How to Analyze The Stock Market:Do Your Research

Analyze the Market to Prepare

Man reading the news on the stock market.

How to Analyze The Stock Market:Do Your Research

On my last post I talk about credit cards and how it is important not to go too far into debt. I will talk more about that in a later post but I wanted to switch gears for a moment and talk about how I analyze and conduct my own research and how you can too. I have mentioned before that it is vitally important for teens to invest in stocks because they produce the greatest returns over the long run. Many market experts have even stated that while the market has it’s ups and downs, the younger generations have time to ride out the bumps. While that is true, it is important to know what to do with your money as well. No one is going to have your interest at heart more than you do. That is why I am going to show you how to analyze market trends and how to do research to better understand what investments you should or should not invest in.

 

How to Analyze Stock Levels

How can you predict when the stock market is going to crash? How do you know when you should or should not invest in stocks?

There are several ways and tools that i use to analyze stocks or choose which investments are best. One way I check is to first do a macroeconomic view. What is a macroeconomic view? I look at what’s happening around the world and I look at the valuations of all companies on the stock market. Short note: Valuing a stock is merely looking at the company’s financial statements and income statement and other metrics to see if a company has a higher or lower stock price than it should have. If after doing thorough research you discover a certain company’s stock is valued at $50 a share and the current stock price is $35 then you know the stock is undervalued. If however, the valuation shows the stock is worth $18 a share then you know by the current stock price of $35 that the stock is overvalued.

One way to see the macroeconomic trend is to look at margin debt levels. Margin debt is money borrowed from brokers to buy more shares of a company than otherwise would be possible. If you had $1,000 and wanted to buy shares of a company whose stock price is $50, then you would only be able to buy 20 shares. But if you borrowed money from your broker by opening a margin account you could buy more. Say you borrow $500,so you pay $25 and your broker pays $25. You would be able to purchase 30 shares instead of 20 shares. Your investment is used as collateral on the loan. However, if the stock drops in value after you bought it, you will owe your broker more money. Brokers charge a certain rate of interest to borrow from them so you can end up paying even more than you realize on both collateral, interest and losing your entire investment if the stock tanks. That is why it is important that you understand the risks with margin accounts. For a better understanding see the SEC rules here.

 

Chart of Margin Debt

Analysis Shows Margin Debt Peak

The chart above depicts margin debt over the years 1995 through the present. As you can see, whenever margin debt peaks too far ahead of stock prices it usually coincides with a market crash. What this chart illustrates are the peaks of the 2000 dot com bubble burst, the Housing bubble and crash of 07-08 and we look to be on the verge of another bubble and bust. Now i must say everyone is free to do with their money as they see fit but stocks seem overvalued at this point and time. Another way you can view margin debt is to view http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php which shows the margin debt levels and updates them every month.

 

Tools to Analyze Individual Stocks

If you don’t completely know how to do in depth research using the financial statements I still highly recommend you learn, however there are tools to help you do research. One such tool to use is http://www.moneychimp.com/articles/valuation/dcf.htm Money Chimp has a calculator you can use to help you determine the share price of a company. To use this tool you would simply start at the top and input the earnings per share of a company which can be found on their financial profile on websites like google finance or my favorite, MarketWatch:http://www.marketwatch.com/ in the search bar type in a company name or ticker symbol. We will use Facebook for the the example. The ticker symbol of Facebook is FB. Now a profile of facebook will appear and if you scroll down the page, on the left hand side you will see overview of things like Market Cap, P/E ratio and Earnings Per Share(EPS), ect. For Facebook the earnings per share is 2.08 as of the latest quarter of 2016. You would input EPS of 2.08 into the Discounted Cash Flow calculator. Next is growth assumptions, the growth rate currently which is usually averaged out over 5 years and the expected growth of the next 5 years. You can find out Facebook’s past growth rate by averaging the net income of the income statement, which is in the “financials” tab on MarketWatch. If you take the net income from the year 2011 (668M) and net income from year 2015 (3.67B) average the numbers over 5 years and you are left with a compounded annual growth rate (CAGR) of 40.60%! (3.67/0.668^1/5)=40.59~40.60%. Since the millions and billions are expressed in decimal form you can just plug in using the same system ie. 1.0 represents 1 billion dollars, half a billion would be expressed 0.5 ect.

Now plug in 40.6% into the growth assumptions in the discount cash flow calculator. Leave the future years as 5 years and for any growth over 5 years it is best to keep at 0%. However, many financial analysts use the growth rate of the U.S. economy, which is roughly 3%. (It is worth noting that Warren Buffet uses a future growth rate of 0% beyond the 5 or 10 year initial projection. Using such conservative estimates makes sure he never overpays for an investment.)

Next, you would add in the discount rate. The discount rate is basically the rate of return you would expect or require of such an investment. The discount rate is also thought of as the time value of money and the risks and uncertainty in the market. For example, suppose you have two investment options: 1) You can invest your money in a 10 year treasury bond with a yield of 2% a year. 2) You can invest your money in a stock with a 2% dividend yield but in addition the company’s outlook is stable and has enjoyed compounded annual growth rates in the stock price of 10% a year. You might be better with the stock prospects of asset appreciation vs the guaranteed 2% return. Another scenario is if we were in the same environment of the 70’s where bond yields were 8% and the 80’s when yields were as high as 12%-15%! Compare that to stock holdings with similar returns and you might agree it would be less risky to just hold bonds with that low risk of default with the substantial double digit returns compared to the risk of the stock market. Only you can make that decision about where to put your money given the right return given the risk of capital. But because the market is so overvalued (my opinion) i will say there is a higher risk of downward prices than in the past and will assign the discount rate of 11%.

