Monday March 21st

Only a few minutes away from the opening bell for this week in trading and its looking like a very strong start for the week.  Potentially pull back the losses incurred over the past 2-3 weeks due to the Earthquake in Japan and the Libyan revolt.

For my Portfolio VOD is in lock step with the London exchange for this company with a 4% gain at this moment.

AA which was one of my hardest hit stocks over that time frame is up 1.5% and should be about 5.25% off break even point.

CIM performed on the market over the same time frame practically flat and was very pleased as to my prediction for the price stability of it, though pre-market the stock is up 1.2% which is always a good thing.

Lets all get rich and quit our jobs!!!

Edit: It would appear the Vodafone jump is due to an increase in valuation of Mobil telecom companies with the acquisition of T-Mobil by AT&T. http://www.bloomberg.com/news/2011-03-21/vodafone-rises-as-verizon-seen-to-gain-from-at-t-t-mobile-deal.html

Earnings per Share

Something i have wanted to get more into is explaining the terms used in investing and how they can be used to analyze the value of a company.  First one i will get into is Earnings per Share which is one of the most important pieces of data about the stock and also the company itself.  A simple definition of this ratio is to show how much profit the company earns in the most recent 4 quarters for each individual share.

For example, assume that a company has a net income of $25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million, then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).

Also another aspect of this is Projected Earnings per Share or Forward Earnings per Share, which is an estimate either done by the company itself or by 3rd party analysts.  This is far more important then regular Earnings per Share but it is not a fact like the former but a prediction, and a miss on the estimate of the company profits will have a drastic effect on the value of the stock.  One thing to take in mind when reading the company reports is the nature of how the company reports, some will be overly optimistic and set goals that are high but if missed can really damage a stock and others that are more conservative and will set lower goals but have a greater likelihood of meeting or exceeding these goals.

Why do People Invest in Gold?

Some people have an understanding of why so many people invest in gold, but i hope to shed some further light on this subject on the uninformed, and maybe some extra insight even to the ones that know already.  The main purpose for people to invest in gold is not for capital appreciation, though based on the increases in the price of gold over the years this might seem to be the case.  The purpose is capital protection against inflation and against down turns in the market.  Inflation is linked with the concept of  Fiat Currency, which is money that holds no intrinsic value to it other then through government regulation.  Which also means the Value of the currency can go up and down based on the total supply of it in the Economic System.

Gold on the other hand is used as a hedge against inflation and to protect the value of your current assets into the future.  The best method for demonstrating this is not to compare the value of it to a Fiat Currency but to the value of other material items.  I will use an example i found for comparing the value of 1 oz of gold to the cost of bread.  Scholars estimate through presevered records that in 400 BC. 1 oz of gold could purchase you 350 loaves of bread, now compare this with the modern cost of bread in USD and compare with the value of 1 oz of gold in USD.  Gold is currently at arround  $1400USD for 1oz. of Gold which divided by 350 comes out to $4USD per loaf of bread. Seems to me a fairly accurate comparison when u take into account this is over the span of almost 2,500 years of human history.  Though due to speculation on the price of gold will raise the price of gold artificially to create a bubble, which would account for the difference in the price of bread to gold ratio being different by a few cents.  The chart below shows the value of the US dollar in purchasing power since the creation of the Federal Reserve.

Diversification Scenarios

I mentioned in a few earlier replies to individuals requests for some ideas on how I would invest a specific amount of money, the 2 instances posed were $3,000 and $12,000.  Some might just think just invest them both the same with the $12K one being 4 times the total invested in each stock, but the different amounts of money means different things should be taken to mind.  Before i go on more i wont go into specific stocks you should buy into as i am not going to take responsibility for potential losses if following my picks, though at a later point i might re adjust this attitude and provide specific stocks to pick.  But that is not now so i will keep it general.  Also remember once you choose a stock the work is not over, the general rule of thumb is for each stock you own you should spend 1 hour a week researching it to make sure it still holds true to the reasons for investing in it in the first place.

The first thing to take to mind is what your goals with investing are, either capital growth or capital security.  With the $3,000 investment i would look to break the investment into 4 differing stocks, this could be an even 4 way split of $750 or lopsided for a specific stock you feel will provide the best growth, or a more Conservative strategy with the larger portion going into a Large Cap company with a secure dividend. The reason i wouldn't go more then 4 individual stocks is because of the amount of the investment it would not be wise to overload on to many stocks to keep track of and monitor the health of the company.  Remember to make sure you are not weighted to much to an individual sector of the market, by sector i mean you shouldn't have all 4 stocks all be Technology companies.  I also recommend one of the stocks you choose to be a secure investment with a good secure dividend.

With the $12,000 scenario you have more flexibility with your choices and can be flexible with reacting to changes in the market.  I would take a similar approach as the strategy mentioned above, but use $9,000 invested between 8 and 10 stocks.  With this you can invest in multiple stocks into the same sector, but i would stay away from putting more then 30% of this investment money into a single sector.  Now with the remaining $3,000 is the flexibility of having a larger bank roll comes into play.  I would take $1,500 of this money and invest it in 1 or 2 speculative stocks, these would be stocks that have the potential to become huge movers in the near future, but they also have a larger risk attached to them so be careful.  The remaining $1,500 i would suggest keep in reserve in the account for instances when market factors make it worth wild to make a quick buy into a stock at a low rate after a sharp sell off or when you wish to double up on a previous investment, or even open a new investment that would have otherwise forced you to sell off one of your other investments to purchase it.

