Items by kenyantykoon

Kenyantykoon's Blog

  • WE ARE MOVING TO WORDPRESS.ORG

    Posted: March 6, 2010, 12:46 pm by kenyantykoon
    Finally it is time to move this blog from wordpress.com to wordpress.org. I am changing everything from the domain to the username the themes. Am talking the whole package. The website may be completely offline for a few days as the new changes take effect. The new domain will be lifedividend.biz and the spinoff will be ackertalk.biz [...]

  • WHAT THE HECK IS DOLLAR COST AVERAGING??

    Posted: March 3, 2010, 9:23 am by kenyantykoon

    Many investors have heard of this investing strategy or have been practicing it unconsciously. This post serves to enligten investors and prospective investors on exactly what dollar cost averaging is and why value investors are so fixated on it. It is used in all types of securities from stock portfolios with stocks to bonds to warrants to liquid investments.Basically anything that you can invest in

    All investing formulas should be taken with a grain of salt and this is no different but in my opinion the advantages far outweigh the disadvantages.

    READ MORE…

    you might like to read

  • WHAT EXACTLY IS CAPITAL STOCK??

    Posted: March 1, 2010, 9:44 am by kenyantykoon

    I have come across this financial term many times when reading through investing books and various financial pages but have never really had a clear cut definition of what capital stock is. So after some research, this is what I came up with.

    To understand this very well we first have to briefly look at what a corporation’s charter(or articles of incorporation) is. This is a document that provides for the creation of the business as a corporate entity. It details everything that about the corporation like its objectives, capitals and management structure, operations etc. basically everything that makes up the corporation.

    That said….

    Capital stock is a broad classification of all the shares that claim ownership of the issuing company and thus encompasses or is subdivided into  other subclasses of stock like common and preferred.

    All the intricate details on the subdivisions of capital stock into common stock, preferred stock, total volumes of each to be issued etc is all put down in the charter of the corporation.

    So one can say that capital stock is simply the business itself in that lets say I have am the sole owner of a business. So in stock terms, I own 100% of the capital stock. So if I want to raise more money or go into business with other people (partners), I would sell part of the business to them, say 30%, leaving me with 70% of the capital stock. This stock which is divided into the other types of stocks that I have written of in the past can be sold to the public in an IPO(initial public offering) to raise more money for expansion or whatever. These shareholders are entitled to a dividend, voting powers in the companies affairs or whatever privileges the initial (capital stock) owners decide these new shareholders should have. A slight difference between capital stock and the other subdivisions is that the capital stock holders of the business(the incorporators) are the ones to set the price of the common, preferred shares which could be based on a large number of things like the balance sheet position, goodwill, future prospects, privileges that each stock classification enjoys etc.

    As the above implies a company can have different classes of stock outstanding but when it only has capital stock outstanding, it can be sometimes referred to as common stock.

    Something else about capital stock that is worth mentioning is that according to free dictionary, it is the total stated or par value of the permanently invested capital in the corporation. Also according to the dogs of the dow, “capital stock does not bear a relationship to the asset value or stock outstanding. Capital stock must first be issued and listed inorder to be publicly available for stock market trading. Capital stock is usually listed as a corporate asset in the charter and capital stock contribution additions are typically noted in corporate charter documents”.

    The best explanation that I found on capital stock is from this wisegeek article.

    That’s about it, it is not a new type of stock, just another word for the same old things

    you might like to read

  • HOW TO BE VERY RICH

    Posted: February 26, 2010, 10:55 am by kenyantykoon

    Sometimes, i like doing the odd motivational post on long-term (financial) success. I have done it twice in secrets of the self-made millionaire and a post on whether being richer will make you happier

    So this post has a few ground rules that a person aspiring for a high net worth will want to remember.

    READ MORE…

    you might like to read

  • WHAT IS A REVERSE STOCK SPLIT?

    Posted: February 24, 2010, 5:50 pm by kenyantykoon

    The past two posts have been about what corporations do with their stocks. I have handled stock dividends, cash dividends and stock splits.

    the difference between stock dividends and cash dividends was handled on my other site (ACKERTALK.BIZ) and the difference between stock splits and stock dividends here.

    In this post we will deal with the opposite of the stock split.

    What is the reverse stock split?

    READ MORE….

    you might like to read

  • the difference between stock dividends and stock splits

    Posted: February 23, 2010, 9:29 am by kenyantykoon

    In the previous article I differentiated between stock dividends and cash dividends and I think that the difference came out well

    In this post, I will differentiate between stock dividends and stock splits but since stock dividends were fully accounted for in the previous post, I will concentrate on stock splits.

    Basically stock splits basically increase the number of stocks that the shareholders and still keeping the proportion of shares that the shareholders have. With increasing the number of shares outstanding (as in shares currently owned by investors) the value of each share falls in proportion to the increase in number of shares.

    The financial jargon for stock splits is and x for y split with figures 2 for 1 split. In such a case each share that a stock holder has is divided into 2 which means that if he has 200 shares before the split, he/she will have 400 shares after the split. The further implication is that the value of the share falls by half since the shares have doubled in number. So if each share is $10 before the split,  value will decrease to $5 after the split.

    Another example is a 4 for 3 split. This will mean that each three shares that an investor holds will be increased to four or another way of putting it is  that each 1 share becomes 4/3 of the initial. So if an investor has 300 shares before the split, she will have 400 shares after the split and the value of each share will decrease to ¾ of the initial value.

    There are many ratios that the management can decide on according to the prevailing situation but the most common is a 2 for 1 split.

    Just run through again if it is not well internalized…..

    Value investing books like the intelligent investor have belittled this corporate gimmick saying that it just tries to make investors think that they have more shares in the company while in the real sense their standing is still the same as it was. The book uses that example that Yogi Berra saying that he wants his (whole) pizza cut up into eight pieces because he does not think that he can eat four. The authors say that these companies that split their stocks and make so much noise about this are in essence treating their investors like dolts. While sometimes this happens, sometimes it doesn’t and so lets say that the says were doubled(2 for 1 split) this will mean that each share will be entitled to half of everything that the initial share had. So In essence there is nothing that the investor benefits from s split.

    Why do companies do stock splits? If a company’s stock is doing well(I prefer to think of it as the stock being grossly overpriced), the management might decide to split the stock so as to make more shares available to the public. In “the intelligent investor” curious historical examples in the internet are shown of how companies split stocks and after the devaluation the same stocks increased in value almost overnight. That means that the company will benefit from the split and the investor will profit in that he will be able to afford shares that were previously too expensive.

    The down side is that the stock split in increasing the number of shares in the market means that a dilution can occur making a major loss in stock value.

    Something about these stock splits is that they require approval from the Board of Directors and the shareholders(those with voting powers anyways)

    There is also something called a reverse stock split but that is a story for another day.

    ADMIN’S UPDATE

    I have just found this yahoo finance article on Berkshire Hatharway’s stock split. It would be nice to read this real life situation of a stock split so that you internalize this concept.

    you might like to read

  • the difference between stock dividends and stock splits

    Posted: February 22, 2010, 11:01 am by kenyantykoon

    I have been reading a lot about finance lately and i have come to notice that the corporations use these two things interchangeably.

    So this post is meant to enlighten the readers on the difference between cash dividends and stock dividends and in that you will come to understand why companies use them

    READ MORE…

    you might like to read

  • MARGIN OF SAFETY EXPLAINED

    Posted: February 8, 2010, 6:43 pm by kenyantykoon

    If you have read any books by any value investor or a blog written by a person more inclined towards fundamental investing, you may have heard this phrase “margin of safety”. So I decided to write up a post on this very important concept in fundamental investing.

    What is margin of safety?

    Since it is Benjamin Graham who first came up with this phrase, it is best to define it from his point of view.

    In the case of bonds, it is the security provided by the company’s ability to provide revenues in excess of the interest requirements thus protecting the investor against a slump in the economy because they will still get their interest payments. If you read about how bonds work, you will see that companies pay the bondholders their interest payments from their revenues. So the higher the company’s revenues, the more protection that the investors get if the profitability of the company was to decrease i.e. they would still get their periodical payments.

    In the case of stocks, it is the difference between the real (intrinsic) value of a stock (as in what the stock is really worth) and the market price  of that stock in the stock market. Sometimes the stock is overvalued in that the market price is way over the intrinsic value and sometimes it is undervalued in that the market price is lower than the intrinsic value. In the case of the overvaluation, the required margin of safety is not provided and a value investor worth his salt will not even touch that stock no matter how much the media and the general investing public is hyping it up.

    A value investor will mostly look for grossly undervalued stocks because in most cases the undervaluation is not justified in that the general investing public just does not like the stock, or it is not causing a lot of excitement. A hypothetical example is a company that makes toilet seats would not be as popular as a search engine that seems to control the whole internet. You may find that the toilet seat company has much better fundamentals that the search engine and thus a much better investment.

    NB;Something that any investor should know is that margin of safety is to be applied in all areas of investing, be it bonds, stocks, liquid investments, warrants…. basically anything that is included in his portfolio

    [Street authority has a large well written longer article about margin of safety with more examples than this post so you would want to read thru for a better understanding]

    Contrary to popular belief, it is not that easy to determine the real value of a stock and that make an informed decision as to what price it would be wise to buy the stock. So an undervalued stock provides that very necessary margin of safety to protect the investors from unexpected downturns of the market or the miscalculation in the calculation of intrinsic value of the stock. The greater the margin of safety the more protection the investor has for his money.

    In insisting on a large enough margin of safety, an investor reduces the risk that he is exposed to and in most cases will not be so worried about what the market is saying about the security since even before buying it, he insisted on a margin of safety by using figures, persuasive reasoning and experience and thus according to Benjamin Graham, it becomes a true investment.

    In this site called the Warren Buffett secrets, margin of safety is well explained in from an approach that is different from the one that I have taken

    The first time that I heard of this term was in the intelligent investor and coincidentally simple dollar did a post on that chapter of the book dedicated to this concept that you may find helpful

    Any comments or additions are welcome

    you might like to read

  • 4 TIPS FOR VALUE INVESTORS

    Posted: February 4, 2010, 12:52 pm by kenyantykoon

    For reasons that are out of my control, i have not been able to post as regularly as i was last year but i am intent on reverting to my regularity very soon.

    It has been a long time since i linked to any article that i found too helpful for an finance reader interesting in investing from a value standpoint. I have just found this post on CNN-MONEY about the tips that a smart value investor would find extremely helpful.

    If you have read the intelligent investor or/and security analysis (arguably the best books on investing ever written-or so they say), you would see a remarkable similarity between the linked article and what these books crusade for.

    An overview is

    -not wasting a lot of time trying to predict the future of the stock market and trying to get the best investments

    -thinking in longer terms and not yearly or monthly

    -making sure that you have the costs incurred during the investing enterprise factored into your calculations because as we all know mutual funds’ high fees eat away at most of the returns and thus little gains for investors

    -most importantly developing the ability to control your emotions and temperament.

    Here is the article again. You should read it because it will refreshen your memory on fundamentals about investing that you may have forgotten.

    you might like to read

  • WARRANTS; PROS & CONS

    Posted: January 30, 2010, 9:07 am by kenyantykoon

    I have doing a series of posts about warrants the first handled what they were and the types available while the second  dealt in how they work. To gain a better understanding of these investments, i suggest that you first read through these linked (short) articles.

    This post will deal on the advantages and disadvantages of warrants and we will briefly look at how they are misused by companies for their own benefit.

    One advantage of warrants is that with less money an investor can profit more from stock fluctuations than dealing with the stock itself. Let’s say that the market is going up(bull market). The investor can use call warrants to profit from the increased stock prices. This is brought out in the example in how warrants work. The same also happens with put warrants. In the investment circles this is referred to as gearing or leveraging since in buying these warrants you get control over a security be it a stock or whatever at a lower entry cost.

    Another advantage of warrants is that in a bull market there is the possibility of a very high profitability. Assume that you bought a call warrant with a very long expiry date. This means that as long as the stock price is going up you as the investor stands to gain in exercising the warrant. The converse is also true when you buy the put warrants in a bear market. Another way of looking at it is that is the market went the opposite way of what you were expecting them the only amount you lose is the amount invested in the warrants- the losses could have been worse if you were trading directly with the underlying security. This is also part of the leveraging advantage mentioned above.

    Another advantage is the ease in trading them since they are just like stock options and thus relatively easy to understand and trade.

    One advantage that warrants have that is not really there with most of the other securities is the low transaction costs. Apart from opening an account and dealing costs there Is really not nothing else much. But the investor should take care because frequent trading will mean that returns obtained are eaten away by the fees so he should only trade during well thought out times to maximize returns. The only investment vehicles that I know of with this advantage are index funds and bluechip stocks(if held for long terms).

    If you are an individual investor looking for diversification, then warrants may have this benefit since for a smaller amount you can get a larger number of stocks in your portfolio since with a smaller amount of cash, you can trade with and profit from more expensive securities.

    Another advantage that comes out with the expiry dates of warrants is that unlike with stock options their dates are much longer at times indefinite. This means that the investor has a longer time to benefit from the fluctuations of the underlying security and this profit more.

    Warrants also have the advantage of being transparent in that an investor can see exactly what is going on. What this means is that the accurate prices of the warrants and the underlying security is and the centralized listing means that the investor is always in a position to compare the prices and make well informed choices.

    These are most of the pros that I could come up with.

    As for the disadvantages….

    The first disadvantage of warrants that pops to mind is the volatility. Since they mirror the fluctuations of stocks etc this means that their prices and thus the loss or profitability changes all the time. While this can work to the benefit of the investor it can also blow up in his face. Lets say that the investor was expecting a bull market and thus buys call warrants and then the market suddenly goes the other way. This will mean a loss of all the invested capital.

    Another disadvantage of warrants is that even though there is a lot of transparency in these investments, they are still very complicated and thus they require a lot of time, experience and expertise in dealing profitably with them. The underlying stocks are part of the company you are investing in but the warrants are derivatives of these stocks and this means a layer of complication in pricing and investing.

    Warrants like stock options are not stocks so warrant holders have no right in decision making of the company. This means that they have to suffer the consequences of bad decisions made by the shareholders and the  BOD.

    Also warrants seem to show that a company’s fundamentals are weak since it is perceived that a company offering warrants is misusing the available cash. This casts doubt in the strength of the company and this may scare away value and fundamental investors. Also warrants complicate the accounting process and thus stock pricing which could lead to an accounting time bomb that could spell doom for the company. This is very well brought out Benjamin Graham’s “the intelligent investor”.

    Also if the investor does not exercise the warrant before the expiry date, this means that it will be nullified and consequently the investor will lose his invested capital. Sometimes the investor does not have a choice. Let’s say that he has a call warrant and was expecting the stock price to rise and then it either stagnates or drops. It will make no sense for him to exercise the warrant at a stock price lower than the exercise price because this will be a sure loss. So the speculative nature of these warrants may tie the investor up in a bad way.

