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  1. onomewrites

    INVESTMENT FUND

    INVESTMENT FUND An investment fund is a supply of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange-traded funds, money market funds and hedge funds. BREAKING DOWN 'Investment Fund' With investment funds, individual investors do not make decisions about how a fund's assets should be invested. They simply choose a fund based on its goals, risk, fees and other factors. A fund manager oversees the fund and decides which securities it should hold, in what quantities and when the securities should be bought and sold. An investment fund can be broad-based, or it can be tightly focused, such as an ETF that invests only in small technology stocks. Open-end vs. Closed-end The majority of investment fund assets belong to open-end mutual fund. These funds issue new shares as investors add money to the pool and retire shares as investors redeem. These funds are typically priced just once at the end of the trading day. Closed-end funds trade more similarly to stocks than open-end funds. Closed-end funds are managed investment funds that issue a fixed number of shares, and trade on an exchange. While a net asset value (NAV) for the fund is calculated, the fund trades based on investor supply and demand. Therefore, a closed-end fund may trade at a premium or a discount to its NAV. Investment Funds: Hedge Funds A hedge fund is another type of fund that pairs stocks it wants to shorts (bet will decrease) with stocks it expects to go up in order to decrease the potential for loss. Hedge funds also tend to invest in riskier assets in addition to stocks, bonds, ETFs, commodities and alternative assets. These include derivatives such as futures and options that may also be purchased with leverage or borrowed money.
  2. Investing and getting returns from one’s investments could be fun until one makes a very dear mistake which could spoil all the fun. Investing comes with its own problems but it is also not as difficult as we think. While there are a number of ‘ground’ rules for investing, here are 10 simple nuggets that would help in avoiding common investing problems especially if you are not employing the services of a mutual fund manager or advisor. 1. Investing in Something You Don't Understand It’s baffling how one would throw funds into a project without knowing how it works. Even one of the world's most successful investors, Warren Buffett, cautions against it. It is quite unhealthy to invest in businesses you don't understand. In fact, you should not be buying stock in companies if you don't understand the business models of the company and how it achieves its aim. It is highly advisable to make sure you thoroughly understand the company or companies before you invest - If you do, invest in individual stocks or better still, mutual funds can come handy. Even at that, seek to understand where your money is going and why. After all, it is your money! 2. Failing to Diversify Please, do not put all your eggs in one basket. How? Stick to the principal of diversification - spread their risk over a number of companies so that if one particular company, sector, industry or even country (depending on your financial weight) hits a rough patch, other investment holdings may pick up the slack. In your investments, kindly remember to allocate funds to all major spaces and allocate to all major sectors. If you do, you may have saved yourself from a total loss which may or may not occur but you never can tell. The best widely known investors own shares in lots of different public companies. 3. Letting Your Emotions Rule the Process Perhaps the major killer of investment return – in our part of the world, is emotions. It comes in two ways A – Investing based on relationship – in local parlance, ‘na my brother’. In this part of the world, it’s usually a taboo to say ‘no’ to a dear friend, or family. This emotion beclouds sound judgement and one ignores the red flags only to regret later. B – Investing based on Fear and greed. Do not let fear or greed overtake you. Just focus on the bigger picture and the hard facts. Be sure you are not driven by fear of losing out or losing all. Also, be sure it’s not greed because large returns would often burst after a while. Pull out when it’s time to rather than staying put fostered on by greed. 4. Copy-cat investing While some investors are trailblazers and do their own research, many attempt to mimic the portfolios of such well-known stock market successes with the hope of being able to cash in on their world-class returns. ERROR! Copying another portfolio, particularly an institutional investor's portfolio, can actually be quite dangerous. Why? You can’t wield much influence in the industry like the big gun. You most likely don’t have as much money as he does. Do you have inside information or the information he has? Do you even know his purpose in making such move or how long he intends to keep his funds there? My dear, do your own ‘homework’. (Read Real Money; 2005, by Jim Cramer). 5. Too Much Investment Turnover Turnover, or jumping in and out of portfolios is another return killer. Allow your seed some gestation period in order to have real benefits. You may be missing out on the long-term gains of good investments if you keep coming and going. Don’t be an investment ‘Abiku’. To be continued…
  3. onomewrites

    DEBT & EQUITY INVESTMENTS

    DEBT & EQUITY INVESTMENTS What Are the Differences between Debt & Equity Investments While both debt and equity investments can deliver good returns, they have differences with which you should be aware. Debt investments, such as bonds and mortgages, specify fixed payments, including interest, to the investor. Equity investments, such as stock, are securities that come with a "claim" on the earnings and/or assets of the corporation. Common stock, as traded on the New York or other stock exchanges, is the most popular equity investment. Debt and equity investments come with different historical returns and risk levels. DEBT INSTRUMENTS Debt investments tend to be less risky than equity investments but usually offer a lower but more consistent return. They are less volatile than common stocks, with fewer highs and lows than the stock market. The bond and mortgage market historically experiences fewer price changes, for better or worse, than stocks. Also, should a corporation be liquidated, bondholders are paid first. Mortgage investments, like other debt instruments, come with stated interest rates and are backed up by real estate collateral. EQUITY INVESTMENTS Fortunes can be made or lost with equity investments. Any stock market can be volatile, with rapid changes in share values. Often, these wide price swings are not based on the solidity of the organization backing them up but by political, social or governmental issues in the home country of the corporation. Equity investments are a classic example of taking on higher risk of loss in return for potentially higher reward. LEGAL DIFFERENCES Debt instruments, whatever they may be called, are corporate borrowing. Instead of procuring a straight commercial bank loan, the organization "borrows" from a variety of investors. This is why debt instruments, such as bonds, come with a stated interest rate, as a loan would. Equity investments offer an ownership position in the company. Owning stock makes the investor an owner of the organization. The percentage of ownership depends on the number of shares owned as compared with the total number of shares issued by the corporation. INVESTMENTS GOALS AND RISKS Depending on your investment goals, these differences may strongly influence your preferences. All investments come with risk. However, debt instruments offer less risk than equity investments. Your investing targets may favor equity investments, if you're seeking striking growth or profit potential. Conversely, you might focus on debt instruments when you prefer consistent income and less risk. Tailor your investment actions to match your objectives and risk tolerance.
  4. Phones have made it so easy for effective communication even without seeing the other party, sending messages, pictures and lots more but we fail to realize that our phones can do much more than we are used to. There are applications that can help manage our finances. Investors will find these applications interesting because they can trade virtual portfolios, draw on stock charts, get the real-time streaming price and economic data, and chart Fred data series, all from your smartphone or tablet. You will be able to track stock levels investing schedule on the real time basis and portfolio records amongst other things. uValue App: This app is available on iPhone and iPad and it is designed by NYU Stern valuation guru Aswath Damodaran, this app lets you do valuation modeling right on your iPad. Six models to work with by inputting the numbers on the application to get started. NetDania Forex: This app is available for iPhone, iPad, Android and it is designed to update quote on currency, stock exchange and economic data around the world of stock and investment. Options Wizard: This app is only available on iPad and it helps to calculate potential profit from strategies investment. It also has the buy and sells tools on the app to see potential gains and losses. Yochaa App: This app is a tool that helps to monitor stock performance on a delayed real-time basis and it also gives you access to an ocean of stocks to analyze for a better decision and its available on Android, iPad, and iPhones. Stock Twits App: This app helps us to spot the stock that has been tweeted the most for traded and made available for traded to connect with the social network for more discussion. Many applications are developed each day, with more exciting features, and I will be adding more very soon.
  5. onomewrites