Wrap-Up

Whether you use 0% or 3%, based on the current earnings per share and the 40.6% growth rate for the next 5 years the valuation of Facebook stock shows a intrinsic value of $83.99 and $109.66 respectively. Both of these numbers is lower than the current price of $130.86 so as of now i would say Facebook is overvalued. Note: This is my opinion based on my facts and research. Just because a stock is overvalued does not necessarily mean it will crash in value. A company can have a lower outlook and perform well over the coming months before going down. Another thing to consider is the average historical value of a company. Depending on industry, a company can have a higher or lower value. A soap company for instance my historically trade at 10-12 times earnings because its a stable industry and business. A tech company however, may historically trade at 20 or 25 times earnings because it is in a high growth industry. These are some things to keep in mind when valuing your investments. As always, hope everyone the best in their financial futures. It is your right to be rich!

How To Use A Credit Card: Guide For Teens

How do you decide which credit card to get?

How do you decide which credit card to get?

Why Do You Need A Credit Card?

We have all been told by our parents or grown ups that it is important to establish a credit history. “If you don’t have credit that is just as bad as having bad credit!” Probably heard something along the lines of that, right? So you know you need to establish a credit history but you unsure of where to begin. I know, I’ve been there. Establishing credit early on in your career is important. You do want to be able to buy a house and car, right? Establishing a credit history is important because it shows banks and lenders that you are responsible with handling your debts. Building a good credit score takes time so if you start early at 16 and are prudent in your spending habits you could have a good credit history within 2 years, maybe sooner. I will show you how to get a great credit score and everything you need to know to be on your way to a great financial future!

The Credit Score Breakdown

Now, before we begin on choosing the right credit card it is important to talk about how your credit score is calculated and how it is affected by your actions. The credit score is broken up into these categories:

  • Payment History
  • Credit Utilization
  • Debt Load
  • Account Age
  • Account Diversity
  • Hard Credit Inquires
  • Collections Accounts & Public Records

Payment History

The payment history category is one of the most important in determining credit scores because it makes up 35 percent of the total credit score. Therefore, it is imperative that when you have an outstanding balance on your credit you need to pay it off on time, every time. Even having just one late payment can send your credit score into free fall, particularly if you have yet to establish a track record. Always keep track of the due date to make sure you pay it on time. When you apply and get approved for a credit card the issuer will send you paperwork stating when payment is due. But i believe it is a good idea to just call the card issuer directly and find out exactly to avoid any mix ups that may occur.

Credit Utilization

The second part, credit utilization is equally as important as payment history. Credit utilization makes up 30 percent of your credit score. What exactly is credit utilization? Credit utilization is the percent of available credit that has been borrowed. As a rule of thumb, it is best not to go over 30 percent of available credit. Lets do some examples to get a better understanding. Lets say you have a credit card with a $1,000 credit limit. (Most cards start you off with $300 and you can ask for more later or get a secure card, more on that later). A 10 percent utilization rate is $100 dollars, 20 percent is $200 dollars, 30 percent $300, ect. A survey was done by Credit Karma to show the relationship between credit score and credit card utilization.

A credit utilization between 1-20 percent proved to be the best. Those with a utilization ratio of 10 percent had the best score with an average credit score of 753. People with a utilization ratio of 11-20 percent had a score of 715, beyond this ratio, your score drops more noticeably. The reason for this is because when the card issuer sends the report to the credit bureaus it looks bad when you use up most of you available credit. Your credit card balance must be paid back in full by the due date at the end of the month. Those with little to no credit history or bad credit typically spend more than those with good credit. Having a low balance shows that you are responsible with your debts. Another thing to note is that your payment history and credit utilization make up over a third of your entire credit score, so if you can properly manage your spending and pay on time your almost there!

Debt Load, Account Age and Diversity

The rest, such as debt load, account age and account diversity make up a much smaller portion of your credit score, usually 15-10 percent each. I won’t go into as much detail with these categories but a brief explanation is needed. Your debt load is basically the percentage of your gross pay that is currently used to pay off debt. Some loan applications will ask you how much of your income is used for debt before they will approve the loan to make sure you have the ability to pay it back. If you have a mortgage its best to have 40 percent or less of your income servicing on debt. If you rent, it should be below 30 percent. Account age reflects how long your credit accounts have been opened. Typically, the longer the better. A longer account history shows that financial institutions trust you and your business due to a long account history. The longer the account is open the better your credit score will be. It is because of this that you should think carefully about what kind of card to apply for. I prefer to get a card with no annual fee, otherwise you could end up paying $25 or $45 a ear just to keep the card active.

Account diversity is a measure of how many different  accounts are opened in your name. Account diversity means you have several different types of credit or loans out. These accounts could be credit card accounts, mortgages, auto loans ect. The account diversity metric shows that different lenders are willing to extend you credit or loans meaning they trust you.

Hard Credit Inquiry

Hard credit inquiries are put on your credit report whenever someone, (bank, person,ect) runs your credit to see if you can obtain a new loan. Another type of hard credit inquiry is when you apply for a credit card. When an inquiry is placed on your report your credit score will take a hit and go down temporarily. It is usually short-lived and your credit score will go back up within a few months, assuming you have been using your credit responsibly. It is very important that when you apply for a credit card that you space out your applications. If you apply for too many loans or credit too soon your credit score will drop more severely and could prevent you from being able to buy a home, car or anything requiring a credit check.