    You are free to make any additions or corrections to the post(s) above.

    you might like to read

  • HOW WARRANTS WORK

    Posted: January 29, 2010, 9:16 am by kenyantykoon

    The previous post was about warrants where I defined them and briefly explained the types of warrants commonly known[i suggest that you read this linked article first for better understanding]
    In this post I want to explain how they work in as simple a way that I can master
    In reading the previous post you will get a feel on how the put and call options work so I would suggest that you run through the post first.
    An illustrated example is that supposing that an investor has a warrant to buy one underlying parcel to buy 100 shares within the next 10 years (the expiry date is 10yrs from now) at an exercise/strike price of $20 per share. Assuming that it was a bull market and the price of the shares rose to $100 per share within the next year from say $10 at the time of purchase. If the investor possesses the call warrant, he will be able to buy the highly priced shares at $20 which he can then sell making a profit of $80 per share or hold in the hope that the share price will rise even higher which will mean more profits. I have used all the technical terms as used in the investment world so that you get a feel of it. If not understood take some time and re read.
    While the possibility if profit is very high there is also the possibility of losing a lot money. What I mean is that the investor is buying these warrants because of the hope that the stock prices will rise. With the stock market as it is, this may not be the case and the stock prices may tank to below the exercise price ($20) and probably stay there up to the expiry date. When this happens, the investor can either chose to exercise his warrants or let them expire. In both cases, he loses big money.
    A few things that one must remember of these warrants is that they are mostly attached to other securities to “sweeten the deal” so to speak. It is possible to detach them and trade then separately as the investor sees fit. Continuing with this, supposing that the warrant is attached to a convertible bond . Using the conversion ratio the investor can detach the warrants and the bond and convert the bonds into the stock and keep the warrants for a hopefully better time.
    Another thing that you must remember is that being warrant holder is totally different than being a stock holder in that the warrant holder has no voting rights, gets no dividend or interest payments. It is just like being a stock option holder but again not entirely.
    This website has a different way of putting all things warrants that we have been talking about with different examples that will make you understand this form of investment better.
    A final thing is that just like shares, these warrants’ prices fluctuate a lot

    you might like to read

  • WARRANTS- DEFINITION AND TYPES

    Posted: January 25, 2010, 11:27 am by kenyantykoon

    I have been reading a lot of finance things in accordance with increasing my financial and investing knowledge and I came across this type of investment (if I may call it that since warrants offer no interest or dividend payments to the holder). So I decided to do a few shot posts in what they are and how they work.

    Basically warrants are investments that give the holder the right to buy and sell a specified number of the issuing company’s securities before a specified time in the future and at a specified price that is normally higher than the current price of the security to be bought at the time of issuance. These securities are mostly common stock, but sometimes they can be preferred stock or corporate  bonds

    As you can see from the above definition these warrants bear a remarkable similarity to call options, a post I did a short time ago but their main difference is that with warrants they are bundled together with the other securities to as to increase the marketability of the other security (the ones mentioned above), something that is unheard of with stock options. Also the time frame that one can buy stock using warrants is much longer- years that the time that an investor can use his stock options-months.

    Another difference that investopedia gives is that warrants are issued and guaranteed by the company while options are exchange instruments that are not issued by the company.

    Another difference that I has been well brought out by street authorityis that when warrants are bundled with other securities, they are detachable in that an investor can decide to sell one and keep the other according to how he sees fit. This is not possible with stock options because they are not sold in this form.

    Warrants are also called equity warrants, subscription warrants or stock warrants so let this not confound you

    The two types of warrants are named like stock options i.e. call warrants and put warrants.

    In the case of call warrants the holder has the right to buy the underlying security before the specified time. This will be done at a time that investor will profit from it. Let me illustrate. Supposing the price of the warrant is $50 –also called the exercise price and at that time the current price of the common stock is $40. After some time the stock may go up to $70. This means that the investor can buy the higher priced stock at the price of the warrant thereby saving $20 in this case. He can then choose to resell the stock immediately thus making a $20 profit or he can wait hoping for a higher price and thus more profits.

    In the case of put warrants the holder has the right to sell the security at a higher price than he bought them and thus profiting from the trade.

    Other types of warrants are as follows

    Covered warrants

    Derivative warrants

    Corporate warrants

    Apart from the strike price/ or exercise price that I have mentioned above, other terminologies in warrant investing include

    -expiry date; the last date at which the warrant can be exercised after which it become null and void. This period can be a very long time sometimes indefinite

    -underlying parcel; this being the number of securities that area awarded to the investor when the warrant is exercised.

    -conversion ratio; the number of warrants that an investor would need to buy one underlying parcel of shares. A conversion ratio of 10:1 means that he would need 10 warrants to buy 1 underlying parcel. This conversion ratio is different from that of convertible bonds or stock

    That’s basically the warrants at a glance. Next time we deal with how warrants work.

    ADMIN’S UPDATE

    this is a continuation of how warrants work so that you get a deeper understanding of these investments

    you might like to read

  • LIQUID INVESTMENTS FOR VALUE INVESTORS

    Posted: January 14, 2010, 5:38 pm by kenyantykoon

    Some time back I did a post on money market funds and how they are used as alternatives to cash by investors- aggressive and conservative alike. They also come highly recommended by Benjamin Graham in the sixth edition of security analysis. He says that if an aggressive investor can see no investment that fits the criteria set out as a value approach would, then be should put his cash in the money markets.

    There are many reasons for this but the main reason is the short term maturity period and very high liquidity and the safety that these investments provide for the investor’s hard earned cash among other things.

    So in this post I will mainly dwell in the type of money market instruments available for the value/ fundamental investor. The definition of a money market is the global market where short term financial instruments are bought and sold.

    These money market instruments include:

    CERTIFICATES OF DEPOSIT [CDs]

    These are offered by depository institutions like banks and credit unions but they are sometimes bought through established brokerages. These money market instrument is also referred to as a time deposit because they have specific investment durations like 3 weeks to five years much like bonds. Other things that these CDs have in common with bonds are a predetermined interest rate and being available in more than one denomination. To give evidence that you have invested cash into the institution, the certificate is awarded to you and the information that appears is the amount invested, the maturity date and the interest rate how the interest is calculated.

    These certificates of deposit while they have a higher interest rate than T bills and savings accounts in banks have the down side of being a little riskier [just like bonds in that the higher the interest rate offered to the investor, the higher the risk of default the investor has to bear] but overall the interest offered is much smaller than most other investments.

    Another advantage is the safety from the whimsical stock market and the ability to calculate what your cash will amount to when it matures.

    Another thing about certificates of deposit is that there are restrictions on withdrawing cash. This can be a good thing in that the investor will not be tempted to withdraw cash all the time (and thus forcing him to delay gratification) and a bad thing in that he cannot count on the investment in when disaster comes a knocking. But it is worth adding that the larger denomination CDs can be sold before maturity.

    They are perfect for keeping cash safe for a specific amount of time and I think that this is why security analysis recommends them.

    Finally they differ from money market accounts, something that about.com has brought out rather well.

    TREASURY BILLS (T bills)

    These are ways that a government uses to raise money from the public, much like government bonds

    With T bills, the investor buys them at less than the par value or full value or at a discount and government will buy them back at the predetermined par value. The difference is what the investor keeps

    The investment period of these T-bills is 3months(90 days), six months and one year and the various short maturities is one of the things that make them so popular. Other reasons for their immense popularity are;

    -the fact that they are so simple to understand and invest unlike investments like stock options and bonds and warrants and stocks

    -the fact that it is possible for the investor to get a T bill that matures at the time convenient for him and at an interest that he can specify at an auction

    -A variety of denominations that cater for the investor with modest funds to the richest of the rich

    - A very low risk of default since they are backed by the government and it is only in very extreme cases that a government can go bankrupt and fail to pay back cash to investors

    While the returns are not the best, let us not forget that this is a security that an investor uses when he is between investments.

    COMMERCIAL PAPER

    Just like corporate bonds, commercial paper is a way for the corporation to increase working capital by borrowing from everyone else other than the  evil banks and just like T bills, they are offered at a discount from the face /par value.

    These have fixed maturity periods between one to nine months and are issued by companies with a very high credit rating much like the first rate corporate bonds making then a very safe short term investment. This is where they differ from corporate bonds in that these have shorter maturity periods. The high credit rating requirement by issuing companies is because they are not backed by any form of collateral and so only companies that have a very strong financial base and thus cannot default are allowed to issue them unlike bonds which are issued by any type of company but are graded according to the risk that the investor is to incur when he decides to invest in them.

    The down side of commercial paper to investors with modest funds is that they are only in very high but variable denominations and thus only cater for rich investors who have the luxury of choosing whether to buy then on discount or with an interest attached.

    REPURCHASE AGREEMENTS (REPOS)

    This security only works with government securities. With these, the government securities holder sells the security to the investors with the agreement to buy them back at a predetermined date and price which is normally worked out for the investors benefit. This is a real short term investment i.e. one(overnight) to over a month

    There s a lot to know about repos like types and the structure, all of which are addressed in this answers.com linked article

    Another name for the repurchase agreement apart from the repo is the buyback. A fitting name.

    MONEY MARKET FUNDS.

    I did a post about them some time back and instead or redoing it, you can just read through here

    BANKER’S ACCEPTANCES (BAs)

    For companies with a credit worthiness so low that they cannot issue commercial paper, this security somewhat more suitable. They are essentially created by a non financial firm and guaranteed by a bank.

    The corporations issues this non interest security at a discount from the full value with a maturity period of less than one year  and is backed by a bank with a very high credit worthiness. They are not very common in other areas apart from international trade

    Apart from the fact that they don’t necessarily have to be held to maturity and offer the investor security for his money, this security also reduces the company’s cost of borrowing cash from a financial institution

    They are very similar to treasury bills because of the discount issue.

    EURODOLLAR

    Unlike the implication in the name, these securities have nothing to do with Europe. They are US dollar deposits in banks outside the USA. The maturity period is around six months and investments are in very large amounts and individual investors with modest funding are usually locked out unless through a money market mutual fund.

    These are used by persons or organizations that need to keep large amounts free from government regulation, deposit insurance and thus allow for larger margins

    There are Eurodollar time deposits and Eurodollar CDs and it is also worth mentioning that they are only found in the developed countries like USA and Europe.

    FOREIGN EXCHANGE SWAPS

    This nifty investment allows to parties to exchange different foreign currencies at a certain time in the future at a mutually agreed on exchange rate.  The main advantage here is that this reduces the risk that the currencies will change in ways that will be inconvenient for either party and this saves them a lot of cash that can be lost in the easily fluctuating forex markets

    Other names for these swaps are forex swaps, currency swaps, FX swaps and are mainly used by multinational companies or those that frequently deal with foreign currency

    They are much more complicated than the one liner with which I have tried to explain them with, as Wikipedia shows

    MUNICIPAL NOTES

    These securities are issued by municipalities to get cash in anticipation of tax revenues unlike munis bonds that are used to increase the cash that the municipality has to spend by borrowing from the public(a loan of sorts) as they wait for other forms of revenue. Their maturity periods range from a few months to a few years depending on many things.

    Apart from the short maturity period and the relatively safe form of investments that they are, they do not have wide price and interest rate movements as compared to stocks and bonds

    These are a few short term investments that are available to the value investor in between investments and those that are saving cash for a specified time like to buy a house or for school or something. I hope they are well explained

    I realize that this post is longer than the ones that I usually write but I needed to give you all that I could find on highly liquid investments instead of hiding your money under the mattresses :~)

    Random Posts

  • WEAPONS THAT HEDGE FUND MANAGERS USE

    Posted: January 6, 2010, 4:34 pm by kenyantykoon

    Some time ago, I did a post about hedge funds and why they are so attractive to the aggressive and conservative investor alike

    I happened to mention that there are some tricks that they use that most other investors cannot do because of the risk involved, equipment and expertise required or because they are just not allowed by law to practice them.

    So in this post I will discuss some of the methods that hedge fund titans use to make billions while the rest of the world sinks into an economic quagmire.

    The definition of hedging is basically managing the risk of loss caused by fluctuations in the investment that an investor can occur and/or increase the profits that can be obtained in an investment venture. Examples in hedging are covered in this investopedia linked article along with other things

    This is done by various techniques like:

    SHORT SELLING STOCK

    This is the betting on the probability that there is a falling market in the near future and preparing to profit from it. Supposing a hedge fund manager and his team find in that there is going to be a fall in share prices of a few companies because of management problems, market sentiments or whatever, the fund borrows the company’s stock, bonds etc from a broker for a given period of time and sells it at the current high price (say $50). If the research is correct and the share prices fall, the fund then returns the borrowed securities at the now depressed prices (say $20) and thus pocketing the difference- minus the fees for the broker.

    The down side is that the future being as unpredictable as it is, the share prices may not fall but continue rising for the whole duration that the fund has borrowed the shares (say to $80). After the time has elapsed, the fund will have to return the shares at the current inflated value, which will mean getting the extra cash from their accounts to pay up and adding the brokers’ fees, the fund will suffer aggravated losses.

    LEVERAGE

    This is the borrowing of additional money by the hedge fund to increase the profits due to them in the case of an investing transaction going well. A hedge fund borrows money from any financial institution that will agree at a fixed interest rate so that they will have more to invest in the attractive investment that made them borrow the cash. This extra cash will mean more profits for the fund and the investors but the down side will mean aggravated losses for the fund if things do not go as planned. Leverage can also be achieved by trading on margin- borrowing money using the securities you already own to increase the amount you have to invest and increase your profits, assuming things go according to plan.

    INVESTING IN RISKY SECURITIES

    Hedge funds generally have a major appetite for risk this is sometimes shown by the type of investments that they take on. These are mostly investments with a low credit rating and thus have a high likelihood for default. These include Junk bonds,stocks of distresses companies, companies in the verge of bankruptcy, protracted litigation or some other issue that has put the company in problems that threaten its future. These problems cause their stock prices to be underpriced and thus the hedge funds hope to benefit in buying this securities at the current depressed rates and selling after the company overcomes the problem and the stock prices run up again. If the research is well done this risk pays off and a major payday for the investors and managers but once in a while as with all risky investments, things do blow up and the hedge funds ends suffering major losses.

    STOCK OPTIONS;CALL AND PUT

    With stock options, the hedge fund reduce exposing all their money to the whims of the market in that  they use a smaller amount of cash to buy the right to buy or sell the security instead of buying/selling that security. This makes the profits higher when there is a bull market and losses limited to the relatively small amount they invested in the market. Since I already did a post on stock options(here is the post) and there uses and misuses(here is that post), there is no need to redo them. You can just read through

    LONG/SHORT EQUITY

    In not so many words, buying undervalued shares in the hope that their prices will raise with time and selling (shorting) overvalued shares in the hope that their prices will fall- I have explained shorting stocks above. While there is a probability that things will go as planned, the markets may go in the opposite direction and this will result in double losses.

    ARBITRAGES

    The types of arbitrages; merger arbitrages, market neutral arbitrages convertible arbitrages and fixed income arbitrages, telecom arbitrage, municipal bond arbitrage, regulatory arbitrage etc

    While I am not going into the details of how each works I will describe how arbitrages as a whole work.

    Basically it is the simultaneous buying and selling of a security in the hope of profiting in this transaction ie the selling price being higher than the buying price. It is used by all types of investors and also in the non financial circles.

