Monday, September 30, 2013

Investing In Self Storage May Be A Good Idea

Have you ever watched Storage Wars? Well, the premier episode of the second season drew no less than 5.1 million viewers, making it the highest rated single episode of any series in the history of A&E. However, for serious investors, putting money into storage is about much more than paying $500 to own the contents of an abandoned, unopened storage unit. What exactly is the state of the self-storage industry, and is it a good investment?

Self Storage
Image source: http://www.unclebobs.com/img/storephotos/742_1.jpg

Well, it turns out that the industry is doing rather well on the whole. Perhaps the best evidence of this is the returns we are seeing in the stock market on REITs for storage companies – in other words, the value placed on the real estate that they occupy. In 2011, the average return on self-storage REITs was no less than 35.4%, which is very impressive when you consider that the average return on REITs overall only came in at 8%. That’s in a year when the Dow was up about 5.5%, so while real estate did well, the performance of storage was spectacular.

Another indicator of just how strong the storage market is comes from the amount that investors are now starting to be willing to pay for premium storage facilities in good urban locations. A recent deal involving Storage Post in New York City saw the company spend $300 million for 14 facilities, and, importantly, the deal came in at a 5.5% capitalization rate – the ratio of property income to price paid. Another way of looking at that is that it is the equivalent of an 18 to 1 P/E ratio – which is certainly not what you would expect of a seemingly stolid industry. In contrast, the capitalization rates back in the depths of the Great Recession went as high as 9%, so it now appears that companies are willing to pay slightly less than a 65% premium compared to a few years ago.
Image source: http://www.homesbyowner.com/metro/177/san_diego_ca1.jpg


If you want to understand some of the things that are driving demand for cheap storage San Diego perhaps gives some clues. There is an increasing trend for young adults to live in apartments and condominiums in the center of cities in general, rather than making their homes in single-family dwellings in the suburbs. This in turn is making them look to self-storage to make up for the lack of room in their homes. However, San Diego experienced a dramatic collapse of its condo market during the Great Recession, with foreclosure rates high and many properties lying vacant. But that has started to turn around dramatically over the last year, with the market actually starting to experience some scarcity. In turn, the influx of new, young residents is creating an opportunity for self-storage facilities to capture the increasingly affluent new residents in the downtown core. It is reasonable to assume that similar scenarios are playing out across North America, and indeed analysts are forecasting that the market for self storage will continue to grow over the next five years.
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Sunday, September 29, 2013

Does The Stock Market Have Serious Issues?

Given that (a) stocks have fallen for four consecutive days and (b) there haven't been any clear-cut, obvious catalysts to the pullback, it is probably safe to say that there are "issues" at work behind the scenes.

Granted, the decline over the past four days hasn't been severe (the S&P is down just 1.63 percent from its September 18 high). And as such, the bulls will contend that there isn't anything to worry about at this stage.

However, given that in the stock market "things don't matter until they do - and then they matter a lot," it is probably a good idea to have at least a cursory understanding of the "issues" at hand - if for no other reason than to protect oneself against something big sneaking up and causing a really serious problem at the corner of Broad and Wall.

Based on the news-flow of late, there are three "issues" that traders and their computers appear to care about at the present time including: Iran, the debt debate and the taper.

So, let's spend a few minutes this morning breaking down these "issues" and getting to the heart of each matter. Frankly, this may sound like a boring exercise. However, it is important to remember that the markets don't like surprises - so neither should you.

Is Iran Really an Issue?
If your first thought was to skip this section because nobody expects any serious trouble out of the blustering leaders of Iran, you may want to think again. While this issue has been largely off of traders' radar for some time now, there were reports that the algo-induced blast up off of the morning lows Tuesday was sponsored by comments President Obama made on Iran in front of the United Nations.

According to reports, Obama said that he had directed Secretary of State John Kerry to pursue talks with the Iranian government regarding all things nuclear. The President's comments, which sparked a ten point move up in the S&P in less than thirty minutes and moved the index from red to green, seemed to be interpreted as being rather dovish.

Connecting the geopolitical dots, it should be noted that Obama's words followed remarks from new Iranian President Hassan Rouhani, who is seen as having a mandate to negotiate a deal that would allow the country to produce nuclear energy for peaceful use - and not for military purposes.

The bottom line here appears to be that if the algorithms care about comments on this topic, perhaps traders should as well.

