Don’t Let Negative Thinking Place You in Investment Stops, Start Investing Now
Here are 3 investment stops to start investing money for retirement, savings, vacation or just a rainy day. It is essential if you want to ever retire, you must know how to invest.
The 3 Major Investment Stops
I don’t have enough money to invest.
I have to pay off my bills first.
I have money to invest, but I am afraid.
What is stopping you from starting to invest? Three of the most common investment stops are listed above. What can you do to start yourself to invest?
There are many inexpensive ways to start investing. You can open an investment account with a broker that sells shares or partial shares of stocks.
You can open a mutual fund account with a mutual fund company that will allow you to start with a small amount of money. And finally, you will have to shed some old baggage about investing, for example, “I will start investing when I get my bills paid off,” or “I am afraid to invest.”
Start With the Right Investment Priorities:
You don’t have to have a lot of money to start an investment account.
There are mutual fund companies that will allow you to start an investment account for as little as one hundred dollars. You can add as little as twenty-five dollars a month.
The monthly additions work to significantly increase your account due to dollar cost averaging. Low-cost, low-risk mutual funds have a tendency to be less complicated than stocks. But, low-risk dividend paying stocks of stable companies are a good research vehicle as well as mutual funds.
There are companies that will allow you to invest in a few shares or partial shares of stock starting with as little as eight dollars a month. Then, adding eight dollars a month to your account to purchase these shares or partial shares of stocks .
I have to pay off my bills before I start to invest.
It is a good idea to have your debt well under control before you start to invest. The interest rates on outstanding debts sometimes are in excess of the interest rates on investments. Coupled with compounded interest, high debt payments can be excessive.
There is an easy way to invest after you have your bills under control, that is to treat your investment as “just another bill.” Before you know it, you will have a significant investment account.
Do you have plenty of money to invest, but you are simply afraid? I think the term for that is, “fear of the unknown.” That is probably the easiest investment stop we address in this article.
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Use this stock research information to start your stock research and investment in equities, including mutual funds.
One of the first stock research tips you should know is; an investment in a stock issued by a company is an equity security. There are individual equities or stocks and you can purchase equities in mutual fund shares when the mutual fund is made up of stocks.
I personally feel beginners, but many seasoned investors are better off investing in mutual funds – mainly because they have expert management. But, you must understand individual equity securities before you start to invest in mutual funds.
Earnings and Profitability
Check to see if your company has earnings. Then check to see if there has been a yearly increase in earnings for the past five years. After earnings verify the company has a profit. To the novice investor, it seems that a company cannot exist without profits.
But, companies can and they do. Some companies get their start with venture capital funding, this funding is paid to companies as high as 5, 10, 50 million dollars and up.
Some companies make good on their venture capital funding, pay the investors, and make a profit, and some don’t. This is what happened with the dot-com bombs of recent years, many of those companies had venture capital funding.
Some of them were given millions of dollars without having a company, earnings, or lest I say, profitability. Only a few of those companies persisted, developed products, and turned a profit. Since this is the highest risk level of a new venture company, it is best to invest in these companies after they have proven products and have turned a profit.
P/E or Price to Earnings Ratio
First look at the company’s earnings as they stand-alone. Does the company even have earnings? How can a company even exist without earnings? During the recent dot-com craze of the late 90’s , many of the companies’ stock prices increased dramatically in just a few hours to a few days, after going public, but yet the companies had no earnings.
The reason they were able to debut on the stock market, was in part, as I mentioned above, because of funding from private sources or venture capital companies. After going public, their stock prices dramatically increased because of speculation that they would have future earnings.
The Internet was and still is relatively new. Some companies have made a lot of money and real earnings on the Internet in a relatively short time, or it seemed relatively short compared to the standard brick-and-mortar companies, as they are called.
Actually, many of the Internet companies that are making a lot of money with real earnings had been in existence for a few years, some developing for quite a few years behind the scenes, before they went public.
What was the clue that investors had that the dot-bombs (as I call them) had no earnings. Inexperienced investors could have looked at their P/E or price to earnings ratios. It was not uncommon to see a price to earnings ratio of 300 or 350 for some of these companies! Now that is high! In contrast many value companies have price to earnings ratios of 15, 20, or 30.
P/E or price to earnings ratio: Calculations
To calculate the price to earnings ratio, divide the stocks latest price by the earnings for the past four quarters.
$20 current stock price = $10
$2 past earnings per share
This is called the trailing PE because it is based on the companies past earnings. You can also figure out the companies projected earnings with the same formula, just substitute the projected earnings figure with the past earnings figure.
