Recently I have been reading this book . Definitely some takes and some "non" takes from the book. Cramer goes over different stocks to be purchased at different times in the economy. Once an industry is picked , next is the choice between various companies within it.
Here are some guidelines that are outlined in the book for comparing stocks in an industry
1. P/E ratio, this seems to be the #1 principle.
2. Growth rate of a company: Online sites like thestreet.com or reuters or yahoo finance will list the rate the company is growing. This should be in sync with the growth rate.
3. Dividend comparison: Yield is the trick, Compare yield vs. the actual dollar amount of the yield.
4. Think outside the box: Real business world. Are there some take over or other orders lurking for the company?
5. How does the company perform vs. S&P 500. A bargain is a company with P/E lesser than the industry but has better sales and earnings faster. For example in the current market non cyclical stocks would normally outperform the other ones in the market.
As an example Coke vs. Pepsi comparison is listed at http://seekingalpha.com/article/91789-coke-vs-pepsi-cramer-s-mad-money-8-19-08 Seeking Alpha
More useful tips coming up in the upcoming blog(s).
Disclaimer : Author does not hold KO or PEP at the time of writing the blog and is provided as an example.
Sunday, September 7, 2008
Saturday, August 23, 2008
Your money or your life
Recently glanced through this book, especially the section covering the crossover point which signifies "financial independence" after mymoneyblog wrote up an article on this. This point dictates the start of financial independence when your passive income (income generated not by working at a job or business) exceeds your expenses.
The author describes the crossover point by means of this simple figure.
Figure courtesy of the book : "Your Money or Your Life" and mymoneyblog.com.
The author uses the treasury note rate of return to calculate annual return of investment.
Consider the savings invested 60% in one year CDs and 40% in stocks will earn an interest/rate of return of around 4% and 6%(typically stocks should return more) to give an average of 5 % rate of return.
$100k will earn $5k per year or $416 per month before taxes. In reality it will take a long time before which the monthly investment come will touch the line of tip over of financial independence which is the expense line.
However I see that a few milestones could be derived from this discussion. Complete financial independence is the ultimate goal but there could be minor goals on the way. One common example is grocery or eat out bills. This I call as food independence as seen in this example.
There could be other milestones built on the same fundamental idea.
Essentially an individual would like to track the performance of passive investment making some intermediate goals along the path to the final goal.
The crossover in my mind is not a single point but a range. I will discuss that in a separate post.
The author describes the crossover point by means of this simple figure.
Figure courtesy of the book : "Your Money or Your Life" and mymoneyblog.com.
The author uses the treasury note rate of return to calculate annual return of investment.
Consider the savings invested 60% in one year CDs and 40% in stocks will earn an interest/rate of return of around 4% and 6%(typically stocks should return more) to give an average of 5 % rate of return.
$100k will earn $5k per year or $416 per month before taxes. In reality it will take a long time before which the monthly investment come will touch the line of tip over of financial independence which is the expense line.
However I see that a few milestones could be derived from this discussion. Complete financial independence is the ultimate goal but there could be minor goals on the way. One common example is grocery or eat out bills. This I call as food independence as seen in this example.
There could be other milestones built on the same fundamental idea.
Essentially an individual would like to track the performance of passive investment making some intermediate goals along the path to the final goal.
The crossover in my mind is not a single point but a range. I will discuss that in a separate post.
Monday, July 28, 2008
What happens when the dollar shrinks ..
Especially when $1 = Indian Rs. 1
Over the past few months the dollar has been declining against the Euro. This spurred me to think of some discussions I had with friends a few years ago.
The talk was centered around immigration into the US and what makes an individual leave her or his country to go for better prospects in a developed country like USA.
There are various reasons why people move : better job prospects, lesser political tension, better infrastructure support and last but not the least is money driven by growing economy.
In his book "The World is Flat" Friedman talks about how jobs have moved from one country to another largely due to the growth and advancement in technology which link the developed and developing nations.
Today jobs are shifted overseas for getting the same done cheaply. What does one spot at the end of the tunnel?
