Category: Investing

Some stocks yield significantly higher dividends than others. It is commonly seen as an indication of higher risk, but whether it is perceived or real is something that an investor should determine. High dividends could also result because the price of the stock has dropped significantly due to bad news or an overall market downturn. In this case, dividends stay the same although the price drops. This certainly doesn’t reflect the real valuation of a stock, but it is still possible for investors to take advantage of the situation. It simply boils down to understanding stocks that we are evaluating and knowing whether they will provide higher dividends than others. Here are factors we should consider in high dividend stocks investing:

  1. Timing and price considerations: Two essential factors in high dividends yield investing are timing and price range. We should know whether the market exerts downward or upward trend. Some of the factors are market-driven but stocks could also be affected by specific internal situations. Prior and subsequent to their ex-dividend dates, high yield stocks often fluctuate significantly. Investors typically want to purchase stocks before the pre-dividend rise and sell before the ex-dividend drop to maximize their profit. It should be noted that prices could be affected greatly when companies sell additional stock to gather more fund.
  2. Dividend yield: It is a ratio that defines how much a company offers dividends each year based on the stock price. It’s calculated by dividing Annual Dividend with Stock Price we paid. As an example, if the annual dividend payment is $1 and the stock price is $20, then it has 5 percent of dividend yield. There are two approaches to calculate dividend yield, first by using the dividends for the 12 trailing months and another by using the amount dividend of the 12 upcoming months. Before purchasing a stock, we should know our preferred yield. Higher dividend yields provide higher profitability. However, as stocks price fluctuate, the dividend yield will move up and down as well.
  3. Sales and profit: It’s very simple, no sales means no revenue and no profit. Without profits, it isn’t possible for companies to pay dividends. This should be a very simple indicator to know and we could check whether the company has reported good sales and profits. Profits are necessary to help companies grow and this could lead to more dividend payouts. One basic rule to measure profitability is by looking at the company’s ROE (Return on Equity).
  4. Debt: Debt is the amount of money that the company owes. Companies will have more money to pay investors when their debts are lower. The amount of dividend paid could be affected if revenues drop and the company goes through tougher times. Based on Debt to Equity ratio, investors could immediately see if the company has high debt.
  5. Payout ratio: Payout ratio is calculated by dividing annual dividend per share with company’s annual revenue per share. Investors should look for stocks with higher payout ratio.

Before investing in high yield dividend stocks, make sure you do you research in the company. The last thing you want is to buy a lot of shares in a company with a very high dividend yield and the overall value of the company lowers as well as the dividend payouts.

Buying Gold

I’ve written about gold prices plenty of times here on Stocksicity. At one point, the price of gold was sky-high and it seemed like that the price would only get higher because of the amount of gold that everyone was purchasing. Everyone wanted to get in the gold bubble before it maxed out and popped. Over the past few years, gold prices have steadily increased and then slowly decreased. Right now is an almost perfect time to buy gold and other precious metals. The economy has been slowly bouncing back to what it was years before the collapse due to the banking industry going down the toilet. That resulted in gold prices to sky-rocket because like most other precious metals, gold increases in price in times of crisis. And for thousands of years, gold has been a favorite investment for almost everyone, from the Ancient Egyptian Pharaohs to my co-worker who purchases gold bullion and gold bars with her tax refunds almost every year. I think that it is a great investment because gold prices have been increasing for thousands of years and they have a very bright future.

Many places allow you to buy gold easily. Places like Bullion Vault allow easy access to online resources which allow you to trade gold as if it was a stock. If you have gold lying around and need money, selling gold would be very lucrative because of its worth. And if you have money lying around and need a fairly steady investment, look into buying gold because no other investment can be as steady as gold. Gold is a natural element and will retain its value over time, unlike stocks which can plummet to the ground tomorrow. Gold will always be valuable. Even if it loses some value tomorrow, it will go back up the day after.

The gold bubble that started to expand a few years ago seems to have diminished. However, I believe that in the future, sooner than later, the gold bubble will expand again. Every time the bubble expands, it sets a new floor for the price of gold. Right now, gold prices are just under $1,400 at the time of this post, , years ago, it was half that and because of the way gold prices go up, it isn’t likely to hit $700, the floor will only go up. And with current technology, selling and buying gold has never been easier. If you don’t take advantage then you may end up losing a lot more profit than you think.

When you’re considering putting your money into the stock market, it’s important to fully research your potential investment. If you’re serious about playing the stock market, you no doubt have an investment strategy in place, so now it’s a case of finding a company or companies that fit your requirements.

The search can often be the most interesting part of the investment process. Finding that hidden gem among the many businesses that are out there can really get your adrenaline pumping. However, there are literally thousands of companies listed for trade on the stock market, so we have a few pointers on how to make the most of your research before you bite the bullet and invest your money.