    MARKET TIMING

    This is a combination of some of the above strategies. In essence the hedge fund buys a large quantity of a security and sometime heavily leveraged at the beginning of a bull market and rides the increase in stock prices, selling when they have reason to believe that the stock prices cannot increase any more. When their research signals a bull market, they short stock and this profit as everybody else is losing money. Something they can even short index funds.

    FUTURES/FUTURES CONTRACTS

    This is a contract that requires a financial instrument like a commodity stock bond, currency to be delivered to a buyer at a predetermined time and price and unlike stock options, the buyer MUST buy them. The seller hopes to profit in the difference between the price he bought them at and the selling price.

    Just like stock options, if these futures are not exercised before the expiry date, they become null and void, totally useless and so it is hard to find investors with them after their expiry

    There are so many strategies that the 9000 plus hedge funds use that I cannot even dream about exhausting them all. But basically what they do is take on more risk that a conservative investor would not even dare take on and after A LOT of research by major brains benefit from the risk and resources available to them. This happens sometimes.

    Because of the risk involved, there are very high requirements before anyone can invest with them including large initial capital of $100,000 upwards to millions of dollars depending on the fund and making sure that the participants are all accredited investors etc.

    I haven’t invested in any yet but when I do, I will concentrate on those that invest from a fundamental investors’ perspective.

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  • THE SIMPLICITY OF INDEX FUND INVESTING

    Posted: January 4, 2010, 3:34 pm by kenyantykoon

    I wrote about index funds some time back and since then I have come across more information about then so I thought that instead of re-editing the former one. I should just make another index fund post.

    Basically the index fund is a passive investment where the money that you as an investor puts in is invested in such a way that all or most of the stocks in a major stock exchange like the NYSE or S&P500 or other globally acclaimed stock exchanges are included. These major stock exchanges make indices including the biggest and most successful companies listed in that stock exchange and use it to mirror the performance of the whole market. This is because if the biggest companies are doing well then there is a high likelihood that the whole market is doing well too. So an index fund will invest in these companies with predetermined proportions that best reflect the stock market as a whole.

    Some index funds invest in certain industries like finances biotech, food etc. This means that the only thing that the investor has to choose is the best index fund in the preferred industry and the time period that he wants to invest and for the most part forget about it. Since an investor seeks to invest in something that will not be so controlled by humans he finds assurance in the index funds because everything is computerized and there is virtually no human interference.

    Index funds have a myriad of advantages that attract the conservative and aggressive investors alike. They are:

    *the fact that index funds are passively managed means lower costs and thus higher returns than actively managed mutual funds. It has been shown that the returns in mutual funds is always the return on the total market minus the costs of investing like management, trading costs etc and this is  one of the major downsides of mutual funds. With the index fund, the costs are lower so over a long time the returns are mostly higher than actively managed investments.

    *I have stated that index funds are invested in all the companies making up an index. This means that if there is a company is doing better than all the others in the market, chances are that you already have a (very small) stake in it and thus some returns. This beats active stock picking because the active investor might miss these companies and thus the gains involved.

    *Also index fund investing is really easy since you don’t have to worry too much about asset allocation and what stocks are doing better than the others. The peace of mind brought by this investment makes even the professional investors like Warren Buffett, Benjamin Graham endorse them. It has been shown that outperform more than 60% of actively managed funds (which are seeking to beat the market). In the grand scheme of things it really does not matter whether or not you beat the market but that you reached the financial goals that you set out when you started investing. I assume that you see how a passive investor benefits from these index funds… huh?

    *Index funds have a lower turnover than other actively managed funds and this means there are lower overall costs. Turnover means the selling of securities and replacing them with new ones by the fund manager. This selling and buying increases investment costs and thus lowers returns the lower turnover with index funds means lower costs.

    *Another advantage brought out from the above is that because of the low turnover the passive index fund investor pays out fewer taxes than the actively invested high turnover fund and thus is an up for the return seeking investors we are.

    The rambling thoughts blog has a very interesting perspective on the benefits of investing in index funds.

    There are disadvantages involved in index fund investing and the one that comes to mind first is that they are very boring. If an investor is attracted to the thrill of active stock picking and the possibility of beating the market and all the other investors, he finds this investment a bore. For someone like this investment gurus suggest that you allocate some of your funds to index funds while leaving a percentage dedicated to active investments-the asset allocation formula that you use can change with your propensity for risk

    Fund managers are against index funds based on the argument that people that invest in this fund are giving up before they start because of the fact that an investor has absolutely no way of beating the market. They also argue that an investor cannot take advantage of market booms like the infamous tech bubble. While they do have a point that in the short run, actively managed funds may outperform the index funds, in the long run the index funds have always come out on top. So it depends on how you look at it: for short term investors, active management may mean better returns but for the real(long term) investor, the index funds are a major attraction

    Something else about index funds is that there is always a tracking error between the trend of the index fund and the market trend. Sometimes when they are trying to correct this error mistakes can arise that may mean loss of returns for the investor-but these are few are far between.

    That’s more on index funds. The next time I do an index fund post, it will be how hedge fund managers short them.(something that I never knew was possible until recently)

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  • THE DIFFERENCE BETWEEN TAX AVOIDANCE AND TAX EVASION

    Posted: December 15, 2009, 11:06 am by kenyantykoon

    We have all heard of those stories about high fliers, CEOs and movie stars facing a very long time in prison because of failing to pay their taxes. Most of the time, it is normally tax evasion but there is a legal way of paying less taxes and it is called tax avoidance. This post serves to enlighten my readers on the difference between the two.

    What is tax evasion??

    Basically tax evasion is where a person unlawfully reduces the amount of taxes that they are to pay up by either understating his taxable income (the percentage of a person’s income that is to be taxed), manipulation of tax law, adding tax deductions (exemptions for the tax payer to pay less tax) that do not apply to him or just refusing to pay the taxes, transaction using cash so that no paper trail is left for the taxman to follow, stating your assets in another person’s name, having debts and receipts like stock dividends paid through other people’s names, keeping double records for a business: one doctored for the taxman and another accurate one for business continuity, demanding tax refunds that you are not liable for, businesses understating their sales, using illegal tax shelters etc. All this and others that people use to pay less taxes

    This is criminal and those that are unlucky to be caught or don’t have the government in their pockets get prosecuted and imprisoned or fined.

    It can be argued that once in a while a person may be unable to pay taxes and this can be dealt with leniency but the problem comes when it is done over and over again by people who definitely know what they are doing and there is a motive behind it like CEOs reducing expenses so that their companies can report higher returns at the end of the financial year, or when highly paid lawyers are used to manipulate the law for the corporations

    I assume this is enough about the illegal tax evasion and now for tax avoidance

    post continues below

    LIFE CAN BE OVERWHELMING; HERE IS SOME HELP

    continuation of post

    What is tax avoidance??

    In contrast, tax avoidance is the legal minimization of the taxes due to a person using established financial tools and laws and whatever else that it lawful. Some of the instruments that a person can use is municipal bonds because interest on these is not considered taxable income, using tax shelters, trusts, using all the tax deductibles lawfully due to the individual, using tax planning opportunities like estate planning, salary reduction plans, shifting assets to family members that do not need to pay taxes on the income(this is a permanent shift compared to the illegal temporary shift in tax evasion) and a myriad of other things some of which are covered in this article, changing your country of residence to a tax haven like the famous Monaco etc

    Wikipedia has a little more to add on both tax evasion and tax avoidance.

    I had briefly mentioned tax avoidance in the tax credit post so you might want to re-read it for better understanding.

    Tax avoidance is also referred to as tax mitigation or tax minimization or tax planning so let this not confound you.

    Tax law being what it is(it is super duper complex in this part of Africa), it is important that you talk to a tax lawyer or a tax advisor so that you get to know all the tax deductibles due to you instead of breaking the law to get something that you could have got legally.

    If this has not been understood or there is something that you would like to add, the comment box is all yours

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  • HOW A BEGINNER ANALYSES A STOCK

    Posted: December 14, 2009, 8:20 am by kenyantykoon

    The previous post was about the types of stock analysis and I briefly explained the difference between fundamental and technical stock analysis. Knowing this, let’s look at how to analyze a stock before buying it.

    The first thing that you have to consider is what type of analysis you will base your investments on; technical or fundamental. It is possible to consider both or either. Most investment companies have separate teams what specialize in both fundamental and technical investing. Other investors are mostly inclined to either and then periodically borrow a leaf from the other.

    After this look for companies that are undergoing temporary adversity like a lawsuit or something that has caused a temporary depression in its stock prices. This company should be have a sufficiently high market capitalization because this will mean that the funds and brainpower at their disposal will carry it over this adversity and thus an increase in stock prices as faith in the company is restored. At this point, you should delve into the operation of the company and find out EXACTLY how the company makes its money.

    After flagging the companies that you have gained an interest in, find out the intricacies of its financial position by looking for the following things;

    -the current ratio: this is the ratio of the current assets and the current liabilities. The minimum should be 2:1

    -The rate at which earnings are growing. A minimum increase of a third in per share earnings for the past  10 years or more using at least three year averages is recommended.

    -the P/E ratio; ratio of the price of a stock to the earnings in the previous years. This P/E ratio should not be more than 15 i.e. the current stock price should not be more than 15 times the average earnings for the past three year averages.

    -the price to assets ratio. The current stock price should not be more than 1.5 times the book value of the stock as reported in the latest financial statements (I will describe how the book value is calculated very soon). A rule of the thumb suggested by Benjamin Graham in his books is use of the multiplier i.e product of the number obtained by dividing the current stock price and its earnings (in this case it is 15) and the price to assets ratio(in this case 1.5). This new number should not be over 22.5

    After ascertaining its financial strength, the next thing is to find out its earnings stability. The company should show consistent earnings for the past decade or more- particularly if it has undergone an economic upheaval and still sustained its earnings.

    The next thing is to look at the dividend record of that company. The same rule goes but in this case they should be uninterrupted for at least 2 decades.

    All the above information is obtained from a company’s cash-flow statements, income statements, balance sheets, the quarterly reports and the analyst’s report. As you can see, you will need an inordinate amount of time to pore over all this paper work in search if the best stock to buy. This is the uninteresting world of the professional investor. The upside is that if this analysis is done right, better than average results are obtained from your investments and you will be the object of envy for the speculators all trying to mirror your investing acumen.

    I must say that these rigorous tests may make an investor exclude many companies that have the potential of high future earnings but the upside is that you are left with a small group of companies in which there is very little chance of losing your hard earned money.

    That’s basically how some of the most successful value investors do their thing

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  • TIME TO RE CHECK YOUR STOCK PORTFOLIO??

    Posted: December 12, 2009, 10:50 am by kenyantykoon

    In the financial papers many a finance guru are advising people to move from bonds and into dividend paying income stock but the intelligent investor from the wall street journal has other thoughts.

    He says that income from bonds to stocks isn’t as interchangeable in  real life as it seems on paper because at a certain percentage interest bonds are presently risky and when stocks offer this dividend payment, their intrinsic value could be going down so in a sense you will be worse off in the end than you were at the beginning.

    Read the whole article here. Read it very slowly because i must say, it made a lot of sense to me.

    Since investors hold bonds to provide safety from the risk brought about by stock holdings this guy says that dividends are not the whole picture because a higher from a stock might also include a higher loss in stock value and so it does not make sense to invest in utility stocks, convertible bonds, junk bonds or preferred stocks (read the continuation of the preferreds here) just  because they are offering a higher yield.

    On the other hand the article’s advisor says that instead of the individual investor draining his money market accounts and putting them into the above risky stocks, he would rather have them replace their growth stocks with high dividend paying stocks.

    But the main issue there is that investor must not kid themselves that income from stock dividends and bond interest are interchangeable.

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  • TYPES OF STOCK ANALYSIS

    Posted: December 11, 2009, 9:00 am by kenyantykoon

    We all know that when we want to go buy anything, be it groceries, clothing, cars and so on, there are procedures that are always followed like looking for the best quality at the right price from certain producers or manufacturers etc.

    It is just basic logic that before buying stocks, a similar pre-buy procedure must be followed even though many of us seem to think this as unnecessary and we go and dump hard earned money in stocks just because we overheard from someone in the bus-stop ranting about how much money he made in a certain stock.

    Thoroughly analyzing stock before buying is as important as researching schools that are suitable before entrusting your children’s education to them.

    On that note we look at the two types of stock analysis; technical stock analysis and fundamental stock analysis.

    Technical stock analysis is basically where an investor tries to predict future stock prices using past data on their prices and trading volumes and the like. Since market fluctuations are always the same, up(bull markets) and down(bear markets), technical investors seek to profit from this by trying to predict these fluctuations ahead of time and using instruments  available to them like stock options, short sales etc to profit from the information they have obtained.

    Technical stock analysis may not be as easy as it seems because they have so use some very complicated formulas and methods in trying to predict the unpredictable future.

    Some of the things that they do are

    - Search for market patterns like the head and shoulders pattern                       -flags

    -Study indicators like moving averages, regressions                                               -balance days

    - Lines of support                                                                                                           -resistance

    According to Wikipedia, some of the schools that technical investors look to include

    -candlestick charting

    - the dow theory

    -elliot wave theory

    Technical investors, a type of investors that I covered some time ago use these and a myriad of other methods to profit in stock market patterns and recurring investor behavior. George Soros is one of the most successful technical stock investors

    Fundamental investors (a type of investor in the linked post above) use fundamental stock analysis in their investing endeavors.

    Fundamental stock analysis looks at the intricate details of a company that directly affects the business. The underlying reasoning here is that a stock investor, in buying stocks is in effect buying part of a business and thus must make sure that the business is the best value for his money and that he would still want to hold on to his ownership interest(his stock) even if the stock prices tank.

    Some of the things that fundamental stock analysis entails are;

    -a company’s financial position using financial statements, balance sheets, profits and losses

    -a company’s history in the way of dividends, lawsuits, stability in earnings,

    -the competence of management like the track records of CEOs and the board of directors

    -Macroeconomic factors that may affect the company’s value or operations

    -the competitive advantage a company has

    -the credit risk that a company has in case it is hit with hard times like a recession

    By keenly analyzing these things an investor gets an idea of the underlying value of a business and thus  is in a better position to make informed speculation about the future profitability or otherwise of the company and thus can decide whether or not to invest. This is something that technical stock analysis does not take part in.

    One of the major theories that fundamental stock analysis uses is the efficient market hypothesis which says that the price of each stock incorporate all the information about it available to the public. This means that analyzing a stock and calculating the price a stock should be, a fundamental investor avoids buying overpriced stocks and speculating (gambling) away hard earned money because the overpricing will soon be detected by alert investors and this will cause a decrease in price to where it should be.

    Information obtained from fundamental stock analysis helps the investor in spotting bargains when stock prices are selling before the book value. The stock can be more of a bargain if all the other fundamentals of the company are strong.

    While the technical investor looks at profiting from the ups and downs in the market, a fundamental investor seeks to protect himself from taking unnecessary risks by using thorough analysis.

    One of the major advantages of fundamental stock analysis over technical stock analysis is that you have the luxury of detaching yourself from the daily market fluctuation because fundamental investors generally invest for the long term and can afford to assume that returns in the future will outweigh any temporary losses.

    This is basically the difference between technical stock analysis and fundamental stock analysis.