    Type of investment risk -1

    TYPES OF INVESTMENT RISKS -1 1. Interest Risk Interest rate risk is the possibility that a fixed-rate debt instrument will decline in value as a result of a rise in interest rates. Whenever investors buy securities that offer a fixed rate of return, they are exposing themselves to interest rate risk. This is true for bonds and also for preferred stocks. 2. Business Risk Business risk is the measure of risk associated with a particular security. It is also known as unsystematic risk and refers to the risk associated with a specific issuer of a security. Generally speaking, all businesses in the same industry have similar types of business risk. But used more specifically, business risk refers to the possibility that the issuer of a stock or a bond may go bankrupt or be unable to pay the interest or principal in the case of bonds. A common way to avoid unsystematic risk is to diversify - that is, to buy mutual funds, which hold the securities of many different companies. 3. Credit Risk This refers to the possibility that a particular bond issuer will not be able to make expected interest rate payments and/or principal repayment. Typically, the higher the credit risk, the higher the interest rate on the bond. 4. Taxability Risk This applies to municipal bond offerings, and refers to the risk that a security that was issued with tax-exempt status could potentially lose that status prior to maturity. Since municipal bonds carry a lower interest rate than fully taxable bonds, the bond holders would end up with a lower after-tax yield than originally planned. 5. Call Risk Call risk is specific to bond issues and refers to the possibility that a debt security will be called prior to maturity. Call risk usually goes hand in hand with reinvestment risk, discussed below, because the bondholder must find an investment that provides the same level of income for equal risk. Call risk is most prevalent when interest rates are falling, as companies trying to save money will usually redeem bond issues with higher coupons and replace them on the bond market with issues with lower interest rates. In a declining interest rate environment, the investor is usually forced to take on more risk in order to replace the same income stream. 6. Inflationary Risk Also known as purchasing power risk, inflationary risk is the chance that the value of an asset or income will be eroded as inflation shrinks the value of a country's currency. Put another way, it is the risk that future inflation will cause the purchasing power of cash flow from an investment to decline. The best way to fight this type of risk is through appreciable investments, such as stocks or convertible bonds, which have a growth component that stays ahead of inflation over the long term.
  6. INVESTMENT TERMS DEALING WITH PORTFOLIO MANAGEMENT Asset Allocation Asset allocation is an approach to managing capital that involves setting parameters for different asset classes such as equities (ownership, or stocks), fixed-income (bonds), real estate, cash, or commodities (gold, silver, etc.). Asset classes generally have different characteristics and behavior patterns, getting the right mix for a specific investor's situation can increase the probability of a successful outcome in accordance with the investor's goals and risk tolerance. For example, stocks and bonds play a different role in an investment portfolio beyond the returns they may generate. Investment Mandate An investment mandate is a set of guidelines, rules, and objective used to manage a specific portfolio or pool of capital. For example, a capital preservation investment mandate is meant for a portfolio that cannot risk high volatility even if it means accepting lower returns. Asset Management Company An asset management company is a business that actually invests capital on behalf of clients, shareholders, or partners. The asset management business side of Vanguard is the one buying and selling the underlying holdings of its mutual funds and ETFs. Popular asset management companies in Nigeria are ARM, Stanbic Asset Management Company, Vetiva Capitals etc. Registered Investment Advisor An RIA is a firm that is engaged, for compensation, in the act of providing advice, making recommendations, issuing reports or furnishing analyses on securities, either directly or through publications. RIAs can include asset management companies, investment advisory companies, financial planning companies, and a host of other investment business models. The special thing about RIAs is that they are bound by a fiduciary duty to put the needs of the client above their own rather than the lower suitability standard that applies to taxable brokerage accounts. Stock Broker A stock broker is an institution or individual who or which executes buy or sell orders on behalf of a customer. Stock brokers settle trades -- making sure cash gets to the right party and the security gets to the right party by a certain deadline -- against their client's custody account. There are many different types of stock trades you can submit to your stock broker but be careful about becoming over-reliant upon them. A stop-loss trade, by way of illustration, won't always protect your portfolio. Additionally, it is sometimes possible to buy stock without a broker. Stock Trades There are at least twelve different types of stock trades you can place with a broker to buy or sell ownership in companies including market orders, limit orders, and stop loss orders. INVESTMENT TERMS RELATED TO A COMPANY Board of Directors - A company's board of directors is elected by the stockholders to watch out for their interests, hire and fire the CEO, set the official dividend payout policy, and consider recommending or voting against proposed mergers. Enterprise Value - Enterprise value refers to the total cost of acquiring all of a company's stock and debt. Market Capitalization - Market capitalization refers to the value of all outstanding shares of a company's stock if you could buy them at the current stock price. Income Statement - An income statement shows a company's revenues,expenses, taxes, and net income. Essentially, it shows the company's profit/loss standing. Balance Sheet - A balance sheet shows a company's assets, liabilities, and shareholders' equity. Annual & Financial Statements - An annual disclosure document certain firms are required to file with the SEC, it contains in-depth information about a business including its finances, business model, and much more. OTHER INVESTMENT TERMS TO BE KNOWN Stock Exchange - A stock exchange is an institution, organization, or association which hosts a market for buyers and sellers of equities to come together during certain business hours and trade with one another. Price-to-Earnings Ratio - Also known as the p/e ratio, it tells you how many years it would take for a company to pay back its purchase price per share from after-tax profits alone at current profits with no growth. Dividend Yield - The current yield of a common stock at its present dividend rate. If a stock is trading at N100 per share and pays out N5 in annual dividends, the dividend yield would be 5%. Volatility - Volatility refers to the degree to which a traded security fluctuates in price. Derivative - A derivative is an asset that derives its value from another source.
  7. DEFINITIONS OF SOME TERMS IN INVESTMENT Common stock: A share of common stock represents ownership in a legally formed corporation. For most companies, there is a single class of stock that represents the entire common equity ownership. However, some companies have multiple classes of stock, including dual classes of stocks. Often, one class of the stock will have more voting rights than another class of the stock. Owners of common stock are entitled to their proportionate share of a company's earnings, if any, some of which may be distributed as cash dividends. The best of the best stocks is usually referred to as blue chip. Preferred stock This is a sort of hybrid security that, while technically equity, behaves somewhat like common stock and somewhat like a bond. There are also different types of preferred stock such as Prior Preferred Stock, Preference Preferred Stock, Convertible Preferred Stock, Participating Preferred Stock and Cumulative Preferred Stock. Bond A bond represents money loaned to the bond issuer. Typically, the bond issuer promises to repay the entire principal loan amount on a future day, known as the maturity date, and pay interest income in the meantime based upon a coupon rate. There are many types of bonds including sovereign bonds issued by governments such as Treasury bonds, tax-free municipal bonds, corporate bonds, and savings bonds such as the Series EE savings bond and the Series I savings bond. There are investment grade bonds, the highest being AAA rated bonds, and, on the opposite end of the spectrum, junk bonds. If you don't want to buy bonds individually, you can invest in bond funds. Real estate Real estate is tangible property, such as land or buildings, that the owner can use or allow others to use in exchange for a payment known as rent. INVESTMENT TERMS DEALING WITH TYPES OF INVESTMENT STRUCTURES Mutual Fund A mutual fund is a pooled portfolio. Investors buy shares or units in a trust and the money is invested by a professional portfolio manager. The fund itself holds the individual stocks, in the case of equity funds, or bonds, in the case of bond funds, with the investors in the mutual fund receiving an annual report each year, detailing the investments owned, income generated, capital gains, both realized and unrealized, and more. Mutual funds do not trade throughout the day to avoid allowing people to take advantage of the underlying change in net asset value. Instead, buy and sell orders are collected throughout the day and once the markets have closed, executed based upon the final calculated value for that trading day. Exchange Traded Funds Also known as ETFs, exchange traded funds are mutual funds that trade throughout the day on stock exchanges as if they were stocks. This means you can actually pay more or less than the value of the underlying holdings in the fund. In some cases, ETFs might have certain tax advantages but most of their benefits compared to traditional mutual funds are largely a triumph of marketing over substance.If you want to use them in your portfolio, fine. If you prefer traditionally structured mutual funds in your portfolio, perhaps, better. Index Funds An index fund is not a distinct or special type of fund. Rather, it is an passively managed mutual fund, sometimes trading as an ETF, that allows the designer of an index to effectively manage the fund through controlling the methodology the fund's portfolio manager uses to buy or sell investments. The rules for which stocks get included in the portfolio are determined by a committees -- and that is what really matters as the investor in the index fund is still buying individual stocks only through a mechanism that hides them from plain sight unless you dig down into the holdings. Usually, index funds offer much lower expenses than non-index funds due to the fact it piggybacks on other investor's decisions, making it one of the best choices for smaller investors, particularly within tax shelters, as well as other investors in certain limited circumstances. Hedge Funds A hedge fund is a private entity, in olden days most often a limited partnership but more commonly a limited liability company as the latter has evolved to become the de facto standard due to its superior flexibility, that invests money from its limited partners or members in accordance with a particular style or strategy. Often, the hedge fund charges a flat 2% annual fee plus 20% of the profits over a hurdle rate with some other modifications to protect the investors. Due to government regulations meant to protect the inexperienced, investing in hedge funds can be difficult for most ordinary investors. Trust Funds Trust funds are a special type of entity in the legal system that offers tremendous asset protection benefits and, sometimes, tax benefits, if intelligently structured. Trust funds can hold almost any asset imaginable from stocks, bonds, and real estate to mutual funds, hedge funds, art, and productive farms. The downside is that the trust fund tax rates are compressed on income that isn't distributed to the beneficiary as a way to prevent huge accumulations of capital that lead to another aristocracy. That means much bigger bites from the Federal, state, and local governments without some sort of mitigation from prudent planning. Real Estate Investment Trusts (REITs) Some investors prefer to buy real estate through real estate investment trusts, or REITs, which trade as if they were stocks and have special tax treatment. There are all different types of REITs specializing in all different types of real estate. Master Limited Partnerships (MLPs) MLPs, as they are often known, are limited partnerships that trade similarly to stocks. Given the unique tax treatment and complex rules surrounding them, investors who don't know what they are doing should generally avoid investing in MLPs, particularly in retirement accounts where the tax consequences can be unpleasant if not masterfully managed.
  8. Esther.Dumbiri

    The Landlord Business

    Getting into the landlord business can be very challenging for first time investors. Real estate is a tough business that has its own hurdles, and if care is not taken, you may end up not making profit. Now what are the things that need to be taken into consideration when looking out for an income property? START YOUR SEARCH It is better to search for properties on your own rather than getting a real estate agent. This is because, getting an agent most times gives one much pressure and you end up buying a property that does not really suit you. But searching out yourself, you are more relaxed and able to look into every neighborhood within your investing range. A real estate agent may help you complete the purchase. Four major things to consider when searching for the right property. The first thing you should consider is the neighbourhood. What is the quality of the neighbourhood? The quality will influence the kind of people you attract and the price for rent. For instance, if you buy in a neighbourhood near a university, it is certain that your tenants will mostly be students and vacancies will not be on a regular basis. The second thing you should consider is school. For family-sized accommodations, you need to consider the quality of the schools in that neighbourhood. If a property is good but the nearby schools are poorly facilitated, people may not want to buy and such will affect the value of your investment. The third thing that should be considered is the level of crime in that area. Is it safe? No one wants to live in an environment where criminal activities are high. Ask people who live in that area how frequently a fight breaks out, robbery rate and how regularly the police visits the neighbourhood. The fourth thing you should consider is how social the place is - amenities. How social is the neighbourhood? Are there malls, parks, gyms, cinemas? Is the neighbourhood surrounded by places that attract people? Find out where the public amenities and private properties can be found. Are the roads good? Has electricity been connected to the houses there? GETTING INFORMATION When securing a place, talk to renters and homeowners in the neighbourhood. Renters will be honest in telling you about the negative aspects of the area, because they have no investment in it. If you have decided to buy in a particular neighbourhood, try visiting the area at different days of the week to see the behavior of your future neighbours. THE PHYSICAL PROPERTY After checking out the neighbourhood, look for a property that has appreciation and a good projected cashflow. Look for properties that are more expensive than you can afford and those within your reach. Most times, you will get a good discount for any property. Do a research and compare the prices. That is one sure way to know what anyone is willing to pay for the property. In looking out for appreciation potential, you are looking for a property that will attract tenants who are willing to pay higher rents. Such property may have some renovations you will need to make. This will serve you well, by raising the value of the property if you want to sell after a few years. So, what is the bottom line? There are good cities in every good state, and good neighbourhoods in every city, and good properties in every neighbourhood. It's all about doing a proper research. And when you find your ideal rental property, make sure your finance is in a healthy state so you won't be needing the income immediately, you can patiently wait to start generating cash.
  9. onomewrites