The Fed's "Issues"
Traders can't be blamed for doing a little head scratching on the subjects of Fed policy, the taper, and/or the new Fed Chairman. All three issues have moved the markets of late - in both directions - so doing a deeper dive into these "issues" would seem to be appropriate.

On the topics of Fed policy and "the taper," StreetAccount said it best Tuesday. Here's an excerpt: "As the post-FOMC rally lost momentum late last week, there was some focus on worries that policy dynamics have entered into a vicious circle where the Fed cannot even get comfortable about dialing back some of its policy accommodation without wreaking havoc on the market and choking off the recovery, let alone begin the normalization process. There were also concerns about the credibility of the Fed's thresholds following the downward revisions to both the unemployment rate and fed funds forecasts."

One of the real problems right now is the idea that there may be leadership vacuums developing due to the uncertainty surrounding whom will head up the FOMC come January. The fact that Fed officials have not been able to provide more color on how the decision to taper will be made has been cited as an "issue" in some trading circles.

The bottom line on the issues relating to the Fed is that until the uncertainty is removed, traders may be more interested in taking profits and avoiding headline risk.

Fun and Games in D.C.
Speaking of headline risk, politicians in Washington are known to consistently be a source of algo-inducing comments, rumors and innuendo. In fact, being able to spin a catch phrase intended to incite their opponents may be in the job description. Therefore, whenever Washington is in the spotlight, traders had best be on their toes.

In case you've been living in a cave, the key issue in and around the beltway these days is the idea that the government is slated run out of money in six or seven days. Point number one on this issue is that like the "sequester" deadline, the October 1 date may not exactly be set in stone.

If you haven't been paying much attention to this issue, first of all, no one can blame you as just about everyone in America has had it with the games played by our elected officials. But the latest is that after the House passed a bill this week that has not a chance in heck of becoming law, the Senate is now messing around with their own bill.

Without boring everyone to tears as to what could happen when and where, the bottom line on this "issue" is that just about everyone on the planet expects something to get done - at the last possible second, of course. In short, the political stakes of being seen as the bad guy are too large. Oh, and this is just the way that Washington plays the game.

So, while there isn't a lot of selling being done based on the fears of what might or might not happen in Washington, one could also conclude that there isn't a lot of buying going on right now either. And this is something that could easily continue until these "issues" are resolved.


Current Market Drivers
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
     
T-1) The State of Fed Policy

T-1) Fun and Games in Washington (I.E. the Debt Ceiling)

3)   The Outlook for the U.S./Global Economy

The State of the Trend
We believe it is important to analyze the market using multiple time frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:

Short-Term Trend: Moderately Positive
(Chart below is S&P 500 daily over past 1 month)


Short term chart

Intermediate-Term Trend: Positive
(Chart below is S&P 500 daily over past 6 months)
Intermediate Term trend

Long-Term Trend: Positive
(Chart below is S&P 500 daily over past 12 months)
long term trend

Key Technical Areas:
Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:
  • Near-Term Support Zone(s) for S&P 500: 1680
  • Near-Term Resistance Zone(s): 1700

The State of the Tape
Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...
  • Trend and Breadth Confirmation Indicator: Neutral
  • Price Thrust Indicator: Moderately Positive
  • Volume Thrust Indicator: Positive
  • Breadth Thrust Indicator: Positive
  • Bull/Bear Volume Relationship: Moderately Positive
  • Technical Health of 100 Industry Groups: Moderately Positive

About Author: Mr. David Moenning is a full-time professional money manager and is the President and Chief Investment Strategist at Heritage Capital Management. He focuses on stock market risk management, stock analysis, stock trading, market news and research. Click here to claim a freecopy of Dave's Special Report on changes in the current market.
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Saturday, September 28, 2013

Top Realtor - Agent Harvest

Selling or purchasing a home can be challenging in today’s market. Not only is it important to get the task done, but more importantly, you need to find a real-estate agent who puts your needs before making a big sale. However, it may be harder to locate a realtor than you realize. Therefore, you may want to consider hiring a company that specializes in finding a top realtor meant just for you. We, the professionals at Agent Harvest, are that company and are here to serve you. 

Agent Harvest is a real-estate agent rating service employed with top-notch professionals specializing in finding you an agent that meets our company standards. The agents we seek should not only be knowledgeable in a variety of markets, but they should hold a proven track record of great communication skills, excellent marketing strategies, and effective marketing and pricing techniques. In addition to finding a realtor, we can also help answer any questions you may have of realtors and anything you need to when purchasing or selling your home. 