    Personally, I am for the latter because I do not have the stomach to always have to handle each rise and fall in market trend.

    Wikipedia has a little more to say on this

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  • SELF HOSTED BLOGGING HERE I COME

    Posted: December 7, 2009, 3:40 pm by kenyantykoon

    This is the deal so far…. i have got a webhost that has all the necessities a self hosted wordpress blog needs and the prices are good but with the paperchase involved it will take sometime before the domain is registered and made active.

    Also i have been trying without success to redirect my incoming links and this is proving to be quite the headache since to buy credits one needs a paypal account and this is not supported in the neck of my woods but i am trying really hard.

    So with luck and no small amount of blessing  i will own a piece of real estate in the world wide web by week’s end. Please bear with me.

    But i think that i will use this blog until i get a way of totally migrating to the other one.

    ADMIN’S NOTE

    I finally got and paid for the domain registration and hosting but bureaucracy being aggravated as it is in Africa, i may have to wait for a few days before my account is activated. The reason (excuse) they gave me is that there is no .com domain registrar in the country and they have to use another from a developed country and this will take some time.

    So now we wait…………..

    ADMIN’S NOTE

    I finally have my new blog up and running the domain is oh so nice, ACKERTALK.BIZ. It is hosted by hostgator and i am loving the control that comes with having a blog self hosted blog. So now to serious business….

    PS; i think that i should change the title of this rant to self hosted blogging here i am

    Random Posts

  • SORRY FOR NOT POSTING CONSISTENTLY

    Posted: December 1, 2009, 8:32 am by kenyantykoon

    This post is to apologize for my inconsistent posting in the past week.

    This is because i am overhauling the blog like looking for a domain host and better templates which will suite the financial talk better. This is proving to be more hectic than i thought seeing that i am in a strange country.

    Regular posting is to resume in the next few days and i hope you can bear with me.

    Thank you all and please don’t unsubscribe from my feed

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  • SROCK OPTIONS; USES AND MISUSES

    Posted: November 24, 2009, 12:22 pm by kenyantykoon

    Yesterday, I did a post on stock options where I briefly explained what they are and how they are used. I also wanted to include their uses and misuses but I decided not to because it was getting too long (I don’t like monstrosities of posts). So in this post, I do just that.

    An advantage that stock options bring a company is that it motivates the workers to work harder because they feel that they have a personal stake in that business so the harder they work, the higher the stock value climbs and thus the higher their options increase in value. If this happens everybody wins. Many companies have made thir employees into stock option millionaires and this is a major incentive for employees to work at long term success of the company e.g. Microsoft

    The above merit brings another to the employee because if he/she happens to sell a stock option that has increased in value, an extra income, apart from the monthly paycheck is borne. This extra income can be re invested, saved or used in any way that the employee sees fit.

    Another way that a company benefits from stock options is that they make the employees stay on and work at the company for the number of years that the options take to expiry. The reasoning behind this is that employees cannot just pick up and leave while they have their own money invested in the business. If the sale of the options proves profitable, they may decide to stay on and work at the company.

    A third advantage for the company giving out stock options to the employees is that they(employees) will have a personal stake in the company without really having a say in the running of the business because as I mentioned earlier, these stock options do not offer voting rights.

    For a risk aversive employee, stock options have less risk than their underlying stock. I know that in the stock options post I did, I happened to mention that if the option sale proves unprofitable, the investor loses all the money he put into It; the premium. But something that you should consider is that stock options are much cheaper than their underlying stock. Let’s say that the stock is $10, the option can be $2 and so an unprofitable trade would mean that the investor loses $2 than the stock investor who has $10 on the line. Another advantage related to the above is that the value of stock options increase faster than their underlying stocks so it goes without saying that if well used they can bring large profits to the seller.

    I also mentioned that these options can be used to take advantage of markets heading in whatever direction. I happened to use put option in a bear market example (here is the link) because it is fairly easy to imagine using call options in a bull market(sell the call options at the highest price). These are mostly used by investment funds like hedge funds and private equity funds that use them as a hedge against losses. Their profit is obscenely high as compared to the employee when exercising these options because of the fact that they have a lot of disposable capital and the fact that they are very experienced in this art.

    For a short term trader or a speculator these options help in decreasing the loss incurred in a losing trade. This is because it is very easy to sell stock options and if a day trader sees that a trade is going badly, he can easily sell it to minimize losses. Something that a short term stock investor would have some trouble in doing

    Indiastudychannel.com has more advantages of stock options, some of which I have mentioned

    Even with the myriad merits of these options, there are some not so unpleasant disadvantages like;

    If the employee does not exercise his options within the time stipulated when the option was being offered (the vested period), they expire and the investor loses his invested capital (called the premium)

    Also a major decline in stock price and thus option price can cause a decrease in motivation to employees because we all know how demoralized one feels when after working so hard, there is no returns visible.

    But the major one is management in a company rigging them to produce better than average returns in their sale. This is done by a lot of complicated accounting hocus pocus by charging off loses in some years and using tax credit to make the company seem more profitable than it really is. This means that when the company’s financial statements are released and the high profits noted by the investing masses the company’s share prices mostly increases (which means that the stock option prices do so to). In the sale most executives make a killing. While this benefits a few, the future of the company is put at risk because when the accounting time bomb explodes stock prices tank with it and most shareholders are left high and dry. On the up side, companies have many ways to prevent this.

    These are basically the advantages and disadvantages of stock options but all in all they are very beneficial to those that know how to use them.

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  • UNDERSTANDING THE STOCK OPTION

    Posted: November 23, 2009, 9:58 am by kenyantykoon

    Most of us have heard of this provision but how many know what it really is? If you don’t know, this post may enlighten you.

    This is a provision that gives the holder/buyer of the stock option the right to buy or sell the stock of a company he works in at a specified price or date. When the holder is to buy the stock, it is referred to as a call option and if the holder wants to sell his stock, it is referred to as a put option.

    They are also known by other names like share options, equity options or futures options.

    Having this in mind, let’s get a better feel of them.

    Top management decides to give stock options to employees so that they can gain from the company’s increased production and hence stock value. It is a nice way to increase one’s income apart from the usual salaries not to mention motivating them to work harder since having a personal stake in the company makes them feel as if they are working at their own businesses.

    When offering options to the employees, management lets them buy a specified number of shares at a given time and price all decided by management. Let’s say that as the CEO of KTBN financials, a fictional company, I decide to offer my employees stock options where they could buy 100 shares of the company’s stock at $2 and with an expiry that’s one year from the offering. Since the employee can exercise his options in the course of the year, he can either sell all his shares at any increased price, let’s say $5 thereby making $300, exercise some of his options by selling part of his shares and leaving the rest for a greater profit or do nothing with the hope of future higher prices and hence more profit.

    BTW options cost much less than what the real shares cost but the owners of these options are not seen as shareholders and cannot claim any of the rights that they (shareholders) enjoy. Also just like stocks, they are traded in the markets making them fluctuate in price just like stocks

    Knowing this, some terms that you should incorporate into the above example are;

    1- The 100 shares of the company you work for is referred to as a stock option contract

    2- The $2per share that you buy the shares at is called the strike price or the exercise price or the grant price.

    3- The underlying security is the company’s stock that the employee that the right to exercise

    4- The expiry date is that date at which the option is nullified. If this happens before the option holder exercises them, he loses his premium (price of the option contract). This can happen for many reasons like when the underlying share price is below the strike price for the call option or if the underlying share price is above the share price in the case of the put option

    5- At The Money (ATM) is when the stock’s price is about the same price as option’s strike price

    6- In The Money (ITM) is when the stock’s price is less than the option’s strike price

    7-Out of The money (OTM) is when the strike price is higher than the stock’s market price

    Editor’s note

    with OTM when we are dealing with call options, the strike price is higher than the market price and in the case of a put option, the strike price is less than the market price

    Darwin’s finance has a page that expounds more on the intricacies of put buyers and sellers and the like which if I was to include in the post, we would have a book. Darwin also explains how the terms are used in everyday stock option trading.

    These stock options are like a godsend for many investors and investment companies since it is possible to make money whichever direction the market is heading e.g. in a bear market you can sell put options and in a sense you would be selling stocks that you really don’t own and so you get some form of commission in the sale, no matter how small. More on this at this “how put options work” hub-page

    So that is the little on the complex world that is stock options trading.

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  • WHAT IS TAX CREDIT??

    Posted: November 23, 2009, 9:39 am by kenyantykoon

    Some time back i did a post on preferred stock and why i thought  that they were not that good particularly for individual investors. According to financial samurai and tax guru, the tax angle was interesting and so i decided to do another tax post.

    This will be a little about tax credit.

    This is a good thing for me and people like me that don’t like paying taxes as it enables me to pay less.

    While it enables the taxpayer to pay less tax, it is totally different from a tax deduction because the latter deduces the taxable income while tax credit reduces the amount of tax that is owed to the Caesar (the government).

    Let me illustrate. Supposing you make $1000/month and you have to pay say 10% of this as tax i.e. $100. You can use tax deductibles like education expenses, charity contributions etc to reduce this taxable income to let’s say $800 but you will still have to pay the 10% tax. In the tax deducted figure, you will pay $20 less than the original figure. When it comes to tax credit, the $100 you owed is reduced to say $80 if you received a $20 tax credit.

    As you can see from the above example, tax credit is better than a tax deduction since it does not depend on the tax rate but still reduces the amount given to the tax payer, which is not the case with tax deductions because this guy still takes the given percentage.

    It is worth saying that tax credits are larger figures than the ones that I have mentioned in this example. Also tax deductions vary with tax brackets since the higher your income bracket, the higher the tax rate which is not the case with tax credits since a certain given amount of tax credit can be used by all those eligible to take advantage of it.

    Since all bad ideas started as good ones, tax credits have a myriad advantages like reducing the tax paid by low income people and thus effectively increasing their income, encouraging use of alternative sources of energy by offering tax credits on the preferred type, making businesses make the environment better for everybody involved but businessmen have in the past used them to their own advantage and in misleading their shareholders. One example is doctoring the financial statements by charging off losses anticipated in the next financial year to the current year and then using the tax credit due to them to give the illusion of a profitable year when in real sense there was a loss.

    I have found this site that gives a whole lot of tax credit examples which while they may not be applicable in each country, will serve to help you become more knowledgeable in this very important area.

    As with tax deductions, a tax payer should do his/her research on the tax credits that she/he is eligible for because you know what they say of the taxman; if you let him, he will always take more.

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  • A DEEPER UNDERSTANDING OF BOND INVESTING

    Posted: November 21, 2009, 9:38 am by kenyantykoon

    For the past week or so, i have been concentrating mainly on bond and bond fund investing. While i have only skimmed the surface of this somewhat complicated bond market, it is better that you know some of these things because that is how education stars; first the introduction of concepts that are expounded later in an organized fashion.

    I have been reading books and articles by professional investors for quite some time now and they all advice people to get into the investment world as soon as possible, so as so develop the right investor attitudes and get enough experience(a better name for mistakes).

    In that same vein, i was reading an article on cnn.com that was basically addressing a question posed by a 26 year old asking for help in demystifying the complicated bond markets.

    The answer explains in a very simple fashion, the inverse relationship between

    -bond prices and their interest rates

    -why they are called fixed income  investments and yet their interest rates fluctuate

    -the risks involved in bond investing i.e. credit risk and interest rate risk. Credit risk is the risk of default and it is more common with corporate bonds than government bonds

    -a little advice on the percentage to allocate to your porfolio.

    I know what you guys may already be knowing these stuff but it never hurts to have a different perspective.

    Here is the link

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  • ADVANTAGES OF CONVERTIBLE BONDS TO AN INVESTOR

    Posted: November 19, 2009, 9:10 am by kenyantykoon

    In a post that I did recently about convertible bonds (convertible bonds as the best of both worlds) a reader called Christian Pinnell Commented that I hadn’t really brought out the second part of the heading i.e. how they are the best of both worlds. So today’s post is dedicated to this.

    To sufficiently cover this we have to look at which advantages of both stocks and bond ownership accrue to a convertible bond investor.

    First of is the interest payments due to the convertible bond holder which can be seen in dividend paying stocks and all other bonds. These payments continue as long as this investment is still a bond and stops immediately after conversion into a stock at which point a different scheme is adopted.

    As I said in the original post, these convertible bonds are a very efficient way of protecting against market fluctuations while at the same time providing periodic returns. This addresses a down side of stocks which issuing companies can sometimes decide not to issue dividends for a myriad of reasons and the fact that they are less prone to the worst of market fluctuations means that the investor gets what he mostly wanted when he was investing in bonds; security from the volatility of the market, a fact that stocks have to deal with everyday.

    Since companies sometimes go burst, a convertible bond holder will have a larger claim of the company’s assets than the stockholders making him at a better position when a company is undertaking bankruptcy proceedings(if he was still holding the bonds). This advantage would still be available to him but to a lesser extent if he had already converted to stocks at which point he would have enjoyed many of the advantages of common stock ownership.

    Since conversion is not done haphazardly but conversion ratios are used at time frames set, this protects the convertible bond holder since he can only convert the bond into a stock when the market price of the stock goes above the calculated conversion price of the share. No convertible bond holder would convert to stocks if the market price is lower than the calculated price because this would mean a loss of cash. So as you can see there is almost no risk in conversion. It is a win-win case for all parties involved as bondholders will be happy common stock holders and the company still remains stable as their financial stability(or the lack of) is not speculated of as is normally done when a company decides to issue more shares.

    As is with all bonds, when interest rates fall, their prices rise. This rise correlates to the increase in stock prices and at times this can lead to convertibles outperforming the market indices as happened in 2003 and 2004. If this doesn’t happen there is still the fact that these bonds mirror stock market indexes, kind of like index funds.

    Another advantage that a convertible bond holder gains if he converts to common stock is more protection from inflation, This is because the market stock of the common stocks will rise with market prices unlike for the bonds where the interest rates are fixed. This means that bond holders bear the full blunt of inflation because his money looses value more.

    Finally this website provides a more analytical basis in looking at convertible bonds and their benefits to investors.

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  • DUAL PURPOSE FUNDS FOR THE OPTION SEEKING INVESTOR

    Posted: November 17, 2009, 9:09 am by kenyantykoon

    I recently stumbled across this type of mutual funds as I was doing a little independent study and I thought of making a little post on this after a little research. This is what I found out about them.

    These are in the closed end mutual fund category broadly meaning that they have a fixed number of shareholders unlike their open ended counterparts.

    Another name for them that I found out is dual fund, leveraged investment company.

    The dual purpose function stems from the fact that they offer two types of stocks one that offers capital gains to its holders from the fund’s underlying assets i.e. common shares and the other that offers income to its holders  which is received from the funds underlying assets i.e preferred shares.

    This means that common shareholders get what is referred to as capital shares and preferred shareholders receive what is referred to as income shares. [If confused re-read]

    Another thing that sets makes this dual purpose fund unique is that apart from being closed ended, this mutual fund also has a set liquidation date in that after a set time the fund is dissolved. According to investopedia.com during this liquidation, the preferred shareholders are paid out first(at the par value of their shares) followed by the common shareholders. I guess this trend is universal is it not??

