Is Bitcoin an Option For You?

This time around I am going to jump on a fairly hot topic and discuss the crypto-currency that is Bitcoin. For me I am still on the fence about whether or not this is a good investment as there seems to be a pretty even number of pros and cons for it. So what I will do then is break them down for you and let you decide for yourself.

Let’s start with the good stuff first:
– Given the way the algorithm for generating the currency works there will be a limited number of them, which puts them into a class of holdings like gold and silver since whatever there is, is all there is. No more Bitcoins will be produced once the max amount of them are mined out.
– Based on the previous positive, that means speculators like Max Keiser are somewhat correct in their assessment that the potential upside to Bitcoin is practically infinite. However it’s worth noting by the same standard so are gold and silver yet those still manage to have a reasonable price tag associated with them.
– Because there is no government attached to Bitcoin, there is a positive in that when countries screw the pooch (like the U.S. has been) there currency doesn’t suffer. This also means no awkward manipulations on behalf of the government can occur (see the current currency war).

These are all great plusses, and I’m sure there even more but these should be enough to make the point. The point of course is that in the age of declining fiat currencies, alternative investments such as new currency types may be the future of currency, and Bitcoin is not just the first but the current top of its class.

However what has prevented me from ever putting down any cash is what I feel are the seemingly overwhelming problems with it. Here’s those:
– Earlier this year the market for Bitcoin, Mt. Gox was hacked, causing investors to lose tons of cash. This seems to be a problem that occurs regularly although not on as large of a scale. Many market manipulators have gone to YouTube and discussed just how easy it is to bog down the system temporarily which allows them to basically double spend their Bitcoins, or just manipulate the price by small amounts (which when done a large number times, can lead to big profits).
– Another problem is with the primary users of Bitcoin. some research has shown that Bitcoin is becoming the currency of the illegal drug trade, making it a he target for seizure from governments.
– The most glaring issue however is that it is, in fact, a digital currency. With no physical substance to back it, its value is based solely on what the community wants to pay for it, which means counter to an above point it can hit zero dollars a piece, just as easily as it could 1,000 dollars a piece . The other problem with it being strictly digital is security. What if the system which maintains the stock of Bitcoins (which is usually referred to as the wallet) is compromised? What do you do if your Bitcoins are just missing one day? There are plenty of claims that such things are not able to happen, but I’m not convinced. With huge profits comes thieves and crooks, and I don’t think Bitcoin is any different than any other tradeable thing since the dawn of markets.

Years ago I had the opportunity to get into Bitcoin when they were valued at around $7 U.S. each and passed due to my concerns listed above. Of course at that time it hadn’t been hacked yet, but given my involvement in the computing world at the time I was convinced it was only a matter of time. Nothing is hack proof. Just like there is no perfect home security, there isn’t one for the internet either. If someone wants something bad enough, they’ll find a way to get it.

Currently Bitcoin trades at around $190 U.S. and seems to be moving up rapidly. Personally my risk tolerance isn’t high enough to gamble on it, but if yours is I recommend you do some serious research before dumping your hard earned cash into Bitcoins. Till next time,
-D

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A Quick Post on the Watchlist