Good luck guys i would love to hear some feedback from the simulators.

Bad Day for the Market

Got home from work this morning and went to sleep on some brand new pillows i picked up on the way home.  Fast forward to 4:30PM i wake up to get ready for my last day of work this week and i fire up the laptop and sit down with my coffee.  I am greeted by a horrid day on the market with a 3.15% drop in my portfolio and Alcoa AA taking the biggest hit at 4.28%, totaling about a $52 loss on the day, though still up 10% on my investments.  Even worse is Vodafone VOD and Alcoa AA both had upgrades on the day by analysts.  But this pull back is across the whole market spectrum and not sector related or on any negative news on any of my companies.  The drop seems to be due to fears of rising oil costs due to unrest in Libya, yet only 5% of Libya's production comes to the US totaling about 50K barrels a day source.  Further Support for this fear is the energy sector had gains in the Oil Production area.  On a day like this the smart move would be to buy in now, as long as the company you are interested in has not had any negative news today.  If i had spare cash in the account i would use it to either double up on AA, or to take a new position in Caterpillar CAT.

My First Experiment With Options

As i mention a few posts ago that i would be using the Stock Simulator to get the hang of how they work.  So far the only thing i have learned that i was confused about was the pricing of an individual option contract.  The purchase price is the value of the single optioned share but each contract consist of 100 shares.  But after that much i am still confused, such as to the difference between a put and a call option.  Also the significance of the the date on the option and its relation to the value on the option in comparison to the value of the stock. 

Even though i had no clue i picked a put option on APPLE inc at $385 for 03/19 at 28.05 for a total of 3 contracts.  At the end of the trading day today i logged in to check how the portfolio was doing.  All my stock picks had a down day but the option's trade had a massive jump moving up to a 26.02% gain after 2 days.



On the other hand my real Portfolio fared much better of the course of the week.  I am starting to see the benefit of diversifying my portfolio over different sectors versus having it all in a single stock.  My gains/losses during the day are more stabilized.  With each of the trading days in a mild up swing.  Here is a screen capture from Google Finance for my portfolio, note that the gains on Vodafone Group Plc ticker VOD is since Jun 10th and gains on individual stocks has the broker fees factored in all ready.

I initial choose VOD as speculation on Verizon Wireless receiving the Iphone this is due to Vodafone owning 45% of the Verizon Wireless business.  Also the value of the stock was very good and the Dividend payments were over 5% at the time, also the security of its international exposure and the free cash flow of the company.  Chimera Investment ticker CIM is a stock that i was considering around the same time as i was Vodafone, it is a REIT Real Estate Investment Trust with a extremely large dividend which scared me away from it at first but it is a subsidiary of Annaly Capital Management NLY which is one of the best in the business so it quelled my fears.  The price has been fairly steady and the dividend of almost 16% and my strategy with this is as a steady earner over time based on the dividend alone and not on capital gains, but I'm ok with some as well.  Alcoa Inc. AA is of the largest Aluminum Manufacturers in the world, which had taken a beating last year and the Projected earnings for this year is expected to quadruple over last year.  Also Alcoa overs a low quarterly dividend which i am expecting it to be brought back up to levels of previous years this year making it very profitable yield, but my aim is at capital gains due to the company getting its business in order.

Where to Research?

As I mentioned in one of the comments in an earlier post that I would provide some of the research tools I use.  The Internet has been such a valuable tool for me and my investments, allowing me to quickly search for topics related to a company or sector i am interested in.  Along with allowing me to compare the value and growth potential of stocks through various methods.  Also allows me to keep an eye on my investments on a daily basis even if i am not looking to sell it off, but to see if their is any odd action happening with it or news being released.  I am going to give the list i made mention of in one of my earlier blogs comments about the sites i use on a daily basis.

Google Finance
This is the site i use the most often, for daily monitoring of stock action and quick news on the markets.  It also allows for you to input your transactions that you made with your brokerage and to track the gains/losses without having to log in to it.

Finviz
One of my favorite sites, though i don't use this as often as I use Google Finance.  I use this mainly for its stock screener which is by far one of the best ones i have found.  Also it has far more information about individual stocks along with more related news articles then that of Google.

Morningstar
This site I use very sparingly though it is one of the sites i will always check if i am interested in buying a stock.  When i do come its to check the previous dates of dividend payments and how much they have been, along with to see if their is any analysis on the company that they are offering.

Edit
I would also like to add in a show I try and watch anytime im either not at work or in class, or if i miss it they have the full shows put up onto their web page Here.  The show is Mad Money on CNBC air times are  Monday-Friday 6 & 11PM ET.  I generally listen in and get a few ideas on sectors and the big names in them and do some research on them.

Stock Simulator

I have found a Online Stock Simulator that anyone interested in investing but is still unsure about risking their money.  It will give you a chance to try out ideas and strategies and to compare them with each other,Investolopedia Simulator.  I will be using this to learn about options as i have just the faintest idea of how they work. I just created a private group Here, or search for the game name of The Common Man Blog.

The Goal of this Blog

The idea behind this blog is for regular people to exchange stock picks and their own analysis on market trends and speculation.  I hope to create a post once a week or when ever a large news story hits that would make a ideal buying opportunities, but the main content of the blog will be in the post comments so check back often.  I have been investing for about 8 months now and with my first few picks i have gotten a ROI of about 40% not including dividend payments.