The service we provide at Agent Harvest is both easy and effective. Not only will we provide you with the pros of real estate but also the cons as well. For example, we have created a parody website which offers you information pertaining to the industry’s worst real estate tactics. In addition, you can research our blog for the latest information on bad examples of real estate experienced by actual clients. Listen to their stories and learn from them prior to choosing any realtor. However, at Agent Harvest, we can help lessen your worries and focus on what’s really important.

Again, research our company site and be sure to read the testimonials provided by past, current, and even repeating home buyers and sellers. Once you have researched all the useful information we have to offer, be sure to note your top three real-estate agents and prepare an email to be delivered to them. Be creative and ask questions such as: Do they have references? How do they intend on showing properties? What separates them from other realtors? Again, this is only a starting point, but it will certainly help get you headed in the right direction. So, if you are seeking a realtor who won't waste your time, create additional stress, or cost money, contact us at Agent Harvest for your realty needs. 

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Friday, September 27, 2013

Safeguarding Your Real Estate Investment

Investing in the real estate markets has become an increasingly viable option, given the persistence of recovery in the housing markets. Ordinary people are buying second homes to rent or renovate, while serious investors are returning to real estate as a potentially lucrative basis for their investment. For those who choose to invest in real estate, safeguarding and maintaining the value of the investment is essential. Homes can deteriorate if left unchecked, and apartments can easily fall to ruin. At the same time, simple errors in your investment strategy can leave you exposed to turmoil in the local market.

For this reason, cutting it in real estate investment now requires a more discerning approach, with not every property guaranteed to turn out to be a winner. So how can real estate investors find the right properties to deliver growth in the value of their investments?

Image source: http://www.signil.com/wp-content/uploads/2011/01/investment-property.jpg

Finding the right properties is the first, and arguably most essential element of safeguarding your investment in real estate. Finding the right type of property for your target market will ensure that you can find tenants to rent from you more easily. For example, opting to buy an apartment with six bedrooms and only one bathroom  can be very challenging to source willing tenants. However, where your property more accurately meets the needs of the local market, you will notice it becomes easier to sell and rent your property for a return on your investment.

Location is crucial to the value of a property, and many investors are already familiar with the link between location and real estate prices. But these relationships are fluid over time, and any buyer should think about the longer term. Some locations are on an upward trajectory, experiencing local regeneration and growth. Other locations are more visibly in decline, as the demographic and commercial landscapes continue to shift and develop. Choosing the location for your investment property is also crucial – some apartments can go years without being let, whereas the apartment across the street will go overnight. For some buyers, location is everything.

Think about the desirability of the investment property you are considering buying. Why would people choose to live there, and would you live there personally? What value are you providing that justifies your investment? Do local amenities make your real estate a sound strategic choice? Some apartments and homes will sell themselves, simply by their location or their appearance. Within the parameters of your budget, it is worth striving to attain this level of desirability in your real estate, with a view to attracting higher rental rates and a greater local interest in your property.
Image source: http://images.businessweek.com/ss/09/02/0213_dividends/image/real_estate.jpg

Many new property investors take a hands-on approach, spending their own money to partially or wholly renovate the real estate they buy. This can increase the resale value, while making a property a more attractive place to live. Some people even choose to invest in properties that require more extensive work, before working through the renovations to increase the value of their investment. On a strict budget, this can be effective. However, it may be valuable to work to professional valuations and estimates, so you can be realistic about the financial gains of this kind of strategy.

Short of renovating your real estate, the actual presentation of your property will also have a bearing on how it is received by potential tenants or buyers. You don’t have to spend a great deal of money on your real estate to overhaul how it is perceived by its target market. Remember that you are up against other homes being marketed locally
it is unsurprising that properties with stronger interior design sell and rent quicker, and at a higher value. Even subtle things like d├ęcor, flowers and throws can make the difference between securing the future yield of your investment.

Real estate investments can be among the most lucrative opportunities for investors, in both rental and sale markets. A long-term tenant can pay off a mortgage on the investment, while the value of the property fluctuates with real estate prices. With the right choice of property, this can provide significant returns over both the short and long term.