    investment

    INVESTMENT Investing is actually pretty simple; you're basically putting your money to work for you so that you don't have to take a second job, or work overtime hours to increase your earning potential. There are many different ways to make an investment, such as stocks, bonds, mutual funds or real estate, and they don't always require a large sum of money to start. STEPS TO TAKE TO INVEST · Get your finances in order Jumping into investing without first examining your finances is like jumping into the deep end of the pool without knowing how to swim. On top of the cost of living, payments to outstanding credit card balances and loans can eat into the amount of money left to invest. Luckily, investing doesn't require a significant sum to start. · Learn the Basics You don't need to be a financial expert to invest, but you do need to learn some basic terminology so that you are better equipped to make informed decisions. Learn the differences between stocks, bonds, mutual funds and certificate of deposits. You should also learn financial theories such as portfolio optimization, diversification and marketing efficiency. Reading books written by popular investors is also a good thing. · Set Goals Once you have established your investing budget and have learned the basics, it's time to set your investing goal. Even though all investors are trying to make money, each one comes from a diverse background and has different needs. Safety of capital, income and capital appreciation are some factors to consider; what is best for you will depend on your age, position in life and personal circumstances. A 35-year-old business executive and a 75-year-old widow will have very different needs. · Determine Your Risk Tolerance Would a small drop in your overall investment value make you weak in the knees? Before deciding on which investments are right for you, you need to know how much risk you are willing to assume. Your risk tolerance will vary according to your age, income requirements and financial goals. · Find Your Investing Style Now that you know your risk tolerance and goals, what is your investing style? Many first-time investors will find that their goals and risk tolerance will often not match up. For example, if you love fast cars but are looking for safety of capital, you're better off taking a more conservative approach to investing. Conservative investors will generally invest 70-75% of their money in low-risk, fixed-income securities such as Treasury bills, with 15-20% dedicated to blue chip equities. On the other hand, very aggressive investors will generally invest 80-100% of their money in equities. · Learn the Cost It is equally important to learn the costs of investing, as certain costs can cut into your investment returns. As a whole, passive investing strategies tend to have lower fees than active investing strategies such as trading stocks. Stock brokers charge commissions. For investors starting out with a smaller investment, a discount broker is probably a better choice because they charge a reduced commission. On the other hand, if you are purchasing mutual funds, keep in mind that funds charge various management fees, which is the cost of operating the fund, and some funds charge load fees. · Find a broker or Advisor The type of advisor that is right for you depends on the amount of time you are willing to spend on your investments and your risk tolerance. Choosing a financial advisor is a big decision. Factors to consider include their reputation and performance, how much they charge, how much they plan on communicating with you and what additional services they can offer. · Choose Investment Now comes the fun part: choosing the investments that will become a part of your investment portfolio. If you have a conservative investment style, your portfolio should consist mainly of low-risk, income-producing securities such as federal bonds and money market funds. Key concepts here are asset allocation and diversification. In asset allocation, you are balancing risk and reward by dividing your money between the three asset classes: equities, fixed-income and cash. By diversifying among different asset classes, you avoid the issues associated with putting all of your eggs in one basket. · Keep Emotions at Bay Don't let fear or greed limit your returns or inflate your losses. Expect short-term fluctuations in your overall portfolio value. As a long-term investor, these short-term movements should not cause panic. Greed can lead an investor to hold on to a position too long in the hope of an even higher price – even if it falls. Fear can cause an investor to sell an investment too early, or prevent an investor from selling a loser. If your portfolio is keeping you awake at night, it might be best to reconsider your risk tolerance and adopt a more conservative approach. · Review and Adjust The final step in your investing journey is reviewing your portfolio. Once you've established an asset-allocation strategy, you may find that your asset weightings have changed over the course of the year. Why? The market value of the various securities within your portfolio has changed. This can be modified easily through rebalancing.
  10. In 1983, when America experienced a boom in many businesses, gold and the acquisition of gold was trending because many people anticipated that currencies would crash. The key thing at that time was, buy gold in order to edge. Mr Stone gathered money from different people to invest in the golden opportunities but only few people understood the risks he was exposing them to. He was buying gold on margin. Many people had seen him make a lot of money in the past because he knew when to go in and when to step out of any investment, so it increased the confidence they reposed in his abilities. Sadly, the danger with buying gold on margin is the fact it was an unstable form of investment. This is why: If gold was sold at $50, you are encouraged to add 10% , which is an extra $5. This $5 was a lot of money for people at that time. But as the price of gold continued to rise, at $100, to retain your position, you had to keep up with your 10% by adding more money. This meant you needed to pay an extra $5 but if you are unable to keep up by a particular deadline, the $5 that you put in will be forfeited. In other words, buying on margin is similar to a situation where you borrow money but cannot pay. When the price of gold took a run in 1983, many people who invested everything they had into the gold business were left with nothing. For the Nigerian counterpart, prior to experiencing the stock market crash, many people went into debt to make more out of stocks. Seeing how well their stocks were faring, there were many who decided to borrow large sums of money just to double their ROI within a particular period. Sadly, when the stock market crashed, many people ended up with critical health issues and some even committed suicide. The extreme reactions to the crashed stocks was a result of them being caught in the downside of stock investment as debtors. For Mr Stone and many other Nigerians who fell victim to the crash, they learnt a truth the hard way; emptying your savings or borrowing for investment is not the wise way to go. Only excess money should be put in any form of investment; always keep the cash needed for sustenance aside. This is what turns many people into beggars because they are suddenly under pressure as they make frantic efforts to raise the cash needed for basic necessities of life. The blood runs hot when they begin to fail in responsibilities to pay the rent or other fees but runs hotter when the lender comes calling. Always cover the basic expenses needed for your day to day living as an individual or as a family before diverting funds into any form of investment; only use a part of your savings for investment. Never ever empty your purse no matter how juicy a deal sounds. Investing via exclusivity will also lead to problems later on; you must build a balanced portfolio concerning your investments. Look for investments on different platforms; Cash, stocks, real estate, agriculture, etc. So that if one fails, you have a backup plan. In the meltdown of 1992, people lost millions of naira when the technology market crashed. A more recent event was when MMM seemed the main deal for Nigerians in 2016. Many people, spurred by greed, emptied their savings, diverted funds meant for other projects and even went as far as borrowing. In the end, they got their fingers burnt. Wisdom for investment states that before you make the choice to invest, ensure that you have covered your daily expenses, then take out just a part of your savings. My dear friend, learn to diversify investments and never ever empty your savings for any investment opportunity.
  11. onomewrites