Having watched the stock market, you may notice a company’s assets rising very rapidly and feel like you too ought to dive in on the up so you can ride out the wave. But don’t be too hasty. Make sure you understand why this company is gaining and whether or not it is likely to last. The most important principle to hold in mind is that what goes up must, in almost all cases, come down. Look closely at what the company sells; who their CEO is; how their industry is performing in the general market and most importantly, what their competition is doing.

To get your hands on all of this information, there are plenty of resources online to perform a company check, including Duedil, which has a very user-friendly interface and allows you to see all the details about a company that are held at Companies House, for free. For a small charge, you can download certain documents so that you can dig that little bit deeper.

Most companies, whether they’re established or not, tend to have their own website these days so don’t ignore that. If you’re interested in them, it’s definitely worth visiting their site to check out their business model. Are they easily accessible in a web format? Do you understand what they’re trying to achieve? If they don’t have a website, why? These are all questions you ought to be asking. It may also be worth calling or emailing the company directly. If you never receive a human response, are they really what they appear to be?

You should avoid empty pitches, or business outlooks that appear too good to be true – they probably are. Check out their financial statements for the year preceding your investment, as well as new release forecasts, that way you can be sure that growth is solid and sustainable.

It used to be easy to know the amount of money circulating in the US economy: look into the US money supply. Today, it’s not that straightforward anymore. It is also difficult to measure the effects of the Federal Reserve monetary policies as well as those of the other central banks as well. In the 1980s, it was easy to understand the explanations of Milton Friedman on how inflation and economic fluctuations are affected by money supply. But it’s different today.

The reason why it’s too difficult to learn about the effects of money supply is that banks altered their way of doing business. It became difficult to monitor the movements of money. In the 1960s, bank deposits like savings, time, and checking make up 95% of the credit market of credit unions, savings and loan associations, and commercial banks. In the 1990s, such deposits only make up 72% of the said credit market. In 2007, the percentage dwindled to 55%. When the financial crisis began in 2008, there was a significant rise in the percentage primarily because people no longer want to risk their hard-earned cash.

It is also interesting to note that there are non-banking institutions which have started lending and borrowing which were once the domains of banks. According to Deloitte, the estimated amount of this shadow-banking system is about $10 trillion while the Financial Stability Board estimated it to be about $24 trillion in 2010. The measurement is only available after 3 months of each quarter. With the latest move by the Federal Reserve to buy bonds plus the financial-stress index which includes bank stock market prices, options prices, and credit spreads, the US economy may be seeing a better tomorrow for the next months.

Along with the moves to control the monetary policy, the stock market has also reached a new high in about 5 years. However, investors are not really jumping into the bandwagon. The primary reason is that they are afraid that they won’t generate profit from the attempt. Some investors would want to wait until next year or when the presidential election is over. Some investors may also be waiting for some bills to be passed by Congress. However, according to Nicole Seghetti of The Motley Fool, there are only 2 reasons why people shouldn’t try investing in the stock market. One, they have no money. Two, they can’t leave the money for a long time in the stock market.

So, how do you know if you have the money for the stock market? Normally, you must have saved many months of living expenses in a savings account. You must also have saved for any short term financial goal or for emergencies. If you’ve saved for both living expenses and emergencies and you still have excess money then it’s time to invest the excess in the stock market. If you have any midterm or long-term financial goals, you must invest in the stock market because no other investment schemes will be able to outpace inflation in a period of time.

With the encouraging development in the monetary policy, investors shouldn’t be afraid investing in the stock market. Outside forces may be able to pull down the stock market temporarily but it will eventually right itself. What matters most is that investors have the money which they can leave in the stock market for a long time.

Spreadsheet for Investing

Investment Spreadsheet By posterize

When is the right time to invest in the Stock Market?

That’s the magic question. People have asked that question for as long as the stock market has been around. The simplest answer is that there is no right time to invest in the stock market. It may seem as if some people have figured it out, such as billionaires like Warren Buffet who seems to always know when to invest, how much to invest, and where to put his money. But investors like him consider many more factors that have less to do with guessing the “right time” and more to do with trying to predict how the stock will do based on recent reports and announcements by the company. Even then, they could be wrong.

Many smart investors try to predict how stocks and the overall stock market will behave and try to invest according to what they believe will happen. The keywords in that sentence are “try to predict” and “believe.” Even though they may get it right 9 out of 10 times, they will still get it wrong that 10th time and it will cost them money, either because they invested in the wrong stock, or didn’t invest in a stock that sky rocketed to the top.

