Aggressive Vs Defensive Stock Investing

Aggressive stock investing means taking greater risks. The risks can take numerous forms. You invest in highly volatile market when the fluctuations in prices defy all the techniques of analytical and fundamental research.

There are rises and falls in prices of stocks which occur contrary to the investors’ expectations. There are daring and imaginative investors who manage to make money even in these uncertain circumstances.

Another form of aggressive marketing is that you invest in stocks which appear to be ‘gone cases’ according to popular calculations. But quite contrary to all the wise counsel, they show high growth and deliver rich dividends. Of course, they may also fall further down since they are already gone cases.

On the other hand, you invest in some stocks like Wal-Mart, fully aware that they are costly and their price may not rise in near future. Few people know that buyers of such high value stocks do not invest in them to make money through the rise in their prices, but rather these companies pay rich dividends to their investors year after year so that they become a source of their regular income and livelihood. The dividends paid by such blue chip companies almost nullify the high prices of their stocks which people pay to buy them.

There is no doubt that those who dive deeper into the ocean either come out with invaluable gems or just lose their lives.

But Aggressive investing is not everybody’s cup of tea.

Defensive approach

As a part of the defensive approach, some people recommend that the best investment option is government treasury bonds. They argue that since you buy a debt obligation of the United States, you can be sure that you are going to get paid. All that government needs to do is to raise taxes or sell off assets to pay its debts.

This, however, is not an approach of an entrepreneur who believes that you cannot make money without incurring certain amount of risk. A defensive approach, therefore, does not mean not taking any risk at all, but simply means taking affordable risks and deriving optimal returns at the same time. It must be understood that risks in stock trading are neither higher nor lower than in any other business.

An ordinary stock investor, especially the one who is a beginner should have a defensive approach and be careful while trading in stocks.

A slow, cautious and conservative approach may not yield high profits in the beginning. In fact the profits may appear to be negligible, almost discouraging at the initial stages, but they can turn out to be phenomenal over the time. You will appreciate their value when you retire. This approach exemplifies the truth that slow and steady wins the race.

So as a defensive stock investor, you should calculate how much money you can easily spare every month without cutting down your essential expenses. Consult your stock broker and also do your own research to find out which stocks you should invest. It is always advisable to invest in stocks that yield high dividends. If you can easily pull on with your existing resources of income, the best option is to go for dividend reinvestment plans.

Through time, stocks with dividends yield higher returns than long-term treasury yields. Not only are the dividends higher in stock investment, but they also get favorable tax treatment. Dividends from stock investments attract a maximum of 15% Federal tax rate while the income from treasury bonds, although exempt from state and local taxes, can come in as high as the 35% tax bracket. Moreover, you get the capital gains generated from an increasing stock price. [It is like having a cake and eating it too.] Don’t know if this analogy is necessary.

The high dividend yielding stocks protect you when the market goes down. As the stock prices fall, the dividend yield rises because the cash dividend can exceed the buying price of a share by a large percentage. It can be illustrated by an example: You buy a $100 stock of a company with a $2 dividend which is 2%. Suppose the price of the stock falls by 50%, the dividend yield would go up to 4 %.( this is arrived by dividing $2 by $50 and multiplying by 100.). What often happens is that the dividend paid by certain companies goes so high and attracts buyers in such large numbers that its stock price is driven high even during a fall in the market.

How to Generate an Ongoing Income From the Stock Market at Minimal Risk

The stock market can be a risky place to invest your money – if you don’t know much about the different products available. By products, I mean stock market activities beyond simply guying and holding stock. ‘Contracts for difference’ (CFDs) and options are just two examples of how a shrewd investor is able to generate ongoing income from shares with minimal capital investment.