    FINANCIAL PLAN

    FINANCIAL PLAN A financial plan is a broad strategy for handling your finances, It should include both short and long-term goals. A financial plan helps you make the most of your money, regardless of your economic circumstances ESTABLISH YOUR FINANCIAL GOALS 1. Decide what you want your money to do for you 2. Determine what style of living you wish to achieve 3. List savings objectives ANALYSE YOUR CURRENT INCOME AND SPENDING · Carefully examine the amounts you estimated for both income and expenses · Overestimating income and understanding expenses is very easy to do and can cause big problems for your budget · Subtract your expenses from your income for each plan period. If you come out even or need extra money, consider ways to increase your income or cut your expenses · If you have extra money, decide how you want to apply it towards your saving goal PREPARE A TRIAL FINANCIAL PLAN A written plan listing your goals, your income, and your expenses reduces the temptation to overspend or spend carelessly Put your financial plan into writing Revise your plan and update it on regular basis Put your plan into action and keep organized records Keep track of your spending and savings Managing Personal Finance § Prevention § Preparation § Coping with challenges PREVENTION · Develop good saving habits · Practice sound money management · Use credit/loan wisely · Purchase enough insurance policy · Use reasonable caution in financial matters PREPARATION · Get a good education to better able find a job or get a business to start, sustain and make successful · Learn marketable job skills to advance on job or business · Stay current in your field or earn promotion or pay rise · Establish emergency fund equal to three or six months’ pay to give you time to assess the crisis and take action · Regulate your life style to live below your income level in case you need to meet unexpected expenses or must live on a lower income COPING WITH CHALLENGES · Accept that your financial crisis is real – it will not go away on its own · Avoid making any new credit purchases · Find free or inexpensive financial counselling · Adjust your spending habits and cut your expenses
  12. UNDERSTANDING THE FOREX MARKET -1 Forex is short for foreign exchange, but the actual asset class we are referring to is currencies. Foreign exchange is the act of changing one country's currency into another country's currency for a variety of reasons, usually for tourism or commerce. Due to the fact that business is global, there is a need to transact with other countries in their own particular currency. What Exactly Is Forex Trading? Forex trading can be defined as the online/internet currency exchange trade or the act of simultaneously buying and selling currencies of different countries online using internet trading platforms. Forex stands for Foreign Exchange so Forex Trading simply means Foreign exchange trading or trading on foreign currency by its exchange rate. Since Forex trading involves the disparities in foreign exchange rates, making profit or loss in Forex trade is usually determined by the economic state of different countries at a time. Since the economy of different countries is not static in relation to one another at any point in time, the Forex market is never fixed or stagnant at any point in time as well. It is a volatile market that is constantly changing and are never accurately predicted. This is where the profit or loss is made. If the currency goes up in your favor, you make profit, it goes down against you, you make loss. Understanding the Forex Market To understand the Forex market and be good at it, you have to avail yourself to serious training in Forex trading! You must acquire the technical knowledge required in Forex trading. You must have enough time and willingness to study this ever-changing price market over a period of time and be up to date with the local and foreign news as global trends have a tendency to determine the direction the prices of the currency go, either up or down. To assist you in the learning process, it is important to use a demo account for practice. Almost all the Forex trading platforms have demo accounts where you can practice Forex trading in what looks like real time trading. The demo accounts are loaded with virtual money and in real time mode. The only difference is that you neither make profit nor loss in demo trading. You need to continue to practice with the Forex demo account until you become very proficient. You must be good with the virtual trade before you ever attempt with real money because once you are up with the real money, there is no going back, its either profit or loss. From then on, it becomes investment that must be handled very seriously. Your investment in Forex trading is not something you joke with, you need to be up to date with knowledge and information. You must be into it and do research regularly. How to Get Started With Your Forex Trade Before you proceed to open an account with any Forex Broker, you must understand that not all Forex Brokers are genuine. Make a thorough research before settling with any trading platform with real time investment. I will advise you use the big and established Forex trading platforms only. Open Account with Forex Brokers Go to the website of your desired Forex Brokers and open account. Forex Broker or the Forex trading platforms is the medium through which currency is traded online. Fund Your Forex Account Before you start live Forex trade, you must fund your account. Funding can be done through direct deposit or by using your credit/debit cards. Have a Domiciliary Account This is very important for effective transaction and to enable you make a withdrawal of your profit when there is any. Some use other currency medium like the eCurrencies but at the end, it will still get to Domiciliary accounts. The Domiciliary account is used for cashing or depositing funds into your Forex trading account. Fast Internet Connection You need a very fast and reliable internet connection to be able to trade Forex in Nigeria or elsewhere. Without this, it will be difficult for you to make profit because your internet has to be fast and reliable to enable you take quick actions. High Performing Laptop This is very necessary for efficiency and accurate performance in live market. Do not make the mistake of using a wacky laptop for Forex trading. Most times, the losses people make is as a result of inefficient trading devices. The profit you make depends on your trading skills. Yes, people are still making profit in Forex trading in Nigeria and will continue to make profit as long as currency remain in use.
  13. UNDERSTANDING THE FOREX MARKET -1 Forex is short for foreign exchange, but the actual asset class we are referring to is currencies. Foreign exchange is the act of changing one country's currency into another country's currency for a variety of reasons, usually for tourism or commerce. Due to the fact that business is global, there is a need to transact with other countries in their own particular currency. What Exactly Is Forex Trading? Forex trading can be defined as the online/internet currency exchange trade or the act of simultaneously buying and selling currencies of different countries online using internet trading platforms. Forex stands for Foreign Exchange so; Forex Trading simply means Foreign exchange trading or trading on foreign currency by its exchange rate. Since Forex trading involves the disparities in foreign exchange rates, making profit or loss in Forex trade is usually determined by the economic state of different countries at a time. Since the economy of different countries is not static in relation to one another at any point in time, the Forex market is never fixed or stagnant at any point in time as well. It is a volatile market that is constantly changing and are never accurately predicted. This is where the profit or loss is made. If the currency goes up in your favor, you make profit, it goes down against you, you make loss. Understanding the Forex Market To understand the Forex market and be good at it, you have to avail yourself to serious training in Forex trading! You must acquire the technical knowledge required in Forex trading. You must have enough time and willingness to study this ever-changing price market over a period of time and be up to date with the local and foreign news as global trends have a tendency to determine the direction the prices of the currency go, either up or down. To assist you in the learning process, it is important to use a demo account for practice. Almost all the Forex trading platforms have demo accounts where you can practice Forex trading in what looks like real time trading. The demo accounts are loaded with virtual money and in real time mode. The only difference is that you neither make profit nor loss in demo trading. You need to continue to practice with the Forex demo account until you become very proficient. You must be good with the virtual trade before you ever attempt with real money because once you are up with the real money, there is no going back, its either profit or loss. From then, it becomes investment that must be handled very seriously. Your investment in Forex trading is not something you joke with, you need to be up to date with knowledge and information. You must be into it and do research regularly. How to Get Started With Your Forex Trade Before you proceed to open an account with any Forex Broker, you must understand that not all Forex Brokers are genuine. Make a thorough research before settling with any trading platform with real time investment. I will advise you use the big and established Forex trading platforms only. Open Account with Forex Brokers Go to the website of your desired Forex Brokers and open account. Forex Broker or the Forex trading platforms is the medium through which currency is traded online. Fund Your Forex Account Before you start live Forex trade, you must fund your account. Funding can be done through direct deposit or by using your credit/debit cards. Have a Domiciliary Account This is very important for effective transaction and to enable you make a withdrawal of your profit when there is any. Some use other currency medium like the eCurrencies but at the end, it will still get to Domiciliary accounts. The Domiciliary account is used for cashing or depositing funds into your Forex trading account. Fast Internet Connection You need a very fast and reliable internet connection to be able to trade Forex in Nigeria or elsewhere. Without this, it will be difficult for you to make profit because your internet has to be fast and reliable to enable you take quick actions. High Performing Laptop This is very necessary for efficiency and accurate performance in live market. Do not make the mistake of using a wacky laptop for Forex trading. Most times, the losses people make is as a result of inefficient trading devices. The profit you make depends on your trading skills. Yes, people are still making profit in Forex trading in Nigeria and will continue to make profit as long as currency remain in use. In fact, nothing has changed and will probably change forever.
  14. (Originally posted: 5/10/2013) image: sporadicpieces.wordpress.com I hope you like the picture above. Well, I love it! It depicts the exact state I'm in: surfing the Nigerian Stock Market wave. Since 2008, the Nigerian Stock Market has been a tumultuous wave, wiping out investors and crashing portfolios. I lost all my savings too in 2008, but mine was a sadder case. I bought into the First Inland Bank public offer at N9.50 and they didn't send me a share certificate, I went to the Registrars and they couldn't locate my name in the records. My investment was gone forever, even if the market goes bullish again and the share prices double the pre-crash period, I stand to gain nothing. I was better off falling for those ponzi scams, the very ones I diligently avoided by buying shares myself. But I took it as a challenge and armed myself with finance and investment knowledge, reading over 10 books by finance professors and investment gurus. I came back, I saw and I won back all my loses. And now I'm just surfing the waves. So how do I pick winning stocks?In Nigeria, with the desert like state of the NSE; picking the right stock is extremely easy. And I will show you how. 1. Get a Punch Newspaper.Yeah, you heard me right. Get a Punch Newspaper. Turn to the NSE price list page, and write out all the stocks that traded over a 100,000 units that day. Then get 4 other Punch Newspapers, each for an entirely different month. Do the same thing for each. Now write out all the stocks that appeared in all your lists.The reason for this is you wouldn't want to be the big guy, the one moving the stock prices by your quotes. You would want to buy into companies that are very active on the NSE, companies with very liquid stocks, companies you can buy into or sell out of within a day and without causing a tsunami.2. Get their 5 years Annual ReportsIf you've been reading investment books or foreign blogs, you'll think 10 years is the ideal number. Well, you'll need to contact an Investment firm to get the 10 years annual reports of any Nigerian company, you won't find them online. So that's why I use 5 years. You can get recent Annual reports on my Slideshare Account 3. Do some AnalysesNow that you have the Annual Reports, you have to do some quick analysis to vet the list you have. You'll be crossing out all companies that have not grown Revenue year on year by at least 15%. Then you'll proceed to crossing out companies that have not grown profit year on year by at least 15% You'll also cross out companies that have not grown Earning per Share year on year by at least 10%You'll also cross out companies that have Return on equity of less than 10% Why? You might ask.Nigerian economy has been growing at over 6% Even terribly run companies in Nigeria have benefited greatly from this growth and manage to produce good looking annual reports.The Money Market will provide you about 12% rate of return on your money, and sort of risk free too.And if you are the patient type, you can get 15% buying Nigerian Government bonds (well, if you are not like me, I avoid any dealings with the government and wouldn't even rent my house to a government official). The only way the trouble of investing in NSE can be worth it is if you stick with my recommendations. There will be companies that will meet the strict requirements, Nigeria's economy is booming. 4. Vet the Income Statement, Balance Sheet Statement, Cash Flow Statements and Notes.By now you'll be down to a couple of companies, usually less than 10. For this process, you will need some knowledge of corporate finance and accounting.I use the data in the Balance sheet to rewrite the Income statement, the Profit and Loss statement. Then I use the data in the cash flow and notes to determine if there was any creative accounting done, the type of accounting I hate. This stage is the most critical, I have lost money in Oando because I didn't do this stage then. I simply swallowed the numbers in the annual report, I didn't know how to vet them. I later went for an online accounting and finance course, read all the books I could find/afford. Now I don't fall for creative accounting anymore, if you're feeding your growth with loans I will cross you out (I sold my shares in a company recently because they were doing so). In the end, the few stocks that will make it through will be just the ones worth your investment. 5. Buy at the right price.Now that you've identified the stocks to invest in, what's left is to buy now or wait for the right time. And in the current state of the NSE, this is one decision you'll find very hard to get wrong. I use a crude DCF calculation to determine the intrinsic price of the stocks that made it this far, and I apply a margin of safety that is very flexible. I will be explaining more on this part of stock investment later on in my Investment series. But a quick check is to not buy a stock that is selling at about 20 P/E ratio in Nigeria. You'll be paying an exorbitant price for the growth component.
  15. Michael Olafusi

