Archive for July, 2009

What are the Common Mistakes Made By Investors

Sunday, July 19th, 2009
Author: Peter Smith
Occupation: Content Writer at CompareBroker.com
Date: 7/19/2009

It’s unfortunate that the new investors over the years have been committing the same mistakes from the time the modern stock markets have come into existence. Since these mistakes are ingrained in the basic way of human thinking, it’s likely these would continue in the coming years. It’s not that difficult to increase your chances of success in the investment world. All you have to do is be aware of these basic mistakes and avoid them whenever you get the urge to commit them. Following are the most common mistakes investors make:

You Don’t Have a Plan

Make sure you have an investment plan in place. You may be trying to achieve a goal of $100,000 for your kid’s college education or may want $2 million for your retirement. These are all valid goals, but beating the market is not a justified goal at all. That way, you’ll also know volatility is not an issue if you are 30 something and you have invested for your retirement (but inflation is). You may need to know what means success for you, as it may differ for different investors. The portfolio should have assets in different classes such as equities, global stocks, bonds, and high yield bonds among others. You need diversification of funds even in each of the asset classes.

Trying to Time the Market

The guidelines you have set for yourself will make sure that you stick to a long term policy even when the market is volatile and is scaring away other investors. It’s correct that outsmarting the market is more exciting, but is more risky as well. If you are investing for the kid’s college education who is a junion right now, it means the time horizon you are investing for is short and the portfolio will definitely reflect that. Most of the investors are usually focused on the short term gains.

Not Making Your Own Decisions

The financial news channels are good for education purpose but they need to be turned off when you are deciding where and how much to invest. If they really had some great tips through which you could earn millions, they would simply go quiet and make that much money. The fact that they are making a living through a news channel suggests you should make your own decisions.

Not Rebalancing Portfolio

Often rebalancing the portfolio is difficult for the people because they need to sell the well performing stocks and increase the poor performing asset classes. The rebalancing act is profitable when it performs extraordinarily. If you are drifting with the market, its a sure shot recipe for poor performance.

Chasing Star Fund Managers

Don’t be overconfident about your managers’ performance. There are very few managers in the market who can time the market consistently over a long term. Look at the Forbes 400 list, you’ll find no market timers in the list.

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Future of lending in America

Thursday, July 16th, 2009
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Author: Jacob Nickson
Occupation: Content Writer at CompareBroker.com
Date: 7/16/2009

Over the last 15 years Americans have become used to large amounts of unsecured credit through home equity lines of credit, installment loans and credit cards etc. Believe it or not; to some degree this does make America the superpower the way it is. Americans are known for spending, spending more than they can afford. It’s a no brainer that spending stimulates the economy. However with banks facing unprecedented losses in unsecured lines of credit and at the same time government tightening regulation on how much fees can be charged on these loans, industry experts are speculating that these lavish times may not last for very long. Now let’s think about what it means to consumers. From a borrowers point of view lending would be limited to two basic products:

  1. Lending against collateral: This used to be the common norm for very long time. We would move back to an age when the collateral amount used to be always greater than the amount you remain to pay. For example if you need to a credit card for 5000$, you either put a deposit down or show property that evaluates higher than the credit line. That will be the only way consumers will be able to enjoy the benefits of the card.
  2. Lending for short periods of time with abilities to re-price: The recent regulations have made it difficult for banks to change the terms of consumers who have shown bad behavior on open ended loans. For good people to get loans at good terms banks have to re-price for risk. Hence we might see a slew of new unsecured lines of credit which are close ended and the banks have the ability to re-price the consumer if he shows a negative behavior.

What does it all mean to an investor? Well, you might want to hold your breath and watch before you invest in any credit card companies. If you are an active trader and are open to taking some risks, this might be a good time to invest in credit card companies. Because believe it or not, these companies are going to come up with a plan B to keep the business they have enjoyed so far.

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Is Fed unfairly helping Goldman Sachs?

Thursday, July 16th, 2009

At Compare Broker our analysts are always on their toes and they analyze the market and provide their opinion on critical events around the globe.

Congress lately has been looking at Obama administration’s decision to increase the powers of Fed as a financial regulator. Before it gives a clean chit to Fed, the Congress should examine the links between Fed and Goldman Sachs.

It is a well known fact that most of the Fed presidents have former executive at Goldman. The involvement of Fed in allowing Goldman to get a bank status last year was also questioned by media but never followed up. Goldman has had the status for about 9 months but still does not have a single retail banking branch open. Fed took less than 24 hrs to grant the status to Goldman but never cared if Goldman is following the guidelines required by any bank. It enabled Goldman to have access to around $10 billion in TARP funds and $ 5 billion in TALF funds. It has still not gone out of the TALF program and is talking about giving record bonuses.

Many people would say at least the bank is making money especially seeing the second quarter earnings. That is true but where is the money coming from. It has been free money donated by government. All the securities that government wrote down for TARP and TALF funds were underwritten by Goldman Sachs. Hence Goldman got hefty amount of commission though tax payers money.

People would still say that the bank is at least working in favor of its investors. Is that true ? The government backed TARP money was available to Goldman at 5% interest rate. Warren Buffet gave Goldman the same amount of money $10 billion at 10% interest rates with much stricter conditions. A company truly working for the benefit of its shareholders would consider repaying the higher interest loan first. The only reason why they paid lower interest loan first. It had put a cap on the bonuses it can pay out to the top executives in the company. How is that fair?

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Future of the US economy: Where is world economy headed?

Wednesday, July 15th, 2009

At Cheap Online Discount Brokers our analysts are always on their toes and they analyze the market and provide their opinion on critical events around the globe.

Many of our frequent readers have asked us if we can predict the future of US economy. Well to be honest, the answer is no one can. We are in a situation where we have never been before. The total money flow in the system is of historic proportions. However we did some research and have aggregated the opinions of noted economist in this article.

So what is in future as far as the US & World economy is concerned? If you ask this question to an economist, he/she will never be able to provide one answer. So the current hypothesis is that there is a 50% probability that this is a U shaped recession. Which means we are at the bottom which would remain anywhere between 6 months to 2 years. There is a 30% probability this is a W shaped recession. Meaning that the current period is the calm before the storm. If that is correct, it’s obviously advisable to pull money out of the market at the first sign of a downturn. We would see a massive fall in the economy in October. The recession would last for another 6 months; we would see recovery after that. The third scenario (saving the worst for the last) is an L shaped recession. This basically means that there would be massive stagflation and there would be no growth in US economy for next 10 years.

So what determines which one of 3 above outcomes to happen?

1.) Oil prices: US economy needs oil prices in the range of 60-70 dollars for the economy to recover. If they go above $100 all small industries would perish since the raw material cost would go up. If it falls below $50, new research in alternative energy would not occur. Hence no new growth projects will be seen.

2.) What happens to excess money flow: A big reason why the economy has not gone further down in last 3 months is the massive interference by the governments of all countries. Economists know that pumping money into recession is a must. But no one has a clue of when and how to pull it back. If the money is not pulled back at right time, it can lead to serious stagflation problems.

3.) Innovation: In the end every economy has gown due to some innovation or other. In the prehistoric times it was fire and agriculture. Arabs grew due to trade. Europeans grew due to internal combustion engine. Americans grew due to Assembly lines and efficient manufacturing. There are several industries which have the capability of growth biotechnology, smart phones, alternative energy, and green jobs. It would be seen which among these is able to drive the next era of growth.

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