Recap

While it is important for teens to build up credit what is equally as important is HOW you use the card. Remember, pay the balance due at the end of the month in order to avoid a late payment fee, interest charge on the balance due or a drop in your credit score. Just one late payment or missed payment can drastically mess up your credit, therefore it is important to not overspend on the card. Watch your credit utilization, keep it under 30 percent at all times, but preferably 10 percent will yield the best credit score. If you keep in mind and put into practice the information I have laid out here you will see your credit improve in a relatively short time frame.

Please stay tuned as I will continue to bring valuable information on all matters on finance and investing.

Balance Sheet Explained

The Balance Sheet Explained: Interpreting the Balance Sheet

Are your assets and liabilities in check?

What does your personal balance sheet look like?

In the first part of the financial statements I explained what the income statement was and I gave an example of a snapshot of a real income statement to better illustrate and explain the income statement. Just like the income statement, the balance sheet is another very important document to search through and use for analysis of a good company to invest in. The Balance Sheet is a great document to analyze to find the financial strength, weaknesses, assets and liabilities of a company. Keep in mind that the balance sheet is not for current position of a company as the balance sheet is updated every quarter. But nonetheless, it is important to keep track off and watch how the balance sheet changes over time. The balance sheet is basically a snapshot of all assets and liabilities within a company. People can have personal balance sheets as well, as in the picture, you could ask yourself, “how much money do I have versus how much liabilities (like a car or house payment) do i have?”

What Makes UP the Balance Sheet?

 

A balance sheet is nothing more than a summary of assets and liabilities. One important thing to remember is that the accounting equation is assets equal liabilities plus equity. For example, on the asset side of the balance sheet you could have cash and on the liabilities side you could an I.O.U. if someone lent you the money. Let’s elaborate further, say you had $500 in cash and used it as start up capital. That would be considered owner’s equity and a asset. Now suppose you borrowed $800 from the bank to purchase an asset for the business, however the cost came out to $500 total. You would have $300 left over, the accounting equation would look like such:

Assets($500 Startup Cap in cash)+($500 Asset)+($300 Cash left over)= Liabilities ($800 loan)+Equity ($500 Owner startup Cap)

Assets=$1,300 and liabilities and equity=$1,300

 

Using the Balance Sheet for Investment Analysis

The balance sheet is a great place to look to find discrepancies and see how the management is using capital. If a company had $50,000,000 in a short term loan and only $2,000,000 in cash then it is a possibility that the company has too much debt and could risk going bankrupt if they are borrowing too much debt. On the flip side, if a company has $100,000,000 in cash and total liabilities, both short term and long term of $25,000,000 then management has utilized its capital wisely and is most likely a financially strong company. Another way to put this into perspective is to say, the company has a 4:1 ratio of assets to liabilities. Therefore the company has plenty of cash to pay off its debt and still have surplus to invest somewhere if need be. A ratio of 1:1 would indicate that the company has only enough assets to pay off debts and have nothing left, which in my opinion is just as bad as having too much debt. Think of it as your income: Say you make $1,000 a month and spend $1,000 a month. You would have no savings! What if you get in a wreck and have to pay to have your car fixed? What if you get hurt and need money for the emergency room? What if your child’s tuition for school is more than you thought it would be? The same principles are involved. A company with no savings is doomed for failure.

Conclusion

I hope this was insightful and that now you have a better understanding of what goes into the balance sheet. It is always a good idea to view the balance sheet to see where a company stands at a given point in time. Always be on the lookout for debt levels and that the company has enough assets to pay off the debt should an unforeseen event occur. Always due your own research and do not go by what others say until you have a complete understanding of how the company makes money and how they spend their money!

For more information view http://www.investopedia.com for insights into the balance sheet and financial information.

Financial Statements: The Income Statement

Before, I talked about the basic layout of the stock app in the iPhone. Keep in mind this information is for the person with little to no experience or knowledge about finances or investing. Now lets continue, the company of discussion was Apple Inc. I talked about the “open”, ” high”, “low” and volume of the stock. I also explained the market cap of a company and what the P/E ratio is as well as the dividend. If you haven’t read the article you can read it here.

Apple Stock

This was the picture in the first post that I was discussing. I’d like to resume with the picture in the middle. The picture is still selected on Apple Inc which shows the share price of the company as well as the decline of the price, indicated by the red, down $8.36 that day. But below this it shows the stock price movement with the chart. The time duration in the picture is two years but the time can be selected anywhere from one day to two years. If the phone is positioned sideways you can see the price movement of five years and ten years respectively.

The last tab on the right shows company news. This tab shows all important company information or related news by industry. It is helpful to look at the news section for any and all important events that are of may take place in the future. Important events that may be shown in this tab include new product developments for the company as well as any acquisitions the company may be involved with as well as lawsuits and other relevant information. Beyond this other helpful websites are:http://www.MarketWatch.com  and http://www.morningstar.com

Financial Statements

Businessman at work in Office

FINANCIAL STATEMENTS

The websites are good for doing further research on companies. As I said in the earlier post, stocks are  peices of a business and the best source of information on a company’s prospects are its financial statements.

What are financial statements? The financial statements are a group of documents that give the financial insight into a company. The financial statements show an in depth view of exactly what’s going on in the business. With the financial statements you can see how profitable a company is, how much the company spends on things like research and development and how much inventory the company has. Needless to say, the financial statements are by far the most important documents for an investor to review before making any decision about putting their money in a particular company’s stock.