    My Investment Strategy

    image: zinpropertysolutions.com If you live in Nigeria and earn your income in Naira, one big enemy you have is inflation. What one million naira bought five years ago now sells for two million naira. But the same one million naira left in a regular Nigerian bank savings account for the last five years will be about 1,174,000 naira. And it gets worse when you project this over 20 or 30 years. You retire and find that your retirement savings which is 20% of your salary all throughout your 35 years of active work is now not enough to enjoy a comfortable life after retirement. Inflation has laid its corrosive hands on it. Nigeria Inflation Rate from 2007 to 2017 (source, Bloomberg) It is against that backdrop of high inflation rate and almost forever weakening Naira that I have carefully thought out my investment strategy. When I began my investment journey, I made the classic mistake of thinking that what applied in the US markets, upon which all the investment books I read were built on, directly applied to the Nigerian markets. I even took seriously Jim Cramer's advice, in Jim Cramer's Real Money: Sane Investing in an Insane World, on how to time the market by analysing trends and technical signals. I thoroughly enjoyed reading Phil Town's Rule #1. I read many other popular books on investing. They gave me a lot of theoretical knowledge and real-world use cases but no practical result. I couldn't apply most of what I learned due to the under-developed nature of our financial markets and the huge information asymmetry. Ultimately, I had more losses than gain until I changed my perspective. For a global investor, Nigeria is a frontier market. One you don't put all your investments in except you are a private equity fund manager with focus on frontier markets. And I have just as much return expectation from my investments as any global investor would. Why then should I put all my investment in the highly volatile Nigerian financial markets? The moment I took on the perspective of a global investor, I began using an asset class investment strategy. I invest in US markets, hedging both my inflation and weakening Naira risks. I switch between stocks, bonds and Gold depending on which is relatively undervalued. Currently US stocks are overvalued and trading at historical high P/E ratios. Last year December, I moved out of US stocks into bonds and emerging market index fund. Some analysts say it is more advisable to move to Gold rather than bond as the US interest rate hikes will damage bonds. That would be valid if I was buying long term bonds. Then I have the remainder of my investments in the Nigerian markets, between our stocks and the money market. Currently, I am 95% stocks versus 5% money market for that remainder. The reason is that stocks are hugely undervalued. I don't mind losing out of the high return rates on the money market, I will patiently wait for the rally in the stocks market. And as per the stocks I am invested in, besides the money I have in ARM Discovery Fund which I opened in my early investing days and occasionally keep funding due to the better-than-peers returns they make, I am invested in three companies on the Nigerian stock exchange (NSE): Nestle, First Bank and Mobil. I avoid companies with low trading volumes or in the penny-stock category and focus on the market leaders in non-correlated industries. Why Nestle? Nestle has the best fundamentals of all the major manufacturing companies in Nigeria. Up until the FX issue affected its profit last year, it was the perfect company for a long term investor. Now it is highly priced (has one of the highest PE) but it is due to an exceptional issue so I am not perturbed. Also I have the institutional wind in my favour, going through all the foreign Exchange Traded Funds with investments in the NSE, the only companies I have seen them invest in besides the banks are Nigerian Breweries, Dangote Cement and Nestle. Why Mobil? The downstream oil sector has historically proven to be inflation proof and, more recently, recession proof. The industry has been growing with the increased economic activities (GDP) over the years. It is the only industry that didn't get bashed seriously by the NSE crash (2008 till now). I had made up my mind to invest in the best in the industry. Two companies were heads and shoulders above the others: Total Nigeria and Mobil Nigeria. Total is bigger by revenue. I went with Mobil because Mobil had the best fundamentals. Best ROI and most efficient in the industry. It is the GTBank of the Oil industry. Luckily, NIPCO acquired it and lead to a good bump in its price. Now it may not be attractively priced compared to Total. Why First Bank? This was a tough investment choice. GTBank has all the fundamentals and investors' love. However, the things about the banking and finance industry is that total assets is the strongest metric. Not even profit. The industry is so regulated that there is very little creative exploits Nigerian banks are allowed to make. The biggest differentiator in the long-run is total assets available to play with. And First Bank is the biggest bank in Nigeria by assets. Unfortunately, it seems most investors are not factoring that in and have greatly discounted the oil industry loan exposure of the bank and other recent happenings that are temporary to bring very low the bank's share price. I bought it mainly because it gives the most potential value among the big four banks. I avoid industry minor players.
  16. You asked and I have delivered. And I want to say a big thanks to everyone who kept asking and nudging me do to this -- I am happy to say its done. It's accessible here: https://www.nigerianelite.com/shares/analysis Everyday, it automatically updates with the close of trading day price (for now set to 12 midnight, will adjust to late afternoon). It also shows the historical price from as far back as year 2002. That is something you won't get on any other platform for free. And the best part is that it is very interactive, I built it more like I do dashboards for very high paying clients. It also allows you to compare the important financial statement lines of the stocks you are interested in: from Revenue, Net Profit, Return on Equity, Return on Assets, Total Assets, Gross Margin, Cashflow from Operations, Cashflow from Financing, Cashflow from Investing, Net Cash Flow, Current Assets, Current Liabilities to Total Liabilities. And all very visual. It has a scroll bar that shows you the latest closing price of all the stocks. At the backend, I have a program that populates an Azure SQL database table with the closing prices for the stocks. I already have a stockpile of the annual reports of the companies from as far back as 2001 (you can check them out and download for free at https://www.slideshare.net/olafusimichael/presentations). Each year, I update the financial statement metrics from the Income Statement, Balance Sheet and Cash Flow. Important Notice Due to the hard work involved, I only cover the most active stocks on the Nigerian Stock Exchange. If there is any you would like to see that isn't there, do let me know and I may include it. Also there is an error in the Total Assets and Total Equities line for a couple of the bank stocks, I am working on making the correction. Other than that, all is working great (hopefully) and I use it for my own stock analysis. And that is the big edge, it is like I am sharing my quantitative stock analysis model with you all for free and in a very beautiful (to see and use) dashboard. There are no 2016 financial metrics in yet. I am still gathering all the 2016 annual reports. Some companies have made theirs available online in the last two weeks, some are yet to. Maybe I won't wait till I have them all before I start the financial metrics extraction. I have already gotten for GTBank, First Bank, Total Nigeria, Access Bank, Dangote Cement, Cadbury, PZ and a few other companies. The whole set-up (programming, hosting, virtual machine, SQL server etc) costs me money and I often pay freelance finance analysts to help share the work of extracting the data from the PDF annual reports into our standardized model. One day, I will put a door that opens only to paid subscription in front of it. So enjoy while its free!
  17. On Thursday I signed for the Udemy course: Python for Finance: Investment Fundamentals & Data Analytics It would be helping me learn how to apply Python to Financial and Investment analysis. Below is a copy paste of a part of the course description and content. If you are a complete beginner and you know nothing about coding, don’t worry! We will start from the very basics. The first part of the course is ideal for beginners and people who want to brush up their Python skills. And then, once we have covered the basics, we will be ready to tackle financial calculations and portfolio optimization tasks. Finance Fundamentals. And it gets even better! The Finance block of this course will teach you in-demand real-world skills employers are looking for. To be a high-paid programmer, you will have to specialize in a particular area of interest. In this course, we will focus on Finance, covering many tools and techniques used by finance professionals daily: Rate of return of stocks Risk of stocks Rate of return of stock portfolios Risk of stock portfolios Correlation between stocks Covariance Diversifiable and non-diversifiable risk Regression analysis Alpha and Beta coefficients Measuring a regression’s explanatory power with R^2 Markowitz Efficient frontier calculation Capital asset pricing model Sharpe ratio Multivariate regression analysis Monte Carlo simulations Using Monte Carlo in a Corporate Finance context Derivatives and type of derivatives Applying the Black Scholes formula Using Monte Carlo for options pricing Using Monte Carlo for stock pricing Everything is included! All these topics are first explained in theory and then applied in practice using Python. Is there a better way to reinforce what you have learned in the first part of the course? This course is great, even if you are an experienced programmer, as we will teach you a great deal about the finance theory and mechanics you would need if you start working in a finance context. What makes this course different from the rest of the Programming and Finance courses out there? This course will teach you how to code in Python and how to apply these skills in the world of Finance. It is both a Programming and a Finance course. High-quality production – HD video and animations (this isn’t a collection of boring lectures!) Knowledgeable instructors. Martin is a quant geek fascinated by the world of Data Science, and Ned is a finance practitioner with several years of experience who loves explaining Finance topics, here on Udemy. Complete training – we will cover all major topics you need to understand to start coding in Python and solving the financial topics introduced in this course (and they are many!) Extensive Case Studies that will help you reinforce everything you’ve learned. Course Challenge: Solve our exercises and make this course an interactive experience. Excellent support: If you don’t understand a concept or you simply want to drop us a line, you’ll receive an answer within 1 business day. Dynamic: We don’t want to waste your time! The instructors keep up a very good pace throughout the whole course. I have already begun taking the course.
  18. The great thing about finance -- personal, corporate or government finance -- is that they stay true to some fundamental principles. For example, it doesn't matter how financially big you are, the moment your expense begins to exceed your income it is a drive down into poverty/demise/trouble. That is why you keep hearing stories of once popular and super rich footballers now poor and living on hand outs. That is why you will see very big companies like Arik Air and Aero Contractors dying. That is why Nigeria is still poor despite the plenty natural resources and accumulated earnings from oil and other mining exports. What then is great about it all? It is that for someone who pays attention to these fundamentals and diligently learns from history, he can be handsomely rewarded. He gets to fare better than others. Lately, I have been trying hard to be that someone. What opportunity lies in our current state in Nigeria? What does history say about what is currently happening? Those who came out on top, according to history, did what? Today, as my gift to you into the new year, I will be sharing with you my amazing find. First, just in case the whole holiday activities have made you to forget, I will be presenting our current economic state in Nigeria. Since last year (2015) we have been experiencing an undesirable change in our economic fortunes, though, it started before we actually voted for change. The seeds were sown by our past political leaders, they made sure that they spent all the money the country earned without planning/preparing for the future. They know nothing about business cycles and the economic turbulence no nation is immune to. So when money flows in, like agberos who believe that there will another danfo to extort money from tomorrow, they squander everything. They do white elephant projects to ensure the money is completely spent. They spend millions/billions on painting and repainting the third mainland bridge parapet, building a centennial city, doing double anniversary/independence celebration in one year, printing new celebratory currency notes, paying criminals upfront as amnesty, living national life like there is no tomorrow. Then tomorrow showed up and we are now paying for their irresponsibility. Unfortunately, they privatized the cash outflow, diverting huge chunks of project money into their own pockets, and now they are trying to publicize the cash crunch, squeezing money from us in all ways they can. The inflation rate shot up. Went from 9.6% in January 2016 to over 18% by October and November 2016. GDP declined and the entire economy shrunk. Foreign direct investments dropped as investors became worried by our unsound policies and lost confidence in us. Dollar inflow dropped. Our foreign reserve dropped. The Central Bank entered a panic mode. Ordinary Nigerians bear the brunt of it all as unemployment rate went up and prices of goods went up. So by the important metrics, we are doing very badly. The Naira is losing value and rather than our salaries increase, most people are out of job/salary or have seen their salaries slashed. However, in a corner, out of attention, is our stock market not much feeling the general economic happenings this year. But all that is not because it is immune but because of what economists call a lag. There is always a lag between cause and effect in the economy of a country (macroeconomics). But if one reads through the textbooks on the fundamentals and pay attention to history, he would know the direction the stock market will head once the lag time is over. And that is the secret, the amazing find, I want to share with you. I'll start from what the fundamentals say: in the end the stock market always capture the inflation-driven price increase and generally produces more returns than bonds. And when you look at the Federal Government 10 Year Bonds doing return of close to 16% and still lagging the inflation rate, then you know that the stock market is ripe for nominal growth. As for history, Venezuela just won the award this year for the best stock market return in the world in nominal terms. Also during the popular Zimbabwean hyperinflation years, only the stock market reflected the new realities by rising in tandem with cost of living. I know that our current situation is not as dire as theirs is/was, but the fundamental holds true. The stock market, especially in times of unexpected high inflation, always rise to reflect the underlying price increase in the economy. What is my takeaway from all these? I have moved all my money from savings-like (money market) investment to the stock market. And I am investing all my income, after taking out the living expense and business expense, in the stocks market. I know not everyone can take such a decision, but in case you've been mulling it and would benefit from an outside opinion. Here's my "You're welcome!" to your anticipated "Thank you".
  19. Michael Olafusi

