Investment 2011

Does Your Investment Style Match Your END Goals?

Investment styles usually refer to value versus growth or active versus passive or small cap versus large cap… but choosing one style doesn’t necessitate you abandon the other and they may not help you reach your investment goals anyway. In fact, integration of all of these investment styles can really create a truly diversified portfolio.

Some advocates of one style over another argue for the returns their style produces… but the studies of such returns are only as good as the investors themselves. In fact, even investors in the top quartile can lose money if the markets are down significantly, such as the 14% Year-to-Date drop in the TSX.

Rather than arguing for one style over another, I’m going to help you discover what style is more natural to you… and then share a few ways each of the styles can help you achieve your end goals!

Know your Investment Styles

Each of us has a natural investment style… which is usually dependent upon our knowledge of investing as well as our broader personality as it relates to taking risks. If your not a risk taker in day-to-day matters, you’re likely going to gravitate to an investment style that is more conservative in nature. On the contrary, if you’re a risk taker in life and entrepreneur by spirit, you’re more likely to take calculated risks when it comes to investing your money.

Investment styles are more personal than they are financial… so rather than focus on the traditional value versus growth or active versus passive or small cap versus large cap styles, we’ll focus on the broader financial personality you exhibit and how that likely impacts your investment style.

First, we have the Saver. If you normally hate parting with money, you’re likely exhibit a saver’s financial personality. The Saver is meticulous in finding deals, researching before acting and rarely invests impulsively. You’re more likely to focus on the fundamentals of a company and be less swayed by the “hot stock tip” of the day. Rarely impulsive, the Saver is all about capital preservation more than maximizing returns.
Second, we have the Spender. If you love to make purchases, you’ll also love the latest stock tip. After all, you don’t want a “deal” to pass you by… in fact, you may never look at the fundamentals of the stock nor the technicals for that matter. All that research just slows you down from buying on impulse when it feels right! Cash doesn’t sit in your account… it gets “invested” as soon as possible.


Third is the Spark Plug. Are you willing to risk losing money for the potential of greater investment returns? In the typical “know-your-client” questionnaires, the Spark Plug is the one who will risk the most to make the most. Spark Plugs are confident in their investment decisions, so much so that when a stock drops in price, they’ll be the first to advocate for a doubling-down (which they usually call “dollar cost averaging” because it sounds more refined). The lower the stock price, the more excited they get knowing the potential of that little stock to double or triple in price. Emotion often drives their decision making… and consulting others is a formality… and even a nuance at times.
Fourth is the Security Seeker. Playing it safe is the motivation behind your investment decisions. Saving in a “guaranteed” financial instrument is where 90% of their money goes… and insurance products are investment tools. Conservative doesn’t begin to describe the Security Seeker… and if they do invest in a stock, it better be a big name that was around the past 20 years with a sizeable and reliable dividend payment.

Most investors discover they relate immediately to one of these styles, but also find affinity with one of the other styles at times. Typically speaking, these are the types of investments most commonly found in the portfolios of these investment styles:

Saver – Large cap stocks, Index ETFs, Dividend stocks (i.e. Johnson and Johnson, Proctor and Gamble, Intel, General Electric).
Spender – You name it… any investment is a good investment. Diversity is found in not being picky or being locked into a particular investment track.
Spark Plug – Leveraged ETFs, Initial Public Offerings (IPOs), “hot” Technology Stocks, and penny stocks (i.e. TZA or TNA, Groupon, little companies that make parts for Apple like Interdigital Communications – IDCC).
Security Seeker – Guaranteed Investment Certificates, Government Treasury Bills, Money Market Funds and big name stocks with history and future (i.e. McDonalds, Ford, IBM).

Matching your Investment Style to Meet your END Goals

Knowing your investment style and how your personality impacts your investment style can help you recognize why you may not be accomplishing your investment goals. And while you’ll never divorce yourself, nor should you, from your investment style, you might want to consider opening up to incorporating just a little bit of another investment style. If you do so, you’ll be more likely to reach your end goals!