Price to Book Ratio
The price to book ratio compares the companies price to its assets.
$20 current stock price = 100% price-book ratio
$2 book value per share
If the company sells for more than its book value, investors think highly of the company. If it sells for less, investors don’t think much of the assets. Some people buy undervalued stocks, that is, stocks selling below book value because they feel they are getting a bargain.
Sometimes when you hear media reports about a stock you will hear them mention that the current stock is “selling below book value.” Some people use that as a clue to start research on that stock.
Since the Enron stock scandal, other companies have been audited by the Securities and Exchange Commission, and had to restate their earnings or have voluntarily restated their earnings. Another fundamental they have had to restate is debt. Low debt is a fundamental that many investors use to purchase a stock.
In light of the Enron scandal, some companies have admitted to hiding debt in various ways. In order to understand most of the fundamentals of a company, you will need to read the annual report, and the quarterly reports. Look for things that don’t add up, that don’t make sense or just seem “padded.”
The debt ratio; is the liabilities of the company minus the total shareholders equity. 30% debt-equity ratio is considered low debt.
10 million total liabilities = 20% debt-equity ratio
Compare debt to your house mortgage, if you have no mortgage, and therefore no debt on your home, the less you depend on your income to sustain it. You primarily have maintenance cost and taxes. Debt is a good measure of a company’s stability because the less debt a company has the less it has to depend on financing to sustain itself.
If debt is used wisely and the company can handle the payments easily, debt is not a problem. There is always the potential for problems if the company has high debt and their core products stop selling or have to be recalled for some reason, and they can’t make their debt payments. Conservative investors usually opt for low-debt companies.
Dividend Payout Ratios in Equity Investments
Tells how much of a companies profits are paid out in dividends. Older more established companies pay high dividends, where newer growth companies invest back into the company for growth and development of new products.
$2 dividends per share = 50% dividend payout
$3 earnings per share
Dividend payouts more than 50% means the company is not reinvesting much back into the company.
Industry Leader/Company Leader
Check to see if the company is in a leading industry, and that the company is a leading company in its industry. You wouldn’t want to invest in an industry that is going out of business, or a company that is doing the least business out of all companies in its industry.
You can find leading industries and leading companies categorized in major financial newspapers. Leading companies are also mentioned on televised financial news reports.
Stock Investment Management
Analyzing the company management is not a quantitative measure, but it is an indicator. Research the company management to see if they have been successful developing products for their company in the past, or if they have successfully developed other companies or products.
Read about them in online proprietary stock reports, read their history in sec (securities and exchange commission) reports, read about them in your brokers online reports. Some financial newspapers and magazines will also feature reports on company management. Jack Walsh, the former CEO of General Electric is an example of great company management, as touted by the press.
Read Annual Reports for Stocks
There are several places to study the companies you are interested in researching. First, start with the company annual report. You can call the investor relations of the company and order a report. Also, some financial newspapers provide a place where you can order annual reports.
Just check the stock section of major financial newspapers. Some annual reports are available online. Check with your online service or your online broker service to see if you can get annual reports online. You can also use “Edgar” online. Use “Edgar” at: www.sec.gov/edgar/quickedgar.htm
The Securities and Exchange Commission provides Edgar. Using “Edgar,” you can do company research. You can read annual reports, quarterly reports, mutual fund annual reports and mutual fund prospectuses. There is even a tutorial to teach you to use Edgar, at the Edgar website.
Why do stocks work best when held long term? It takes time for a company to develop a product, it takes time for a company to market and sell a product, and so it takes time for a stock to move up in price. With that said, even though you research investments before buying them, buy and hold does not mean, buy and ignore.
You should periodically evaluate the companies you hold to verify that it has not taken a bad turn, and stands to go bankrupt. You can also monitor your investments with company news using financial newspapers, financial news on television, and online financial news. There are companies that go bankrupt periodically.
If you research your company well and make an informed decision to purchase your company stock, invest in companies with high value, and monitor your company periodically, your chances of losing money with a bankrupt company should be slim.
Summary: What factors should you consider in your investment research?
Long term investing
Low taxes on investments
Strong quality companies
Great company management
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Protect Yourself From Investment Fraud For Now and in The Future!
Some of you are active investors, want to be active investors in various investment vehicles and some of you will be indirectly affected by stocks, bonds, mutual funds or other investments. Those investments could come to you via your 401k plan, an inheritance or other means. My point is anyone could be exposed to the financial markets intentionally or unintentionally. Because of this, you need to know how to protect yourself form investment fraud.