    But strangely, it is not all the time that these dual purpose funds are liquidated and done away with. The shareholders can decide that after the period it was stipulated to live, instead of liquidation, it can be changed into an open ended fund at which point an unlimited number of investors can join the fund.

    Finally cashbazar.com has a nice way of [putting this explanation for an investor ]seriously planning on investing on these funds

    I find this fund more versatile than most of the funds that I have covered of late in that they seem to cater more to investor preferences and the investors seem to have more of a say than in the other funds.

    What do you think?

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  • THE TRUST FUND EXPLAINED

    Posted: November 16, 2009, 2:21 pm by kenyantykoon

    We have all heard of this much media hyped financial arrangement and we have all wished at a certain point in time to be one of those enviable trust fund babies. But what are these trust funds and who exactly do they work? In this post, I will try to explain this in as few words as possible

    This arrangement is also called a trust property, so you have no reason to be confused.

    Basically it is a financial arrangement by a financially well off individual to provide sustained monetary assistance to another party after the benefactor (also called the grantor or trustor) dies. This can be rich parents setting up a trust fund for their children, or well to do people setting these up for their favorite charity or church or whatever.

    The benefits in these trust funds can include a myriad of investments like stocks, real estate money, bonds or whatever other financial instrument or investment that the benefactor wants given out.

    What happens is that a trustee is appointed and he/she is responsible for distribution of the resources to the beneficiaries (also called the trustee) according to the rules stated when the fund was being set up. The main reason that people would like to set this fund up is to make sure that their kids or charities or whatever will not undergo sudden financial hardships once the grantor dies(but they can be set up in such a way that beneficiaries get the cash will the grantor is still alive). He might also set up the provision that the beneficiary will not be allowed to access this trust fund until he reaches a certain age. Obviously a provision like this is to make sure that the kids are at an age where they are financially responsible with the money left to them.

    It is important here that I add that there are two types of trust funds. The first is the living trusts that is set up in such a way that the trustee is allowed access to the cash or otherwise while the trustee is still alive. The second type is the after death trust that means that the trustee(s) will only have access to the money after the death of the trustor.

    Another reason that a person would like to set up a trust fund is to protect his assets/estate from unscrupulous persons that can take advantage of there being no arrangement as to where the funds will be directed and thus by manipulation steal the funds. We have all heard of cases like this.

    Also a well set up trust fund will prevent excessive taxation to the beneficiaries eg in the case of excessive real estate taxes that can be organized in such a way that tax breaks are in the mix.

    Apart from these advantages, these trust funds are also a type of investment since they earn interest over time.

    In a nutshell, a person willing to set up a trust fund must first do his research, make sure that he knows the beneficiaries, the time through with this people will have no right to touch any of the cash, which assets will be assigned to which beneficiary, the amount of cash the beneficiaries will get per year or whatever period etc. Basically, the grantor has to think of everything.

    Finally these are very good arrangements, in some ways better than wills and they show a form of prudence by the (rich) individual.

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  • CONVERTIBLE BONDS- THE BEST OF BOTH WORLDS??

    Posted: November 16, 2009, 2:05 pm by kenyantykoon

    As the name suggests, this is a corporate issued bond that can be converted into some other investment vehicle in this case, it can be converted into common stocks . This is done at only certain times and at a fixed conversion ratio.

    But the conversion is not as straightforward as it may seem. Let me illustrate. At the time of issue (when the company is offering these bonds to the public for the first time), a few things are spelt out. They include;

    -the conversion ratio i.e. the number of bonds that can be converted into stocks

    -the time period through which conversion has to occur

    -the common stock price at which conversion will occur

    Let’s bring arbitrary figures into this to make it more understood.

    Supposing a convertible bond (or CVs as they are more commonly referred to) has a conversion ratio of 100:1. This means that one bond can be converted into 100 common stocks per say every $1000 of bonds you own. This then means that every new common stock will be worth $10 [1000/100=10]. This $10 is called the conversion price and it is normally higher than the current stock price in the markets.

    This means that if at the time of conversion the current stock price was lower than the conversion price, then the involved parties will have to wait until the stock price reaches the conversion price before the conversion can occur. If the current stock price was higher than the conversion price, then a different arrangement is brought up. Let’s say that the current common stock was worth $20 (against the calculated $10), then to keep the conversion ratio at 100:1, it means that the conversion would occur for every $2000 of bonds you own i.e. $2000/20=100

    I know it seems a little difficult to get your head around these figures, but just study them a little more carefully and all will be revealed. [Hopefully my bounce rate will also reduce in the process ]. Teenanalyst.com has a similar example on this figures that you can read more of

    The most significant advantages are:

    -In the case of the issuer, the stock dilution brought about by so many common stocks for every bond means that they pay less dividends because the earnings per share is reduced.

    -Also these convertible bonds generally have a lower coupon rate than normal bonds and this means less money that will have to be paid out be the company.

    -they are also used by issuers to avoid misinterpretations by investors i.e. if a company chooses to issue more stock investors might think that the stock is overvalued and this might bring other problems like investors doubting the soundness of the stock. So to prevent this, the company issues these convertible bonds since there is a high likelihood that bondholders will convert them into common stock because these stock have many advantages over bonds.

    -Since the yield of these convertibles is normally lower than those of other corporate bonds, means that they are more attractive. There is a rule that the lower the   interest the more valuable the bond since it means that there is a lower risk of default by the company.

    -these convertible bonds also follow the market share price of the issuer’s stock. When the share price rises, the convertible bond price also rises and vice versa but not at the same levels. Convertible bond price goes up two thirds the rate at which the stock rises and less than ½ the decrease in stock prices.

    -these bonds also earn interest when the stock is going up or down and it makes it attractive to investors since who wouldn’t want a check whether the markets are going up or down? This is because issuers are required to give fixed interest income to convertible bond investors before conversion.

    -these convertibles are also good to protecting against market fluctuations while at the same time providing periodic gains.

    These advantages are why I think that they offer the best of both worlds between stocks and bonds.

    Finally, this is the second investment that can be converted to another that I have covered. The previous one was convertible stock

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  • WHAT IS (OR WERE) BEARER BONDS??

    Posted: November 12, 2009, 10:13 am by kenyantykoon

    This post will be dealing with bearer bonds so it would be nice to read through this post on understanding how bonds work

    These are just like normal bonds (corporate bonds or government bonds-) but the major difference is that they are unregistered i.e. when you invest in any other type of bonds, you go into the records as a registered owner and the paper you hold has proof of your ownership of the said bonds but with the bearer bonds, there is no such registration. The person who holds the certificate owns the bond. It’s just like having money in your hands. There is really no way of tracking a previous owner once it exchanges hands.

    Bearer bonds also have a stated maturity date and a fixed interest rate but can be called in by the issuers for a myriad of reasons like if interest rates are too high, they might recall them to reduce the cost of paying interest to the holders.

    Each bond certificate has a single coupon that the holder is supposed to submit to the issuer. The current holder of the bonds submits the coupon, which is by the way attached to the bond, to the paying agent either annually or semi-annually and they get paid. No identification of any kind is required.

    It is worth mentioning that it is the holder’s responsibility to submit the coupons for interest payment- not like other types of bonds where the issuer has the obligation of paying the bond investors interest at given times.

    Although they are distinctively different from other bonds, there are some things that the current bond holder is supposed to honor. But all these are set up at the time of purchase.

    These include honoring the payment periods set at the purchase of the bonds, when to cash in the coupons and the number to cash in at a time (some allow that you cash in more than one coupon at a time).

    BTW they are also called coupon bonds.

    These bearer bonds have a large number of advantages like convenience in that a large amount of cash can be carried around in a few of these bonds, anonymity in that current bond holders are not asked awkward questions when they go to cash in these bonds, tax avoidance in the case that tax collectors couldn’t trace a paper trail for them as they exchanged hands etc.

    Their major disadvantages which in most cases cloud out all their merits is the fact that in the case of accidental damage, destruction they become totally useless. Also they are totally impossible to trace when stolen. Also in they are easily used in bank fraud which to some extent discredits the issuers.

    But their features are the main reason why many investors are veering away from these unregistered bearer bonds to the more secure registered counterparts. There have been many cases of criminal use of bearer bonds but the most infamous was the case of the $134 billion in bearer bonds found by Japanese travelers crossing into Switzerland from Italy.

    I also read that they were made illegal in the US in the 1980s but the ones issued before that are still in circulation. There are also fewer institutions that will cash in these bonds.

    Finally some legit bond holders may or have lost their invested capital since issuers may have recalled them without the holder knowing. In a case like this, it becomes really hard to get invested cash back.

    That is just about all I could get about the bearer bonds.

    Any additions are very much welcome.

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  • PREFERRED STOCKS MAY NOT BE BETTER AFTER ALL

    Posted: November 10, 2009, 11:34 am by kenyantykoon

    Some time back I did a post about preferred stocks where I concentrated on the advantages that they had for conservative investors.

    A small  run-through is that;

    1- In the unfortunate event of liquidation or in profit sharing preferred stock holders are paid before common stock holders.

    2- The cumulative nature that preferred stock dividends have in that unpaid dividends are forwarded to the next financial year. This ultimately means a higher payday because of compounding interest.

    3- The non fluctuating dividend payment that is paid to preferred stock holders make it even more attractive mostly to people that live on regular income from their investments and the conservative investor looking for the security of regular checks in the mail.

    4- The occasional voting rights that the preferred shareholder has during important times in the company like election of new directors makes this investor feel like he has a part to play in the business.

    But be that as it may, aggressive investors tend to shy away from this type of stock, while favoring common stock because of the following reasons;

    1- The preferred shareholder is dependent on the desire of the company to pay dividends on its common stocks. Once common stocks are omitted, this shareholder finds himself in a bit of a problem since directors have no obligation to pay him any dividends. Like for instance very successful companies do not pay dividends to their commons shareholders e.g. Microsoft and others, means that a preferred stockholders should not expect much in the way of periodic checks in the mail from such companies.

    2- Since we above that the dividends(when paid) are fixed, this means that in highly profitable times this shareholder will not be entitled to more that his fixed share(the given percentage due to him). So he must never get excited when a company declares major profits in a certain year.

    3- Preferred stocks lack the legal claim of a bond holder (e.g. in times of liquidation, the preferred shareholder has a higher chance of losing his invested capital than the bondholders-who are creditors of the business) or the common shareholders who are more like partners in a company because of their obvious advantages. This weakness is mainly seen in bad economic times like recessions and depressions when the risk of default comes a knocking.

    4- Finally they have better tax advantages for corporations than individual buyers. Corporations  pay taxes on part of the dividends rather than the full amount. Let me illustrate. Supposing by law the corporation is to pay taxes on 20% of the dividends that they get in a year and the corporate tax is 40%. And assuming that the dividend is $200[all these are hypothetical figures]. The corporation will pay corporate tax* taxable income* dividend i.e. 0.2*0.4*200=$16. Whereas the individual preferred stock holder has no tax break and has to pay tax on the share of the dividend received i.e. tax* dividend= $200*0.4=$80. This shows that they are really not that attractive to an aggressive shareholder and there is a disservice to the conservative preferred shareholder.

    BTW the hypothetical numbers I have used change with time and country but the same logic is used

    If not for the corporations, the only time to but the preferred stock is during periods of economic adversity when they are at a major bargain i.e. they are selling at a price well below par.

    So preferred stock may not be better that common stock but it all depends on one’s point of view. Your opinions on this new perspective are welcome.

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  • THE GENIUS OF THE ORACLE OF OMAHA

    Posted: November 9, 2009, 12:20 pm by kenyantykoon

    I am a personal finance blogger and there is no secret that i love Warren Buffett. I have linked to most articles that i have ever read of him, the most recent being “invest like the richest”

    I like the investing style that he crusades that is so different that what i hear from most financial pundits. He proposes, among other things, a thorough analysis of the fundamentals of a business before investing in it i.e. invest in a business that you would have no problem owning even in a financial crisis. This seems more sensible advice that those that say buy stocks when prices are going up and sell when the prices are going down.

    I am also carefully reading “the intelligent investor” a book that focuses more on the mentality that an investor should have in stock selection and a myriad of other things.

    I have just found another article on the second richest man in the world that is basically talking about what a good past 18mths that he has heard and his most recent deals he has made.

    Sort of makes you wish you were in his shoes huh?

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  • WHY THEY CALL THEM JUNK BONDS

    Posted: November 9, 2009, 9:44 am by kenyantykoon

    [if you are new to the concept of bonds as an investment, then i suggest that you read thru this linked article on understanding bond investing]

    This is a type of corporate bond that is has a high risk of default and thus offers high yields.

    A salient feature of bonds is that their risk of default depends on among other things, the credit worthiness of the issuing company. If the company has low credit worthiness, there is a higher risk that the bonds they have offered have a higher risk of default. This risk is normally felt in economic slowdowns when most of these junk bonds default at around the same time, which has happened quite a few times in the past and will happen in the future taking some junk bond investors with them to their graves.  To counteract this, these bonds give unusually high yields that more often than not cannot be sustained in the long haul.

    To copy-paste Wikipedia, since the term junk bond is synonymous with risk, the types of risks involved are interest rate risk and credit risk, inflationary risk, currency risk, duration risk, convexity risk, repayment of principal risk, streaming income risk, liquidity risk, default risk, maturity risk, reinvestment risk, market risk, political risk, and taxation adjustment risk. Interest rate risk refers to the risk of the market value of a bond changing in value due to changes in the structure or level of interest rates or credit spreads or risk premiums. The credit risk of a high yield bond refers to the probability and probable loss upon a credit event (i.e., the obligor defaults on scheduled payments or files for bankruptcy, or the bond is restructured), or a credit quality change is issued by a rating agency including Fitch, Moody’s, or Standard & Poors.

    The yields are like 3 to 9 percentage points higher than government bond issues

    As there is a high risk of an investor losing his invested capital, there is also a chance of him getting spectacular returns if he managed the risk involved well and he did his research well on the bond and the issuer. But in this, there is a lot of speculation. But still many investors take on the risk with the hope of higher returns but try to lessen this risk by a somewhat broad diversification in these corporate junk bonds and limit these high risk investments to a small part of their portfolio.

    In light of the above, the other two names of junk bonds are high yield bonds and speculative bonds or non investment grade bonds.

    These bonds have a low credit rating mainly because the issuing company is not financially stable e.g. like a young company with no other ways of getting much required funding or any other financially troubled institution that has very little in the way of raising funds for operations [bond offering is one of the last money raising options that most corporations have because the banks may not be willing to loan them the large amounts needed]-

    Here is a long linked article about the history of junk bonds and the strange case of billionaire Michael Milken, the Junk Bond King.

    That is basically the Junk bonds for you, any questions and/or comments are welcome

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  • INVEST LIKE THE RICHEST

    Posted: November 7, 2009, 10:49 am by kenyantykoon

    We all know who Warren Buffett is-also called the Oracle of Omaha. In the financial world he is looked up to and emulated by all the investors who want large numbers of Zeros in their bank accounts.

    Anyways, a few days ago, i was reading through yahoo and i found an article that was reviewing a new book about him called the Warren Buffett portfolio. It basically talks about the psychological mindset that he and other accomplished investors have developed that have worked to their benefit. It is not a book about hot stock tips that will make you rich overnight but a mindset that will surely help you all your investing life.