So, before you start to invest, consider the END. Here’s how:

Evaluate why you invest – Before you start to invest, you need to begin by evaluating what you know and don’t know… and why you’re considering investing to help you reach your goals. Knowing why tucking money under the mattress won’t help you reach your goals will help you evaluate what investment styles you may need to adopt at times in order to reach your investment goals.
What is your investment Needs – If you were to spend all of the profits you make your first year investing, what would you spend that money on? The answer to that question will help you identify your most pressing need. Knowing what it is you are wanting to do with you investment capital will prompt you to expand your investment style.
Remember your Dreams – What do you want your future to look like? Do you want to start a business, retire comfortably, leave a legacy for your children, buy a home, or? Remembering your dreams focuses your investment styles to ensure they are working for you, not simply holding you hostage to meager results.

Knowing your investment styles and keeping your END in mind is a 10 minute review once a month, a worth-while investment of time to ensure you are on track to reach your investment goals. Rather than buying into the often less than helpful paradigm of investment styles such as value versus growth or active versus passive or small cap versus large cap, consider integrating your natural investment styles with one that is a little more foreign and experience the benefits of directing your investments rather than being controlled by some overarching investment style that isn’t helping you accomplish your investment goals!

investing in gold

The solutions for investing in gold

Many wonder how to invest in gold. We have mentioned in previous article that the solutions to invest in gold are six: the purchase of coins, the purchase of bullion, the opening of a gold deposit, the subscription of gold certificates, the signing of a mutual fund who buys and sells shares of gold companies, the subscription of an ETC (Exchange Traded Commodities) tradable on the stock exchange.

The first four tools are offered by investment banks (especially in Switzerland) that has a heritage of a certain size (a few million Euros):

> Coins. There is a wide variety of gold coins issued by governments around the world, the market value of which depends on their content of pure gold. Do not confuse the coins in precious metal coins commemorative coins collected by enthusiasts. The value of the latter, in fact, depends on rarity, design and finish of the issue, not the content of pure gold.

> Ingots. They can be purchased in different weights and sizes (usually range from one ounce to 400 ounces – one ounce equals 28.35 grams). Are considered as small ingots weighing less than 1,000 grams. There are 94 producers in the world of gold bullion in 26 countries.

> Gold Deposit. They can be opened with many large banks where the gold is stored in a vault. The bars (or coins) are stored, numbered and identified according to an official seal of guarantee. The investor pays for the service and filing of an insurance policy against theft.

> Gold Certificates. In some countries (especially in banks in Switzerland and Germany) are gold certificates allow investors to own gold without the physical delivery of the material. The certificates are for those who own them, a title of ownership while the bank keeps the gold material for the customer, who can still sell the certificates with a simple phone call to the bank.

Gold invest

Among small and medium savers solutions are popular for some years, especially two.

The first is represented by equity mutual funds that invest in mining companies in the gold mining sector, i.e. companies that are engaged in gold mining around the world. In general, if the gold price increases, the actions of these companies increase in value. Actually, however, not always the case. It should be borne in mind that this type of investment fund products are still affected by the trend of equity grants. During the financial crisis of 2008, these products have come to losing on average as high as 25%.
The second solution, we believe the most effective way to invest in gold without incurring the risks of equities, is to focus on ETC (Exchange Traded Commodities).

These financial instruments to allow small and medium investors to invest in commodities such as oil, agricultural products (corn, soy) and, of course, gold. The investors buy shares of ETC (which is negotiable on the stock exchange at any time during the hours of trading, as any equity security) and paid the money needed to buy a certain quantity of gold, which is stored in the form of ingots in the vault of a large international bank. Each installment of the ETC is, even if indirectly, to the property “physical” gold. So, if the gold price rises, even quotes the ETC move in the same direction. ETCs do not expire, meaning they can be purchased and held in the portfolio for several years.

In international stock markets gold is usually traded through financial derivatives (options and futures) whose operation is difficult to understand for investors who are unfamiliar with finance. The tools are simple Etc instead of derivatives, but not always. Pay attention, for example, the exchange factor, because almost all are priced in dollars. If the euro strengthens against the dollar is likely to have negative returns to the point of dismantling the possible rise in the price of gold.