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Keep Calm and Invest On

There are more than a handful of metals bugs who will tell you that “the end is nigh” for the U.S dollar, and the economy is on the verge of a substantial crash. While I agree that those things are probably true, I am suspect of the time frame people are suggesting. When it comes to the markets, what’s important is having some degree of foresight. Knowing what the future holds, be it good or bad, allows the market to compensate and thrive. It’s only when uncertainty exists that we actually see any crashes or drops.
So where do we stand now? Some people may argue the future is getting hazy with the selection of Yellen as the new chair of the Fed, but it does seem to be the case that it will be business as usual from the standpoint of the market. Stocks are continuing to rise even with the government shutdown and the current fights over whether or not the debt ceiling ought to be raised. I would argue neither of those things are a concern from an investment standpoint. Of course, if you’re furloughed it’s quite a big deal in a multitude of other facets, but as far as the price of your stocks, I wouldn’t worry all that much.
So what is the point? Well I think the metal bugs are on to something, however as I said earlier the time frame is likely off. Instead Of a six to twelve month outlook on  crash, I am expecting we’re likely about two years out at minimum. Bubbles to grow and burst and it seems we are in one now, but it does look to be in the early-middle phase and unless something truly drastic happens, it won’t be popping for a while.
This of course is fantastic news for you the investor if you’re either getting ready to invest or are already in. I expect to see some more solid gains over the next twelve months which will allow you to then pull out and have a hefty chunk of cash on hand to invest when the fall does happen. This also provides an excellent opportunity to continue stacking if you’re in metals as prices should mostly stay where they are already (or even drop another few percentage points), which allows you to be getting in near the bottom.
I for one, am not terribly concerned about the health of the market right now, given that even if the crash does come sooner than later all that does is provide me an excellent buying opportunity to get in cheap on a lot of stocks on my wishlist. Personally I would hope for around a 1,000-2,000 point drop in the Dow, as it would lead to some panic selling, which will should cut some stock prices by upwards of 30% without being a complete disaster reminiscent of the 30s. If you ask me, there is nothing more exciting than the prospect of a Black Friday sale on the stock market. Who needs a 50″ T.V. when you can buy into Coca Cola at $25/Share?
All in all the purpose of this post is that if you read my blog and subscribe to the same principles as I do, don’t panic.
Also for what it’s worth, if my education in politics and political theory has taught me anything, it’s that none of the stuff you are witnessing on the news matters in the big picture. This is strictly just political theater. The current state of affairs in the modern political landscape is to prolong these largely irrelevant problems for as long as possible to leverage votes in the next cycle (usually by claiming some level of bi-partisanship the candidate has that his/her opponent lacks). These issues (the  ceiling, etc) will continue to arise every year until the old fashioned hardliners have either died or retired. So keep your head up, its not all that bad. Keep stacking if you do that sorta thing, and just keep a watchful eye on the Dow. Till next time,
-D

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Who Needs A Broker? Not You, That’s Who.

Conventional wisdom tells us that if you want to invest in the markets andbe ready for retirement, or just get rich, you need to spend your time researching which company to pay to manage your money. Conventional wisdom also used to say the Earth was flat. If you happen to be one of thone people who has bought into conventional wisdom over the years, you’ve probably wept silently to yourself andwhen you see how much you’ve paid in fees over the years. Well weep no more friend. Today, you can begin the process to fire your broker. Behold the 6 step process to freedom!

Step 1: Read my blog.
I know you’re thinking, “well obviously Donald, but you don’t update very often and I have questions you haven’t addressed yet.” Ok, fine then.

The real step 1: Knowledge is everything
If your knowledge about the market and how it functions isn’t very good, then the first thing to do is educate yourself. Resources such as Investopedia, Google + (there are tons of communities dedicated to sharing information on the topic), and even books by well known investors such as Benjamin Graham, or Warren Buffet can be a good start.
What’s more, if you have a broker such as Edward Jones, or its ilk, they pride themselves on having face time with clients. You are already paying them to manage your money, use that face time to have them teach you about the market. Write down any and all questions you have, no matter how simple or stupid you think they are. Make sure you take notes on the answers you are given (and compare them to your own research). If your broker doesn’t want to answer them, then that should be a very clear sign it’s time to get out of dodge.

Step 2: Learn where to find information about the companies you want to invest in.
For the most part you should be able to go to a companies website and locate a link titled “Investor Relations” under which you can get access to things such as market news about the company, information regarding dividends, and even access to conference calls.
If for whatever reason, the website doesn’t have this information, generally a well phrased Google search will aid you in finding what you want. A resource I use is charts.com, as not only does it provide chart data, but links to news and other relevant information about the company.

Step 3: Learn how to buy stocks on your own.
There are a few ways in which you can invest in a company without having a broker. First is buying direct from the company. Under that “Investor Relations” tab we discussed earlier, there will occasionally be a link that says something along the lines of “Become an Investor”. From there you can either get a form online to fill out, or call a number and have them send you the packet, which should include a prospectus and any forms needed to get started.
Another option and the one I happen to use is, find the group who manages  the companies stock and buy directly from them. For example a company like Computershare, manages the direct buying for over 1,000 companies, most of which may be ones you’d want to invest in (if your portfolio is going to look anything like mine).