    Here the linked review in the Warren Buffett portfolio. Please read through

    I haven’t read it partly because i haven’t got a chance to but judging from the review, it is more or less like ” the intelligent investor- Benjamin Graham”(which i am currently reading). Incidentally it was endorsed by Warren Buffett as the greatest book on investing ever written.

    So i guess this young investor is on the right path

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  • THE CONSPIRACY OF THE RICH; A BLOGGER’S PERSONAL REVIEW

    Posted: November 6, 2009, 2:23 pm by kenyantykoon

    For those who don’t know, Robert Kiyosaki (of Rich Dad Poor Dad) has written and published another book that is called the conspiracy of the rich. It is available for sale at amazon.com and it is on the New York Times best seller list. Before it was published, I had the chance to read it for free as he was giving it away chapter by chapter as an online interactive book. (How’s that for a money hack?)

    (By the way this is no affiliate program, just a personal opinion of a personal finance book).

    In not so many words, the book covers the recession, some of the history of the world vis-à-vis money and true to himself, how to beat the game and become very rich. This last thing he does by giving tips for investing in the stock market, real estate, gold and other things.

    I found it very interesting and educative. To say the truth, it is how I came to understand what the recession was all about. My head was just reeling around as I listened to the news but after reading the book, I understood what was happening, to some extent anyways.

    Basically, the book is in two parts with the first part having five chapters and the second having seven chapters.

    In the first part, he goes into a brief history about money and how it is connected with the recession. But the pith of the book is dedicated to “the new rules of money” that this recession has heralded. This is what I am going to concentrate on.

    OLD RULE- save money, NEW RULE- spend money. This change has been brought about by compounding inflation and thus one must increase his/her financial education to spend (read invest) in ways that will make you richer.

    OLD RULE- diversify your investment portfolio, NEW RULE- focus and specialize. This change is put forth partly by a statement that Warren Buffett said- “wide diversification is for investors who don’t know what they are doing”. Instead one should learn a few types of investment very well and invest in them. This is in accordance his argument that savers are losers.

    NEW RULE- money is knowledge. Here he says that you do not need money to make money, you just need to know the right things. The example given is the ability of making money by selling stock that you don’t own i.e. shorting stock and pocketing the difference (details are in the book).

    NEW RULE: learn how to use debt. Here he says that there is a way to use debt to get rich-the good debt like a loan for an investment and avoid bad debts like using credit cards to buy televisions. I found this as another sensational way of saying that one should be frugal and a good money manager.

    NEW RULE: learn how to control cash flow. According to him, this is done by being very informed by the global flow of money, jobs and people so as to make wise investment decisions based on this information. (This seems to make sense to me).

    NEW RULE; prepare for bad times and you will only know good times. Robert says that everybody should act as if the worst is not over and constantly live as if the sky is falling. In preparing for the worst, a person will see better times. For instance, if one prepares for an inflationary depression that never happens, it means that later on your money will have a greater value, means that you will be richer.

    NEW RULE- the need for speed. I know it sounds like the racing computer game but what he is really talking about is looking for ways to do more business in a shorter time to a larger audience, as in using the internet to transact business. This is aimed to make more money than the banks are printing (this is also covered in depth in the book).

    NEW RULE- learn the language of money. Robert says this is to be done by getting to know the financial terms and investments available and being able to understand financial speak on tv and websites and in the papers etc. it  is much easier to grow wealth if you know what you are doing instead of gambling away hard earned cash in hot tips.

    NEW RULE- focus less on buying and more on selling. In other words, he is advising people to look for their entrepreneurship spirit to get financial independence and control the amount of cash that you spend. This means that more money will be coming in than going out to enrich others and thus you grow richer.

    NEW RULE- life is a team sport. Choose your team carefully. He proposes this according to the advice in his other book, rich dad’s guide to investing, mostly the BI triangle. He says that the worst is not over and everybody should start preparing his/ her financial team together. He neglects to show people exactly how to do this but he gives the example of his own financial team. While I am not so sure about how to go about this, it seems like logical advice to have a team in your investing endeavors.

    NEW RULE- Since money is becoming worth-less and less, learn to print your own. I know this sounds like the felony of counterfeiting but there is a point that he seems to put across in this second last chapter. In stocks he says to use options, in gold and silver, he says to build and gold and silver mines and sell the shares in the stock market(again, he does not go into detail on exactly how to do this).

    Basically these are the new rules of money that the recession has brought forth. While this is the most prominent part of the book there is also a lot of information like capitalism and socialism, things about the Federal Reserve, economic depressions, interesting timelines, “frugality being the new cool” and a large wealth of information but I chose to get into the rules of money as this is what really fascinated me. There are also issues he calls financial fairytales. These are common misconceptions that the average investor has been living with. The setting of the book is(was?) in the global recession and so there is a lot of reference to what was going on at the time the book was being written like the Bernard maddoff ponzi scheme, the bailouts, the presidential election etc. there also quite a lot of reference to his other books like rich dad poor dad and rich dad’s guide to investing.

    I found this book somewhat useful to read as there are a lot of things that I learnt about finances. Has anyone read this book? What do you think of it??

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  • WHAT YOU NEED TO KNOW ABOUT GOVERNMENT BONDS

    Posted: November 5, 2009, 12:29 pm by kenyantykoon

    [This post will be dealing with a type of bond so if you are completely new to the concept of bonds it would be nice if you read through this linked article on understanding bond investing]

    Just like corporate bonds are IOUs by the companies issuing the bonds, government bonds are IOUs to the general public to borrow money that will be returned at a predetermined time at face value with interest payment periodically up to maturity.

    Governments issue these bonds when they have more money needs than can be satisfied by tax revenue. Another reason is to regulate the amount of money circulating in the economy. If there is too much money (which can cause inflation), the government issues bonds that it will buy back (redeem) at a given future date and this reduces the money supply. It does the exact opposite when there is too little cash in the economy i.e. redeems the already issued bonds.

    They also have other names in other parts of the world. In the UK they are called gilts or gilt edged securities and in the US they are called treasuries. Also bonds issued by governments in foreign countries are referred to as sovereign bonds.

    To some extent these government bonds reflect what will happen to interest rates in the future. If interest rates are expected to rise, investors will sell to keep any capital gains and prices will fall. This is because as interest rates rise their prices fall. On the other hand, if the interest rates are expected to fall investors buy for the higher yields that the bonds have as at that time and for the future capital gains, means that their prices rise. It goes without saying that anything that affects interest rates, inflation, economic growth and expectations about both also affects these bonds.

    As am sure you have come to learn that more often than not returns in investments like bonds and mutual funds are directly related to risk i.e.  the lower the risk the lower the returns and vice versa, this means that governments bonds are good for the conservative risk averse investor that does not want to risk hard earned money and doesn’t necessarily require high yields. An investor like this would be interested in risk government bonds because of the higher safety in that at maturity, the government can raise taxes to get enough cash to redeem them and thus a lower risk of default.

    Other than a steady fixed income in the form of interest paid either annually or semi annually, the low risk of invested capital invested if bonds are held to maturity, a fixed date of maturity, they have a provide a more diversification to a portfolio mostly dedicated to more risky investments(everyone needs safety once in a while)

    The best time to but the government bonds is when they are first issued because buying them from the secondary market since expecting to profit from them here has a number of variables like the time to maturity, market interest rates, credit worthiness of the issue (the risk of default) and the liquidity of the bond(some bonds are virtually impossible to sell at certain times). Also if an investor pays less than the face value of the bond(at a discount), he stands to profit when the bond matures to its face value. If he buys at face value or at a premium(above), there is a higher likelihood for a loss when the bond matures.

    Another good thing is that you do not have to wait until maturity to sell the bonds. You can sell them in the secondary market and profit if the interest rates have gone down since you bought the bonds and lose if the rates have gone up. There is a lot more on this in a small fascinating government bond post that I have just found. Please read through it because their explanations contain figures and ease understanding.

    That is an overview of the government bonds. I will take you deeper into them in future so sit tight.

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  • SENIOR & SUBORDINATED CORPORATE DEBT EXPLAINED

    Posted: November 3, 2009, 12:21 pm by kenyantykoon

    Yesterday’s post was about corporate debt of which there are two types secured & unsecured debt and senior & subordinated debt. We will look at the latter in this post

    Senior debt is a secured debt in that it is the primary debt that is paid off in the unfortunate event of an issuer’s bankruptcy. Most high grade debt securities are senior debt and also loans from financial institutions. Since they are secured, this means that secured investors receive lower yield that their unsecured counterparts.

    In the words of Wikipedia, senior debt is a class of corporate debt that has priority with respect to interest and principal over all the other classes and equity that an issuer has.

    In most cases the law states that taxes and certain payments to employees be paid before creditors have their share of a dying company.

    The opposite of senior debt is junior debt also called subordinated debt.   It is a corporate debt that is serviced after senior debt(secured debt) in the event of liquidation. It goes without saying that a subordinated debt holder is exposed to more risk that in the senior debt holder because he will be paid by the portions left over in the loan repayments. This could be a portion of his initial capital.

    A little about subordinated debt is that a company issues it as a last resort in that it has already used its assets to back up senior debt but the money obtained is not enough and so they issue this corporate debt. It is more expensive to them in that they have to pay higher interest rates to the investor because he bears most of the risk in case the company goes bankrupt.

    Also not all companies can issue subordinated debt. Only those with good reputations and high credit worthiness find this debt somewhat success as no investor want to loan out cash to a company with a reputation of defaulting.

    But for the risk tolerant investor, even though there is a large possibility in losing invested capital in the case of bankruptcy, there is also the chance of a higher pay off if all goes well. But this is pure speculation as there is no way of knowing a company’s future. But still an investor will insist on details of a company’s financial records and past performance.

    Finally this linked Wikipedia article has quite a lot to say about subordinated debt

    That is senior and subordinated debt for you. If you have any questions or additions, the comment box is all yours.

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  • AN OVERVIEW OF SECURED & UNSECURED CORPORATE BONDS

    Posted: November 3, 2009, 12:04 pm by kenyantykoon

    Yesterday, I did a post on corporate bonds and Wikipedia stated that there were two types of these bonds;

    -secured and unsecured bonds

    -senior and subordinated bonds

    I will run through secured and unsecured bonds and the next post will deal with senior and subordinated bonds

    Secured corporate debts are bonds that are backed up by the issuer’s (company giving out the bonds) physical assets. This means that if the company is not able to pay back the debts to investors, these assets are liquidated to pay them.

    These assets are stocks and bond holdings, furnishings and/or real estate. Because of this backing, they are normally better investments that their unsecured counterparts.

    According to wisegeek, secured bonds are not 100% safe investments but the risk is substantially reduced with the asset backing. For instance, let’s say that a secured bond is backed by a mortgage. This means that in the event of liquidation, the mortgage will be transferred to the new owner (the investor). But there is no guarantee that the mortgage itself will not default (there has been a lot of this in recent times) or if the underlying real estate will still be worth the value of the mortgage. But this is better than no backing at all. Wouldn’t you agree??

    Needless to say, unsecured bonds are not at all backed by any physical assets but by the credit worthiness of the company issuing these bonds.

    They are also called debentures so let this not confuse you

    The fact that this debt carries more risk to the investor means that it becomes more expensive for the issuer which is in terms of higher interest rates to the investor. But this is not to say that if the issuer goes bankrupt the unsecured creditor will not be paid. Far from it. He will be paid but after the secured creditors which means that they may get a smaller portion that the secured investors.

    To understand this pay back scheme in the event of a bankruptcy, secured creditors are paid first and then the next group is the unsecured creditors, banks and financial institutions, insurance companies etc(the general creditors companies have). Finally preferred and common shareholders are paid last.

    As the unsecured bonds have higher yield, they are more attractive to risk tolerant investors.

    That is basically an overview of the secured and unsecured corporate bonds. There are other things that I have left out like the types of unsecured bonds and what not which I will cover later. This was just to familiarize green readers

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  • CORPORATE BONDS & CORPORATE BOND FUNDS EXPLAINED

    Posted: November 2, 2009, 9:13 am by kenyantykoon

    First we will look at corporate bonds and then their corresponding mutual funds.

    I recently covered the bond funds and mentioned the types of bonds. If you are completely new to the concept of bonds as investments, it would be nice if you first read thru this post on understanding bond investing- so that you dont float

    Basically corporate bonds are debt instruments by which both private and public corporations (referred to as the issuer) use to raise money to expand their businesses by borrowing money from the general public. They have a relatively long maturity period(at least a year). Their corresponding shorter term securities are called commercial paper. The insurance of the corporate bond is the credit worthiness of the company and sometimes the company’s physical assets.

    BTW corporate bonds are riskier investments that government bonds since with the latter, the government will just increase taxes and print more money so pay bond holders- something that unfortunately corporations cannot do. Therefore to counteract this higher risk, investors are offered higher interest rates.

    In the agreement the principal is to be returned at a predetermined date until which you will be getting interest payments from the issuer. This is one of the major differences between corporate bonds and stocks because even though and investor gets interest payments from the company, he does not have any ownership interest as in the case of a stockholder.

    Another interesting feature of corporate bonds is that they have call provisions/call options that allow the investor to redeem get his money back before the maturity date.

    In investing in these bonds, the major thing that you should look for is that if the company has enough money to repay and the fixed interest so in a sense you could say that you have become a bank to the corporation

    Wikipedia says that there are other types of bonds called convertible bonds that allow investors to convert the bonds into equity

    Finally, as they are traded in the markets, their prices fluctuate a lot more or less like stocks.

    Of late, corporate bond yields have been very good unlike in the recent years and this is because of this recession, Banks were wary about lending money in volatile times and since the companies needed money the encouraged bond holders with attractive interest rates.

    According to thisismoney.com (and coincidentally Benjamin graham- the intelligent investor) the main risk for bond investors is inflation. If central banks see as if the economy is slowing down faster than the rising prices, they tighten monetary policy and this leads to the interest rates of bonds rising and their price falling, making investors wish that they has kept away from them.

    In light of the above, the corporate bond fund is a mutual fund that invests in these corporate bonds. They make it easier for a small investor to invest in the somewhat complex bond market. Since the fund manager wants to maximize returns he selects corporate bonds (investors have no control over selection) and sometimes the bonds are not held up to maturity. This therefore means that interest payments fluctuate. Also these funds have low volatility and this yet another reason that they are good for risk aversive individual investors.

    The corporate bond funds were hit hard by the recession just like the lower rated bonds.

    Finally this linked article that I have found shows that one must never get into an investing craze because of the masses by showing the major losses that investors suffered because of this misjudgment.

    That is basically the corporate bond and their corresponding mutual funds. Any additions or corrections or whatever are welcome.

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  • WHAT REALLY CAUSED THIS RECESSION??

    Posted: November 1, 2009, 12:18 pm by kenyantykoon

    To the above question, i have just an inkling but there is an author/writer that has a more detailed and credible argument on this economic catastrophe.

    A while back, i did a post on type of economic depressions and for some strange reason the post still gets a lot of traffic. Anyways, i was reading through the forbes website and i found a really fascinating article on the great depression of 1930,

    It basically tries to explain the relationship between that depression and capitalism and what has been done to curb a repeat. It is quite the interesting read even though somewhat long.