However we can say that the gold Etc represent a suitable tool to small and medium savers are instruments that provide good diversification opportunities, particularly because the gold (and commodities in general) is not strictly correlated with the main markets investment such as equities and bonds.

gold


Tips on How to Invest in Gold
Gold has always been considered a safe haven for investors throughout the ages, even when the value of currencies is in decline gold has been proven to be a reliable method of preserving its financial value. While most of the markets suffer from instability with ups and downs, for the …

Safe investing in gold
In today’s turbulent economy, one thing is for certain, gold coins are a good investment. Since the days of old, gold has been used to strengthen the economies, and can now do the same for your portfolio currency. Having gold as part of its portfolio, said the overall value of …

Investing in gold is safe and fun
Investing and collecting gold coins can be a very profitable and interesting hobby for you and your family. If you are an expert collector very special pieces can be found in a wide variety of price ranges and locations. Buy a specific dealer or reputation is often the best place …

With the crisis conscious “Gold Rush”
The crisis bites, the stock markets shudder, the markets are afraid of the possible default of the United States and many investors on the gold link. The yellow metal touched new records every day even in current times where there is high inflation, and even the small investor is asked …

Investing

Investors in the stock market myths

Today if you show a person and asked him “What do you do?” ‘I am investor. .- Automatically invest in stock your brain processes information and the first thing is that you think ahead to Gordon Gekko or Warren Buffett, a person much smarter than you and probably millions.

Some time ago we discussed some myths of the bag, as the myth of the people who were ruined by investing in the stock market, which we explained that if it did, it did not follow some simple tips to invest in the stock market or made serious errors investor.

Today we talk about some myths in the stock market investor, because sometimes confuse some terms that are often far removed from reality.

1. A stock investor is a person with a lot of money.

To invest in the stock market need only saved some money that you will not need the coming years. It is true that there is no minimum amount to invest in stock, but if you put only 100 € will probably lose money since the cost will eat the commission. With € 1.000 to 2.000 can start investing in the stock market perfectly.

However, it is clear that the more capital you have, the more money you can invest and therefore receive higher profits.

Investors

2. A stock investor is a person with many studies.

I’ve always wondered what career to study and learn invests in stock market mastery. At this point I want to be totally accurate so that nobody can say “throw people adrift.”

I have always separated the intelligence of a college degree, because one thing leads you to the other. A doctor is not smarter than a vehicle mechanic, although some people insist on saying yes. If we put both of them a test, the doctor would respond better to the question “How many muscles of the human body,” but the mechanic would respond better to other questions based on the motor world. One thing is for intelligence and other knowledge in any subject.

We will not deny that at the time of investing in a career full of knowledge in finance is not going to help you, but I will not say that such knowledge can not buy on your own and end up learning concepts that a university has never heard

I know investors who have held more than 30 years and when they speak with a financial expert, the terms as derivatives, futures, warrants or they sound like Chinese ETF. We will not say they do not know what they are, but do not quite understand and therefore do not take risks. For example, I do not understand the currency market, so when you can not swim, you better not go near the pools.

One thing is to invest in stock market and understand all the other innovative investment vehicles, which some of these are investment products that helped produce the crisis we now live.

3. Investor is being constantly investing.

Perhaps we have been engraved image of the films that show us some brokers who spend 24 hours a day “purchase! Sold!!!”

As a general rule that stock investors earned more money are those that less buying and selling orders release. You got the real example of several traders who threw 315 orders a year and have had far less profitable than others with 15 orders.

I would not say that the bag is a game where the more you play, the more you lose, since it is clear that I do not think any games of chance, but when you exceed chance in buying and selling orders you tend to lose as you yourself are using the bag as a game and every day are not good to play.

On the other hand can be a stock investor and have no value in the portfolio. Not necessarily have to have money invested, as in specific times, it’s best to clean your positions so that may occur while we assess the appropriate time and company to enter.

There are investors who invest a February 12th and until December 24 give no other orders. Anyone can be an investor, although it is clear that in the bag there are many types of investors, large, small sharks and conservatives.

In short: No studies are needed, but you need to have a minimal understanding of the factors that drive the bag. Some people get the message in 5 months, others take years and some never stop learning. The bag is not a game of chance, but bad luck could come to be present and could not do anything about it.

And finally, when I talk to investors or people who advise when investing in stock market, usually found with two types of people.

That tells you that under a particular method will make you a millionaire and it’s very easy to do.
Anyone who tells you it is very complicated and you will start losing money.
Neither is right, though neither is 100% wrong. Nor is it as difficult as some paint it or you’ll get rich if you have not already had a large sum of capital. Remember that before getting rich, three factors are labor saving and investment, and you can not move to the third or fourth stage without going through the above. The only secrets to get rich

Then there is the investor who every month get a 40% return on the stock. In this tell him to take a walk to get some air.

medical-conditions

What is Dividend Investing?