Options and CFDs are stock market products which allow you to control a particular stock without actually owning it. Benefits of using these products include:

  • Risk reduction – because your capital outlay is minimal, your exposure to any losses due to price movements is also reduced. Minimum and maximum buy and sell levels can be set, further reducing your exposure to risk.
  • Ongoing income potential – using a strategy based on the selling of options for example, you are paid an income up front by the buyer of the option. This gives you real income in addition to any additional benefits received from owning a stock.
  • Flexibility – by using these products you are maintaining options for yourself in terms of your activities on the stock market. You are not limited by having all your capital tied up in one place, which I wouldn’t recommend anyway.

Options and CFDs aren’t available on all stock markets worldwide, but these days that should not limit investors who are looking for good returns on their investment for minimal risk. With access to foreign markets through the internet and etrading, it is possible to extend your financial investment strategy beyond your geographical limitations.

The key to making money on the stock market is and always will be knowledge. Give yourself the financial education you deserve by teaching yourself about investments and become financially literate. This gap in modern formal education systems can be filled, but only through action on your part to teach yourself.

Having said that, it is important to realize that you are not alone – there are plenty of resources and sources of information out there, both free and at a fee which can help you speed up this process. The winner in this is you – you have the ability, no matter what your background, to give yourself a financial education which has the benefit of improving your life financially, and as a result, in every other capacity as well.

Baby Boomers Looking for High Yield Dividend Stocks

If you are at all tuned into the stock market, you have probably heard comments that as the Baby Boomers hit retirement age in full force it will significantly impact the markets. But exactly what will the impact of the 78 million Americans born between 1946 and 1964 be as they enter into their retirement years? Will concerns about Social Security, market instability, and recent economic disasters color their thinking as seniors determine where to invest? IRAs and 401Ks have suffered, and CDs and bonds are generating historic low yields, so where will the Baby Boomers go to find yield and peace of mind?

According to the last US Census, an American turns 50 every 7 seconds (over 12,500 people every day), and by 2030, the 65+ population will double to 71.5 million Americans. Americans over 50 will represent 45% of the US population by 2015. Another way to look at it is currently of the 72 million family households in the U.S., 34 million of them are Baby Boomer households (MetLife Mature Market Institute). So will the choices of the Baby Boomers have a significant impact on the markets? You better believe it.

If financial guru predictions and T.V. talking head commentaries are correct then it is very likely that the Baby Boomer generation will be looking to dividend paying stocks to generate cash flow to supplement Social Security payments and pensions. Too many so called growth stock or growth mutual funds have failed to produce over the past 10 years, and in many cases they are lower today than they were 10 years ago. It is painfully clear that a monthly distribution plan from a growth stock portfolio can quickly eat into principal, contrary to what financial planners forecasted 10 years ago when they optimistically indicated that a 4% withdrawal rate was very reasonable in light of a projected 8% annual growth rate. So that leaves dividend paying stocks.

There is a wide universe of dividend paying stocks. The first place that the Boomers are likely to look is in the conservative list of blue chip stocks that have a consistent history of dividend growth over an extended period, say 25 years. Such a list is easily obtained by putting “25 years of dividend increases” into any search engine. A company that has consistently increased dividends over a long term is clearly focused on dividend growth, and is unlikely to change. Nevertheless as a word of caution, it is important to completely evaluate any stock to be sure that it currently meets your investment criteria, tolerance for risk, and that its fundamentals have not changed. Stocks in this list will generally pay 2-4%. While this may beat CD rates, it is far less than most Boomers are looking for in terms of return, so it is likely that the Boomers, in addition to purchasing these relatively conservative equities, will look elsewhere in order to supplement yield. There are three areas where higher yields are available, Business Development Company (BDCs), Real Estate Investment Trusts (REITs and MREITs), and Master Limited Partnerships (MLPs). In addition to higher yields, MLPs uniquely also offer a tax deferment aspect.

In the case of BDCs, REITS and MREITs (Mortgage Real Estate Investment Trusts), they pay no corporate taxes as long as they pass along 90% of their income to their shareholders. The shareholder then pays taxes at their individual tax rate. In the case of MLPs a high percentage of their quarterly distributions is generally treated as a return of capital rather than income due to high depreciation and other costs, and generally a high percentage of taxes is deferred until the MLP is sold.