Today the value of $1 is approximately Rupees 40 in Indian currency. Will a perfect flat world be considered when $1 = Rs 1 or 1 yuan or 1 pesos?
Rather than going into how this could happen lets consider if this does happen what kind of effect will it have. I surveyed a few Indian friends I have and most of them said that Indians would return back to their country since the whole purpose of them coming here was to make money and if thats no longer true then there is no incentive to stay.
That was an immediate reaction. If one thinks more about the same thing. If $1 would become Rs. 1 then will American businessmen see any point to outsource? Will that mean all centers or outsourced jobs would come back to the US?
What would that mean for the Indian economy? Will it fear to lose all these jobs or think of outsourcing them somewhere?
There are some that move to other countries to attain more freedom and just to run away from their home land if the lifestyle back home is not to their liking.
I also spoke to some of my Latin friends , one from Venezuela thought that the baby boomer generation might move back faster if that happens.
The general feeling I got was life after retirement is easier in one's home country.
These are my general thoughts thinking about the same. I will jot down more. I welcome a discussion here :)
Over the past few months the dollar has been declining against the Euro. This spurred me to think of some discussions I had with friends a few years ago.
The talk was centered around immigration into the US and what makes an individual leave her or his country to go for better prospects in a developed country like USA.
There are various reasons why people move : better job prospects, lesser political tension, better infrastructure support and last but not the least is money driven by growing economy.
In his book "The World is Flat" Friedman talks about how jobs have moved from one country to another largely due to the growth and advancement in technology which link the developed and developing nations.
Today jobs are shifted overseas for getting the same done cheaply. What does one spot at the end of the tunnel?
Today the value of $1 is approximately Rupees 40 in Indian currency. Will a perfect flat world be considered when $1 = Rs 1 or 1 yuan or 1 pesos?
Rather than going into how this could happen lets consider if this does happen what kind of effect will it have. I surveyed a few Indian friends I have and most of them said that Indians would return back to their country since the whole purpose of them coming here was to make money and if thats no longer true then there is no incentive to stay.
That was an immediate reaction. If one thinks more about the same thing. If $1 would become Rs. 1 then will American businessmen see any point to outsource? Will that mean all centers or outsourced jobs would come back to the US?
What would that mean for the Indian economy? Will it fear to lose all these jobs or think of outsourcing them somewhere?
There are some that move to other countries to attain more freedom and just to run away from their home land if the lifestyle back home is not to their liking.
I also spoke to some of my Latin friends , one from Venezuela thought that the baby boomer generation might move back faster if that happens.
The general feeling I got was life after retirement is easier in one's home country.
These are my general thoughts thinking about the same. I will jot down more. I welcome a discussion here :)
Friday, July 4, 2008
The World is Flat or Spiky - free trade analysis
Further on the analysis of "The World is Flat " By Friedman.
On the aspect of "free trade" Friedman explains how outsourcing or globalization might be good for all countries. He sites an example of "free trade" between US and China , these two being the only countries of the world. This will create additional resources in the market. If US had 100 people and China had 1000 people then the total number will be 1100 peoplewhich was described as win-win situation for both countries.
If this does happen then certain low level jobs in the US will go to China and these people will need to bump themselves up in the vertical markets which means higher education.
As globalization of flattening continues the population in the developed countries will need to prove themselves by competing with someone thousand miles away. Education will be an important criteria and we might see an increase in the number of applications for colleges.
At the same time the people in these developed countries will now be made to think to ensure they serve the higher 1100 vs. 100 people market. That is a stimulant or an incentive for business ideas.
I still think low skilled people will need to worry if education or intelligence is not their piece of cake and surviving in the flat world might require them to move to other low level skilled jobs which cannot move to China.
This movement of jobs creates a stiff competition in the developed countries. Pay rises increase in software tech industry in India is cited as an example in the book. Will it ever grow to the level equivalent to the US? If that becomes a reality will outsourcing really stop?