In your reading this article then congratulations are properly in order.  You’ve worked really hard, saved your money and reached the point where you want to invest your money.  You might even know a little about dividend investing but you still have questions.

What exactly is dividend investing?

How is a dividend growth investing different from every other investment strategy?

Well this article is great introduction to dividend investing and shows you the power dividend through patient long term investing.

You’ve probably all heard the expression “buy low and sell high”. Well if you ask me that puts a lot of pressure on most everyday investors.  How do I know the know the difference between a cheap stock and bad stock?  If I’m lucky enough to buy a stock that rises when should I sell my position?  Not only does investing take a lot of knowledge and luck but it also takes a huge amount of time and effort.  On the other hand, a dividend investing strategy can be explained as “buy and wait for the checks to roll in”.  That’s right, once I buy a stock I’m expecting to hold it for at least 5 years and most of my stocks I NEVER plan on selling.

Wait a minute how can you make any money if you never sell the stock?  I’m more interested in the constant and hopefully growing stream of money that I will receive from the dividend stream of the stock.

As most people who have ever invested in the stock market know stock prices fluctuate.  Sometimes they will even fluctuate wildly.  In a exceptional year even a blue chip stock that is an industry leader can easily swing 50 or more percent.  This volatility has the potential to generate massive wealth to the stockholders provided they are able to time the ebb and flow of the market.  However the trouble with this approach is that it puts all of the burden of generate wealth onto the investor.

dividend-cut-decrease

Unlike most investing strategies, dividend growth investing is looking at stocks over the VERY  long term. Let’s take Fortis Inc. as an example.  I’m using Fortis as an example not because it is an incredible stock.  In fact in most ways Fortis is a very boring stock.  The company is primarily a utility holding company.  There is nothing very interesting about paying your electrical bill every month.  You won’t get rich over night owning this stock but don’t be too quick to ignore the company either.  Fortis operates  electrical utilities in five different Canadian provinces along three different Caribbean countries.   The reason Fortis is such an interesting company is that they have a long history of paying their shareholders cash dividends as well as increasing that dividend year after year.  Let’s take a look at the dividend history:

As you can see from the chart above in Fortis has raised their dividend every year since 1973.  In 1987 the price on Fortis stock closed at $4.75 but the company also paid out a cash dividend of $0.313 or 6.5%.  This constant and long term growing income stream is what dividend growth investors are looking in a company.

Over the long term history has shown that stocks can counted on for about an 8% annual return.  That being said on any given stock there will be year’s the stock performance will be much higher then average 8% return and there will be years that the stock’s performance will be much worse.  The beautiful thing about the dividend stream is that unless the company cuts its dividend (a clear sign that the company is not healthy) the stock holder can count on the dividend income regardless of the stock performance.

Let’s take a look at the 5 year stock chart for Fortis compared to the S&P 500.

As you can see from the above graph that the Fortis stock price did very well over the last 5 years.  However, more importantly you can see that there were fairly significant fluctuation in the Fortis stock price over the last 5 years.  The beautiful thing about thing about dividend growth investing, and the difference between all other forms of investing in that the dividend investor isn’t too concerned about the stock price because over a long enough time frame it is expected that most stocks will return close to the expected 8% annual return.  However in addition to the stock gains the investors gets to sit bad and collect dividends while he waits. For  our Fortis example that means an additional $5.14 that he collected since 2007 which works out to approximately 18% of the price that he paid for that stock in 2007.

Hopefully, this article helped demonstrate why dividend investing can be such a powerful tool.  I’d love to hear your comments; Why do you invest in dividend producing stocks?

Investment Property

Investment Property: Buy and Sell Or Buy and Hold?

On several occasions since in magazine IG and in line with the views of various specialists, we note that the option of investing in bricks is the darling of investors in unstable countries like ours, given the low confidence in the financial system and the capital market.

But beyond the geography of one’s choice or the type of real estate investment focuses on the acquisition of houses, apartments, offices, garages and all the options we are analyzing in our publications, today we will stop investment in two ways: the buy and sell in the short term and in succession, or to purchase and retain ownership for a longer time period.

What is the most appropriate investment strategy? Well, there is no single answer. The decision to choose one method over the other should be part of an explicit strategy in turn is part of the general investment goals of each person, and must also adapt to the opportunities of the market. Then we will discuss these two types of investment and see what are the advantages and disadvantages in each case. The idea is that everyone can find out which one fits more appropriately to your investor profile.

