Fortune Watch

There is inflation every year. You cannot stop an increasing in living expenses as prices of consumer goods increasing all the time. Saving money becomes an extremely difficult task to do. Here are some solutions for saving a little so that you can still meet your needs and still find ways to trim off a little for the future.

Budget – Get one and stick with it! And set aside at least a small portion for savings while you’re at it; savings for your future, your retirement, your education, your vacation, whatever. Head to your local office supply store for planning workbooks or budget sheets to use. Or head to your favorite search engine and type in, “budget planning” for hundreds of sites with articles, free downloads, tips, ebooks and other resources to help with your budget setup and follow up.

Plan Ahead – Make sure to plan for emergencies and the unexpected, like an appliance break down or garage door malfunction. Even if you can only set aside $100 or so each monthly, place it in an account and earmark it for this “Miscellaneous” fund. Then when things go wrong, and they will – nothing is perfect – you’ll be better prepared.

Monthly Items – Work out a monthly payment for items that you don’t pay monthly and set this up in your regular monthly budget. For example, for items like annual home owner or renter insurance, quarterly water bills and life insurance payments and annual trash bills, take the amounts and determine what they would be monthly. Then list the items on your budget log and pull these amounts aside, saving them in your account for those purposes. This way, when the bills hit, you won’t be caught off guard and have to scrounge for the payments.

What works well, instead of handling multiple savings accounts for each company owed, is to use index cards and one savings account. Create one index card for each bill. Then simply log the amount you’re setting aside on the card and deposit it into your savings account. Keep the index cards with your savings passbook to remind you what the balance covers. The total of all your index cards should equal the balance in your savings account. Make sure to create an index card for your regular funds that you are saving each month in step one above and a card for your Miscellaneous fund in step two above.

The initial exchange gave way to a group of merchants who banned together to form the New York Stock Exchange. This initial assembly of men met every day on Wall Street to trade their stocks and bonds – an outdoor ritual that lasted through to the early 1900s, when commerce moved indoors. Today, investment on this scale has come full circle – operating outside the bricks and mortar of traditional trading. Today’s investors operate en masse through the Internet, buying and selling stocks online with the click of a mouse.

Buying and selling stocks online has become the new way of investing. In this chaotic world of long work hours combined with the juggling of frenzied family schedules, the computer has taken an ever-increasing role – giving us a place to work, communicate, and be entertained any time of day from the comfort of our homes. The computer has also taken an ever-increasing role in investing, offering consumers the opportunity to trade online. Several reputable companies have pioneered the online investment arena where they have kept pace with the changing needs of today’s modern investors.

In accessing stocks online, investors have been given access to a bevy of services previously only obtained through visiting brokers in the brick and mortar world of finance. Online investment through reputable brokerage companies requires investors to set up an account through the website. They can then access their financial portfolio at the touch of a mouse. Additionally, these companies will offer up-to-the-minute stock quotes, historical performance and forecasts for each stock, as well as in-depth information about each of the companies.

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The world of stocks is a highly dynamic one. One has to constantly be on his/her toes in order to keep abreast of the latest developments taking place. To a layperson, it can be intimidating, with stock prices constantly changing every second.

Of course, we have seen during the (in) famous market crashes that can happen when things do not go according to what the markets expect. When unexpected events and their sudden impact on stock prices make even the most experienced among us quiver, imagine what the common investor must be thinking!

However, I am of the belief that certain simple investing habits, if inculcated well into one’s behavior can make one’s investing experience more comfortable and rewarding..

In this write-up I shall restrict myself with stock market investing. As such, the term ‘investing’ used in this article will simply imply investing in the stock markets. Let us now take a look at some characteristics effective investors possess.

Begin with the end in mind: Investing, in its broadest sense, is one of the most basic and important processes of preparing oneself for meeting future financial needs like child education and marriage and retirement. And stock market investing is no different. It has to be followed like a process with an aim of achieving your future financial needs. Started early, and done in a systematic manner, investing in good quality companies can help an investor generate good returns over a long-term.

Think ‘risk-risk’: In making an investment decision, apart from returns, there is one more very important factor that should weigh heavy on your minds — risk.

Simply defined, it is the uncertainty of happening/non-happening of a certain event(s) that is likely to affect future returns. A risk is generally attributed to external factors that create disturbance in the existing scheme of things. Some of these external factors are geo-political uncertainties (elections, terrorist attacks and wars), financial crisis and economic downturn.

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Perfection is achieved not when there is nothing more to add, but when there is nothing left to take away.

