Archive for September, 2014

Alibaba IPO Hits the Market

The most anticipated IPO (Initial Public Offering) in years hit the market yesterday. Alibaba (BABA), the company that seemingly exploded out of nothingness, went public on September 19, 2014. A date that many investors will remember for a long time.

Alibaba had so much buzz built up over the past few months, the valuation of the company was higher than it would have been otherwise. Alibaba was set to open yesterday at $68 per share, in trying to raise about $22 billion. This price values the company at nearly $170 billion. To give you a perspective, Google (GOOGL) is worth about $400 billion. Alibaba came out of no where and worth nearly 43% of what the internet giant, Google is worth. Now that’s what I call an explosion.

The shares of Alibaba rose very quickly. Speculation on what the opening price would be started going from the mid $70s to mid $90s. And because of complications, the share didn’t actually become available for public trading until after 11:30 am, about 2 hours after the stock market begins to trade. And before the stock even went on the public market for public trading, it was worth about $99 per share. That’s a $31 increase of the $68 IPO. If you didn’t have deep pockets, if you weren’t family or worked for Alibaba, you were out of luck. There is no way you could have gotten Alibaba for $68, which is seemed as dirt cheap at the moment. And I know the founder and creator of Alibaba, Jack Ma, is very very happy.

The price of Alibaba shares quickly started to drop. Before you knew it, the stock dropped to just below $90 a share. That’s extremely volatile for any stock. Alibaba shares finished with  a price of $93.89, more than 38% over the $68 IPO price. I know the company and its investors are very happy, including Yahoo (YHOO) who had a very big stake in Alibaba for a long time. A very good investment on their part.

You should expect Alibaba to be very volatile over the next few weeks as investors sell and buy shares based on the hype they collected over the past few months. There is no doubt that Alibaba shares will hit $100 and it may happen sooner than later.

What you need to know about Alibaba shares is that you’re not actually purchasing shares of the company itself. Instead you are purchasing Alibaba Group Holding Ltd. This is a company set up in the Cayman Islands because Chinese law forbids foreigners to own any part of a company based in China. So to get around that, they found this loophole. This is something you need to keep in mind if you decide to invest in Alibaba.

Originally, I planned on investing in Alibaba. And I actually set aside some money to buy the shares, but the price went up so quickly, I didn’t want to risk losing money so I’m holding off for now until the volatility goes down and the price stabilizes. It’ll make predicting the price easier which makes for smarter investing.

Have you invested in Alibaba? Do you plan on investing?

All of us have personal financial goals. No matter what career you are in, or your current status in life, you have some kind of financial ambition that you would like to achieve. Whether it is long-term or short-term, you would like to see yourself ultimately reach that vision and make a better life for yourself.

Just like any other goals that we set, being able to obtain the intended result or target doesn’t just happen overnight or without much planning or purpose. None of the truly successful people simply stumbled into their achievements without investing any effort or energy. The best way for us to achieve what goals we have set for ourselves is to do it in an organized manner that maximizes opportunities and resources, making sure all efforts are aligned towards that goal we have set.

Write it down. When things are in writing, they become more logical and organized, and allow us to better manage our expectations and plan our strategy. Whether you have one or a dozen financial goals, write them down or type them into your phone or tablet so you always have a chance to organize your thoughts as well as to look at your overall plan. Measurable results can also be gauged when your goals are in writing, allowing you to monitor your progress.

Have a timeframe. Are you looking at a short-term or long-term financial goal (or somewhere in between)? Your way of achieving your target would be determined by the amount of time necessary to reach it. Set a realistic duration or period of time for yourself to work towards your intended result. Along the way, review your timeline and see if you are using the allotted period wisely, or if there are opportunities to maximize efficiency and save time.

Always set money aside. If you get paid weekly or biweekly (or any other frequency for that matter), make sure you already know the amount of money you will need to set aside and save towards your financial goals. Work your budget and expenses around what is left, not from the total amount. This way, you are not tempted to dip into the savings part when you need it for your monthly expenses.