Investment

But before turning to each strategy, let’s very briefly four main reasons why it may be beneficial to invest in real estate:

1. The properties provide a more predictable income than bonds or shares.

2. The properties tolerate the vagaries of inflation because the value of income and cash flow often rises as much as the inflation rate.

3. Real estate provides an excellent place to locate the capital at a time when investors are unsure of the chances in the stock market, bonds and shares, or when these options appear to be inadequate in the long term.

4. Net assets resulting from investment in real estate provides an excellent foundation to finance other investment opportunities.

Buy and sell short-term

In principle, the first apparent advantage of changing (buying and selling) properties in a short time is the ability to effectuate an immediate profit. In such cases, the key is to find a good that, with minimal investment, raise value and satisfying the requirements for a quick sale.

For most investors, change properties can be considered a more long-term tactic. But the transaction costs are much higher on both sides: the sale and purchase, and therefore, can significantly affect earnings.

There are two types of properties that fall within the scheme of buying and selling in the short term. First, we might mention the houses or apartments that are purchased below current market values, since they are in difficult financial situation. Second are the properties that have a structural problem or design that can be modified or resolved to increase its value. In the latter case, the buyer invests capital to raise values as opposed to simply buying a property for a low base in order to create broader investment gains. Of course, it is also possible to combine these two strategies when you buy and sell properties, and many investors are devoted to it in the alternative.

Of course, you have to take time, experience and ability to deal with taxes and additional costs involved in such operations “fast.” On the other hand, find these investment opportunities in the short term may be difficult, unlike other opportunities that can be sustained over time.

Investment House

Buy and hold property

It is generally believed that buying and maintaining a property is an ideal recipe for a surprising enrichment. Most people who amassed great

fortunes in the U.S. and in many other countries did accumulate large tracts of land. Even after periods of depreciation of land values almost always recover in the long term, for one simple reason: there is a limited amount of land.

However, owning a long-term ownership involves a lot of administrative and legal issues that investors in stocks and bonds never have to face. In fact, it is an investment strategy for many investors do not have the right skills.

Most investors, especially those who become the first owners of rental properties are ill prepared or ill equipped to deal with the responsibilities of managing such properties. The process of finding qualified tenants and meet their needs, in addition to ensuring the maintenance of the property can be stressful and time consuming. And a successful management is essential for the investment is really helpful.

Choose a strategy

In order to choose the right tactics, the investor should consider some basic questions. Real estate investment, is it a central part of an overall investment strategy? Is it fits into the overall goals? Do I have a proper plan in which you insert? How much risk and how much profit is appropriate for my investment portfolio? Do I have adequate tolerance and ability to assume the administrative responsibilities that come along with each type of investment?

The choice between the two strategies depends on the situation of each particular financial and investment goal. Training, information and planning are essential at the time of opting for one of these alternatives.

What form is best suited to your profile?

Tell me what you think about the strategy most appropriate for you.

Until next week good investment!


Property Investment Types
The following are the main types of real estate investment properties that are suitable for beginning investors: Pre Investment: These types of investment properties are purchased directly from a developer before construction or renovation is complete. In return for commitment to buy, even before construction is complete the developer will …

What Beginners Need to Know about Basic property investment?
With the economy behaves as it does the stock market and shaky as a child learning to walk, businessmen more and more people are seeking alternative ways to place their investments. Investing in real estate can be a viable option, but this can be difficult and requires a certain degree …

How to invest in U.S. properties with good annual income and minimum risk?
We all know that today’s real estate prices in the U.S. are on the floor. But we are not so clear how to take this opportunity promises to be only for a limited time. This time, we show how the Real Estate Club IG allows you to take the opportunity …

Real Estate Investing for Beginners
For those of you who are new to real estate investing, I will show you how you can begin your journey to real estate investment. When starting out, can be a daunting task. There are risks involved, as always there in every company. However, all risks associated with investing in …

Tim-Robberts

When To Sell Dividend Stocks

Dividend investing is no different than investing in regular stocks when it comes down to the moment of selling your stocks. Once you know when to buy a dividend stock , you should also know when it is the right time to sell it. Your decision of selling your dividend stocks should never be based on fear or economic concerns but on solid and rational arguments. Here are quick indicators telling you when to sell your dividend stocks:

Sell Your Dividend Stock Upon A Dividend Cut

We already discuss the effect on a stock of a dividend cut. When it occurs, the stock value drops as it is an alarm signal. Dividend cuts indicate that the company has looked at all the possible options and they finally resign to cut their dividend payout in order to face their internal financial needs. It can be a result of bad management, a catastrophe (think of the BP case in 2010) or a sales slowdown.