However, the housing market has been suppressed in recent years, following on from the crash of 2007. But with demand returning to the markets, through both investors and homebuyers alike, residential real estate is becoming an increasingly favored option for those with capital to invest.
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Thursday, September 26, 2013

The 30-Second Balance Sheet Test

How much cash would it take for you to feel "secure"?

What if, after paying all your expenses every year, you still had nearly $200,000 to spend however you wanted? Would that make you feel financially safe? Or what if you had enough cash to cover your mortgage five times over? Would that be enough?

There aren't a lot of folks who are that cash-rich. There aren't a lot of companies like that, either.

But I've assembled a short list of high-quality companies that have "fortress" balance sheets. They either have so much cash… or generate so much cash every year… there's very little chance they'll ever run into any financial problems.

And these "sleep at night" companies still have tremendous upside potential…
The two of the three most important “clues” I use to uncover the world's greatest investment opportunities: the amount of cash flow a company generates and how it uses that cash to reward shareholders.

The third clue I look for when choosing a great investment is: a great balance sheet.
The balance sheet is a financial statement that shows a company's assets and liabilities. Assets are what it owns, and liabilities are what it owes.

There are two kinds of great balance sheets we look for when finding a company that could potentially double or triple your money.

The first is a company that has an enormous amount of cash and relatively little or no debt. You can recognize a company like this in 30 seconds or less.

The best example is Apple, the company that makes iPhones and iPads.

Apple has more than $147 billion in cash. And it has $17 billion in debt. That's a lot of debt, but it's nothing compared to the amount of cash Apple has. Apple could pay off all its debt and still have $130 billion in cash left over.

Imagine having almost nine times as much cash as the debt you have on your home, car, and credit cards.

You'd feel pretty secure with that much cash, wouldn't you?

Well, that's how Apple shareholders ought to feel right now. They can rest assured Apple will never have a financial problem with that much cash on hand.

 


Microsoft is another great example. It has $77 billion in cash and less than $15.6 billion in debt. In other words, it has almost five times as much cash as debt.

Then there are companies like Expeditors International, the Seattle-based shipping company. It has $1.4 billion in cash… and zero debt.

Debt isn't always a deal-breaker, though – which brings me to the second type of great balance sheet I look for…

In short, sometimes a company has more debt than cash… but the business is so good that it earns enough to easily cover the debt payments.

Wal-Mart is the best example of this.

It has $8.9 billion in cash… and $47.8 billion in debt, over FIVE TIMES more debt than cash.

That's a LOT of debt.

But remember, Wal-Mart is an enormous company. It does more than $460 billion of annual sales. It's got more than 7,000 locations around the world. It's bringing in tons of cash every second of every day of the year.

The fact is, after Wal-Mart pays all its expenses, taxes, and debt payments, it has enough earnings left over to equal eight times its debt payments.

How good is this?

Well, suppose you have $2,000 per month in debt payments.

Then suppose that after paying all those debt payments, plus all your other living expenses – income taxes, everything – you still have eight times $2,000 left over.

So you'd basically have $16,000 a month left over after you paid all your expenses. That means you'd have an extra $192,000 per year you could spend any way you wanted.

You'd be pretty secure financially. And that's how Wal-Mart shareholders should feel.

Procter & Gamble is like that, too.

It has less than $6 billion in cash and more than $31.5 billion in debt. But its earnings cover its debt payments more than 17 times.

So why do I care about this so much?

Well, in Extreme Value, we've logged gains of 103% on Berkshire Hathaway, 131% on Automatic Data Processing, 77% on Intel, 105% on Philip Morris, and over a dozen other double- and triple-digit gains.

And every single one of those companies had a great balance sheet. I've lost count of how many e-mails I've received from Extreme Value readers who tell me they sleep better at night, knowing each business we find is so financially strong.

So to sum up:

•  
Look for companies with great balance sheets.
 
•  
Some companies have a lot more cash than debt. That's a great balance sheet.
 
•  
Other companies have more debt than cash, but because they earn so much money, their debt payments are easily covered. This, too, makes for a great balance sheet.


The laws of economics make it difficult for companies to have this quality. And companies that do are very rare. But I've used it to find some of the highest-returning investments of my career.