Income StatementFinancial Statements: The Income Statement

Let’s begin with the income statement. The income statement is the snapshot of what the company has done over the past year.  The income statement entails how a business incurs its expenses and generates revenue, both from an operating and financing perspective. The above picture is an example of what the income statement will consist of. The income statement starts with the top line or revenues. The revenue is the amount of money from all sales that the company has brought in over a period of time, typically a year. However, financial statements can show the company’s progress on a quarterly basis as well.

After revenue, the expenses must be subtracted to give you gross profit or gross income. The first expenses that are deducted are part of cost of goods sold which may be abbreviated COGS. The cost of goods sold is the cost of raw materials to produce the products. After subtracting COGS including depreciation you get gross profit. After gross profit you have operating expenses or expenses incurred during ongoing business concerns.

We will start with depreciation for operating expenses. Depreciation is a lose in value of assets. It is a non-cash expense but a true economic expense. To understand what depericiation is think of a computer you bought. Technology changes every year and because so, new and better computers are introduced to the market place. Because of this you most likely won’t be able to resell you computer at the same price you bought it at. So you must lower you asking price, it is no different from a company’s perspective. When a company  acquires new computers, buildings, machinery and so forth the management must estimate its life long usefulness. We will say ten years for a building and five years for a computer. So say you purchase a computer for your business and paid $500. It’s brand new and hasn’t been used yet. Because technological advances happen rapidly you would use a lower time frame of five years. So you would spread the cost basis over five years or the asset/computer depreciates in value at a rate of $100 a year.

Other operating expenses are administrative expenses. These typically include manager salaries or payroll for employees as well as rent and utilities on office buildings, basically anything used by  employees or staff. Another key part of expenses are research and development or R&D expense. Research and development is a key part and necessity of every company. Research and development is important for technology companies to innovate and come up with better, more efficient products as well as for oil companies to do research on fracking for oil projects. R&D expenses are not necessarily a bad expense to write off as long as the company is productive and coming out with new and better products. However, if R&D expense keeps increasing without any profitable outcomes then it may be worrisome that a company is misallocating capital.

As you can see from the above example, after you subtract those expenses from gross profit you are left with operating profit. Operating profit, because it is the profit left after deducting operating expenses. The “Other Income and Expense” column shows interest income and interest expense. The interest income is typically interest earned on investments whereas the interest expense is the company’s cost of borrowing funds. After adding and subtracting the appropriate amounts from the “income and expense” column you must pay taxes to the government. The corporate tax rate varies between 15%-39% but the average tax rate is 35%. We will use 35% tax rate for this example. So after you deduct the top line expenses like COGS, selling and general administrative expenses and added and subtracted the income from investments and expense from debt financing you would take the income left, being operating income and subtract taxes. In the above example there is $3,012 left then the $1,084 in taxes that are subtracted which comes out to a 35.9% tax rate.

Conclusion

In closing, the income statement is an important tool investors can use to evaluate a company and find out how profitable a company is. The income statement allows you to see how much money a company makes as well as how the company finances its operations. The income statement further shows important expenses like R&D as well as how much the company pays in taxes. If you want to be a successful investor it is important to understand the financial statements of a company and see how a company is operating. I hope this was a helpful and insightful article, until next time.

The Importance of Positive and Creative Stimulation

Positive ThinkingI usually talk about investments and things relating to financial matters, but I feel I need to take a step back and reiterate the importance of positive stimulation and nurturing creativity in people. I will begin by recalling an incident earlier today. I was re-reading one of my favorite books, “The Intelligent Investor” by Benjamin Graham when my two-year old niece came up and grabbed the book and ran off with it. I didn’t get mad, instead I laughed and began to chase after her. I grabbed her and she laughed uncontrollably and started  flipping through the book. It was then that my sister yelled at her and told her to give the book back to me. She told her, “Give the book back to Brandon, that’s a boring book, Brandon reads boring books.” I responded, “don’t tell her that!” ” I don’t read boring books. I read books that can help you. They are not boring.” And my sister responded with, ” She belongs to me and they’re boring to me, so I’ll tell her whatever I want.”

This is a most dangerous way of thinking and is infectious. My sister and I are exact opposites. She is a negative person and always talks negatively about others. I am determined, generally happy and some say I’m a incurable optimist. How is it that I’m a optimist and my sister a pessimist? We were raised in the same household by the same parents. The answer is what the individual focuses on. Your thoughts affect what you focus on and what you tend to focus your efforts on changes how you see the world. Change your thoughts, change your world.

To go back to the incident with my niece and sister, I really want to stress the importance of allowing your child, if you have one, or future child if you plan to later on in your life, the chance to explore and not shut them out of things, events, or experiences even if you don’t agree with it.  To tell a child not to touch a book because it is boring is a fallicy in the parents perception. As I said, my sister is generally a negetive person. Now I’m not saying she is a bad person, just that she generally has a negative perception of life and on people. What is boring to one may be exciting to another. What you focus on can literally change your world.

Napoleon Hill

Napoleon Hill

When I was twenty I found my true calling and it happened by pure accident. During the school year of 2011 I was staying with my aunt and uncle finishing my senior year of high school. While staying with them I would lift weights just about every other day. I made it a ritual to always watch motivational videos usually of powerlifter or bodybuilders but during one of the videos a man spoke in the background about the mind and how it had the potential to change your world. The “power of thoughts” I heard him say and I have always been obsessed with the body’s ability to change, grow stronger, how bones heal, how the brain grows neural pathways to learn new things. I was instantly intrigued by his words and I began to research and find out who it was. I asked in the comments but no one replied or knew. It took me three weeks but I finally found out it was Napoleon Hill.