In any case, you don’t want to be part of this boat. Your goal while holding dividend stocks is to earn dividend income. If this income becomes at risk, you should sell your dividend stock and move forward. You will definitely incur a capital loss (or at least selling at lower price) but you are better off selling right away and start hunting another solid dividend payer. For example, if you would have kept your financial stocks after the 2008, you would only start to earn dividend payout again in 2011 (small payouts for some banks). On the other side, there were astonish dividend investing opportunities back in 2009 – 2010 and you could be making 4-5% dividend yield with very solid companies.

healthcare-costs

So, bottom line; dividend cut = sell your dividend stock!

Sell Your Dividend Stock Before It’s Too Late

Sometimes, you don’t have to wait until there is a dividend cut to sell your stock. If you quarterly at your holding, you will be able to follow the key dividend ratios and sell upon weaker performance. Consider the present quarter result as long as what is coming up next for the company. If they show weaker dividend and financial ratios and there are no short term reasons to explain this, you are better off selling your dividend stock and go back to your investing model.

Sell  Your Dividend Stock To Cash Your Profit

In some case, you will be quite lucky in your stock picking. If you happen to buy one a rock star, you might want to sell when you are making an important investment return. When stocks are going up too quickly, it is usually because of speculation or because it has become the “flavour of the month”. A dividend investor should not be looking for the homerun and should prefer a more stable portfolio. Selling your winners to buy other dividend payers is always a good move. A good indicator to sell your dividend stock in this situation would be to look at the P/E ratio. When it goes up higher than usual, there are some speculation involve. Sell you dividend stock and enjoy your investment return.

Sell Your Dividend Stock if You Love it Too Much

We often see investors falling in love with one of their stocks. They love the company, the way it’s managed or the product they are offering. However, lovers don’t make good match when it comes down to make money. If you love one of your dividend stock too much, you might want to consider selling it before your emotional attachment becomes too important. When it happens, dividend investors keep their stocks forever and choose to ignore selling alarms such as dividend cut or weaker financial ratios.

Final Advice: Sell Your Stock Right Away but don’t be in a Hurry to Buy Another Dividend Stock

If you have a good reason to sell your dividend stock, don’t hesitate and press the “sell” button as fast as possible. However, don’t be too trigger happy when it comes down to buy another stocks. It’s not a big deal if you are sitting on a few thousand for a couple of weeks or months in your investing account. You are better off moving the proceed of your sale in a money market fund and wait carefully for the next dividend buying opportunity.

invest-dividend

When To Buy Dividend Stocks

We have been receiving several requests from readers to help them determine when it is the right time to buy a dividend stock. First off, there are no easy ways to know when to buy dividend stocks or not. However, there are some key points to look at. Those key ratios and indicators will guide you to find the perfect moment when to buy dividend stocks.

When to Buy Dividend Stocks According To Dividend Ratios

Personally, I think that it is always the right time to buy dividend stocks… as long as the fundamentals are there. There are some key dividend ratios you must observe before buying a dividend stock.

A) Dividend yield and dividend payout

When I use a dividend stock screener, I always look for dividend yields over 3%. While I may be doing exceptions and buy lower paying dividend stocks, my main goal is to cover more than the inflation (for more info, read dividend vs inflation). Therefore, I consider a right timing to buy a dividend stock when the dividend raise to 3% or the stock value temporarily drops enough to show the dividend yield I am looking for.

B) Dividend Growth

Dividend raises are very important in a dividend portfolio. Since the purpose of dividend investing is to hold your stocks during several years; you want to make sure that your holdings will generate more money in the future. The 2 important ratios for dividend growth is the 1 year dividend growth and the 5 years dividend growth. The first one will tell you about the current situation of the company (if they are able to raise their dividend currently). The latter will tell you if they can maintain a steady dividend growth over time. I like dividend stocks showing a dividend growth over 5% (yearly and over 5 years). This tells me that there are solid dividend payers and that it is the time to buy this dividend stock.

single_payer

C) Dividend Payout Ratio

The dividend payout ratio must be lower than 75%. If you are looking at dividend stocks with a higher dividend payout ratio, you are looking at a stock that might encounter problem increasing their dividend payout over the long run. When you are looking at the right timing to buy a dividend stock, look at their recent dividend raise announcement and how was the dividend payout ratio. If they recently raise their dividend payout without impacting too much their payout ratio, this is the right time to buy this dividend stock.