What, you may ask, is the connection between minimalism and investments? A very close connection, I think. When I look at the market for investment products today, and see the kind of investment portfolios that people are collecting, I think there’s a strong need for a self-conscious and aggressive minimalism in investment planning. What is happening now is the very opposite. The loudest messages about investments and savings that reach people are advertising about the launch of new mutual funds. This collective impact of these messages is to fabricate the idea that your investment needs are best met by portioning out little bits of your savings into a large number of exotic and specialized mutual funds.

Here’s a sampling of just the last few months. There are funds specializing in different sizes of companies-large, medium, small and micro. There’s a fund for companies that are facing ‘unique’ situations, which are apparently different from ‘special’ situations. There’s a fund for investing in companies that will benefit from increased infrastructure spending and one for only companies that will benefit from increased consumer spending. There’s a fund for investing in companies that are growing fast and another one only for companies that will grow fast in the long-term. There are even some funds that specialize in companies of all sizes although that’s clearly a meaning of the word ‘specialize’ that’s not there in any dictionary that I have seen.

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When you buy a company’s stock, you are investing in the future growth of the company. Yet, the stock’s price may float up or down based on some broad market or economic factors that may only indirectly effect the company.

For example, the possibility (not certainty) of increased inflation will send the overall market into a slump, especially if the Federal Reserve Board expresses its concern. That concern is seen as translating into higher interest rates to head off any rise in inflation before it gets started. Increased interest rates are bad news for most businesses.

Likewise, pronouncements that the economy is expected to grow at a robust rate is usually a bad sign for the market because it means they will probably be less inclined to cut interest rates – to avoid overheating the economy and fueling inflation.

The trick for investors is understanding which market-moving factors may also directly affect the company and its stock.

Major demographic changes may have a much more permanent effect on a company than temporary fluctuations in interest rates, for example. Aging baby boomers will create opportunities for some companies and problems for others. Knowing the difference will mean investment mistakes avoided.

How do you know what is a major problem or opportunity for a company you own or are considering buying?The answer is to do your homework Study the company, its products and markets. The company Web site (if it doesn’t have a Web site, there’s a big problem) and annual report.

While you won’t find proprietary marketing data in these public forums, you can get a sense of whether the management has a sense of what is important to the future growth of the company.

And it is the future growth of the company that will generate the earnings to benefit shareholders.

Here’s an old story that some of us have heard when we were children. A group of blind men want to know what an elephant is like and are taken to an elephant to figure its shape out for themselves. Each one touches a different part and thus gets a completely different idea of what the elephant is like. One touches its side and thinks the elephant is like a wall. Another one touches the trunk and thinks it to be like a snake. The one who touches the tail thinks that the elephant to be like a rope and the ears were like a fan and the tusks like spears and the legs like tree trunks and so on and so forth. The moral of the story is obvious. In some versions of this story the blind men become violent over their differences and beat each other up. The story is used to indicate that reality may be viewed differently depending upon one’s perspective. The problem, of course, is not the blind men are all wrong but they are all correct, but only partially so.

When the stock markets have fall sharply, losing about 5 per cent over five trading days. Newspapers and on TV channels, there are any number of blind men offering opinions about the elephant in the stock markets. Here are some of the more popular reasons. Worried about inflation and under pressure, the government will reduce duties on X and/or forbid the exports of Y and/or ban futures trading in Z and/or increase capital gains tax (either short-term or long-term) and/or an increase in the Securities Trading Tax and lots more.

All of it sounds like reasonable fears and any one could come true. In recent months, generally when I talked to big investors they seemed to be hunting for reasons to justify the rise in stocks. Now, they are desperately hunting for reasons to prove that stocks are going to fall. At the end of the day, the fact remains that after years of booming stock prices, everyone is nervous and knows that there will some kind of a correction and would like it be over and done with as quickly as possible.
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Every investor has several components that combine to make them successful. The degree of success depends on how well you can implement the components and how well your strategy works.

The method investors have for selecting shares that they want in their portfolio is arguably one of the most important areas of being a successful investor.

The next vital component is the trading plan. This doesn’t need to be overly complex you just need to know what you will do if the share price goes up, down or sideways. If you can cover these three things then you have a contingency for anything the share price can throw at you. And more importantly you will prevent yourself from reacting to market fluctuations.

The trading plan should also incorporate an overall strategy for the share that you have selected and explain the reasoning behind why you’re doing what you’re doing ie why you decided to place your order level at this particular point.

You will need a risk management strategy and to be successful in the long term you will need to implement the strategy. The number of times I’ve seen people unwilling to sell when the share reaches a risk price is a little bit scary.

The above three things are great to have in place but don’t forget that you must be disciplined in implementing them otherwise you’re setting yourself up for failure.

After identifying these strategic factors you should consider how much you are willing to outlay on each share. It is important to try and spend the same amount on each share ie $5000 across a portfolio of 10 shares in order to maintain a balanced portfolio. In other words don’t put all your eggs in one basket.