    MIT: Investments

    You can register on MIT Opencourseware for Investments at https://ocw.mit.edu/courses/sloan-school-of-management/15-433-investments-spring-2003/ About the course This course teaches how to make sound investment decisions through in-depth knowledge of the financial markets, rigorous analytical thinking and precise mathematical derivation. Included is a comprehensive set of lecture notes for all 23 lectures to explain core concepts. Also, students gain hands-on experience with optimization, data analysis, and other quantitative techniques by completing the five group assignments. The focus of this course is on financial theory and empirical evidence for making investment decisions. Topics include: portfolio theory; equilibrium models of security prices (including the capital asset pricing model and the arbitrage pricing theory); the empirical behavior of security prices; market efficiency; performance evaluation; and behavioral finance. Syllabus Lecture 1: Introduction (PDF) Lecture 2: Securities, Random Walk on Wall Street (PDF) Lecture 3: Portfolio Theory Part 1: Setting up the Problem (PDF) Lecture 4: Portfolio Theory Part 2: Extensions (PDF) Lecture 5: Portfolio Theory Part 3: Optimal Risky Portfolio (PDF) Lecture 6: The CAPM and APT Part 1: Theory (PDF) Lecture 7: Applications and Tests (PDF) Lecture 8 & 9: The Equity Market: Cross Sectional Variation in Stock Returns (PDF) Lecture 10: Equity Options Part 1: Pricing (PDF) Lecture 11: Equity Options Part 2: Empirical Evidence (PDF) Lecture 13: The Fixed Income Market Part 1: Introduction (PDF) Lecture 14: The Fixed Income Market Part 2: Time Varying Interest Rates and Yield Curves (PDF) Lecture 15: Forwards, Futures & Swaps (PDF) Lecture 16: Risk Management (PDF) Lecture 17: The Credit Market Part 1: Modeling Default Risk (PDF) Lecture 18: The Credit Market Part 2: Credit Derivatives (PDF) Lecture 19: Security Analysis (PDF) Lecture 20: Active Portfolio Management (PDF) Lecture 21: Hedge Funds (PDF) Lecture 22: Market Efficiency (PDF) Lecture 23: Commodities (PDF)
  20. (Originally posted:04/10/2013) image: mommysurvival.info I hope you've been reading my Personal Finance series. Today, I will be sharing with you Investment strategies I use and have hugely benefited from. I have used them across my Stock Investment account, Money Market Fund, Mutual Fund and High Yield Savings Account. 1. Dollar Cost Averaging (DCA) Dollar Cost Averaging is simply buying a fixed Naira amount of an investment type every month. I use this on my Mutual Fund account with ARM (Discovery Fund), and since April 2011. And I also use it on my Stock Investment Account, I transfer a fixed amount of money into my brokerage account monthly. The major advantage of this strategy is that it makes investing a habit. I don't struggle to keep aside money for investment monthly. It's other advantage is that it alleviates your worries of buying at a market high. Since your buy is spread across many months, you'll end up buying at both market lows and highs. And in the end, you'll have bought at an aggregate price that is near the average of the market's vicissitudes. This benefited me greatly as ARM Discovery Fund went down in 2012 and came back up this year. I ended up buying more units while the price was down and experienced more gain when it went back up. 2. Dividend Re-Investment Plans (DRIPs) Most investments in Nigeria are DRIP enabled by default or give you the option in the investment account creation forms. What this means is that your interest and dividends will be re-invested on your behalf, you won't get them as cheques mailed to you. And it is a very good investment strategy, it grows your investment faster than if you were cashing out the dividends. I have this running on all my investment accounts except my stock investment account. 3. Buy and Hold or Value Investing Strategy In Nigeria, with the high brokerage charges you face for each stock transaction, this is the only strategy you should consider using. You simply can't be a day trader in Nigeria, you'll nearly always lose. I get charged over 6% for a round trip transaction (buy and sell). And if I consider the capital diminishing effect of the initial buy transaction charges, the effective charges can be as high as 10%. Buy and Hold simply means look for the value stocks (those with strong fundamentals and prospects) and buy them at a reasonable price, then hold forever (on plan). In buying a stock, I run through an elaborate analysis to verify that the company's numbers and prospects are good. I read it's annual reports (sometimes, cover to cover) and I rewrite the Income Statement to reflect the true state of affairs as indicated by the Balance sheet statement and Notes, if need be. I don't buy stocks that don't meet my strict requirements. I buy stocks to hold them through thick and thin, as long as the fundamentals are still right and nothing catastrophic has happened to its industry. And those are the investment strategies I believe you need to start using. They've worked great for me and will for you too.
  21. (Originally Posted: 26/10/2016) I spent the whole of yesterday working on a mini model of my stock analysis web app, creating it from scratch in Power BI. And finally, I've got the good news -- I am done with the Power BI model and you can test-drive it. The data are valid, spent months compiling them. If you want me to share it fully with you, send me your email and I will add you from the backend. You'll get an email invitation to fully access the model dashboard, make edits on your own copy and analyse Nigerian Stock Exchange listed companies. If there's any analysis or modifications or suggestions you'll like to see me make to it, do let me know. Maybe, it looks too simplistic or no predictive analysis included or no technical analysis included. The underlying data took me months to compile and verify, the backend mashup was no small work too (PowerQuery to mashup 60+ different tables -- unpivoting, handling missing values, creating relationships e.t,c.). You can view the entire model here. Do try it and let me know your feedback. You can analyse any combination of companies you want. Use the slicer/filter on the left.
  22. (Originally posted: 25/10/2013) Stanbic IBTC Asset Management is the leading wealth management firm in Nigeria.It provides mutual funds nearly everyone can invest in/through; asset/portfolio management for high net worth individuals, and other wealth management services.But in today's post, I'll share only the mutual fund services.Stanbic IBTC Nigerian Equity Fund (SINEF)This is Stanbic IBTC's Equity Mutual Fund, and is the biggest in Nigeria. An Equity Mutual Fund is a pool of fund from several individual and corporate investors, invested majorly in the stock market.Here are the details of the Fund -- The Fund was started in 1997. Initial Price: N1,000 (Nominal Value) Portfolio Allocation : Maximum 25% Fixed Income Securities, Minimum 75% Capital Market Minimum Investment: N50,000 and subsequent investment of N20,000.00 For investment account opening details visit Stanbic IBTC Nigerian Equity Fund Stanbic IBTC Ethical Fund (SIEF) This is structurally same as the SINEF; only difference is that SIEF doesn't invest in Breweries and Tobacco companies. Here are the details of the Fund -- The first Ethical fund to be launched in the history of the Nigerian capital market (started in 2005) Allows subscribers to invest in the capital market without compromising their religious beliefs and principles Initial Price: N1 (Nominal Value) Invests at least 75% of its assets in selected equities of Nigerian quoted companies, while retaining a maximum of 25% in quality fixed income securities Minimum Investment: N50,000 and subsequent investment of N20,000.00 For investment account opening details visit Stanbic IBTC Ethical Fund Stanbic IBTC Balanced Fund (SIBAL) This is a less aggressive version of the SINEF. It allows for more investment in Fixed Income than the SINEF. It's the child of the NSE 2008 crash. Here are the details of the Fund -- The Fund was started in 2009. Initial Price: N1,000 (Nominal Value) Portfolio Allocation: Maximum 60% Equities, Minimum 40% Fixed Income Minimum Investment: N50,000 and subsequent investment of N20,000.00 For investment account opening details visit Stanbic IBTC Balanced Fund Stanbic IBTC Guaranteed Investment Fund This is a special mutual fund that guarantees your principal (initial investment) after 3 months. It's structurally a Fixed Income investment with a small mix of Equity investment. Here are the details of the Fund -- The Fund was started in 2007. Principal investment guaranteed after three months Initial Price: N100 (Nominal Value) Invests a minimum of 75% of its assets in quality fixed income securities, while retaining a maximum of 25% in selected equities of Nigerian quoted companies. The minimum initial investment is N50,000, and subsequent investments of N20,000.00 For investment account opening details visit Stanbic IBTC Guaranteed Investment Fund Stanbic IBTC Iman Fund This is specially designed for Islamic investors. It invests in non-interest fixed income securities and Shariah Compliant Equities. Here are the details of the Fund -- The Fund was registered with SEC in 2013. Initial Price: N100 (Nominal Value) Portfolio Allocation: Minimum 70% in Shariah Compliant Equities, Maximum 30% non-interest fixed income securities (i.e. Sukuk) The minimum application: N50,000 and subsequent investments of N50,000.00 For investment account opening details visit Stanbic IBTC Iman Fund Stanbic IBTC Money Market Fund This is a money market fund. Money market funds invest in short-term debt securities like Treasury bills, commercial papers, repurchase agreements, certificates of deposit and banker's acceptance. (Maybe someday, I'll explain them) Here are the details of the Fund -- The Fund started in 2010. Initial Price: N100 (Nominal Value) Portfolio allocation : 100% Money Market investments Minimum investment : N50,000.00 and subsequent investment of N50,000.00 For investment account opening details visit Stanbic IBTC Money Market Fund There is one more, the Stanbic IBTC Bond Fund. But I can't find its details anymore on the Stanbic website. It's primarily invested in Bonds. You could search through Stanbic IBTC Asset Management website, you might be lucky and find its details. And that's all!
  23. Michael Olafusi