When to Buy Dividend Stocks According To Other Financial Ratios

A) Price / Earning Ratio (P/E)

The P/E ratio is one of the most common financial ratios. It should be a must to be included in any stock analysis. The historical S&P 500 P/E ratio is around 15. Therefore, if you find a solid dividend payer showing a P/E ratio below 15, you may have found the right time to buy this dividend stock.

B) Revenue Growth

Dividend payouts are all about how much money is left in the company after taxes. Therefore, if you want another indicator of long term dividend growth, you should look at revenue growth. If the total sales are climbing on a steady basis, chances are that the dividend payout will increase accordingly. Steady revenue growth (1yr vs 5 years) is a good indicator as to when to buy a dividend stock.

C) Return on Equity (ROE)

The return equity gives you how much the money invested in this company is creating wealth. Having sales growth is good, but growing its profit and increasing the company value is much better. A ROE over 5% is suitable (and over 10% is even better!).

Is there a perfect timing to buy a dividend stock?

I just gave you a few indicators as to when buying a dividend stock. Those numbers are relatively easy to find using free investing websites. However, if your dividend stock meets those requirements, does this mean it’s the right time to buy it?

Since the goal of dividend investing is to select solid dividend payers which will increase their dividend payouts in the future; I’d say yes. However, it is important to look at what is the recent news around the company you are looking for and what are the potential opportunities and dangers.

For example, if you look at a pharmaceutical stock, it is important to look at their patent expiring dates (which equals to a decline in sales for a specific medicine) and what their pipeline look like (how many medicine are currently being researched). This is will also tell you a lot about when to buy this dividend stock.

Where to start looking at for any dividend stocks

How to Export Historical Prices to Excel from Yahoo Finance

This is a cool little trick I learned while taking a class in advanced portfolio management in college. If you are at all interested in measuring stock performance over time, it helps to know how to grab historical data from a popular free source. There are a few you can use, but the method that is the easiest is through Yahoo! Finance.Yahoo Finance

Why would I want historical data?

Good question. The key is in being able to better understand stock price movements over time. Maybe you are a big fan of data visualization, or maybe you just enjoy looking at stock charts all day long. Either way, having a data set is crucial. Let’s look at how to pull it from Yahoo Finance.

How to Download the Data

Let’s take a look at IBM stock as our example.

1. Go to Yahoo Finance, and enter the ticker IBM in the upper left.

2. On the left sidebar, click “Historical Prices.”ibm main

 

3. Enter your date range, and the type of returns that you want (daily, weekly, or monthly). Ignore “dividends only.” Click on “Get Prices.”ibm_getprices

 

4. Scroll down to the bottom of the page and click the link to “Download to Spreadsheet.”

5. It will default save as a .csv file. This is okay.

How to Analyze The Data

Open this .csv file into an Excel spreadsheet.  Let’s now calculate a periodic return.  The only columns that we really care about for this are the date and the adjusted close (you can hide the other columns, or just get rid of them altogether). If you downloaded the data on a daily basis, then periodic returns = daily returns, and so on. Daily stock prices obviously give you a lot more data points than weekly returns. Regardless, we compute the return the same way as follows:

(B-A) / A

where A = price at time t
B = price at time t + 1

If you want this simplified, it equals

B/A – 1

Either formula works.

So, create a third column, enter this formula, and copy-paste it all the way down through your data. (For Excel beginners, the formula will dynamically change it as you paste it to other cells).ibm excelreturn

 

You now have the periodic returns of that stock price. This works for daily, weekly, and monthly returns.  Total time involved should be no more than 5-10 minutes if you are proficient with Excel

The Seven Immutable Laws of Investing

I know, I know. I posted up an article a few months ago entitled “The 10 Laws of Value Investing,” which were my selection of ideas that I used as a guide for approaching investing. However, I found this document through Market Folly (one of my favorite blogs) and figured it was relevant enough, so I posted it here too. See the embedded version below. Email and RSS readers may need to come to the site to view it. If you can’t see the below doc, the original page is here.