Step 4: PAY ATTENTION!
One of the most ofimportant things you will have to do when managing your own portfolio is to actually manage it. This doesn’t mean become a day trader and buy or sell on every up and down. That’s where home investors lose money. You are not that smart, no one is. Trying to game every move for maximum profit is not only unlikely to be accomplished (PH.D’s in mathematics have spent years trying to do this and failed), but it is also going to drive you criminally insane. In reality you need to be monitoring the news around the companies you are either in, or want to be in to make sure something doesn’t catch you off guard. If a stock you own goes down by 30% and you didn’t see it coming, you’re doing a bad job.
For me I have a widget on my phone called mini stocks, which lets me see the daily changes in what I own and what I’m watching. That coupled with spending about an hour or two a day reading news articles about the market and those companies keeps me well informed as to what is going on with my stocks.

Step 5: Make your money work for you.
Things you may get to do that your broker may or may not do for you is get yourself into some DRIPs. DRIPs (Direct ReInvestment Plans) allow you to take the dividends you get from a company and automatically buy more shares in the company with them. In doing this, you can spend less time fiddling with dividend checks and calculating  where you need to put that money, and just let your portfolio grow itself.

Step 6: Be patient
Building a retirement portfolio takes time. As I posted in an earlier article, you are an investor not a daytrader. Your portfolio isn’t going to grow 30% a week. So just relax, the market will have ups and downs, your stock will rise and fall in price, etc. If you are doing your due diligence, you can take advantage of price drops to buy more and subsequently sell of some when you catch a huge spike in price to either reinvest or buy yourself something pretty. At the end of the day, a solid portfolio takes decades to build so go in knowing that and you’ll do fine.

So that covers it for this one, Ill try to get back to posting more regularly as life is beginning to calm down some. Till next time.
-D

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Does It Pay To Be A Fan?

I was thinking to myself while watching some football on Thursday night, what’s a solid multi-billion dollar industry I haven’t yet explored when contemplating an investment opportunity. Why sports franchises of course. The average football team brings in a truck load of money and with the salary cap in place has a very limited amount of expenses. Sadly though, the only football team you can invest in is the Green Bay Packers, and they are unsellable, non-dividend paying stocks that are only sold if the team needs to raise some quick cash. However there are plenty of other sports and potential options right? Well, no actually. From what I found, the most worthwhile options are the Manchester United football Club ($MANU) and Madison Square Garden ($MSG) which on top of being a high end venue for various things also has ownership in a few sports teams such as the Rangers (hockey) and Knicks (basketball).
On top of a lack of dividends, neither of these stocks are terribly exciting. Growth is largely poor for Manchester, since it is already the largest sports franchise in the world. Madison however has doubled in the last ten years. MSG seems to benefit more from the added value of a venue space than their mediocre sports franchises, but even still has pretty decent finances. Here’s a chart for each:

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Overall the lack of a dividend prevents me from wanting to move on either of these, but if you happen to be a super fan of one of the aforementioned sports teams, having some ownership in your team seems like a pretty sweet deal.
-D

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Knowing When to Sell, and Why.

I was originally going to compile a list of other blogs and information to give you the reader an idea on when selling a stock is a good idea. However I could only seem to find anecdotal tales of high returns and no such general formula, which is why I didn’t get a post up yesterday. So for today I have opted to provide the formula to you on how I view selling a stock should go.

First and foremost we need to make clear the distinction between realized and unrealized gains. This is very important to how you can measure your portfolio’s (and subsequently your wealth’s) growth. So to begin here is a short scenario:

You at some time bought 100 shares of ABC Company for $15/share. A few months later, the price has moved up to $24/share.

At this time you have made an unrealized profit of $9/share or around 900 dollars. It is unrealized because that extra $900 hasn’t actually been paid to you until you sell some amount of stocks and collect it. Once you have done so, the profits are then realized. This is important mostly because regardless of what your broker tells you or what you see on your tax forms, you haven’t actually made any money until you cash out, or as Jim Cramer says “rung the register.”

So when is a good time to ring the proverbial register? Here’s my 5 steps to knowing when it’s a good time to sell a stock:

Start With a Game plan

When you are getting ready to invest in a company or multiple companies, you need to first determine how many stocks or funds or whatever you want to be in. Some professionals recommend no more than five or so, as it can be difficult to keep up with a large number of different stocks. In that case, you would want each stock to account for no more than 20% of your portfolio (100%/5 stocks=20% per stock). If for example you wanted to invest in 10 stocks, then each should be 10%.