Good investing,
By Dan Ferris, editor, Extreme Value
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Wednesday, September 25, 2013

All About IPO - Initial Public Offering

IPO Initial Public Offering
During the technology market booms of the 1990’s, the phrase “initial public offering” (IPO) became very common. Each day there seemed to be a new announcement of a Silicon Valley millionaire cashing in an IPO. This period in time also created the term “siliconaire” to refer to the young entrepreneurs who were becoming very rich as a result of their dotcom company IPOs. In this article, we will discuss the meaning of an IPO; how they have been used to create personal profits; and how individuals go about getting an IPO. 

What is an Initial Public Offering? 
When a company first sells its stock to the public it is known as an IPO. The two primary ways that a company can raise money is by issuing equity or debt. When they issue equity to the public for the first time, it is called an IPO. 

Companies can be classified as being either private or public. A private company typically has less shareholders and the owners of the company are not required to disclose as much company information. It is possible for anyone to incorporate a company. All that is required is contributing the initial capital, filing the correct documents and following the relevant reporting rules. The majority of small businesses are private companies, but some very large companies including Hallmark Cards and IKEA are privately held. 

Typically, it’s not possible for investors to purchase shares in a privately held company. If they want to invest in a company, an investor can ask the owners of the company, but there is no obligation to sell. Public companies differ from private companies primarily because public companies have already sold shares to the public and these shares are being traded on a stock exchange. For this reason, it is commonly said that when a company issues an IPO they are “going public”. 

A public company will generally have a large number of shareholders (into the thousands), and must comply with strict regulations. Each public company must report particular financial data on a quarterly basis and are required to have a board of directors. Their financial information is reported to the Securities and Exchange Commission (SEC) in the United States, and to similar governing bodies in other countries. Stock in a public company is traded on the open market, making it very exciting for investors. As long as an investor has the cash, they are able to invest in the company. There is nothing that anyone involved in the company can do to prevent an investor from purchasing company stock. 

Why do Companies go Public? 

The main reason for companies to issue an IPO is to raise a lot of money. There are a lot of other financial advantages associated with going public. These include: 

It is possible to get better rates when the company issues debt. A public company has higher levels of scrutiny and is a better credit risk. 

The ability to issue more stock when there is a sufficient level of demand makes it easier for a public company to engage in mergers and acquisitions because the deal can include issuing stock. 

Open market trading increases liquidity. It makes it easier to attract employee talent by using incentives such as an employee stock ownership plan. 

Being traded on one of the major exchanges provides a lot of prestige for a company. Previously, it was quite difficult for private companies to qualify for an IPO. They needed strong fundamentals in order to be listed. The dotcom era changed this situation and it became much easier for companies without a strong history or financial records to issue an IPO. At this time, IPOs began to be issued by small startup companies that were trying to expand. One of the problems was the fact that a lot of these companies had not yet profited from their business and t weren’t planning on producing a profit in the near future. Many of these companies were based on funding from venture capital. They created excitement in the market for their company, only to spend all the cash, and have the company collapse. In some cases, there is a suspicion that the public offering was for the sole purpose of making money for the owners. This is commonly referred to as an “exit strategy”, which suggests that the founders have no intention of making the company profitable for investors. In these cases, the IPO signals the end, not the beginning, of the company. 

It may seem wrong that this can be permitted to happen, but remember that going public is really all about the sale of stock. If a company is able to convince investors to purchase their stock, it will be able to raise a considerable amount of cash from an IPO. 

Becoming Part of an IPO 
Becoming part of a popular, new IPO can be an extremely difficult task. The first step in understanding how this happens is to understand the way that an IPO takes place. This is referred to as “underwriting”. 

The initial thing that a company needs to do to become public is to engage an investment bank. In theory, it is possible for a company to sell its own shares but, in reality, an investment bank is always used. The term “underwriting” refers to the way that a company can raise money by issuing debt or equity (with an IPO we are talking about the issue of equity). The underwriters are the investment banks that act as middlemen between the company and the investors. The largest investment banks involved in underwriting include: Merrill Lynch, Goldman Sachs, Credit Suisse, Morgan Stanley and Lehman Brothers. 

The investment bank meets with the company to work out the terms of the deal. The issues to be resolved at this point generally include the amount of money to be raised; the security type that the company wants to issue; and the other details of the agreement. There are many ways that the deal can be arranged. One way is known as a “firm commitment” which involves the underwriter guaranteeing their purchase of the complete offer. They will then sell it to the public ensuring that the company raises a specific amount. Another type is a “best efforts agreement” in which the underwriter sells the stock on behalf of the company without making any guarantees of the amount that will be raised. It is also common for investment banks to work together to create a syndicate of underwriters to avoid taking on all of the risk involved in an IPO. A syndicate will typically involve one leading underwriter and several others that work to sell a portion of the offer. 