Investor’s Toolkit: Understanding Beta

A quick note: on suggestion from one of our readers, I’ve decided to change these types of posts from the original “Metric of the Week” to a more broad “Investor’s Toolkit”. The reason for this is twofold. First, due to my full time job as well as other time constraints, I have had less time than I would like to devote to this blog. I would rather spend time writing higher quality, lengthy posts than a few short weekly ones. If I stayed committed to a weekly metric post, then what would eventually happen is that these would dominate the blog for those periods when I can’t get at least one other post out that same week. I don’t want this blog to sacrifice quality for regular but abbreviated content. I hope that makes sense.

The second, and more important reason, is simply that we’ll eventually run out of metrics to cover. Because of that, I want to broaden the scope of these types of posts to include things other than metrics, e.g. investing tools, worksheets that I might make, and brokerage platforms.

We (my friend John, who has written most of them so far, and I) will continue to cover the basic metrics, but be on the lookout for different metrics and resources covered in upcoming “Investor’s Toolkits”!

This week we’re looking at beta. In short, beta is essentially the correlation with the market that a particular stock holds, based on past performance. For instance, suppose Intel (INTC) has a beta of 1.1. This is common for established, blue-chip companies. If the market as a whole (S&P 500 or the Russell 3000) moves up 1% on a given day, then we should expect INTC to move up 1.1% that day (on average). Similarly, if the market moved down 1.5% one day, INTC should drop 1.65%. A beta of 1 means that a stock on average is perfectly correlated to the overall market. A beta of -1 means that a stock is perfectly negatively correlated to the market.

investor basic

In turn, investors would expect to be rewarded (more than the stock market average) by buying stocks with betas that are greater than 1. Why? Because they are taking on more risk. At a beta of 1.5, stock moves are presumably amplified 150%. Vice versa with losses. On the other hand, buying a stock with a beta of less than 1 should not reward investors, because the stock price fluctuations will not be as extreme. The downside risk is lessened as is the upside.

Conversely, if stocks have a negative beta, it would imply that their movements tend to be negatively correlated with the market. However, in practice this doesn’t happen very often because most stocks are subject to market risk, which often means that factors outside the company’s control can affect the share price. I actually did a quick Yahoo Finance screen to see if I could find any company with a negative beta and didn’t find anything. The only stock with a beta of 0 is Central Gold-Trust (GTU). According to Google Finance, it has a beta of 0.04. That is pretty close, and implies that GTU does not have really any correlation to market performance. Again, I didn’t see any that were negatively correlated with the market.

Uses and shortcomings of Beta

Beta is one of those tools that I typically glance at when looking at a stock, but don’t really factor into any decisions. Because beta is a backwards-looking metric, it is only marginally useful to predict the price of a stock going forward, much like the trailing price-to-earnings ratio. Beta can and will fluctuate each day based on the market’s performance on the prior day. Beta won’t force a stock to behave a certain way, but since other investors look at it, it might be partly a self-fulfilling prophecy.

For the mathematically inclined, beta is also used in a number of financial formulas, such as the capital asset pricing model (CAPM). CAPM basically tells you what the “required rate of return” is on a stock given the risk free rate, market risk premium, and the stock’s beta.

Beta is also applicable to other asset classes as well. As with stocks, we use it to gauge the general correlation between that asset’s returns and the stock market. Take, for example, timber: timber is an asset usually uncorrelated with the stock market return. Therefore, it might have an beta equal to or close to zero.Investors Toolkit

Seth Klarman, a hedge fund manager I follow who is in charge of the Baupost Group, has said the following about beta. It is in his seminal work, The Margin of Safety, which has been out of print for a while now and sells for $1000+ on eBay and Amazon:

“I find it preposterous that a single number reflecting past price fluctuations could be thought to completely describe the risk in a security. Beta views risk solely from the perspective of market prices, failing to take into consideration specific business fundamentals or economic developments… Beta also assumes that the upside potential and downside risk of any investment are essentially equal, being simply a function of that investment’s volatility compared with that of the market as a whole. This too is inconsistent with the world as we know it. The reality is that past security price volatility does not reliably predict future investment performance (or even future volatility) and therefore is a poor measure of risk.”

That being said, it still helps to understand what beta measures. As I said before, oftentimes in the market, investors seek any metric they can use to justify why they should buy a stock, and this sometimes leads to self-fulfilling prophecies.