At this point the question that comes to our mind is outsourcing done to save money or improve quality or both?
The World is Flat can be interpreted in a few different ways. What is the true example of the ideal flat World? Is it that each person is self sufficient in their own country? Does that mean that less people will now migrate to US from Asia or Latin America since now there is a state of equilibrium established? Yes, there could be temporary assignments if this "free trade" continues.
For that to happen the first thing is that money across the world also becomes flat. Will that world be called "Money is Flat" and we just trade in one currency?
Will it happen that capitalistic minds in one country fierce in competition in the other ?
In this article on "The World is Spiky" found at http://isites.harvard.edu/fs/docs/icb.topic30774.files/2-2_Florida.pdf the author talks about the spikes in geographical concentrations of economic activities and notices the spikes at many. He also notes that innovation is concentrated in just a few countries in the world and argues that the World is Spiky. An example cited in the article is that people in urban areas of China makes 3 times more money than the same in the rural areas.
The above example cites a different angle of view for the same or similar idea of the flattening world.
On the aspect of "free trade" Friedman explains how outsourcing or globalization might be good for all countries. He sites an example of "free trade" between US and China , these two being the only countries of the world. This will create additional resources in the market. If US had 100 people and China had 1000 people then the total number will be 1100 peoplewhich was described as win-win situation for both countries.
If this does happen then certain low level jobs in the US will go to China and these people will need to bump themselves up in the vertical markets which means higher education.
As globalization of flattening continues the population in the developed countries will need to prove themselves by competing with someone thousand miles away. Education will be an important criteria and we might see an increase in the number of applications for colleges.
At the same time the people in these developed countries will now be made to think to ensure they serve the higher 1100 vs. 100 people market. That is a stimulant or an incentive for business ideas.
I still think low skilled people will need to worry if education or intelligence is not their piece of cake and surviving in the flat world might require them to move to other low level skilled jobs which cannot move to China.
This movement of jobs creates a stiff competition in the developed countries. Pay rises increase in software tech industry in India is cited as an example in the book. Will it ever grow to the level equivalent to the US? If that becomes a reality will outsourcing really stop?
At this point the question that comes to our mind is outsourcing done to save money or improve quality or both?
The World is Flat can be interpreted in a few different ways. What is the true example of the ideal flat World? Is it that each person is self sufficient in their own country? Does that mean that less people will now migrate to US from Asia or Latin America since now there is a state of equilibrium established? Yes, there could be temporary assignments if this "free trade" continues.
For that to happen the first thing is that money across the world also becomes flat. Will that world be called "Money is Flat" and we just trade in one currency?
Will it happen that capitalistic minds in one country fierce in competition in the other ?
In this article on "The World is Spiky" found at http://isites.harvard.edu/fs/docs/icb.topic30774.files/2-2_Florida.pdf the author talks about the spikes in geographical concentrations of economic activities and notices the spikes at many. He also notes that innovation is concentrated in just a few countries in the world and argues that the World is Spiky. An example cited in the article is that people in urban areas of China makes 3 times more money than the same in the rural areas.
The above example cites a different angle of view for the same or similar idea of the flattening world.
The World is Flat - review
Recently I have been reading the book "World Is Flat" by Thomas Friedman. One good thing about the book has been it has brought alive a lot of interesting historical events which were stored in our grey matter somewhere. Since there are so many facts brought about in the book its hard to recollect all .. a blog to share might we worthwhile
I had some interesting take aways in the few chapters I read in the book.
Take the story of how Walmart grew and does business with its "Everyday low prices". One thing that Friedman points out intelligently in one of the chapters is how the society pays for the above in an indirect way. He takes an example of how Walmart insures its employees and makes a point in saying that the society indeed pays for the "everyday low prices" through tax money whereas Costco does do the opposite but thats what a citizen in many may demand.
Very interestingly Friedman has made some points alive like "income levels of people who shop at Walmart, Target or Costco"? Why is it that some people pay more to get the same thing at other place - is it because of convinience or simply a matter of principle?