A BDC is a company that is set up under the tax code to enable smaller investors to participate in helping small companies in their early stages of growth. A REIT is a company that purchases and manages real estate, while a Mortgage REIT generally specializes in purchasing various types of mortgages rather than property. Master Limited Partnerships, were also established under federal law to enable ordinary investors to participate in very capital intensive assets, generally but not limited to, oil and gas exploration, drilling, pipelines, and storage. A great deal of information is available on the internet on all of these equities. While they are somewhat different than ordinary stocks, and generally not as well known, it is almost a certainty that Baby Boomers are going to be looking into these high yielding equities to bolster returns in their retirement portfolios.

Yields ranging from 5% to over 20% are available in REITs/MREITs, 5% to 13% in BDCs, and 5% to 10% in MLPs. The Boomers are looking for yield, and, as they buy into the dividend paying category, they will drive the prices up and the yield will drop accordingly. By buying in now, an investor will lock in the higher yields that will decline as more and more Boomers retire.

As in any investment be sure to do your own due diligence to be sure that any investments that you select meet your own investment criteria and tolerance for risk.

Origins of the Stock Market

When did the world begin officially investing? When did the stock market originate? The stock market origin goes back to 200 years. The origin of the stock market was laid in Europe before the industrial revolution 400 years ago. Many established merchants of this wanted to invest in huge businesses. However this could not be raised by a single merchant. They therefore came together to pool their funds together and begin a new business as partners. Each partner contribution to the venture was represented through a unit. This practice was the originator of shares. This gave birth to joint stock Business. Thus the origin of stock market began.

Originally stock market trading began on an informal note. With the increase in the number of businesses floating shares the quantity of shares increased and the need for an organized place was felt to exchange the shares. Initially the trader met at coffeehouse, this was used as a marketplace. Gradually the coffeehouse changed and acquired the name stock exchange.

Thus the stock market foundation was laid in 1773. This gave rise to investment banks, brokers, investment advisers and fund managers.

Kenya began dealing in shares in 1920’s when they were still a British colony. However there were no rules and regulations, no formal marketplace to administer the stock market activities. Trading was done on the basis of gentlemen’s agreement. During this time people engaged themselves in stock markets for side income. Mainly accountants, estate agents, lawyers and auctioneers were involved in it.

Trading in the early days began in coffeehouse and parks in the 1700s. The first exchange was formed in Philadelphia in 1800 and in 1817 in New York and this regulated the trading rules.

In the early years of the 1900’s people gained enormous amount of money from the market. It was considered risk free to invest here since till this time there had not really been any significant crash. The market lost its title after the notorious crash of 1929 which subsequently lead to the Great depression.

However this was not the last time the stock market experienced a doom. Since then the market has seen numerous fluctuation in its graph. Very often such downturn wipes out a person lifetime investment and savings.

After the 1987 crash the government intervened to protect the investors from getting bankrupt, however their efforts till now has been in vain since the stock market continues to be volatile.

Why The Stock Market Will Soon Favor Value Investing Again

Value Investing is a famous investment strategy which helps to identify quality shares (by using an approximation of the stocks’ value) that are currently undervalued in the market. The worth/value of every stock is based on the performance of the company as well as a view of its future sustainable profitability (known as normalized return on equity).

Since the beginning of 2009, the global markets have faced a financial repression era. It was a period of low-interest rates as well as risk-encouragement that has led to a perfect time for growth investing. Furthermore, the market has awarded a scarcity premium to almost all those companies that can grow in such an environment of limited economic expansion prospects. Meanwhile, the market has paid less attention to the traditional value factors, such as P/E (price-to-earnings) ratios and dividend yields. However, these factors have provided substantial return premiums over the long-term.