When the company and the underwriter(s) agree on the terms of the deal, the underwriter completes the registration statement that is required to be filed at the SEC. The registration statement includes the details of the offer and relevant company information, including financial statements, the planned use of the new funds, background on the management, details of any legal problems and insider holdings. 

There is a mandatory “cooling off period”, during which time the SEC will investigate the company and ensure that they have disclosed all required information. If everything is in order, the SEC will approve the offering and set the date (known as the “effective date”) that the stock will go on offer to the public. 

The underwriter works during the SEC’s cooling off period to create an initial prospectus that is commonly referred to as the “red herring”. This contains all the relevant information about the offer and the company, except the effective date and the offer price as this information is not yet known. The company and the underwriter use the red herring to start to build hype about the offer. They take the red herring on tour (often referred to as a “dog and pony show”), to generate interest from large institutional investors. After the effective date has been set, the company and underwriter will discuss and set the offer price. This can be a very difficult task and will be based on the current level of interest in the offer and the condition of the market at that time. It is obviously beneficial for both the company and the underwriter to set the price as high as possible. 

The final step in this process is the sale of securities on the stock market and the collection of money from new investors. 


How can people get involved? 
As discussed above, underwriting an IPO is a complex process and individual investors do not get involved until the final step. Underwriters do not target an IPO to individual investors who have relatively small amounts of money to invest. The underwriters will generally focus their attention on institutional clients and offer them securities at the initial offer price. 

The only way that an individual investor can be part of the IPO allocation is to have an account with an underwriting investment bank. However, even if this is the case, the account will need to be large with frequent trading in order to be considered a valuable enough client to be offered a part of a hot IPO. This means that individual investors have a very slim possibility of being part of the IPO, unless they are on the inside. When an individual investor does get shares in the IPO, it is typically an indication that no one else wanted them. 

There are some exceptions to this general rule, but in the majority of cases, it is extremely unlikely that an individual investor will be able to get involved in an IPO. 

Things to think about 
If an investor is offered an IPO, it is important that they don’t just jump in. There are a few things that an investor should consider before purchasing shares including: 

Company history can be difficult to understand even if the history is of established companies, and a company issuing an IPO will usually be even more difficult due to the lack of historical data. The main source for company information is the red herring prospectus. They will focus on the information about the company managers and the planned use of the IPO funds. 

The Underwriters are the bigger brokerage firms and will usually focus on promoting successful IPOs. If an IPO is being underwritten by a small investment bank, it may be indication of a less successful company and offering. 

The Lock-Up Period
 
Financial charts often reflect a steep downturn in the value of stocks in the few months following an IPO. This generally occurs as a result of the lock-up period. As part of the IPO, company employees and officials are required by the underwriter to enter into a lock-up agreement. This is a contract between company insiders and the underwriter that specifies the company insiders are not permitted to sell company stock for a set period. The minimum lock-up period, according to the SEC law known as Rule 144, is ninety days, however it can be much longer and is often up to 2 years. The main problem occurs when the lock-up period expires and suddenly all the company insiders are allowed to sell their securities. These people rush the market to sell to realize a profit and this excess in sales can push the stock price down. 

 
Flipping refers to the practice of reselling popular IPO securities immediately after purchasing them in order to make a fast profit. Flipping is not easy and brokerages strongly discourage this behavior because companies are interested in having investors who will hold the stock for the long-term period, rather than traders. 

Flipping is not prohibited by law; but it may mean that a broker will blacklist an investor from being involved in future offerings. There are some double standards involving flipping because institutional investors regularly engage in this practice in order to make huge profits. Unfortunately, there is nothing to be done about this because these investors have such great purchasing power. Flipping means that it is generally regarded as unwise to purchase IPO shares that are not part of the initial offering. The IPOs may gain in the first day or two and return to a realistic level after the institutional investors have profited. 

Avoiding the Hype 
An important point to remember is underwriters are performing a sales role in intentionally creating hype about the offer. The fact that each company will only have one IPO means that underwriters will often advertise them as “once in a lifetime” chances for investors. It is true that some IPOs are very successful and the company shares continue to rise in value after the IPO, but many others will drop to values well below the initial offer price in their first year of trading. Investors need to think about the overall value of the investment, without being distracted by the IPO hype. 