More of the World is Flat to continue in my next writings....
I had some interesting take aways in the few chapters I read in the book.
Take the story of how Walmart grew and does business with its "Everyday low prices". One thing that Friedman points out intelligently in one of the chapters is how the society pays for the above in an indirect way. He takes an example of how Walmart insures its employees and makes a point in saying that the society indeed pays for the "everyday low prices" through tax money whereas Costco does do the opposite but thats what a citizen in many may demand.
Very interestingly Friedman has made some points alive like "income levels of people who shop at Walmart, Target or Costco"? Why is it that some people pay more to get the same thing at other place - is it because of convinience or simply a matter of principle?
More of the World is Flat to continue in my next writings....
Friday, May 16, 2008
Long term Investing during down markets
People are always looking for ways to make money. In a uptrend market no one wants to miss a boat and in a downturn is always about how can I recover the lost dollar.
Investing during down times could be hard especially around the pessimism that may surround the news. It's been said that more or most returns could be fetched by investing in a downturn.
Although past is not an indicative of the future lets take a look at examples of investing in some bear markets in the past and how investing during bear markets can have profits of its own.
The rule is start systematic investments(SIP) for every specific period in a bear period until the next positive trend or until the value at last instance is lesser than the current one.
Let us start with the oil crisis in 1973 which started around October 1973 which further led the downfall to the stock market. Assumption is that one started investing in the NASDAQ index back in June 1973 in a systematic investment plan until say September of 1974 . Between this period the NASDAQ went from 108.54 to around 59 with SIP of $100/month. For a period of 15 months this would mean an investment of $1500 with an average price of $84 for the index with roughly 17,85 shares.
courtesy:finance.yahoo.com
Lets consider the same investment plan for investments into savings account at the same timeframe with an average of an savings interest rate from 10% to 6% (source http://en.wikipedia.org/wiki/Image:Federal_Funds_Rate_%28effective%29.png ). This is effectively money wit 8% rate of return for a principal of $1500.
Lets first have an investment period of 5 years by which the NASDAQ index went up to around 130 which (not inflation adjusted) is an increase of roughly 54%. This money will now be taxed
Our initial investment now in the share market is worth around $2321 (which after tax will be $2115) whereas our money in the bank would have grown to around $2007 with the assumption that the tax bracket is 25% and the money is kept in an after tax account. The net (compounded interest) gain here is 33%.
This is money I consider good for a long term investment (5- 10 years) vs. a very long term (more than 10 years) investment.
Applying the same hypothesis to other bear markets in the past from 2001 - 2003 and the 1979 energy crisis yielded promising results. A larger bear market meant more time to stay put into the SIP but saw good yields thereafter.
There are some assumptions made in this theory: Investor is starting to invest in the fund at this point or does not already have an SIP in the same fund from an earlier time.
In my second article I will try to analyze if buying during a bull market is lucrative. Stay tuned and let me know your thoughts.
The bear market investing for longer term looks to be lucrative.
Investing during down times could be hard especially around the pessimism that may surround the news. It's been said that more or most returns could be fetched by investing in a downturn.
Although past is not an indicative of the future lets take a look at examples of investing in some bear markets in the past and how investing during bear markets can have profits of its own.
The rule is start systematic investments(SIP) for every specific period in a bear period until the next positive trend or until the value at last instance is lesser than the current one.
Let us start with the oil crisis in 1973 which started around October 1973 which further led the downfall to the stock market. Assumption is that one started investing in the NASDAQ index back in June 1973 in a systematic investment plan until say September of 1974 . Between this period the NASDAQ went from 108.54 to around 59 with SIP of $100/month. For a period of 15 months this would mean an investment of $1500 with an average price of $84 for the index with roughly 17,85 shares.
courtesy:finance.yahoo.com
Lets consider the same investment plan for investments into savings account at the same timeframe with an average of an savings interest rate from 10% to 6% (source http://en.wikipedia.org/wiki/Image:Federal_Funds_Rate_%28effective%29.png ). This is effectively money wit 8% rate of return for a principal of $1500.