    Investing in Nigeria

    Most of us find the finance and investment world hard to make sense of. We would rather just work hard, earn a respectable income and give someone else (or an investment firm) to invest it on our behalves. There is nothing wrong in doing that, well, on the surface. The real trouble in doing that is the underlying assumptions – that you will find a trustworthy and high grade investment manager and that you will never fall into any financial crisis. Sincerely, I would rather cross a road with my eyes closed than take that risk. And since I do not intend to cross the road with my eyes closed, I have taken great pains to equip myself with all the finance and investment knowledge I need. And that knowledge is what I have condensed into this Investment Guide. You will find it useful in making sense of the investment world and, hopefully, fuel a hunger in you for more practical financial knowledge Best of all, I have made it easy to understand. You don’t need to have any special or background knowledge. All you need to understand everything in this guide is to read this in a calm place and maybe print it out, to easily mark areas that interest you. Why you need to Invest? Investing is not just about wealth generation – making your money work hard for you as you did for it. Investing is also about wealth preservation – making sure that the N10 million you have now will have the same purchasing power 2 or 5 years from now. If you put all your money in a savings account, the interest you will get on it is not going to insulate you from the damaging effect inflation will have on your life savings. As the price of things keep going up and cost of living increases, the N10 million you have in a bank will not be able buy you much in 10 years’ time, the value will have been eroded by inflation. So you really have no option than to make sound investment decisions now. I work terribly hard every day and deny myself a lot to set aside some of my income. I would cry if I discover that the N50 million naira I have saved over my working life is just worth N20 million naira in today’s value. And that is the what inflation does to money kept in a savings account. The house you can buy with the N50 million naira today will be selling for N90 million naira in 10 years, while your savings account will be reading N62.5 million. And that’s if you’re lucky to find a savings account with 3.6% interest rate. Most are 2%. Getting Started To start you need to understand the different investment options you have. I have taken time to compile the standard financial investment options individuals have in Nigeria. HIGH YIELD SAVINGS ACCOUNT A High Yield Savings Account is a special savings account that offers a higher interest rate than regular savings accounts. It might come with restrictions on number of withdrawals per month or minimum deposit to enjoy the high interest rate. Mine with Diamond bank doesn't place a withdrawal limit but doesn't provide you with an ATM card; withdrawal is over the counter. Pros 1. A High Yield Savings Account provides the easiest and fastest access to your money among all the investment vehicles listed here. All I do to access my fund is to show up at the bank and fill a withdrawal slip. I can even use the online banking service too. 2. It provides a near risk-free return on your investment, and a predictable interest rate too. Cons 1. It provides a very low rate of return on investment. Too low for any long-term financial goal. 2. It's return rate is way less than the inflation rate, hence your money is actually losing value (purchasing power) Recommendation Best used as your Emergency fund account. EQUITY MUTUAL FUND The most popular ones in Nigeria are Stanbic IBTC Nigerian Equity Fund, ARM Discovery Fund and ARM Aggressive Fund. They pull money from different investors and invest on their behalves (mostly in Stocks). I have one with ARM, and since April 2011, I have been transferring a portion of my salary into the fund monthly (via Direct Debit). I once opened the Stanbic IBTC NEF too, but I closed it while I was reviewing my portfolio in 2012. Equity Mutual Funds are very easy to open, the requirements are same with opening a bank account, and the minimum opening amount ranges from N10,000 to N100,000. And you'll get an online account to monitor your investment performance. Pros 1. Equity Mutual Funds are managed by professional investment managers. And that is a huge relief for most people who want to invest in the stock market without the fear of losing all their money. 2. They allow you to automate investments monthly or quarterly, so you'll end up cultivating a savings habit. Helped me a lot. 3. Some (like ARM) will provide you an Investment Account Officer who can provide expert financial/investment advice to you. 4. Your return on investment can be huge. Cons 1. Most of your money is invested in stocks, you might have months or years when your investment will de-grow, even beyond your initial capital. 2. Withdrawal of money from the fund can take up to 5 working days. 3. The Investment Managers make a lot off you, even when they are losing your money. Recommendation If you are young and serious about investing in the stock market, starting with an Equity Mutual Fund is highly recommended. MONEY MARKET FUND A money market fund is like an Equity Mutual fund in some ways. Money is pulled from several investors and invested on their behalves. The major difference is that Money Market Funds invest in short-term debt securities like CDs, Treasury Bills and commercial papers. And these have fairly predictable rates of return. Currently, the return rate of Money Market Funds in Nigeria is about 10% to 12%. Pros 1. Money Market Funds help low net-worth individuals like me enjoy higher interest rates than possible in an equivalent fixed income account or high yield savings account. 2. It's extremely unlikely that your investment will de-grow or your initial capital be wiped out. The cases I know of are where the parent company of the fund administrators went belly up. So just stick to the very big and reputable ones and you'll be safe (almost). 3. You'll also get an Investment officer (depending on the fund administrator you choose) Cons 1. The rate of return hardly catches up to the inflation rate. In the long run, your money might lose purchasing power. 2. Most Money Market Funds in Nigeria require 5 working days to process your request to withdraw money from your account Recommendation Money Market Funds are best for saving money you're not sure what do with, like sales bonus and lottery winnings (if you play lotteries). Also if you are very risk averse and for some reasons do not want to invest in bonds (especially Treasury bonds), then money market might be good for you. BOND FUND A bond fund is also a mutual fund, several investors' money pooled and invested in bonds. First, I need to correct the wrong impression most Nigerians have about bonds. Bonds aren't risk free. They can be as risky as stocks. I'll recommend you go with Stanbic IBTC Bond Fund, I believe it's the best managed. Anyways, they've got that reputation. Pros 1. Managed by professionals. 2. If you go with Stanbic IBTC bond fund, you'll greatly reduce your risk of losing money, and you’ll earn a good return. 3. Best suited for investors who can't cope with the fluctuations in stocks market. Especially investors close to retirement. Cons 1. Bond funds are run very conservatively and end up like Money Market funds with slightly higher rate of return and more withdrawal restrictions. 2. Withdrawal requires several working days to implement. Recommendation Go for the Bonds Fund if you hate the Stock market FIXED INCOME ACCOUNT Fixed Income account is majorly for high net-worth people (and companies too). You are able to negotiate an interest rate that can be as high as FGN bond yield without the restrictions that come with bonds. Pros 1. Great for people with lots of cash Cons 1. Bad for people with small cash and no negotiation leverage. Recommendation Just got your 65 million naira Pension? Fixed Income all the way! REAL ESTATE INVESTMENT TRUST FUND REIT, as it's popularly known, is a mutual fund that invests in real estate. It's just becoming popular in Nigeria. Pros 1. Gives you the opportunity to share in the Real Estate boom, especially in Lagos and Abuja with as little as N100,000. 2. Excellent for Real Estate investment freaks. Cons 1. REIT historically underperforms stocks (and yes, even in Nigeria). And you are often better off playing real estate on your own terms; you can more easily find bargains and make financial windfalls than a Real estate company. Cons 1. Only if you are obsessed with Real Estate investment and don't have enough to enter big time. RUNNING YOUR OWN STOCK BUYING ACCOUNT This is the most lucrative investment vehicle. If you put in the hard work and learning required, it beats all the others. I will be talking more on this in the next sections, so I'll be brief here. Pros 1. Provides the possibility of the highest rate of return (compared with the other investment vehicles) 2. You profit directly from your hard work and knowledge. You become better at it with more visible results than you get with the others. 3. You can even write a book based on your experience and stock investment strategy. Lots of people are making money doing this. 4. You stand a chance of becoming a celebrity like Jim Cramer. Everyone will want to listen to you, just show them the records and make some noise. Cons 1. You can lose all. Lots of people do. Recommendation If you've got the heart and age on your side, then go for it! UNDERSTANDING STOCKS AND BONDS There are different ways to own a company: 1. You can start one yourself, 2. You can partner with a friend to start one, and 3. You can buy the stock or bonds of a company. For most of us, buying stock or bonds are the easiest way to own a company, at least a piece of a company. Occasionally, we see a company growing very fast. And its bankers advise it to float an IPO (Initial Public offer). They come up with a mind-numbing valuation of the company and break it down into million units of shares. They sell a part to the public, you and me. Every share of the company you buy is a portion of the company. If you are extremely rich, you can decide to buy all the company's shares and make it your family business. That's if the board of directors let you. Buying a company's stock is owning part of the company; it's like becoming a limited partner with less legal rights. Then when the same company sees a huge business opportunity and wants to quickly cash in on it, it may float bonds for the public to buy. Bonds are like loans, (often) from the small guy to the big guy. You, as an individual, are lending money to a multi-billion naira company. And that's simply what buying bonds is. Now to the less obvious. We can break down the ownership of a publicly traded company into three different classes -- 1. Bond Investors 2. Preferred Stock Investors 3. Common Stock Investors Bond Investors are regarded as senior owners and lay a prior claim to the assets of the company before both the preferred stock and common stock investors can enforce their claims. Likewise, the preferred stock owners are superior to the common stock owners. If for any reason the company has to shutdown and its assets be sold off. The bond investors will first be satisfied, then preferred stocks investors and lastly, the common stock investors. In most cases like this, nothing reaches the common stock owner. In practical terms, if you buy the bonds of a company, the only way you'll lose your investment (if you don't trade it at a discount) is if the company closes down completely or file for bankruptcy (nowadays, it's also called restructuring). But as a stock owner, once the company stops making profits for years in a row, you either jump ship or watch your investment vaporize. On the other hand, if the company is doing extremely well and growing revenue to the sky. A bond owner will not get more than he was promised. While a stock owner will reap almost all the rewards. And that is why bonds are viewed as conservative investments, and stocks as very risky. But the reality is that a company that is healthy enough to fulfill its bond obligations will most likely be faring very well in the stock market, while a company whose stock is getting seriously bashed might end up not meeting its bond obligations (except in some few exceptions). In conclusion, when it comes to buying bonds, you are better off sticking to government bonds. If there is a company you believe its bonds are investment grade, you should rather consider investing in its stock (except it's overpriced). So in reality, use the bond ratings of a company as an indicator of the company's health, to see if you can continue with your plan to buy its stock. Understanding Shares: Common Shares & Preference Shares Shares are the units of a financial instrument. In our case, we'll say -- Shares are the units of a stock. That takes us to -- what is a stock? Stock is the capital of a company raised through the issue and subscription of shares. And you say stocks when you are talking about several companies, each having its own distinct stock. The Nigerian Stock Exchange has a listing of over 170 stocks (companies). I have investments in 2 stocks – GTB and NASCON. I have 24,680 shares of GTB stock. I hope now you'll never be confused when you see shares, stock and stocks in any document. Companies have two types of shares -- common/ordinary shares and preference/preferred shares. Common or ordinary shares are the shares of a company that you can easily trade on the stock exchange. They are the ones you see in Punch Newspaper's NSE stocks price and activity page. They are the ones you trade when you open a stock brokerage account. The preference/preferred shares are not easily traded. You often buy them directly from the company's issuing house. I almost bought one in 2008, it was First Inland Bank's preference shares. It was selling at N9.50 per share. And it had the following specifications (which ordinary shares do not have) -- A fixed dividend of 9.25% per annum on the offer price of N9.50 The dividends are to be paid after tax (unlike bond interest payments) The dividends have preference over that to paid to ordinary shareholders. That's if there's anything left to pay them from. The dividends are non-cumulative. If for any reason the company couldn't pay this year, there's no payment carry-over. You shouldn't expect the missing year's dividend to paid another year. It's every year to its own. You can convert 30% or less of the preferred shares to ordinary shares on the 30th of April of every year, for the next 7 years. The Issuer can call the preferred shares any time after the next 7 years. Meaning you'll be forced to sell the shares back to the company any time after the 7 years tenor of the shares. Common shares don't have any of such characteristics. And that's the simple difference between a common share and a preference share. N.B. You will often see Common Stock and Preferred Stock, but I went with Common shares and Preference shares so as not to confuse you as regards the clarification between shares, stock and stocks. In reality, all a company's shares are grouped into common shares and preference shares. The common shares are collectively known as the company's common stock. While the preference shares are known as the company's preferred stock. How a Stock Gets its Price As a quick recap: There are 3 ways to own a company -- you start/inherit one, you buy a company's stock, or you buy a company's bond. We've got preferred stock and common stock. It's the common stock that is being traded on the stock exchange. Hence, whenever I write stock, with no adjective, I mean common stock. When a company wants to go public, its bankers value the company's assets (buildings, equipment, bank account, intangibles, etc.) and value it's liabilities (mostly debts). Then, they deduct the liabilities from the assets and name whatever value they get as the company's book value. Then they do some financial modeling magic to calculate the lifetime earnings of the company and then discount it to today's cash. They call that the company's valuation. It's that amount they quote to the public to buy at. They can split it to 100 million units and sell to you & me. That's what is called an IPO: Initial Public Offer. The good part is that they also give you a free prospectus detailing nearly everything about the company, especially the book value that shows what money the company should really be exchanging for. But these bankers are marketers at heart. They put up fancy billboards. They change our favorite tunes to advertising jingles. They almost brainwash us via radio, TV and internet adverts. And even though we can see the truth in the prospectus, we still believe the future they are painting for us and buy into the IPO. After the IPO, the other professionals (the ones that make their living reading financial statements) come in. They focus on what we ignored, the financial numbers. They run series of calculations. They make future projections. They compare the company's numbers with that of similar companies. They come up with their own valuation of the company. And God help us if it's less than what the IPO guys gave. The same marketers that led by example, buying into the stock, will be the first to dump the stock and crash the price to what the stock market professionals think. Then after a while, the company's stock price stabilizes. So what makes a stock's price go up and down? It's the stock market professionals, the guys who are full-time stock traders. They are like car dealers. Professional car dealers have a near perfect idea of what every car is worth. Whenever they see a car being sold for less than it's worth, they buy it instantly and move the price up to the market price. But their biggest effect lies in the fact that they are constantly scouting for such offers. They make it nearly impossible for you and me to find those cheap car offers. They are constant buying them out and moving the price to what they think, thus, setting the market price. And that's how the professional stock traders operate. They have this idea of what a stock should be sold at, and force everyone to trade at that price. To understand how stock price goes up and down, you will need to understand how the professionals determine a stock's price. It's part science, part greed and part fear. Though you can always get the science part right (which is why I'm here) and be able to predict its effect on stock prices, you can't always get the greed and fear part right. So in the end, you can't always predict stock prices. A stock price will go up if the professionals believe it's worth more than it's selling for, and it will go down if they believe it's selling for more than it's worth. Bonus Why did the 2008 stock crash happen? It was simply because the greed and fear part dominated. How Do You Pick the Right Stock? This is called Stock Analysis. It’s some people’s full-time job, and for a reason – it’s a lot of work. The rationale behind picking the right stock is in finding a company that is doing well, has a bright future and buy it at the right price. The logic is simple; it’s the execution that is very hard.
  24. (Originally posted: 5/1/2014) Since I began my Investment and Finance self-study in 2011, I have read lots of books. And they have all helped me, and not just in making sense of the investment world, but also in becoming a better person. The truth is, those books added to my age. They gave the understanding of a much older man. The cool thing about Investment, Economics and Finance is that they show you the core of most of our decisions, because we are always making choices among limited options and resources. Everybody knows that an investment scheme that promises you too much returns, like doubling your money in a short time, is fraudulent. The trouble is that most of us don't know when a lot becomes too much and suspicious, and it's worse when we see friends and family making mouth-watering profits. Only a good grasp of Finance can enable you know when a lot is too much and when a return is unsustainable. We all face traffic jam in Lagos. And lots of us have our own theory of how to beat the traffic. But a good knowledge of Economics will help you make the most of the situation. Knowledge of Finance, Economics and Investment will help you to know if you should buy a land and build a house now, or later. It will help you to know what trend is safe to follow and the one that will almost wreck you. And the best part is -- you get to see your predictions, small and big, come to pass. Because there will always be some future realities that will jump at you. Just like when a man on a hill observes loggers felling trees, because of his privileged position on a hill-top, he will be able to predict a lot of things. And that's what sound knowledge of Finance and Economics does you, it places you on a privileged platform, high enough to see what others won't see. image: china.kylereed.com So here are the Investment and Finance books I have read: Economics for Investment Decision Makers: Micro, Macro, and International Economics (CFA Institute Investment Series) by Christopher Piros and Jerald Pinto The Book of Investing Wisdom by Peter Krass One Up on Wall Steet by Peter Lynch Financial Modelling by Simon Benninga Finance by Ehsan Nikbakht Berkshire Hathaway Letters to Shareholders by Warren Buffett Security Analysis: The Classic 1940 Edition by Benjamin Graham The Warren Buffett Way by Robert Hagstrom A Random Walk Down Wall Street by Malkiel Burton The Five Rules for Successful Stock Investing by Pat Dorsey and Joe Mansueto Too Big to Fail by Andrew Ross Sorkin Lower Your Taxes by Deaver Brown Personal Finance by Deaver Brown Jim Cramer's Real Money by James Cramer Rule #1 by Phil Town Corporate Finance by Ivo Welch How to Build a Financial Model by Sol Hong The funny thing is I've always thought I have read close to a hundred books on investment. I'm very sorry if I have told you that I've read close to a hundred books on investment. It was a sincere lie; one I believed myself. If you are just starting out, I'll advise you start with Rule #1 by Phil Town and Corporate Finance by Ivo Welch.
  25. Michael Olafusi