Tracking Stocks 
When one company creates a new separate entity from one of its departments (a process known as a spin-off) then tracking stocks are created. The company will do this based on the principle that separating the division will create more value than keeping it as part of the larger company. 

There are many advantages for the company in issuing tracking stock. They still have control over the operations of the subsidiary company, but the financial information (including all expenses and revenues) are now separate and not included on the financial statements of the parent company. A company will often do this so that a division experiencing high-growth can have its own financial data and will not be associated with large losses in the parent company’s financial statements. If there is a sudden rise in the value of the tracking stock, the parent company can use this stock rather than cash to make acquisitions. 

A spin off of tracking stock may occur as an IPO, but this is different from the IPO that occurs when a company goes public for the first time. Tracking stocks investors will generally not have voting rights, and in some cases, there is not a separate board of directors responsible for the tracking stock. Although this means that the shareholders have fewer rights, it doesn’t necessarily make tracking stocks a bad investment. They are just different from a regular IPO

Author: Mark McCraken
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Tuesday, September 24, 2013

Investing Tips to Make you a Better Investor

The best investors in the world all follow similar principles to get to where they are now. It may seem that they are all different, but they have all actually just embraced commonsense principles that just about anyone could use in order to make their own wealth. Knowing what a few of these things are can help anyone to start to invest better today.


3 Investing tips:

1) It is not just about picking one investment
Most people like to hear the stories about the run away stock investment or home run real estate deal that someone has landed for themselves. Sure, this big money scores are nice for anyone, but it is not just about one big win. Picking consistent investment winners is where the real money is made. Anyone could get lucky with one particular stock, but that does not mean that they are not going to turn around and blow all of that earned money on their next idea. The ones who are able to consistently pick winners are really getting it right.
2) Dividends pay
Dividend stocks are often considered some of the most boring by the general investing public. These are the stocks of huge companies that do not move much in terms of per share price. However, that does not mean that owning some of these stocks is a bad idea. As it turns out, owning some of the largest companies can actually be a huge source of income. Many of these stocks pay dividends to shareholders every quarter. Investors have the option to reinvest the dividends that they are paid into more stock. When they do this, they create a snowball effect for themselves in terms of owning more and more shares. It is a great way to slowly build wealth.
3) Trust the experts
Although many who get involved with investing want nothing more than to claim victory for their great investment picks, it is better to be more humble about it. Listening to the advice of the experts is a smart plan. These are the people who have already made their money in the market, and they have some very important advice to offer. This does not mean that one should just mirror what the expert does in terms of stock picks. It does mean however that these individuals have plenty of advice to offer that should be followed.
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Monday, September 23, 2013

Swing Trading Strategies

There is a large learning curve once you start stock trading. Whether you are trying to learn how to day trade for a living or swing trade for a living. There are a lot of ups and downs and ebb and flow within the stock market on a daily, weekly and intra-day time period. You must get a feel for the market and the flows of whatever time period you decide to trade. In this article we will focus on swing trading and swing trading strategies.


Swing trading is buying a trending stock and holding on to the stock until the trend changes. When the trend is changing, the swing trader sells the stock. This usually occurs during a short time frame. Depending on the trader and the trend, the play may last anywhere from a week until a month. Knowing certain stocks and their trends helps the swing trader as does knowing how to chart stocks and find support and resistance.

Swing traders buy stocks in heavily traded companies with a long history, this allows them to enter and exit a stock a soon as they make the decision. Entries and exits on less heavily traded stocks can become difficult especially if the stock turns on you and you need to exit quickly. Traders will also use the historical data to chart their entry and exit points in an attempt to make their trades more successful on a consistent basis. As a stock begins to trend upward the swing trader will make their purchase and sell when the stock begins to head back down.

When you begin trading stick to you plan. If you start making money you will become more confident. This confidence can lead you to change your plan which in turn can be detrimental to your bank account. Before adjusting your plan and the amount you invest gain some experience. Put raising your investment after you reach a specific monetary goal, into your plan. You will have success and failure as a trader remain steady, gain experience and slowly raise your goals.

