Archive for the ‘Global Financial Situation’ Category

The Stock Market from a New Player’s Perspective

October 24, 2008

Economic cycle

Economic cycle

Warren Buffett says “Buy” and one of my favourite bloggers, Tim Ferriss,  is blogging on investments… so here are some of my thoughts as a newbie to the stock market this year. There are many misconceptions, so hopefully this will dispel some of them. I am just off the starting line in this area, so forgive my simplistic approach!

  • You don’t have to be a day trader to be into the stock market. You can buy and hold for the long term, although at some point you will sell in order to realise the gain. Or you will sell when the stock is a loser. The point is that you don’t have to be frantically watching the stock market all the time, jumping in and out. It does not have to be that stressful. 
     
  • You can do it yourself with an online broker and you don’t have to be on the phone to someone shouting “Sell..Buy” etc. You can decide on a particular stock, research it, put in your order online for spot price (price at whatever they can get it at) or at a particular limit . The broker at the other end then buys the stock and you get an email with your new purchase. You will have set up an account for the funds to be taken from and the money goes out of your account. Dividends are also paid into this account (from income making shares where companies pay out dividends). 
     
  • You do not have to be leveraged i.e. you can just buy your stocks with cash you have in your bank account. Leveraged means you borrow in order to invest, then if (or when) your stock crashes, you may get a margin call which is for a particular amount to cover the outstanding debt. This is what has happened with the current markets where people have borrowed far more than they actually had in assets e.g. Lehman Brothers. I currently buy small packets of shares in companies with 100% of my own money that is saved for this purpose. Some would say this is silly and I could buy more if I borrowed. But I have friends who have done that and if the shares go down, then they are servicing debt on assets worth less than that debt. I don’t have to worry as I am investing for the longer term and am not servicing any debt. Of course, if the shares go up, then I don’t make as much money, but hey, I am just starting out! 
     
  • You do not have to know everything about the company, you can listen to experts. You may not be passionate about a particular industry, or have the time to spend (or the knowledge) to pore over their financial statements. But if you want to play the game, you can pay for advice and then take the information you want for your own investments. I belong to a couple of newsletters for Australian shares, I read them and then make investment decisions based on their articles. I find this a great way to get information and tips on companies I would never even have heard of. 
     
  • It is surprisingly fun! and you end up enjoying the financial press as you can actually understand some of it. Paying a percentage into a superannuation fund that someone else manages is no fun (but Australian legal requirement), but making my own decisions and buying into companies is brilliant! I was never one to read the business pages but now I am getting addicted to them. 

So have I made any money yet? 

Of course not! I jumped in just before the crash, but hey, I am at an age that will see the next boom (and maybe the next one). So I am doing what Warren Buffett says and getting into the market now, with my own savings, and we will see what happens. I am certainly getting an education!

Plan for Success: Protect your Assets

October 22, 2008

Warren Buffett has said the time is ripe for buying into the stock market. Fear has driven prices low and we can buy now and wait for time to play its game again. Some companies are valued less than their cash value. Houses are available for cheap as mortgagee sales.

So if you are thinking of making the most of this time, then think ahead and plan for success. You want to protect your assets, ensure your returns are channelled in the most tax efficient manner and ensure you can pass the wealth onto your children (as wealthy, successful people plan to do). 

If you buy shares or property, what name are you buying them in? 

Your own name?  joint names? a company name?  a trust name?  
Do you know the ramifications of buying in each of these entities? (The laws differ by country so be careful with this).

You will need to talk to a professional about your situation, but here are some things to consider. What is the best entity to buy in for these situations?  

  • If your shares rise in value and you sell in 10 years time, you may have to pay capital gains tax 
  • You receive dividends on the shares over 10 years and you have to pay income tax – whose total income is being taxed? 
  • You receive investment property rental income which is liable for income tax, you also have capital gains if you sell it, and who would benefit if values do go up and you want to releverage?

Planning for success means planning for the life of your investments.
Think now about the best way to grow your wealth, and how your changing financial situation will be affected by growth in income and asset base. It is much easier to set structures up at the beginning and grow into them, than try to sell assets into them later (possibly triggering a tax event in the process). 

Wealthy, successful people plan their wealth. So even if the news looks dire at the moment, go see a financial planner about your financial future.

Goodbye comments from hedge fund manager

October 19, 2008

One of my recommended bloggers Tim Ferriss, author of “The Four Hour Work Week”, has just posted a brilliant letter from a retiring hedge fund manager. This guy, Andrew Lahde, produced 866% return betting on the subprime collapse and this is his goodbye letter, closing up shop and getting out of the dirty (and miserable) business. 

Check out the post here => the goodbye and f**k you letter