    Over to you. Do you think that there is going to be another great depression in the future?? Speculation on this is allowed. You do not have to be an economics expert to contribute. Personally i think that this excessive money printing by the major economies may cause an inflationary depression. What of you??

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  • THE FUND OF FUNDS- THEIR GOOD AND BAD SIDES

    Posted: October 30, 2009, 9:04 am by kenyantykoon

    These are investment funds that invest in other investment funds e.g. a newer investment fund with a somewhat inexperienced fund manager can invest in very profitable investment funds that have been around a long time and well known by the masses.

    They are also referred to as multi manager or multi management funds.

     

    According to iloveindia.com, the types of fund of funds include;

    1.   Mutual fund of funds- a mutual fund that invests in other mutual funds.

    2.  Hedge fund of funds- investment funds that invest in other hedge funds. This fund of fund is not a hedge fund per se.

    3.  Private equity fund of fund- mutual funds that invests only on private equity mutual funds.

    4.  Investment trust fund of fund

    Something that you must understand is that a fund of fund investor owns shares in the fund of fund and not in the underlying investment fund(the investment funds that these funds invest in)

    It is common logic that these funds of funds are meant to provide greater diversification since it will invest in many mutual funds each of which are invested in their own set of stocks bonds and other securities and investments. The main disadvantage that comes from this is that some of the mutual funds may have invested in the same stocks and this overlapping means lesser diversification not to mention that it will be somewhat hard to keep track of what the individual managers are doing with your money.

    Also another serious disadvantage is that the expense fees are typically higher than normal mutual funds. It’s almost twice since there are two sets of fund managers and their teams that have to be paid.

    The absurdity of these fund of funds is that some charge incredibly high prices and don’t deliver with equal high returns. Also since they are invested in many mutual funds, high returns from well performing mutual funds may be outstripped by major losses in another mutual fund cancelling any hopes that an individual investor had of beating the market and on top of that, there are the management fees that will cut deeper into the already meager returns.

    In light of all these disadvantages, fund of fund investors seem to be happy with them and the main reason is that since they are already invested in numerous mutual funds, there is no need to keep switching to other mutual funds since the fund manager has already done that for you(that is the reasoning anyways)

    Basically that is the fund of fund for you. I hope it was well explained…..

    Have you guys got any additions, corrections or comments?? You own the comment box

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  • BEFORE YOU INVEST IN BOND MUTUAL FUNDS…

    Posted: October 29, 2009, 10:19 am by kenyantykoon

    The previous post was about municipal bond mutual funds, a member of the larger bond mutual funds and so it is just logical that we tackle the bond mutual funds today.

    Quite a while back, I did a post on fixed income mutual funds and I said that bond mutual funds are a member of these funds. I think that you should read through that linked post to broaden your understanding.

    Bond mutual funds are mutual funds that invest in bonds plain and simple. Because of the nature of bonds, these funds are there to provide stable income with minimum risk of loss of initial cash invested.

    There are three types of bonds:

    According to borrower- corporate bonds, government bonds and municipal bonds.

    According to investment period- short term bonds, intermediate bonds and long term bonds.

    I will cover this class of investment(bonds) in the near future with greater detail so just calm down

    This means therefore that there are mutual funds that invest in each of these bonds When you invest in a bond mutual fund, you receive periodic dividends from the mutual fund that includes interest payments from the underlying investments(the bonds) plus capital appreciation on the price of the bonds both of which are inversely related.

    There is an interesting relationship between interest rates of bonds and their Net Asset value. When interest rates increase their value decreases and vice versa. As interest rates rise, you lose cash even if you are earning some form the increasing interest. The converse is also true.

    To divert a little, I want to explain this price-yields relationship. Assuming that a bond in $100 and the annual interest rate is 10% (means that you get $10 at the end of the year). If you get a discount and buy the bond at $90, you will still get the $10 but the yield will be 11.1%. So you can see that as the price falls and the yield increases. Still let’s say that you buy the bond at $100. You will still get the $10 but the yield still is 9.09%.

    One of the major advantages of bonds funds is that they are have tax advantages like exemptions and a form of stability in investment since these are the best parts of the bonds that they invest in.

    Finally a good bond mutual fund should have lower expenses like management fees and whatnot because as compared to investments like stocks, they have lower returns and thus more expenses will definitely lower the returns more.

    They should be very well/highly diversified as in each fund owning hundreds or thousands of bonds so as to provide the investor with what he was looking for in this investment- security for his invested capital.

    I have found this article(well it more like a book) that talks about all things bond mutual funds. If you want more information on these investments read through the linked article.

    I hope this short post has enlightened you more on bond funds.

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  • AN OVERVIEW OF THE MUNICIPAL BOND FUND

    Posted: October 27, 2009, 9:18 am by kenyantykoon

    Like all the mutual funds we have covered, the logistics of the funds are in some way explained in the name of the mutual fund and this fund is no different.

    Basically this mutual fund invests in municipal bonds. A municipal bond is a fixed interest debt security used by a country’s government or local governments to raise money to pay for public projects like roads, schools. They have some tax exemptions that make them popular with high income earners but only in the state, country etc in which they were issued.

    They are also referred to as muni funds.

    Since the projects that are undertaken by the money raised by municipal bonds are mostly very successful, the government rarely defaults and this increases their popularity with investors seeking security and liquidity.

    While they are somewhat popular because of the obvious tax advantages, they have been losing popularity because of returns that are too low, according to financial-planning.com in which case investors are looking for investments with higher returns.

    A few advantages of the municipal bond mutual fund are the same for all other mutual funds like professional management, great diversification, good for small individual investors etc. Others are;

    -they allow for the dividend obtained to be reinvested and thus higher returns in the future.

    -if invested in non rated non investment grade securities which may mean greater returns even if it means more risk.

    Other advantages are covered in this municipal bond fund resource

    On the other hand, these type of bond funds make it impossible for the investor to dictate which municipal bonds are to be invested in-whether he agrees with the decisions of the fund managers or not, there is no fixed maturity date and this means that an investor will recoup his initial investment according to how the market conditions and also this suggests that periodic income earned fluctuates with market conditions.

    Just like all investments, when investing in these funds, you must first put two things into serious consideration; your risk tolerance and your investment period.

    Basically that is the municipal bond mutual fund that is a part of a larger group of bond mutual funds that I will be covering in the coming posts.

    QUESTIONS?? COMMENTS?? ANYBODY??

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  • LIFE CYCLE FUNDS THAT SIMPLIFY RETIREMENT

    Posted: October 22, 2009, 10:04 am by kenyantykoon
    Yesterday, I did a post on asset allocation funds. In the post I gave two examples of these types of fund; the balanced mutual fund which I linked to and the life cycle fund which I didn’t link to. So I decided to make a post on this fund today. The life cycle fund is a [...]

  • THE ASSET ALLOCATION FUND FOR AN INDIVUDUAL INVESTOR

    Posted: October 21, 2009, 12:01 pm by kenyantykoon
    To get a feel around this fund, we first have to understand what asset allocation is. Asset allocation is simply the distribution of money available for investment over the chosen investment classes in a way that will reduce the risk involved and maximize returns and focusing on vehicles that are expected to perform the best over [...]

  • THE CAPITAL APPRECIATION MUTUAL FUND; A RISKY VEHICLE

    Posted: October 20, 2009, 8:51 am by kenyantykoon
    By definition capital appreciation is the increase in value of the initial/principle investment or the price of a single unit of stock over a given period and this is what this fund seeks; capital appreciation in as little time as possible over a given period These mutual fund invests primarily in growth stocks and while they [...]

  • THE SPECIALTY MUTUAL FUND UNPLUGGED!!

    Posted: October 19, 2009, 6:00 pm by kenyantykoon
    Truth be told, I just stumbled on this type of fund very recently. As their name implies, these funds specialize in the shares of companies in a particular industry, sector or geographic region or a specific type of stocks e.g. some invest in IPOs, others in sectors that undergo cyclic patterns like agriculture, others in emerging [...]

  • WHAT MAKES THE HEDGE FUND SO ATTRACTIVE??

    Posted: October 16, 2009, 8:09 pm by kenyantykoon
    I have heard of this fund and I have noticed that most of the forbes billionaires that made their fortunes in finance are hedge fund managers. So I did some digging and this is what I came up with. Just like the mutual fund, this hedge fund is an investment company that pools money from investors [...]

  • INTERNATIONAL MUTUAL FUNDS; WORTHWHILE INVESTMENTS??

    Posted: October 15, 2009, 11:38 am by kenyantykoon
    These are mutual funds that invest in non- domestic securities around the globe i.e. if this fund is American, it can invest in stocks, bonds, real estate, precious metals etc of any other country apart from the US. These funds have grown in popularity in the recent times due to removal of trade barriers, expansion [...]

  • STOCK MARKET INDICES; HOW THEY ARE CALCULATED

    Posted: October 13, 2009, 9:34 am by kenyantykoon
    I am currently reading the intelligent investor by Benjamin Graham and I can see why Warren Buffett says that it is one of the best books on investing ever written. I am not even half way through but I noticed that there is a lot of usage of the Dow Jones Industrial Average (DJIA), S&P500 and [...]

  • CLOSED END MUTUAL FUNDS; HOW THEY TICK

    Posted: October 12, 2009, 5:10 pm by kenyantykoon
    The last fund post was about open ended mutual funds and this time we are going to touch briefly on the closed end mutual funds. These funds are created by financial institutions like banks, investment companies and the like for a particular investment objective that need a given amount on money. This money is raised in [...]

  • DO BILLIONAIRES OWN YOU??

    Posted: October 11, 2009, 12:20 pm by kenyantykoon
    Being a Sunday, i thought i might link to something a little different in the line of finances I  have been reading a lot about these group of people as they fascinate me to no end. I mean lets be real here, which one of you wouldn’t want  so much money that you could run entire [...]

  • THE OPEN-END MUTUAL FUND; THINGS EVEN I DIDN’T KNOW!!

    Posted: October 9, 2009, 11:38 am by kenyantykoon
    This is one of the broader categorizations of mutual funds and I think that I should have started with it and the closed end mutual fund before posting on the subcategories (like I have) The majority of mutual funds are open ended. Other open ended funds include hedge funds, exchange traded funds, unit trusts, SICAVs, OEICs [...]

  • AN OVERVIEW OF THE INDEX FUND

    Posted: October 7, 2009, 3:07 pm by kenyantykoon
    Some time back, I got a comment asking if there was a difference between index funds and mutual funds and this post is to clear this issue of the index funds up. Basically an index funds is a type of mutual fund that follows a market index like the NSE 20 Share index, the S&P 500 [...]

  • WHY I BLOG ABOUT INVESTMENTS

    Posted: October 6, 2009, 9:23 am by kenyantykoon
    There is a saying that ignorance is bliss. This is true but only for a while. It may be bliss not to know that a catastrophe is coming because one does not have to take precautionary measures and better still one does not have to lose precious sleep worrying about the consequences of the imminent [...]

  • THE BALANCED MUTUAL FUND;DETAILS EXPLAINED

    Posted: October 5, 2009, 10:46 am by kenyantykoon
    A balanced mutual fund is one that is invested in a combination of different stocks and bonds also a money market investment so as to provide both capital gains and a steady income. By now i am assuming that you already know how mutual funds work. Like all other highly diversified investments, these balanced funds are [...]

  • THE GILT FUND EXPLAINED

    Posted: October 2, 2009, 11:00 am by kenyantykoon
    These gilt funds are mutual funds of British origin but are also in India that invest in medium and long term high quality low risk investments like government securities and some forms of corporate debt. A gilt fund investor wants security for invested money and that is why this funds are invested in high security [...]

  • FIXED INCOME MUTUAL FUNDS; THE GOOD, BAD AND UGLY!!

    Posted: September 28, 2009, 9:13 am by kenyantykoon
    As the name suggests, these funds are sunk into investments that offer fixed income like certificate of deposits, bonds, preferred shares, mortgages, debentures etc (either one or some) Just like money market funds, these offer a certain level of security at the expense of greater returns. They still offer a certain level of returns and preservation [...]

  • MONEY MARKET MUTUAL FUNDS- AN ALTERNATIVE TO SAVINGS??

    Posted: September 24, 2009, 8:53 am by kenyantykoon
    First of all we have to define the money markets so that this type of fund is easily understood. A money market is a “market” for short term financial instruments like treasury bills, certificates of deposit, bankers acceptances, commercial paper , federal funds, municipal notes etc. These money market instruments are explained by eagletraders.com and so  [...]

  • EQUITY/STOCK MUTUAL FUNDS; TYPES AND DETAILS

    Posted: September 22, 2009, 1:48 pm by kenyantykoon
    As the name suggests, these mutual funds invests strictly in stocks(equities) and so in a sense fluctuate just like the stock they are invested in These are further divided into growth funds and aggressive growth funds, balanced funds ect. Growth funds These have a medium to long term investment period in large well established companies with a [...]

  • LIST OF MUTUAL FUNDS THAT YOU SHOULD KNOW ABOUT

    Posted: September 22, 2009, 11:43 am by kenyantykoon
    THE MAJOR TYPES OF MUTUAL FUNDS AVAILABLE In the post before the last one, I started out with mutual funds and in the post I defined them and very briefly described how they work. In this post and the next we look at the various types of mutual funds. Mutual funds are categorized according to their investment objectives [...]

  • THE ALPHA-WOMAN: MYTH OR FACT??

    Posted: September 20, 2009, 12:41 pm by kenyantykoon
    On weekends, i prefer posting something along a little different(and very short) from the serious stuff i write about and today’s post is on the alpha woman These breed of women even though very rare are growing in number. Not long ago it was unheard of for a woman to hold high office, attain high levels [...]

  • I BET YOU DON’T KNOW HOW MUTUAL FUNDS WORK

    Posted: September 18, 2009, 1:21 pm by kenyantykoon
    From this post onwards, i will be concentrating mainly on mutual funds. This is because in the paper investments you should look into there were stocks bonds mutual funds etc. i have since covered mutual funds in detail and made a page for them called stocks. This is by no means exhaustive and i will [...]

  • THE SELF MADE MILLIONAIRE; ‘SECRETS’ I HAVE LEARNT

    Posted: September 16, 2009, 9:06 am by kenyantykoon
    This group of people has always been the object of interest for most if not all of the rest of the people who do not have this very envied title around their neck. I mean wouldn’t anybody want to have no money problems and to have the ability to buy whatever they wanted and go [...]

  • WHY THE BANKING INDUSTRY SHOULD BE ABOLISHED

    Posted: September 14, 2009, 9:44 am by kenyantykoon
    I think that the banking industry should be totally wiped off the face of the earth, its existence totally annihilated never to be spoken of again by the lips of a clean soul. You want to know why? There are a multitude of reasons but the one that rises to the top is a concept called [...]

  • HOW TO KEEP COMPUTER HACKERS AT BAY

    Posted: September 12, 2009, 12:45 pm by kenyantykoon
    It has been quite a while ever since i linked to another person’s blog post but it was for a number of reasons. When this blog was much younger i did an post on hacking stories and how to protect yourself and i got a lot of feedback that it really helped(still gets traffic). So in the [...]