I began to research all I could about Mr. Hill and came upon the book “Think and Grow Rich”. Not only did I ultimately purchase the book but I dug further and found out that the book had come into existence because of a meeting he had with the great industrialist and philanthropist Andrew Carnegie. I even researched and read Andrew Carnegie’s biography and learned he had started in poverty and through determination, having a sense of purpose and knowing what he wanted and going after it he was able to see and take dvantage of opportunities and rise to the top and become the richest man in the world!

It was then that I decided from here on out I would do the same. I began by believing that I too could become rich and as I believed it was not only a possibility but that it was inevitable my life began to change. I thought if I could become rich I could help my parents in their life and in their retirement. My parents have worked hard and my dad has gotten up at 4-5 am every morning for the past 20+ years to provide for us. He has done everything he can to help me and now its time for me to help him.

I began by reading everything I could about personal finance, from saving accounts to credit scores to mortgages and learning what interest rates are. Then I moved on to learning about investments, from what a brokerage account is, to stocks and bonds, mutual funds, compound interest, the tax laws and loopholes, to studying various businesses and sectors. I even taught myself basic accounting and how to read financial statements and how to make an investment portfolio by observing companies financial statements. I got so good that my portfolio started beating the market. I even go so good that my portfolio began to beat the portfolios of billionaires via the ibillionaire app. (Although to be fair they manage way more money than me).

thinkandgrowrich

Think and Grow Rich

The book highlights the importance of thoughts and how to transcend those thoughts into their physical equivalents. Mr. Hill speaks about the importance of having a positive mental attitude in any and ever aspect of life because it opens you up to opportunities to help you along the way to finding your passion and calling in life. The book has examples from real men who have used the powers of their minds to turn their passion and opportunities into businesses and have  become very successful in their lives. The book gives highlights and interviews from the likes of Henry Ford, Thomas Edison, William Wrigley Jr., Theodore Roosevelt, Charles M. Schwab and of course Andrew Carnegie among many others.

The Importance of Positive Thinking

Now you see it is important to have a positive demeanor. See things differently than others and your life will flourish. If you have a child or even if you don’t you may be around some, try and be a positive stimulus for them. Give them encouraging words and uplift them. Instead of putting them in a play pin by themselves, play and laugh with the child as it will help with healthy brain development. If a child is trying to do something on their own, let them be. Let the child explore and if they fall or fail at whatever task they are doing just be there to encourage them to try again. It will show them that success is not achieved all at once but through repetitive efforts. In addition, the more children and people in general,  do a task we get better at it because our neural pathways grow and shape to allow us to become more fluent at the task.

Another important thing to remember is to always give your child a choice. I remember growing up my dad wouldn’t just get us a toy or something we wanted, he would ask us to choose between two things. I believe it developed critical thinking and made me think carefully about my choice. But that’s what life is. Our lives are shaped by the choices we make. Our choices are shaped by our thinking and I choose to focus on the positive.

Positive Life

How to live a Positive and Fulfilling Life

  1. Think positive thoughts. If you go to work hating your job you either need to find a new one or change how you think about it. So many people hate going to work. Instead, you should be glad to work. Be grateful that you have a job. If you have a job, you are making money and if so then you also have money to spend which helps the economy. Not only are you helping the economy but your helping the business that employs you. Be grateful that you have a job so you can support your family and make a living.
  2. Quit watching so much television. Just stop. If you want to see a difference in your life set a goal and make a commitment then and there to work towards it. A better habit is reading. I am a vicarious reader. Don’t just read to be entertained. Read to help you in your field or a field of work you may want to go into or switch to. Become an acquirer of knowledge, it will open up opportunities for you.
  3. Set a goal. Know what it is you want and strive to reach it. Break up your goal into smaller more easily attainable goals. As you work towards it and have a positive attitude about it you will enjoy more of what life has to offer. You can start by writing a daily list of things to do but include a part that will help you toward your goal. Always strive to do something daily to get you closer to your goal. Whether it’s monetarily, physically, mentally, or relationship wise, always move forward.

Wrap Up

I hope what I said will sink in. If not, please re-reading this article. I do my best to help people and I want you to succeed in your life. Remember, show children that they can do anything if they set their minds to it. As Napoleon Hill said, “Whatever the mind can conceive and believe the mind can achieve. ” Have a positive outlook on life and help others along the way. Stimulate your mind to grow by reading, grow your knowledge base and others will start to see you as an expert in your field. Find joy in work, as you show enthusiasm opportunities will open up for you.

To your success,

Brandon Gomez

Stocks: What you should know before investing in stocks.

Wall StreetStocks. The word brings to mind images of Wall Street and bankers, wealth and power. But what exactly are stocks? You hear about them in the news or maybe you tune to a channel and see symbols run across the bottom of your screen during a commercial. You ask yourself, what are they talking about?

Most of the time when people hear about the “markets” on the news they are referring to the stock market. The stock market is a group of exchanges that list financial securities. To be accurate, the stock exchanges list other securities besides stocks, such as bonds, units and even derivatives. But before we get into all that lets focus on stocks.

Stocks are Businesses

So, you may be asking yourself, what are stocks? Stocks are financial securities that represent businesses. Every public company has stock listed on the stock exchanges. How do you find a company? If you want to look up a specific company you can just type in the ticker symbol in Google search.