    The Income Statement

    (Originally posted: 23/01/2014) I hope you've been following my NSE investment series. Today, I'll be showing you how to interpret a company's financial report starting with the Income Statement. Here's a quick recap of some of the relevant stuffs I have explained before now: The most influential factor in the investment world is Growth. A Financial report consists of five major parts: The Income Statement, The Balance Sheet, The Cash Flow Statement, Statement of Shareholders Equity and Notes Time Value of Money The Magic of Compound Interest Understanding Risk and Reward Why you need to start investing Having the right perspective Compound Interest Again Understanding Stocks and Bonds Understanding the different types of shares How Stock prices are determined Why some companies are selling at high stock prices and others at low stock prices What to take care of while deciding on which stock to buy Stock Investment Strategies My Updated Stock Analysis sheet So let's move on to the topic of the day: The Income Statement. Below is a snapshot of Total Nigeria's Income Statement for 2012 Of the 5 parts of a Financial report, 3 are most important: The Income Statement, The Balance Sheet and The Cash Flow Statement. In subsequent posts I will explain the The Balance Sheet and The Cash Flow Statement. The Income Statement is also known as the Profit and Loss Statement. It details the company's revenues and expenses for a specified period (1 year for an annual report). It is the most popular Statement in the Financial Report, because it's the report that most easily shows the financial trend of the company. When taken across several reporting years, it shows if the company is growing or not, if the gross margin is improving or not, if the operating profit margin is too slim or not, the effect of non day-to-day (operations) transactions, and the effect of foreign exchange on revenue. Most Income Statements can be separated into the following lines: Revenue or Total Sales: This shows the total amount of sales the company made in the reporting period. In the image above, Total made a sale of over 217 billion naira in 2012. That's a lot! That's about 600 million naira a day. Cost of Goods Sold (COGS): This is the cost of the raw materials used in the production of goods sold. If I sell DSTV dish for N15,000 and bought each dish from the foreign supplier at N10,000 per one. Then I spend N500 to paint it white and brand it as a DSTV dish. My COGS will be the total money it cost me to make the finished product (N10,000 + N500), N10,500. That's my cost of goods sold. The special thing about this is that, I can not afford to sell below that price. My Revenue -- COGS = Gross Margin. In the example above, Total is spending N88 as COGS for every N100 it makes as Revenue. That's a very slim Gross Margin, 12% Gross Margin. All the mouth watering N217 billion revenue is just N26 billion in Gross Profit. And there are SG&A expenses to cater for. Selling, General and Administrative (SG&A) expenses: This shows what the company spent to get the finished products to the buyer. In Total's case it covers it's cost of running the filling stations, advertising and workers' salaries. Operating Profit: This is what is leftover after the company has paid all its production and SG&A expenses. Total is obviously in a low profit margin industry. Almost all its revenue is spent on production & operating expenses. Other Income and Expenses: Occasionally, companies make money from tax refunds, sale of old equipment e.t.c. And they also lose money when someone charges them to court and wins a compensation case against them. That affects the Revenue and must be shown under Other Income and Expenses. Profit Before Tax: This is the sum of the Operating Profit and Other Income/Expenses the company had in the reporting year. It's the one tax is calculated on. Tax: The tax the company paid. The corporate tax in Nigeria is 30%. Some pay 2% Education tax. Net Profit: The money the company really made. It's what's left after all the official expenses and tax are deducted. This is what we are all interested in seeing that it's going up year after year. Any year a company fails to exceed it's last year's net profit, it's share price (usually) takes a big hit. And these are what you'll find in most Income Statements. Banks income statements are very different. But same logic runs through: In the end, there's a Revenue, an Operating Profit and a Net Profit. Next in the series will be -- The Balance Sheet.
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