  • GROWTH STOCK DEMYSTIFIED

    Posted: September 10, 2009, 12:21 pm by kenyantykoon
    What is growth stock?? Basically this is a company’s stock that is expected to grow at an above average rate than other stock in the markets. Investopedia also calls these types of stock glamor stock So in a sense, they are all the other types of stock that we have been discussing in the past weeks, but the [...]

  • HAVE YOU EVER HEARD OF LOAN STOCK??

    Posted: September 7, 2009, 10:55 am by kenyantykoon
    To be brutally honest, this is a type of stock that i learnt of fairly recently. Some of this stocks seem to be related because loan stock  are common stock and/or preferred stocks that are used as collateral to get a loan from a financial institution, individual business or any other third party. Just like with most [...]

  • PENNY STOCKS FOR THE SPECULATIVE INVESTOR

    Posted: September 4, 2009, 1:54 pm by kenyantykoon
    The previous post was about some of the dynamics of speculative stock and i mentioned that penny stocks were an example of speculative stocks [By the way, i know i said that i would handle penny stocks yesterday but i got caught up couldnt find time to post] Basically a penny stock is a share that trades [...]

  • A LITTLE ABOUT SPECULATIVE STOCK

    Posted: September 2, 2009, 10:32 am by kenyantykoon
    Speculative stock is basically a stock that an investor, banking on gut feeling, invests in with the hope that the stock value will appreciate. This conclusion is normally not backed by detailed analysis. The end result is that these types of stocks have a very high risk compared to any profit that they MIGHT generate in [...]

  • SMALL COMPARISON BETWEEN THE NSE AND WALL STREET

    Posted: August 31, 2009, 11:32 am by kenyantykoon
    In  the previous post, a list of the most successful east african public companies, i briefly delved into the fact that the Nairobi Stock Exchange is the most developed in East Africa and is a major contender in the African Stock Markets. I have been reading a little about Wall Street and i found the most [...]

  • MOST SUCCESSFUL EAST-AFRICAN PUBLIC COMPANIES

    Posted: August 28, 2009, 1:32 pm by kenyantykoon
    In the last post that i wrote,(income stock explained), the issue of east african companies came up in the comments box and i thought that instead of emailing that reader, i should make a post on them. So the following is a brief history of the nairobi stock exchange(NSE) and the most well known companies that [...]

  • INCOME STOCK EXPLAINED

    Posted: August 26, 2009, 12:11 pm by kenyantykoon
    What are income stock you may ask? To be obscenely honest, i only got to know about them fairly recently. So this is a post on what i discovered about them. If a stock has returns higher than the market average then it can be referred to as an income stock Basically income stock are stocks a [...]

  • PLEASE DO NOT INVEST IN MUTUAL FUNDS!!

    Posted: August 24, 2009, 2:10 pm by kenyantykoon
    Yes, against my better judgment, I am telling you what not to do with your money. Read on and see why I am saying this. If you own a mutual fund, you will most likely retire with less cash than if you had put your initial investment in a boring investment like an index fund There is [...]

  • MERGERS AND ACQUISITIONS EXPLAINED

    Posted: August 21, 2009, 4:10 pm by kenyantykoon
    As is the fashion in this blog, i will break down the mergers and acquisition in to its constitiuent words and then explain them from there A merger- more precisely referred  to as a merger of equals, as the word implies is the coming together of two companies in to one larger one there are many types of mergers like;                  -market extention mergers                              -horizontal [...]

  • WILL GETTING RICHER MAKE YOU HAPPIER?? PROBABLY NOT.

    Posted: August 19, 2009, 6:37 pm by kenyantykoon
    Its been a long time ever since i posted something out of the norm and here it is….. I have always thought that making more money would make me happier but of late i have realised that nothing could be further from the truth. Sure, more money will buy you toys that will make you the envy [...]

  • ARE SAVERS LOSERS??

    Posted: August 17, 2009, 1:41 pm by kenyantykoon
    Recently, i visited robert kiyosaki’s site  and i watched a video on savers being losers. According to him people, who work hard at a job and then open a bank account and save the money they earn will in the end be the losers. [Robert Kiyosaki is the financial advosor that is the author of the best seller [...]

  • WHAT EXACTLY ARE SMALL CAP STOCK??

    Posted: August 13, 2009, 3:17 pm by kenyantykoon
    Like all the stocks i have covered of late the definition and dynamics of the stock is in the name of the stock. Small cap stocks are no different. To understand what small cap stocks are first break it down  into small cap and stocks small cap, according to investopedia.com means a low market capitalization of between [...]

  • TYPES OF ECONOMIC DEPRESSIONS

    Posted: August 10, 2009, 5:07 pm by kenyantykoon
    I once read that the difference between a recession and a depression is this; when your neighbor losses their job we are in a recession, when you loose your job we are in a depression. This obviously shows that a depression is a rock bottom case of a recession. Recently i wrote a post on unemployment in [...]

  • YOU SHOULD INVEST IN VALUE STOCK!!

    Posted: August 7, 2009, 5:54 pm by kenyantykoon
    First we begin by introducing what value stock is. Basically a value stock is a stock that is considered good value for money. ‘Therefore this value stock can be any other of the company’s stocks This brings the question on how to value the stock of a company. This is where financial literacy comes in like being [...]

  • CONVERTIBLE STOCK UNPUGGED!!

    Posted: August 5, 2009, 1:51 pm by kenyantykoon
    What are convertible stocks? First, convertible stocks are also referred to as convertible preferred stocks. As the name implies it is in essence a preferred stock that can be exchanged (converted) into another of the company’s securities usually a common stock anytime the stock holder feels like ie his option according to dictionary.bnet.com these these type of investments [...]

  • THE HISTORY OF THE STOCK MARKET

    Posted: August 3, 2009, 1:43 pm by kenyantykoon
    Have you ever wondered how the stock market came to be? Personally, i have and luckily i found someone else how had and written a comprehensive post on the history of the stock market (here is the article) Apparently it did not begin as the super complex investment destination that very few people totally comprehend but [...]

  • PREFERRED STOCKS BETTER THAN COMMON STOCKS??

    Posted: July 30, 2009, 5:20 pm by kenyantykoon
    Preferred stock is in many ways like common stock but it differs from common stock in that the preferred stock holders are paid before common stock holders in profit sharing and liquidation. Another cool aspect of preferred stock that common stock doesn’t have is the cumulative nature i.e. if dividends are not paid to a preferred [...]

  • ARE COMMON STOCKS YOUR CHOICE INVESTMENT VEHICLE?

    Posted: July 28, 2009, 2:47 pm by kenyantykoon
    What is common stock? First of all a stock is a part of a company. Basically when a company goes public through an IPO they are basically selling part of the company to the interested prospectivee shareholders. Once you buy common stock like in a company like facebook then you are entitled to a share of the [...]

  • BLUE CHIP STOCK EXPLAINED

    Posted: July 24, 2009, 6:43 pm by kenyantykoon
    what is blue chip stock? To understand this, you have to know what blue chip companies are. These are very stable and well managed companies that have weathered many financial upheavals. It goes without saying that these companies are very old and have excellent track records in provision of quality products and efficiency. This causes their stock to [...]

  • PAPER INVESTMENTS TO LOOK INTO

    Posted: July 23, 2009, 5:51 pm by kenyantykoon
    paper investments are those that are- shall we say intangible and the only proof of their existence is in documentation T hey include stocks, bonds, mutual funds, hedge funds etc What this post and subsequent others will be dealing with is  that it will break up the different paper assets into its subcategories and discuss how investors [...]

  • TYPES OF LOSSES

    Posted: July 22, 2009, 3:40 pm by kenyantykoon
    I have been debating with myself whether there are good losses and bad losses because according to me a loss is where you loose something – money or whatnot. So in the end you end up at a worse off state than before the loss. In his book Rich Dad’s Guide To Investing Robert Kiyosaki says [...]

  • WHY I LOVE EXPENSES

    Posted: July 18, 2009, 2:21 pm by kenyantykoon
    Last time I was telling you a little about good debt and how to use it to make money. I wanted to post the other part yesterday but I couldn’t. But not to worry, seeing that today is a brand new day with brand new opportunities I will expound a little on what I mean on [...]

  • ADVANTAGES OF DEBT, EXPENSES AND LOSSES

    Posted: July 16, 2009, 5:03 pm by kenyantykoon
    I know the heading looks sensationalist but read on to see what I mean exactly. In my journey towards financial independence I have read books and am on my to find entrepreneurial spirit. In some of these books this has been covered. There are both sides of even the bad aspects mentioned above. Everyone tries to steer [...]

  • TYPES OF INVESTORS {PART II}

    Posted: July 14, 2009, 4:24 pm by kenyantykoon
    This is a continuation of yesterday’s post about types of investors.(read them first. It won’t take long) This post dwells on the remaining types ie: -the sophisticated investor -the inside investor -the ultimate investor THE SOPHISTICATED INVESTOR This is a very specialized type of investor. He has a deep financial education, a lot of experience(read a lot of [...]

  • TYPES OF INVESTORS

    Posted: July 13, 2009, 10:39 am by kenyantykoon
    As I said in earlier post investing is a plan or a profession and like any profession there are classes or levels. For example, in the computing world there are computer technicians consultants, hackers, teachers and lecturers. There are also so many fields like internet security, website building and maintenance, graphic design etc. The world [...]

  • GREAT CORPORATE RIVALRIES IN 2009

    Posted: July 10, 2009, 3:30 pm by kenyantykoon
    There are a few things that i like more than corporate battles. In 2009 there are a few corporate streetfights that i have been keenly following. Here they are: GOOGLE vs FACEBOOK vs MICROSOFT vs APPLE Microsoft and Apple started this battle back in the 1970s. Bill Gates (19yrs at the time) and Paul Allen (22) [...]

  • INVESTING REAL ESTATE

    Posted: July 8, 2009, 1:34 pm by kenyantykoon
    I have been observing people and it seems that ones anyone with an investor mind gets any money the most common investment they go for is real estate. This is because its seems easy to get into than the stock market. i mean what is so hard in buying apartment buildings and renting them out? But there [...]

  • RICH INVESTOR MENTALITIES

    Posted: July 7, 2009, 3:03 pm by kenyantykoon
    In investing there are so many schools of thought and am sure that you have heard some of them. The most common are - Do not put all your eggs in one basket but diversify (your investments) This really popular phrase makes people invest in so many financial products all in the name of diversifying like stocks, [...]

  • TO INVEST OR NOT TO INVEST

    Posted: July 3, 2009, 3:51 pm by kenyantykoon
    Someone once said ignorance is bliss. This is true to some point. It may be bliss to not know that an earthquake is coming as we do not have to worry or take action. But while your head is in the sand, your bum is in the air and the earthquake is still coming. If [...]

  • my new girlfriend

    Posted: July 2, 2009, 2:46 pm by kenyantykoon
    I havent been blogging for a week now and believe me it really hurts…particularly when  look at my blog stats. Its like i’ve just registered the blog!! or being hit by a brick! But not to worry, am back and am bad!!! The reason it that my prized acer laptop had been attacked by viruses. Most of  the [...]

  • unemployment in the US

    Posted: June 27, 2009, 1:29 pm by kenyantykoon
    I was just passing through the Daily nation(kenya) and there is an article about foreigners in the US being sent packing. It made me remenber a piece i did about unemployment in theUS. Its basically the same thing but mine came first. Don’t say i didnt warn you……

  • MICHAEL JACKSON IS DEAD

    Posted: June 26, 2009, 11:33 am by kenyantykoon
    Today, June 26 2009 will be remembered as ther day that the music fraternity lost one of their most famous singers, Michael Jackson. According to his brother Jermaine his death was caused by cardiac arrest. Paramedics rushed to his Los Angeles home after responding to a call but died shortly afterwards  in the UCLA Medical Center. He [...]

  • DO NOT DESTROY YOUR MONETISED BLOG

    Posted: June 23, 2009, 4:32 pm by kenyantykoon
    Hi people? This is my second post today. the first was about Somalia trying to involve kenya into their political issues. I have been blogging for three weeks now and what was an aggravating activity is becoming quite fun. [Those hostel owners should switch on the WIFI again because I have to go to campus everyday to work on this [...]

  • KENYA REJECTS SOMALIA’S PLEA FOR MILLITARY HELP

    Posted: June 23, 2009, 1:42 pm by kenyantykoon
    For the longest time now, Somalia has been having political unrest. So it should come as no surprise that militants are trying to overturn the current gvernment. To combat this threat to government the Somali parliament speaker Sheikh Adan Madowe  called on Djibouti, Ethiopia, Kenya and Yemen to send in their military forces to help [...]

  • To all kenyan Webring members

    Posted: June 20, 2009, 12:43 pm by kenyantykoon
    This blogging thing can become really aggravating. Am not one to word vomit but what’s going on? I have been blogging for the past month but i have come to the realisation that i am on very few blogrolls. I really want to be a major contributor to this webring so pliz…. any kenyan webringer that [...]

  • hacking stories and how to protect yourself

    Posted: June 19, 2009, 5:50 pm by kenyantykoon
    Has your computer ever been hacked into? Yes, no, don’t know? This post is all about the cybercrime revolution in Africa and easy steps to protect yourself Computer hacking has many definitions depenning on how you look at it. But essentially it is obtaining personal or privileged information without the owner’s permission by overiding passwords or other backdoor means [...]

  • GOOGLE WAVE IS THE FUTURE

    Posted: June 16, 2009, 4:53 pm by kenyantykoon
    Yesterday i wrote an article overviewing google’s latest innovation, google wave{IS THIS THE END OF SOCIAL NETWORKING?} Most of the feedback inform of comments ans e mails is that it is ONLY a way to make communication better and that it will be incorporated into ”traditional” communication like Email telephone calls etc. But I kindly beg to differ. Someone once said [...]

  • IS THIS THE END OF SOCIAL NETWORKING??

    Posted: June 15, 2009, 3:07 pm by kenyantykoon
    Why google may wipe out all the other social netwoking sites before the year is out

  • unemployment in the US

    Posted: June 10, 2009, 6:04 pm by kenyantykoon
    the sad cruel reality in the US

  • global recession explained

    Posted: June 6, 2009, 3:28 pm by kenyantykoon
    How much does the average kenyan(read person) know about the global recession? It’s all really confusing isn’t it? This post is more or less an overview of the whole thing from when it started to the present. I will try to be as simple as i can. Let’s get started shall we? This whole mess started in the US  and [...]

  • knowledge is the new money. Love knowing ...

    Posted: May 30, 2009, 3:02 pm by kenyantykoon
    knowledge is the new money. Love knowing things

  • breaking the ice

    Posted: May 29, 2009, 6:12 pm by kenyantykoon
    This is my first post:) This blog will mainly be about investing and other globally changing trends. I realised sometime ago that there is a lot of financial misinformation particularly in Africa and so i have decided to start a blog to change this. I will be explaining investment terms and other things in the [...]

  • ...

    Posted: May 29, 2009, 5:23 pm by kenyantykoon

  • Hello world!

    Posted: May 29, 2009, 3:54 pm by kenyantykoon
    Welcome to WordPress.com. This is your first post. Edit or delete it and start blogging!

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