It’s extremely difficult to predict how stocks or the stock market will do. Although, it is possible to predict certain trends because they are more obvious than many of the other subtler factors that can determine how well a stock does. One great way to predict how a stock will do is to wait for their announcements and see what new products they are coming out with. If a company comes out with something innovative which looks like a product that will gain global popularity soon, you can assume, more investors will invest with the company and their stock value will go up. The reverse is true if a company cuts spending in Research & Development tells you that they may stop support for some of their products or stop creating them altogether, which may result in their stock value decreasing.

Either way, nothing is set in stone. Just because a company is coming out with a new product that’ll change the world, it doesn’t guarantee that the company’s stock value will go up. So the “right time” to invest with this company could very well turn out to be the wrong time.  The same goes for a company cutting spending on research and development, it could attract certain big investors because it could mean the company is thinking about starting dividend payouts or increase their current dividend payouts.

There are people out there who claim to know exactly when to invest in the market. And a lot of people actually believe them because of what they see. But the fact is usually that these people invest in many different sectors of the stock market and when they see success in one sector, they only share that success which makes it seem like they know what they are talking about all the time. This isn’t actually a scam (although there are scams like this), but it’s more of the person hoping his or her research pays off and more often than not, it does.

Just like people, you have companies with websites claiming to know which stocks will go up in price. And just like the people claiming to be stock market whisperers, these companies do extensive research which gives them hints about which companies will go up and which will go down. Then they share the information with the public, most of the time for a fee.

If there is no right time to invest in the stock market, is there a wrong time?

Unfortunately, it seems that there is a wrong time. Most people have the tendency to invest at the wrong time. A smart investor waits for the stock to go low so he can buy low and sell high. Most investors however, do the opposite and buy high because they believe it’ll keep going higher.  I try to buy low and sell high when I can. But I have been like most investors in several occasions where I purchased stocks when they were pretty high thinking they will go higher. I’ll give you an example from my own personal experience.

Earlier this year, I did research on a financial firm and a few energy companies. I won’t name them at this point. But my research told me that the stock values of both companies are bound to go up greatly as the year progresses. I’ve read articles and have watched videos of real experts telling investors like me, that these are two great stocks to invest in because they were priced low and they will release great products and services as the year passes. The prices of both stocks were pretty high compared to some of their closer competitors, but I just KNEW that they’ll go higher. For the first few weeks, it seemed like I made the right choice. Then out of the blue, both stocks plummet. The financial firm drops 10% while the energy stock goes down almost 30% due to bad economic news coming in from Europe. I know a lot of stocks went down at this time, and that’s why it was the wrong time for me to invest my money, even though the factor that took down the stock market was very unpredictable.

I don’t like to lose money on my investments. I still have both stocks with hopes that they will at least go back up so I can break even. I have had a similar situation last year when I bought shares of US Airways. I mentioned this name because I no longer own this stock and I don’t plan to in the near future. I actually bought this stock while it was still pretty low. So this wasn’t one of the situations where I bought high. There was news of mergers and acquisitions about US Airways in early 2010. So I did research and it told me that it was a good buy. One week after I purchased my shares, stock value goes up and I’m happy. And I thought, “maybe I finally found the right time to invest even if it is for one stock.” One more week passes and the Eyjafjallajökull (it’s OK, I can’t pronounce it either)Volcano in Iceland erupts. It grounds so many flights, the stock prices of US Airways drops heavily overnight. So I knew it was the wrong time to invest. But because I bought the stock of US Airways while it was still pretty low, the price of the stock stabilized. Even though the merger never went through, the stock price went up a few more dollars and I was able to sell for a profit.

The point is that the market is very unpredictable. You can try to predict it all you want to try to find the right time to invest or find the wrong times to avoid, you will never get it correct a 100% of the time. The best thing you can do is hope that the decision you made was a good one because anything can happen, whether it’s bad news from another country, a Volcano eruption, or even Armageddon. Too many factors are involved for you to figure out the perfect time to invest.

One thing that many smart investors do is buy low and sell high. That’s the best way to maximize profits. One huge mistake many other investors make is buy high because they believe the stock price will keep going higher. In some cases, it has been proven to be true. But usually, it won’t be how the stock acts because investors who paid low for the stock may sell the stock at the high price so they can maximize their profits. And when that happens, the people who bought high hoping that it would go higher, lose their money.

The stock market is dependent on consumer behavior. Trying to figure out when the right or wrong time is to invest is extremely difficult. Even though it seems as if some people have figured out a way to predict the market, their prediction is just as good as your local weatherman telling you that it will rain tomorrow. Sure, it may rain, but it’s just an educated guess because there is a chance that it may not rain. It’s the same with the stock market, even though a stock may increase in value, there is always a chance that it will not. There is no surefire way to predict the stock market. The best you can do is try, and the best that can happen is that you guess correctly. But that’s all it is…a guess.