For example, if you wanted to look up the stock price of Microsoft Corp you would type MSFT. Or if you wanted to know the price of Facebook’s stock it would be FB or Apple Inc, AAPL ect.

Stocks represent part ownership in a company. When you are buying stocks you are buying a piece of a business. In fact, stocks are also called shares. If you ever hear someone say they have shares in “xyz” it means they have stock in that company, its one in the same!

Apple Stock

Understanding the Basic Layout

The above picture is a snapshot of the stock app in the iphone. At first glance it may seem overwhelming but it is actually quite easy to understand once you learn the basic layout. We will start on the left side.

You will see a bunch of other ticker symbols, the price, and either red or green with a number inside the rectangular colored box. To  begin, it shows the Apple Inc ticker symbol, AAPL. Next is Apple’s stock price for that day, $665.18. Last is a negative 8.36, what this means is that Apple Inc stock has gone down $8.36 on that day. Below this is Apple’s stats.

“Open” is what Apple shares started at as soon as the stock exchanges opened for the day. The “high” and “low” show the highest and lowest price of the stock during the trading day or intraday if the exchanges have not closed yet. Below the high and low is “volume” which is the amount of shares that have traded hands from buyers to sellers throughout the day. (To the right is the volume average, the average volume level within the 52 week time frame.) Think of the volume as the amount of activity that a certain stock recieves. A higher trading volume means the stock is more liquid, which is good. Next, is the “P/E ratio”. The P/E stands for “price to earnings”, it is a basic way to measure how expensive or cheap a stock is. It basically says investors are willing to pay some multiple ” x” over the earnings of the business.

For Apple, the P/E ratio is 15.63 so investors are willing to pay about 16 times earnings or $16 for every dollar of Apple’s earnings. Because this is a ratio you can also tell what the earnings are if you reverse the equation. You can take Apple’s $665.18 price and divide it by the 15.63 to arrive at 42.55, it’s earnings per share.

On the right is market cap or market capitalization. This is what the company’s market value is, the share price multipled by all shares outstanding. It is what the markets assessment is of the company at any given time. As mentioned earlier, stock prices fluctuate throughout the day but over the long term it will reflect the true worth of the business. Notice how I said the market cap is not what the company is worth but what the market thinks it is worth. This is because sometimes the market misprices shares of a company, meaning it can trade at a discount or a premium. This is what Warren Buffet calls value investing, he finds companies who’s stock trades at a discount to its true value and buys them up before the market realizes and corrects the imbalance. But over the long term the true value will be reflected in the stock price.

The 52 week “high” and “low” shows the lowest and highest price of the stock during the 52 week time period. The “yield” is the dividend of the stock. A dividend is a payout to the stockholders of a company in the form of cash. Not all companies will have a dividend, but if it does you will have another form of compensation.  If you own stocks there are basically two ways to generate money or wealth. One is the price appreciation of the shares and the other is the dividend or yield. Keep in mind that not all companies give a dividend. As a stockholder you may like receiving money for holding on to your shares but there is a drawback. As I said a dividend is a payment to stockholders taken from company profits, but in doing so it means there is less money for the company to use to fund projects, to fund research and development or for expansion which means slower growth. However, if you are looking for income with price appreciation this is an option.

Stocks Power: Compound Interest

As I mentioned, there are two ways to generate money or wealth. Although they sound the same they are different. If you want money, buy dividend paying stocks. A company that issues a dividend will payout to the stockholders so you will receive money in your brokerage account every pay period.

Let’s look at Apple Inc again. Apple has a yield of 1.60% so with a stock price of $665.18 the dividend is $10.64 per year. Keep in mind that the dividend of most companies is paid out every quarter or four times a year. However, some may pay their dividend every 6 months or even monthly, it just depends on management.

However, the real power of stocks comes not from the dividend but from price appreciation. Although income investors may disagree, ideally you want most of your investment gains in the form of price appreciation. This is because over the years compounding takes effect. Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t… pays it.”

I want to help you become the person who understands it. Most people understand that the interest rate is the cost to borrow money but the interest rate can also be thought of as the rate of return on an investment. In today’s market the interest rate on savings accounts are at zero or close to it. In other words cash investments generate 0 or negative returns. Most bonds offer a 3-4% return but with the fed about to raise rates bonds will likely lose value. The best case is for stocks which have generated an average 6-7% over the past 50 years. Think about this that 7% return over 50 years will turn a mere $10,000 investment into almost $295,000! And thats with a one-time investment of $10,000. Imagine when you save and put more into investments! This is due to the effect of compound interest. Compound interest is when money is generated from interest. Instead of earning money off of your principal balance your money will start to earn money off of the new balance.

If you had $10,000 and it earned simple interest, it would only earn money on the principal balance and nothing more. Using the same example the $10,000 with a 7% return would only grow to be worth $45,000 after 50 years. That’s a $250,000 difference with continuous compound interest. That’s the power of stock investing. As long as you leave your investments alone, reinvest your returns and put more savings into investing you can really ramp up your retirement portfolio. This is why I urge everyone my age, millennials and the younger generations to start investing as soon as possible. The earlier you start and the longer you keep at it, the more money that will be earned in the later years of investing. Start now and watch your wealth grow over the years.

The Basics of Investing

Investing 101Now that we’ve covered how to develop the right frame of mind that will lead to success and how to save and budget your money lets talk about investing. Hopefully you have implemented a good budget and keep track of your expenses as well as your income sources. If you only have one source of income right now that’s OK. Investing is the secret driver to financial success.