Lets first have an investment period of 5 years by which the NASDAQ index went up to around 130 which (not inflation adjusted) is an increase of roughly 54%. This money will now be taxed
Our initial investment now in the share market is worth around $2321 (which after tax will be $2115) whereas our money in the bank would have grown to around $2007 with the assumption that the tax bracket is 25% and the money is kept in an after tax account. The net (compounded interest) gain here is 33%.
This is money I consider good for a long term investment (5- 10 years) vs. a very long term (more than 10 years) investment.
Applying the same hypothesis to other bear markets in the past from 2001 - 2003 and the 1979 energy crisis yielded promising results. A larger bear market meant more time to stay put into the SIP but saw good yields thereafter.
There are some assumptions made in this theory: Investor is starting to invest in the fund at this point or does not already have an SIP in the same fund from an earlier time.
In my second article I will try to analyze if buying during a bull market is lucrative. Stay tuned and let me know your thoughts.
The bear market investing for longer term looks to be lucrative.
Sunday, April 27, 2008
Personal Inflation - whats yours?
According to the wikipedia the definition of Inflation is "a rise in the general level of prices over time. It may also refer to a rise in the prices of a specific set of goods or services. In either case, it is measured as the percentage rate of change of a price index."
Inflation (to a certain degree) in general is useful for the economy as it forces spending and re-investing in the hope that prices will increase in the near future and helps one to lock down a price.
Inflation is one buzzword that one may be hearing a lot these days. The CPI (Consumer Price Index) or COLI (cost of living index) are some of the measures of inflation. COLI gives an estimated comparison between two regions and is useful when moving jobs or to different cities. Attached link provides one such comparison. Another example is CNNMoney's site.
How would you compare the inflation affecting you? One quick measure is comparing the grocery and other bills you paid vs. the one paid this year. Well, it really depends, can compare how much house prices and other things went up as well.
In general a rule of thumb would be to compare how much things that you require everyday went up. That would give you a sense of the net affect to you. Then there are indices - virtual which went up by a certain amount only if you counted them. One such example is housing cost. If you are not shifting to another house then the house price increases or decreases will not affect you directly.
I found such personal inflation calculators online as well. Taking into account one's personalized inflation one needs to observe that re-investing or salary increases are growing at atleast the same or better rate otherwise you are making a loss. vs a visual profit.
The main factor in inflation at least in the US is gasoline. So much depends on it. Often you will find just a single person driving a car unless of course one is making use of the HOV lanes. Public transport being such a scarcity people are forced using their automobiles. The real question is when will people seriously consider using the public transport more seriously and make their local cities think greener !
Inflation (to a certain degree) in general is useful for the economy as it forces spending and re-investing in the hope that prices will increase in the near future and helps one to lock down a price.
Inflation is one buzzword that one may be hearing a lot these days. The CPI (Consumer Price Index) or COLI (cost of living index) are some of the measures of inflation. COLI gives an estimated comparison between two regions and is useful when moving jobs or to different cities. Attached link provides one such comparison. Another example is CNNMoney's site.
How would you compare the inflation affecting you? One quick measure is comparing the grocery and other bills you paid vs. the one paid this year. Well, it really depends, can compare how much house prices and other things went up as well.
In general a rule of thumb would be to compare how much things that you require everyday went up. That would give you a sense of the net affect to you. Then there are indices - virtual which went up by a certain amount only if you counted them. One such example is housing cost. If you are not shifting to another house then the house price increases or decreases will not affect you directly.
I found such personal inflation calculators online as well. Taking into account one's personalized inflation one needs to observe that re-investing or salary increases are growing at atleast the same or better rate otherwise you are making a loss. vs a visual profit.
The main factor in inflation at least in the US is gasoline. So much depends on it. Often you will find just a single person driving a car unless of course one is making use of the HOV lanes. Public transport being such a scarcity people are forced using their automobiles. The real question is when will people seriously consider using the public transport more seriously and make their local cities think greener !
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