Monitor Your Holdings for Large Gains or Losses

The market itself is quite the fickle creature and as such will move up and down on what may seem like a whim. It’s your job to monitor the number of stocks you’ve chosen to see how far from your initial buy price each one has moved. Let’s use this example portfolio for now:

Stock             $ per Share     $invested      #shares         Dividend       Total Value   % of Port

ABC 10 1000 100 3% 1000 10%
DEF 20 1000 50 3% 1000 10%
GHI 25 1000 40 3% 1000 10%
JKL 15 1000 66 3% 1000 10%
MNO 30 1000 33 3% 1000 10%

You’ll notice I used some generic numbers (like a 3% dividend for each company) so the math is easier, but the point will remain. It’s also worth noting for the math that our starting portfolio value is $5000. Now, let’s assume we are checking our portfolio at the end of the quarter and see these changes:

ABC 12 Na 100.3 1203.6 20%
DEF 17 Na 50.75 862.75 14%
GHI 29 Na 41 1189.00 20%
JKL 26 Na 68 1768.00 29%
MNO 27 Na 34 918.00 15%

Our new portfolio value is $5940. We can see now the adjustment to how much each stock is in relation to the total value of the portfolio. So that leads us to step 3.

 Buy or Sell a Position to Maintain Your % Split

Based on the above charts, we should sell some of our position in JKL and take advantage of the major spike in price. To get back to the 20% range, the total value of shares needs to be around $1,188 which means we want to sell around $600 in shares or about 23 shares of the stock. We then would take that $600 and reinvest it into DEF and MNO to bring them back up to the 20% mark.

These Are Guidelines, NOT Laws of the Universe.

An important point to remember is that #3 works “in general” assuming the five companies you chose are good companies for long term investing. If companies DEF and MNO turned out to be junk, then you may consider using that extra money from JKL to get into different companies and then sell off the other two completely once they bounce back some (closer to your buy in price). By utilizing #3 correctly, you can take advantage of market movements, and claim your big wins, while also growing your portfolio at a discount. In the case of DEF, if that company is still a great buy, then you are getting to pick up more shares for less, which is always a win.

There is a Margin of Error, The % Need Not Be Perfect

There will often be times when you have a much closer spread on your account. Maybe for example your %s are 21,20, 19,18,22. In cases like this, a sell off isn’t necessary or encouraged. This is a sign is minor market fluctuations and shouldn’t be stressed over. As far as buying in this case, make sure you buy in an even amount, so that once purchased, you holdings will go back to as close to 20% across the board as you can. For example, you may have an extra $1,000 dollars. Instead of putting $200 in each (which you can do, and is a perfectly fine option when in this position) you could spread it as such: 190,200,210,220,180. Thus, bringing your amounts closer to the mean.

While these are not hard and fast rules, I hope this short exercise will give you some more general ideas on when to sell off a portion of a position due to spike in price. A good way to track this is to make an excel spreadsheet with your stocks and update it periodically with current information. If you program the equations in correctly, it will properly calculate your portfolio percentage and tell you whether you should be buying or selling.

One other tip I would give is, don’t let the 20% rule prevent you from making constant investments into your portfolio. If you have to have your numbers periodically skewed to take advantage of your budget and what you can afford to invest in, that’s ok, so long as you shore it all up every so often to protect yourself with even diversity. It’s also worth noting, that when a stock goes on sale, buy it. Like earlier, even if it messes up your percentages a little, don’t pass up a bargain or possible money making opportunity, because it may cause one of your holdings to go over the 20% mark. Hope this is informative and useful. Till next time.

-D

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Mixing Strategies for Maximum Value

People in the investing community often label themselves in all sorts of manners. From value investors, income generators, to traders or pack rats the titles are endless. Today I wanted to discuss a little where I fall (and what my strategy is) and provide some discussion on the types so you may see where you land and if once you’ve evaluated the other types if it is still where you want to be. Todd Wenning had a post the other day about what constitutes an income investor and the ten key points thereof:

“The Ten Points of Income Investing
1. Income investing is a separate and distinct strategy

It’s not growth, it’s not value — income comes first. (See: The Income Investor’s Manifesto)

2. Discipline and patience are behavioral prerequisites

Great dividend-producing portfolios are built over decades, not weeks and months. It’s critical to keep short-term market moves in perspective. (See: Making Each Investment Count)

3. Insist on owning dividend-paying companies with economic moats

You’ll save yourself a lot of trouble if you own firms with durable competitive advantages. Read this book to learn how to recognize an economic moat.