Everything has its season and it is totally fair to say, this has been a long and cold winter for value investors that are committed to the style. Certainly after the high-flying days of the tech bubble in the late 1990s, value has not been this out of favor.

It is extremely important to remember that the value/growth cycles tend to be mean-reverting. Moreover, they have lasted between 7 and 10 years from trough to peak on average. With the growth style now in its ninth year of relative out-performance, the current phase of this cycle may be drawing to a close. We may soon enter into an environment which once again favors value investing.

After the occurrence of this shift in the market, yesterday’s laggards could become tomorrow’s leaders. In addition, investors may want to be positioned accordingly. Although nobody has any crystal ball that can tell exactly when the cycle will flip. However, there are still some signs that a shift may already be occurring.

The followings are some of these indications:

1. A weakening U.S. dollar

It is important to note that the value indexes are skewed toward different market segments, like old tech, energy, and industrials that derive significant revenue abroad. The U.S. dollar has been losing value, which may provide such companies with an earnings tailwind.

2. Higher U.S. interest rates:

History shows that value stocks have outperformed in a pervasive as well as persistent manner shortly after the initial rate hike. Remember one thing, it worth noting that the lift-off for the current rate hike cycle happened in December 2015.

3. Strengthening commodity markets:

The value out-performance is positively correlated with rising commodity prices.

4. A recovery in the high-yield bond markets:

The value and U.S. high-yield spreads are inversely correlated. The spreads are currently falling, which is a signal that the worst may be behind us.

It is possible to learn a lot about value investing strategies with the help of investment courses. Given today’s market conditions, it seems prudent to keep exposure to the value-oriented investments focused on income from low-valuation P/E multiples and dividends.

The 5 Major Stock Investing Strategies for the Value Investors

The consistent dollar cost averaging program setup is one of the best approaches to equity ownership for numerous investors, with dividends reinvested into a low-cost as well as a broadly diversified index. Some investors prefer to select individual securities and then build a portfolio based upon the analysis of each selected firm.

Mr. Benjamin Graham (the father of value investing) identified five different categories of common stock investing for do-it-yourself investors. These all 5 categories could conceivably result in satisfactory or even more than satisfactory returns. Mr. Benjamin Graham elaborated these five strategies in his book “The Intelligent Investor” for engaging portfolio managers who wanted to compound the capital.

1. The General Trading

This strategy refers to participating or anticipating in the moves of the stock market as a whole, as reflected in the familiar “averages”.

2. The Selective Trading

This strategy refers to picking out the issues which, less than 1 year or over a period of 1 year, will do better in the market as compared to the average stocks.

3. Buying Cheap and Selling Dear

This strategy states that come into the stock market when the prices as well as sentiments are depressed and selling out when prices and sentiments are exalted.

4. The Long-Pull Selection

This strategy refers to picking out companies that will prosper over the year, far more than an average enterprise. These are also known as the “growth stocks.

5. The Bargain Purchases

This strategy suggests to select the securities that are currently selling considerably below their real/true value, as measured by some reasonably dependable techniques.

Value investing is one of the famous and easy to use investment strategies. Mr. Benjamin Graham goes on to address some specific quandary that every active investor will face in determining how to manage his/her portfolio. He said, “Whether an investor should buy at lower price and then sell at a higher price, or he/she should be content to hold some sound securities through thick and thin (subject only to periodic examination of their intrinsic merits) is one of the many choices of policy which an investor must make for herself/himself.

The personal situation and temperament here may well be the determining factors. An individual close to business affairs, who is used to forming judgments as to the economic outlook and of acting on them, will be motivated naturally to make similar judgments about the general level of stock prices.

You can learn a lot more about different investment strategies and techniques through investment courses.

It would be logical to use the technique of buy-low and sell-high for such investors. However, professionals and wealthy people who are not active in business can easily immunize their thinking from the influence of year-to-year fluctuations. The more attractive choice for this group may be the simpler one of buying carefully when the funds are available and laying chief stress on the income return over the years.