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Greed can be defined as an excessive desire to acquire or possess more than what one needs or deserves, especially with respect to material wealth. Yes, that sounds just about right, certainly relates to stock market investing now doesn’t it?

Keeping Greed out of Your Investing

We all have our own investment strategies, I’m not here to tell you what works best and what sucks wind, but one thing I do know, if your investing strategy involves greed you will probably ‘lose’ more often than you ‘win’. It’s certainly not always an easy thing, to keep greed out of your investments, especially when you’re in a stock that’s on a nice uphill ride. Any prudent investment approach should contain some form of an exit strategy, simply put how you plan on getting out of the stock you hold.

This would be one way to avoid greed, have a set price at which you intend on selling the stock, walk away with the money in your pocket and move on to the next investment. Not always as easy as it sounds though is it? Prior to buying into a stock you should have some sort of idea at what price you would like to sell it, hopefully you don’t have to hold it for 10 years in order for it to reach that price. Sometimes you buy into it and if you timed it just right, you start to see the price go up sooner rather than later. When you start counting the dollars you are making seems to be when the exit strategy flies out the window and greed comes creeping in. I mean, gee, who knew when you bought it that the stock was going to rise so high, so fast, why sell now when you could make so much more money? It would be downright silly to get out now when you could clearly make much more cash if you held on to it. Somewhere deep within your being, there should be something rejecting this argument, and reminding you of your exit strategy and how you’ve gone past the price you told yourself you were going to be out of that stock and onto the next one.

Take your profits when you can
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It is time to sell a stock when the points in your buy case have turned negative, but beware of false signals that can trick you into selling at the wrong time.

This written case is your reason for owning the stock. The only reason for selling the stock is if something changes the buy case. Here are some events that can fool you into selling, but may not mean your buy case has been compromised:

Falling stock price – A drop in stock price is not necessarily a reason to sell (it may, in fact be a signal to buy). Remember that you are investing in a company and its stock may not always reflect its true value.

Re-check the company’s fundamentals and if they haven’t changed, the stock is probably reacting to market conditions that are affecting all stocks or all stocks in the same sector.

If the company remains a strong buy, it may be time to add more to your portfolio.

Stock price rises – Oddly enough, investors sometimes can’t stand a good thing and sell after the stock has gone up. Stocks prices don’t necessarily operate by the laws of gravity. Just because they have gone up doesn’t mean they are doomed to come down. Some stocks keep going up for long periods, which is the idea.

Bad news and rumors – Bad news about a stock/company can send a stock down. It might be a story about the company missing earnings or something more serious like a government investigation.

Before an emotional “Oh my gosh” reaction, get facts, not rumors to assess the full impact of the news. Is this a bump in the road or a major wreck? Unless it is a serious problem, most bad news goes away quickly unless it involves criminal proceedings or a fundamental change in the company’s core business. Hang over bumps. If it’s truly a wreck, it is probably time to cut your losses as quickly as possible.

Knowing when not to sell is as important as knowing when to sell.

Don’t Abandon your Buy Case without a Good Reason.

There are risks involved in all investing. The skill of investing is knowing which risks are worth taking, and which should be avoided. Finding and knowing which risks to take is the essence of good investing and the whole reason that investments can pay such a high reward. It cannot be done without careful research and analysis. You must give yourself every chance to make the right decision. Investing without carrying out sufficient research is like playing roulette. You are giving yourself virtually no chance of covering your investments and avoiding disaster.

There are certain steps you will have to take in order to give yourself a fighting chance of being a successful investor. If you are considering investing in company shares on the stock market, then you should be aware that all publicly traded companies must provide investors and potential investors with access to company financial data. This data is generally available from the company so if you are considering buying into a company, then get access to this information and satisfy yourself that the company is in a good financial state before parting with any money.

If you do research a company, and are taking a look at its financial position, then you should look back two to three years into the past. You probably don’t need to go back further than this but if you go back less, there may be important trends in the finances that you will miss. Take special note of the quarterly statements and the revenue and earnings per share.

You should be trying to identify trends in certain figures. While these are no guarantee of what might happen in the future it is undeniable that an upward trend in revenue and profits will be a positive sign to look out for.

Once you have satisfied yourself with the basic financials of the company and that the prospects of making good profits into the future are favorable you will be in a position to consider putting money into the share.

There is an ongoing debate over whether it’s preferable to buy shares that will increase in value or shares that pay good dividends and the answer to this question must always lie with the individual investor.

What must be remembered however is that there is little point in chasing dividends? This refers to the practice of buying a share just before a dividend is expected to be announced. The price of the share will already have taken the dividend into account so you will be paying for it in any case.