The Enron company (stock symbol – ene) “stock” scandal has been widely reported in the news in October 2001. The company stock went from $83 to .25 cents in just one year. According to the widely televised news reports one possible reason was accounting improprieties.
The most widely speculated impropriety was over-reporting of earnings by some officers. While downright false accounting reports by major companies are rare, and difficult to detect, you need to protect yourself from these types of scandals. We ask the following questions and attempt to answer them here. How do these scandals occur? Who is most vulnerable to stock scandals? How can investors protect themselves from this and other types of stock scandals?
Although most investment firms and products are ethical and legal, investment schemes and frauds do exist within the securities industry. Con artists are quick to pick up on the newest hot investment prospects and the latest technology trends and use them as a basis for fraudulent investment schemes. Bernie Madoff of Madoff Investments is probably one of the most famous investment fraud schemes.
Many of those schemes are very enticing and very difficult to spot. Almost all of them depend on trusting investors willing to believe the con artist’s claim without question. It may be difficult to identify fraudulent schemes, but there are some red flags you can pay attention to and avoid becoming a victim. Here are some pointers.
- Deal only with firms and individuals you have researched and trust.
- Be skeptical of any investment opportunity that comes about as a result of an unsolicited telephone call, Internet offering or even a television advertisement if the product cannot be easily researched. Never invest without doing some research about the opportunity. The Federal Communications Commission regulates telephone solicitations and automated calls under the Telephone Consumer Protection Act. Provisions of that act require a person making calls to identify themselves and the name of the entity on whose behalf the call is being made.
They must also give you the telephone number where the person or entity may be contacted. Other provisions require the entity to place your name on its no call list upon a written request and prohibit unsolicited calls between 9:00 p.m. and 8:00 a.m. Obtain additional information by contacting the Federal Communications commission, www.fcc.gov or 1919 M Street NW, Washington, DC 20554,
phone- 1 (888) 225-5322. Verify that your broker is certified and/or licensed through the CFP board or Finra. The Certified Financial
planner is not necessary, just good, but being registered or licensed is the law.
- Beware of glowing promises of high returns. Ask yourself why the promoter is so eager to share this opportunity with you, and remember that if it sounds too good to be true, it probably is.
- Don’t invest in a product you don’t understand, do your reserch, do lots of reading. There are many online investment portals where you can learn basic investing.
- Carefully analyze promotions offering high returns by investing in the latest technology developments. The promise of high returns is a red flag for investment fraud.
- Resist the temptation to invest “right now” because “tomorrow will be too late.” Don’t be surprised if they follow that line by “We will have someone there within the hour to deliver the prospectus and pick up your check.” Another line is, “I will have my supervisor call you and explain everything”.
- Never believe a salesperson when he says, “You don’t have to read the prospectus or contract. That’s just for the lawyers.”
- Do not give out your social security number, credit card or bank account information to people who solicit you.
- Look for audited financial statements and review them carefully. Be leery of the absence of audited financial statements and scrutinize unaudited financial statements carefully because an expert third party has not attested to their accuracy. Question any financial statement projections to see if the expenses and profits appear reasonable.
- Take notes of your conversations with your broker-dealer agent or investment advisor representative. Include the dates and times.
- Always..always..always….read and understand the legally required offering documents; ask questions and insist on reasonable answers. Seek advice from a knowledgeable friend or consult with your financial advisor, and invest only after you have satisfied yourself that the risk in this particular investment agrees with your financial objectives. You can read the recent news on a stock, research here for stocks, and here for mutual funds, Fidelity Investments is a major firm that has a large, easy to use research section.
- Save all records of transactions and correspondence. Never part with original documents.
- When considering equity securities prices below five dollars per share or unit and a market value of $250 million, these are penny stocks or microcap stocks. The risk of buying these stocks are extremely high. Be sure you receive, read and understand the lawfully required consumer protection information prior to conducting any business, read here to understand why microcap or penny stocks are, in many cases fradulent stocks.
- Slick promoters know how to make investment fraud sound legitimate and inspire your confidence. That is why they succeed so often. If you feel you have been victimized, report the matter to your state corporation commission, division of securities and retail franchising. On the national level you can contact the Securities and Exchange Commission (SEC), or the National Association of Securities Dealers, inc. (NASD), via the websites. You might also want to contact an attorney to determine your rights or file an arbitration claim. Your prompt complaint may keep others from being defrauded and increase your chance of getting your money back.