Rethink all expenses. If you carefully assess your income as against all your monthly expenditures, there are items or purchases that you don’t really need, and can re-channel that money towards your financial goals. For instance, making your own coffee instead of buying that cup of designer latte in the morning easily adds up to a lot of savings. Trading in your gas-guzzling truck or SUV for a more fuel-efficient car also helps you have more financial leeway.

In your efforts to achieve your financial goals, always remember that the choices that you make today, even the seemingly insignificant ones, are shaping your future and what success you will have later on in life. Formulating a reasonable, measurable plan today will give you a road map towards financial freedom in the future.

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.

How to Choose Stock Brokers?

Investors need the help of middlemen that work between themselves and the stock exchanges. Stock brokers are allowed to perform transactions because they are members of the exchanges. Brokers are not only representatives of investors in the exchanges, they also provide clients with the latest financial information about specific companies. Once investors are comfortable with the level of risk in specific investment plans, brokers send orders to the floor through computer software. After the completion of the transaction, brokers provide clients with updated prices of their stocks. Brokers earn revenue through commission they charge on each transaction.

But can we trust stock brokers? Each time we evaluate the trustworthiness of a professional, we could run into the likely habit of stereotyping. But one bad apple in the basket doesn’t necessarily spoil the rest. Here are things to consider before we choose a stock broker:

  1. Know the stock broker: We should get detailed official information about a stock broker – when its brokerage started, was it involved in any kind of controversies and who is the owner.
  2. Account opening charges: How much the broker requires us to pay to open an account? We could compare its account opening charges with other brokers.
  3. Check its regular and periodical charges: While account opening charges is aone-timeexpense, investors also need to pay a number of recurring charges. There are three different types of stock broker charges:
    • Delivery charges: Investors are charged when they take delivery of the shares.
    • Intraday charges: Investors are charged when they buy and sell specific stocks at the same day.
    • Maintenance charges: Stock brokers require annual maintenance charges as a fee to maintain our account.
  4. Services: Stock brokers should provide adequate services for their clients, such as updated information on stocks. Check past records on whether brokers could provide reliable information and tips on stocks. Stock brokers must allow investors to order transactions through both offline and online means.

Assuming that we are dealing with a legitimate broker, we shouldn’t let this situation lulls us into a false sense of security. We should still be vigilant. Just because the company has good reputation, it doesn’t mean that things would go smoothly. Although we may not get ripped off, these brokers could still provide faulty recommendations and tips on what we should do with stocks in our portfolio. Regardless of their suggestions, we should pay attention to the revenue of each company and other essential factors to make the best informed decision possible.

Stock broker companies spend plenty of time establishing solid reputation in the market and this could only be achieved through minimal problems and maximum customer satisfaction. If the stock broking company has a good reputation we should be able dig up more than a few favourable mentions about previous high-value transactions. However, we shouldn’t limit ourselves only to what the media says about a broker, we could also talk with more experienced investors who have used their services.

Some of you may ask who I use and why. I have been using Scottrade for several years now and I am happy with them. They charge $7 per trade, whether I’m buying or selling. There is no maintenance fees or any fees to transfer balances to and from my bank accounts. Sure the $7 per trade adds up over time, but they have great customer support and so far, have been very reliable when it comes to their tools and the research information they provide. If you would like to sign up and give them a try, use my referral code: VXPP8981

Using the referral code above will give you three free trades and I will also get three free trades (win-win). That saves you about $21, that can be a lot of money for someone just starting out.

Another option that I could recommend is OptionsHouse. They charge just $4.75 per trade, much less than Scottrade. I only started using OptionsHouse, so far they have been great. Their customer service is proactive and they have called me several times asking me if I need help. I haven’t put as much money in this trader as I have Scottrade but I am sure they will turn out to be great. They are also very stable, the interface takes some time to get used to, but I have no complaints.

Other companies out there include E-Trade and TD Ameritrade. They are big names which I have not tried. I would always recommend that you do your research before signing up for any broker. They have different fees and different methods of doing things, make sure you know what you are getting yourself into.

I wish you the very best in investing! Good luck to you all.