It doesn’t matter how many jobs you have or how much you make a year. You can’t retire on working wages alone. This is especially true if you are making minimum wage or sub par wages or spending too much on non essentials. The way to financial freedom is to set up a system that pays you when you’re not working. What I’m talking about is residual or passive income. The best way to achieve this is to put money to work for you with investments.

There are several types of investments or investment vehicles:

  1. Stocks
  2. Bonds
  3. Real Estate
  4. Personal Side Ventures

I’m not going to get too much into detail with this post. This is just a basic rundown of the different kinds of investments there are so you can be aware of them. If you want further explanation or in-depth view stay tuned in for my upcoming posts.

Investing in StocksStock news

The main concept you must understand is that stocks are parts of a business. When you are buying stock or a share, you are buying a piece of a business. Many people trade stocks like they do with their iphones but I believe the best way to invest in Stocks is to take ownership. Think of yourself as a business owner instead of a trader.

Stocks can offer extremely high returns but be wary. If you do not know what you are doing you can lose out on a lot as well. Stocks tend to fluctuate in value rapidly but for the long term investor it can be worth your while. Please make sure you do your due diligence in researching on your own before you dive into investing in Stocks.

In any case, stocks can be very useful and a powerful weapon in your financial arsenal for the tax advantages as well as the effect of compound interest.

Investing in BondsI.O.U. paper

Bonds are a bit different from Stocks in that they don’t represent a share of a business. Instead, bonds are debt investments. A bond is basically an I.O.U. in which you give or lend money to a city, state or country.  In exchange for lending the money the entity agrees to pay a certain interest rate to you.The interest rate is basically a specific payout of your principal balance. Bonds are considered safer investments than stocks because the principal is preserved and you get a nice interest payout typically every six months.

To go with an example, say you bought a bond with a principal of $1,000. Now, lets say the bond has a interest rate of 3%, what that means is you will receive $30 a year or $15 every six months for the duration of the bond until the maturity date.  This leads to the next point, the maturity date. The maturity date is basically the life of the bond. Bonds can range in time durations from 1 to 30 years or longer. Once the bond reaches its maturity date the issurer of the bond will repay you the principal amount.

Investing in Real Estate

House sold sign

House sold sign

Now onto the next subject, ready?

Most people have probably heard stories of the succeses real estate investing. In fact, real estate is probably what most think of when they hear of people making investments. Well, real estate is just another thing to invest in!

But what most people are not aware of is the scope of real estate. To say your an investor in Real Estate is not specific enough. There are lots of ways to invest in real estate. Some of the more common ways to invest are flipping houses, owning rental properties or even owning reits.

Flipping houses is a far more tedious and laborious task as you have to buy a property for a good price, renovate it, a lot of times this means hiring contractors to fix up the property so you can resell the property later for a higher price than you paid. Keep in mind though that this way of investing requires a lot of time and money. You can expect most flips to take a few months and if your lucky, several weeks if you hire a lot of labor. However, this can be lucrative if you have the money and know the demographics well.

The other is owning rental property. This one is pretty self explanatory, you buy a property, whether that be a home or apartment building. Then you would rent it out to a person interested in the property. Just make sure that whatever rent you charge them is more than enough to cover your mortgage as well as basic repairs as they arise. Also be sure you know the area well because you want to be able to find an area with high occupancy rates. If not, you could buy a property only to end up paying the property taxes and upkeep, unable to find someone to rent to.

The third is more simpler and can be used by anybody looking into real estate. If you are short on money or don’t have the time to find and renovate houses reits could be your solution.

REIT stands for real estate investment trust. A real estate investment trust is a company that buys real estate assets things like commercial or apartment buildings and is listed on the public stock exchanges for people to buy “shares”. I put quotation marks because for reits they are called units. But reits are bought and sold just like publicly traded stock on the exchanges.

So if you are interested in owning real estate but don’t have the large funds or time to do so reits could be right up your alley. A good way to think of reits is a high yielding stock. Reits tend to have high dividend yeilds so it can become a good source of income.

Personal Side Ventures

The last way to make money is hustling on the side. Investing doesn’t just have to be about stocks, bonds or other financial securities. You could be investing your time into a side project that has the potential to generate money for you. In fact, if you are passionate about a particular subject you could take that idea and form a viable business plan and start earning another stream of income for yourself.

There are a lot of ways to make money beside your main job. You could sell something on the side or online. If your passionate and knowledgeable about a particular subject you could start a blog and monetize it to generate money via ads or affiliate links. Or you could even start a small business with a friend whom you trust and with the added benefit of not going it alone, you could pull resources together and have the business flourish to enable you to quit your day job if you wanted to do so.

Conclusion

There are many ways to make money through investments. If fact, the scope is so large I don’t know why more people don’t do it. There are lots of ways to make money outside your main job and no one is going to look after your well being more so than yourself. This is your life and you deserve financial freedom to do what you want in this life. Start today, make a plan and start having your money generate money for you!

Why everyone should create a budget

WHY SHOULD YOU CREATE A BUDGET?

Jonathan Cairns dives at Sandycove in Dublin, while Rachel Armstrong awaits her turn December 25, 2008. You Witness News/Fiona Brophy

Diver jumping off cliff

People like to seek the thrills of life. They like to know what the “it” thing is and dive right in. Like people who smoke without fully understanding the risks of smoking, investing is no different. Most people like to jump right into investing their hard earned money without doing research before hand. When people think about making money usually the first thing that comes to mind is bankers and brokers on Wall Street. People hear stories of the quick hits of traders and think they can duplicate their wins. But what they don’t realize is they have training and experience in the financial markets.