4. Keep transaction costs to a minimum

Ideally below 1% per year. Remember: you can only compound what you keep.

5. Beware of unrealistic yields

If a yield seems too good to be true, it probably is. There might be something wrong with a stock that carries a yield more than twice the index average. (See: Ultra High Yield = Ultra High Risk)

6. Don’t be afraid to sell, but do so for the right reasons

Trading and income investing don’t mix. Take an investor’s perspective and aim to hold for at least three years. (See: A Simple Guide for Selling Stocks)

7. Have a dividend reinvestment strategy

How you manage the regular cash flows from your dividend portfolio can have a tremendous impact on your long-term returns. (See: 5 Keys for Reinvesting Dividends)

8. Think globally, but be mindful of extra costs

There are great dividend opportunities in foreign markets, but be aware of possible withholding taxes in the company’s home country.

9. Stay away from companies drowning in debt

Companies with too much debt become beholden to creditors and the dividend can come under pressure if the creditors aren’t satisfied.

10. Take a portfolio perspective

A dividend strategy isn’t comprised of one or two stocks, but rather a group of stocks assembled to achieve specific objectives and goals. (See: 5 Rules for Building a Dividend-Focused Portfolio”

Some of the points in that list are hyperlinks to other source material you should probably read. The word editor I use doesn’t like links so it only allows me to use text. As such you should go see the post for yourself on his blog (and probably follow it too as he is very good at what he does), which is located at

                                                                                     http://cleareyesinvesting.blogspot.com

When I first went through the list and subsequent material, I found it is a strategy that closely resembles my own, although there are some differences. Before I get into those here is some information on what constitutes another method called “value investing” on which you can read more at:

                                                                                      http://en.wikipedia.org/wiki/Value_investing

In case you hate clicking on links, the general idea is to find companies whose intrinsic value is higher than their stock price. This is what I would refer to in my theory articles as your low suited connectors. These are companies who as previously mentioned have an extraordinary upside and require a small percentage of your overall chip stack.
One other option that is popular for portfolio strategies is day trading, in which you attempt to make your money on the small fluctuations during the day with a market, although I consider this to be a system better left to someone who hates money as statistics show a very small number of traders ever beat the market.
So then, where do I fall? It turns out I invest using a strategy that is a combination of Value Investing and Income Investing. For instance, in point 2 above, because you’re building your dividend based portfolio over time, you have the luxury of waiting until the market sets a price on a stock you can really benefit from. In doing this you can take advantage of a pull-back that arose for some meaningless reason (I.e., CEO says something stupid and offends some people causing a drop in price) and get in when the stock price becomes lower than the actual value of the company.
Another point in which the two can merge is on number 6. Knowing when to sell a stock is a science all on its own, and there is a significant amount of material online to research I won’t cover it now (but maybe at a later date I’ll aggregate the data for you). The theory I employ is one that allows you to take advantage of the value Investing aspect to make a quick addition to your portfolio. Imagine this example:
 
          Company XYZ trades normally at $30/share and has a dividend of 4%. Due to a press release that the CEO was involved in an ill advised gambling ring in college, people make an emotional decision and mass sell dropping the price to $18/share. You see this as a great buying opportunity and invest given you were going to do so anyways. Six months later the price returns to $30/share once everyone realizes that information was irrelevant to how the company is managed .

In the above scenario were you to invest with the intention of holding at $30/share You would have picked up about 31 shares after fees and such. However by incorporating the value investors buy and sell strategy and getting them at $18/share, You would have gotten around 53 shares in the same company, which allows you to then sell 22 of them (to keep the 31) and invest your additional $600+ dollars into another company. Free money is the best money. So even though the goal is to buy and hold as to reap the benefits of a high dividend yield. Selling on a huge spike can realize  profits and allow you to maintain the same stake in a company you would have had anyways.

All in all, any strategy that works for you is a good one. If you think I left anything out feel free to post a comment or chat me up on one of the many social media sites I use. Till next time.
-D

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