There are a lot of reasons to take up swing trading and using day trading strategies. There is a low risk involved, it’s not as faced paced and time consuming as day trading, and the trades are short term. Swing trading is often traded by those with and aversion to storing money in the stock market and worrying about a collapse and loss of profit. Once you are comfortable trading stocks you can begin swing trading in other indexes and commodities.


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Monday, September 16, 2013

Binary Options Trading

binary options tradingEven though it has been in existence for quite some time, binary option trading has speedily picked up as a financial trading trend in the recent years because of its adoption by new traders. It is because of the sensible laws put in place to protect both business parties and the witnessed growth of key financial sectors, especially share trading in security exchanges, which have greatly contributed to its usage.

Binary option is a finance trading method that involves the final payoff to be in form of cash, asset or nothing at all depending on the terms of the contract. It is of two types; the asset-or-nothing binary options and the cash-or-nothing binary option. The asset-or-nothing binary option guarantees payment of the total value of the underlying security when the contract reaches maturity and expires. This binary option may also mean loss of property at its expiration date in accordance to the terms and conditions of the contract signed. The cash-or-nothing binary option ensures payment of some fixed total amount of money at expiry date. Like the asset-or-nothing binary option, this contract may see a party to the contract lose all his or her cash depending on the contact’s agreements.

Enormously popular in Europe, binary options traders are required to be members of the relevant exchange and investors are only advised to invest through such members as their interests maybe protected by law in case things go awry. The buyer and seller agree to the terms of the business transactions and how to share the costs incurred and subsequent profits and losses that would take shape. The value of a single contract can be more than 1000 dollars.

In order to be a successful binary trader, one needs to learn the art of anticipation of the expected direction of the price movement of the asset in concern. A good understanding of the asset value in possession, price determination and when to opt out of a trade are vital to a trader’s long term stay in this business. A trader’s critical analysis and opinion matters a lot to distinguish between floppy and talented binary option traders who make it big in the securities and investment sectors.

Binary option trading is advantaged to offer a controlled risk to reward ratio as compared to tradition options that are generally harder to use.

You should only buy and trade when you anticipate an economic event to occur or that all signs point to an impressive rise in market prices. Binary option trading has offered a good platform in financial trading and transactions.


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Saturday, September 14, 2013

Finance, Investing and Money Facts

In case you haven’t noticed, finance and investing is really a weird subject. Not that weird is bad, it makes life interesting. But no doubt finance, investing and money are the lifeblood of any society which makes it unique and interesting subjects in the world. Some of the weirdest facts about finance, investing and money may be difficult for you to believe. Hopefully there is something in this article, from which you will learn new things. The following are the weird and interesting facts about finance, investing and money:

1.    Apple’s cash and cash equivalents are now equal to the GDP of Hungary, and more than that of Vietnam and Iraq.

2.    Until the US Federal Reserve was created in 1908, individual banks could create their own money.

3.    The total assets under supervision of JP Morgan are $2.2 trillion, which is more than the GDP of India.

4.    The World’s first bank was Monte Dei Paschi di Seina, founded in 1942 and headquartered in Tuscany, Italy. It still operated today.

5.    If you invested $100 in Microsoft in 1986, instead of buying a version of Windows 1.0, it would be worth $46,400 today.

6.    Everyday 20 banks are robbed. The average money stolen is $2,500.

7.    The original name of Bank of America is Bank of Italy.

8.    The United States generates more than 20% of world’s GDP with about 4% of the world’s population.

9.    The highest publicly reported amount of money paid for a domain name is $7.5 million for business.com

10. Flatbush National Bank of Brooklyn was the first bank to issue a credit card in 1946.

11. The first stock exchange dates back to Antwerp, Belgium.

12. Dollar was officially adopted as United States unit of currency in 1785.

13. Since 2008, Americans have donated $19.1 Million to the US treasury to help pay down the national debt.

14. Since 1928, the S&P 500 has closed at a new all-time high 1,024 times or 4.8% of all trading days.

15. Over the past decade, hedge fund managers have underperformed not just the stock market, but inflation as well.

16. If Bill gates gave all his fortune to the US government, it would only cover the US budget deficit for about 15 days.

17. People in the 18-24 age bracket spend nearly 30% of their monthly income just on debt repayment.

18. The US national debt on 1791 was just $75 million dollars. Today the US national debt rises by that amount about each hour.

19. The US national debt rises at an average of $3.8 billion per day.

20. Research has shown that as little as 10 hours of personal finance education positively affects students spending and saving habits.



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