’s totally overpriced. Instead search for great companies with a low price and it will be a successful investment. Also don’t panic and sell because the stock went down. Instead check the fundamentals again and make sure you didn’t overlook something.

Buying/Selling for the wrong reason: Today everything is linked to everything, so we call it globalization.This fact often makes it difficult to understand certain developments. It’s not enough to check out the product of a company and know the local business circumstances any more. You have to know exactly what the company does, understand the business model and figure out which variables are critical for success. The lack of understanding world economics like, for example, the euro/dollar constellation, might bring you into serious trouble and may cause unexpected surprises. Read Investment Research: What does the company do? for more information.

Bad investment advise: Especially dangerous for inexperienced investors who keep asking “What’s your favorite stock at the moment? What should I buy?” Again, check out our article Do not trust analysts and fund managers, which tells you why you should make your own investment decisions. Even if you have a good friend who invests successfully, you should probably not invest in the same stocks, because he buys them for specific reasons, which he monitors regularly. You will probably misjudge the case and make mistakes, because you don’t understand the company like he does. You know probably more about other industries.

Remember, we do serious long-term investing here, so if you have a trader attitude, this conclusions may not apply for you.

On the other hand, you’re not necessarily wrong, when your stocks go down. If you invest reasonably, but the stock market is not ready yet, you can also suffer months/years of falling prices, but in the end the attitude of value investing will be superior.

Just like the Chinese philosophy jing jang tells us that every medal has two sides also the subprime crisis didn´t just produce losers. But as you can imagine when so many people nearly loose 1 Trillion USD the winner on the other side must make a real big fortune and that´s exactly what John Paulson a 52 year old hedge fond manager from Manhattan did. He earned 3,7 Billion USD which could be the highest annual profit of the history of mankind.

But who is John Paulson and how could he earn such a big amount of money in such a short period of time?

John Paulson´s story began in New New York where he was born and studied later he even went to Harvard. How to deal with money he propably learned when he worked for the fabulous financial genius Leon Levy, he also worked for Bear Stearns and the financial investor Gruss Partners. Then in 1994 John Paulson founded his own company and issued some Hedge funds. After loosing very much money by betting that the corporate bonds would fall in 2005 he started to search for new financial bubbles and finally discovered the beautiful world of the “Subprime Mortgages”. But the question was how to make money with this bubble? So John Paulson developed a complex but in the root idea still very easy speculation strategy. His plan was to collect as many “Credit default swaps” as he could get, “credit default swaps” are something like issues which hedge you of financial losses of credits. So in good times this “Swaps” cost less but in bad times when the credit risk soars there “swaps” rise in value enormously. Well since 2005 John Paulson didn´t do something else than collecting “Credit default swaps” and in the beginning he even made red ink with that strategy. But when Amriquest one of the biggest providers of suprime-credits a fine of 325 Million USD in order to avoid a process for deceptive practices John recognised how phony the market was and issued a fund just to bet against the housing market. It was 2006 and his fund against the housing market didn´t worked well not before the and of 2006 when more and more people got nervous hsi fund closed with a plus of 20 %. Now John Paulson got really amped up about profiting from this bubble and issued a second fund witch also bet against the housing market. And the rest is history the housing bubble burst and John´s on December 31th 2007 John´s first fund closed with 590 % and his second one with 350 %.

However the question how much money he really made can be answered exactly cause Mr. Paulson is very discrete.There are no official affirmations for the definitive altitude but experts assume that the earnings amounts to 3,7 Billion USD. The Magazine Monthly Trader even wrote that this could be the highest annual profit of the history of mankind and placed him on the first place of a list of the TOP 100 fund managers.

John Paulson now lives with his wife and his two daughters in a 2600 aces big city house on the Upper-East-Side, New York. Apropos he bought this house in a forced sale…