Having a Budget is the Start to Success.

For the average person, you can’t just go in and start trading stocks without being aware of the risks or understanding personal finance. Before you start trading stocks you must develop a sound financial plan. A basic financial plan starts with a budget. A budget should begin with all sources of income. This would be income earned from working as well as interest earned on a savings account or a bond. But keep in mind that if you are projecting your budget a few months or a year in advance not to forget to deduct taxes. A basic budget typically tracks your finances over a month-long period.

The next thing you should do is track your expenses. Your expenses are anything that takes away from your savings. Basically expenses are things that cost you money. Things such as rent or a mortgage payment, utilities, gas, food, phone bill, insurance premiums and health premiums. Your expenses are anything you expect to send money on within a month.

For kids or teens, the expenses listed above may or may not be included in your budget. For example, you may not have to pay health insurance premiums because your parents pay that for your benefit. But if you routinely spend $30 at the movies, you may want to include that in your budget. Typical expenses for you may include, video games, shoes, hair cut, date night, ect.

Personal Budget

Personal Budget

This is an example of a basic budget in a pie graph. This pie graph shows expenses broken down into sections and expressed as percentages to show total amounts allocated to each category.

Keeping track of the budget improves your life.

By having a budget and sticking to it you will enhance your financial situation and hence, your life. If you know you make $50,000 a year, try and see what tax bracket you fall into and estimate how much is taken out of your paycheck. (Tax rate is 15% for married filing jointly)After taxes, $42,500 is what’s left or about $3,500 a month.

If you know you pay $1,000 in rent, $80 for water, $200 for food, $180 for utilities and another $500 in miscellaneous things you can see you spend about $2,000 a month. That leaves you with about $1,500 for saving in an emergency fund or use to put towards a trip you may be thinking about or paying off student loans if you still have an amount outstanding.

Conclusion

As you can see, having a budget can help you become a conscious consumer. Being aware of what you spend your money on as well as how much you spend can help you make cut backs in unessessary expenses. Please keep in mind that keeping a budget doesn’t have to mean living on less or having a less fulfilled life. Cutting back on expenses or things that may be more expensive will free up more income for other things that are more important, like eating out less to save and taking a trip to Europe. Learning to budget can lead to a successful and more adventurous life.

 

Mentally Prepare for Financial Success

How to Mentally Set Yourself Up for Financial Success

Before I jump right into talking about finances and investing let me be clear on one of the most important, if not, the most important thing that comes with setting yourself up for financial success. You must make your mind believe without a doubt that you are capable of succeeding. If you do not believe you will achieve financial success, then your wasting your time, energy, and resources. No matter what happens, if you don’t believe in yourself or your capabilities you will never achieve success.

Changing Your Mindset

The first step to achieving success, whether that means running a successful business or getting your dream job, monetary or otherwise is changing the way you think. Believe it or not, your mindset will be a strong factor and the difference between your success or failure in any endeavor. You must be mentally strong to get you through the trials that are sure to pop up along your journey to success. Through my experience in dealing with people the number one thing that stops people from going out and achieving their dreams is their self doubt.

A lot of people talk themselves out of doing something because they fear that they aren’t good enough. In other words, they have a low self-esteem. To demonstrate this, I had a friend back in high school that would say to himself that he was “stupid” because he didn’t understand the material being taught. It bothered me deeply and I told him not to talk about himself like that again. I don’t know if it is because of the way he was raised or other factors but you have control of your own thoughts. Everything else around you may change, circumstances that happen in your life are out of your control but you can control how you respond to them. Out of everything in this world the one thing we have complete control of is our thoughts. As Bruce Lee once said, “As you think so shall you become”. To build yourself up for success you must have positive thoughts.

‘You Must Think of Yourself As On The Threshold of Unparralelled Success’

One of the greatest books I had the fortunate chance of reading was “Think and Grow Rich” by Napoleon Hill. (I am receiving no compensation in any way, shape or form for mentioning this book) The book came about by a conversation he had with the great philanthropist and steel magnate, Andrew Carnegie. The book is comprised of insights and traits upon which the likes of great men like Henry Ford, John D. Rockefeller, Thomas Edison, and Theodore Roosevelt rose to extraordinary heights.

Andrew Carnegie once said, “Think of yourself as on the threshold of unparalleled success. A whole, clear, glorious life lies before you. Achieve! Achieve!” In his book, Mr. Hill talks about the importance of thoughts. He explains that thoughts are physical. They are not just intangible thoughts but physical, if you recognize the opportunity to turn your thoughts, your dreams into its physical equivalents. The very first page of “Think and Grow Rich”  begins as “Truly, ” thoughts are things”, and powerful things at that, when they are mixed with definiteness of purpose,persistence, and a burning desire for their translation into riches or other material objects.” By this bold statement Mr. Hill is saying, if you have an idea or thought you should act on it. Do not wait! Do not let opportunities pass you by.

Conclusion

That book was written so that the future generations of people could have the know-how to change their lives by learning from people who had achieved success! This message can be conveyed to everyone but more so to the younger generation because you/ we have nothing but time. If you are not where you want to be financially, you have the power to change that!

Don’t think that just because someone else has more money than you that they are better than you. Prepare yourself for financial seccess! Use the resources you have presently at your disposal to reach your financial goals. The use of the internet alone has all the information you need to get you started. Learn all you can and apply the information to start benefiting yourself today!

(Note: Napoleon Hill, Think and Grow Rich)

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