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February 21, 2007

Investing Is Making Me Dizzy

Permalink: Investing Is Making Me Dizzy by Kathyrn Lang

Filed under: Investments, Blog

I recently read an article about investing in gold. It’s just beyond my ability to fathom. What do you do with a great big old gold bar any way?

For me, investments are a bit of a mystery. I tried mutual funds. I sat down with the investment office expert. I asked questions, and I thought I understood what she was saying and what I was signing up to do. In the end, I found the fees and taxes and everything else involved in the account really cut into my profit margin. I think it did anyway.

I’ve tried retirement accounts. I had two meetings with that office expert. I initial signed on the bottom line, but closed the account in a few months. I didn’t understand the jargon. I didn’t understand the literature that the account sent me every quarter. I didn’t feel comfortable leaving my money in a place that confused me.

There were some life insurance policies that we had for a couple of years – even earned a little on those. But I couldn’t tell you how those worked any better than my other investment fiascos.

I can’t give up – although every fiber in my being screams “run away.”

Last night, my ten year old son said he was thinking about starting to invest. When we asked him what he was looking at investing in, he said, “I think I’ll invest in Huddle House. They always seem to be doing a good business.”

I wish it were that simple. Then again, maybe it is that simple. I don’t know enough about the investment industry to say.

So I’m going to do the only thing that a mom can in a situation like this. I’m going back to school. I found an online course on investing, and I’m going to follow it through. I might even let the ten year old participate.

It may be that in my learning and teaching, I’m raising up the next Donald Trump or Bill Gates.

With the interest of a child, I’m setting out on an adventure in investing that just may lead to a secure financial future for my whole family.

February 19, 2007

Savings - You Must Diversify

Permalink: Savings - You Must Diversify by Kathyrn Lang

Filed under: Investments, Banking, Blog

The only investment most people are making these days is in their home. Having savings does not seem to be a priority for most.

To truly be financially secure, people need to spread their savings around. More importantly, people need to be saving in the first place.

I know this – but I have to admit that I fall into the first category. The only investment my family is making is in our home. Granted, the home sits on several acres of land, but it’s still one single investment.

Today, we start diversifying.

First, we will be opening a short term savings account, or what I would call a traditional account. The interest rate tends to be a bit lower than that on long term investments, but the money is easier to get to when it’s needed.

Second, we will start a long term savings. This is a bit trickier for me. I don’t want a retirement account for several reasons:
- We want the money available when ever we want the money and not when the government dictates we can have it without penalty.
-I personally don’t intend to retire – I like my job and I like working and I don’t want to stop.

A retirement, or 401-K, account is not for us.

I have been looking into mutual funds, but there seem to be so many fees associated with these accounts. You pay to purchase, you pay to maintain, you pay to sale – it’s a wonder you make anything on them at all.

For us, I’m thinking a CD will be a fairly decent interest rate without the fees. Plus, I’ve found a local account that has a CD that can be bought into monthly. It’s kind of like a long term savings account and will work perfectly for us.

No longer will we be a single investment family. By setting aside money each week, and each month, we will be able to build up short term savings that can be used for car repairs, home remodeling, or other purchases.

We will also be creating a nest egg for long term investment that will have us prepared for large purchases like new cars or maybe even more land or additional homes.

The key for us will not be the getting started; it will be the following through. This is something that we all want, so I know that putting together a secure savings is something we can accomplish as a team.

February 15, 2007

Is Saving For Children The Right Route

Permalink: Is Saving For Children The Right Route by Kathyrn Lang

Filed under: Investments, Economy, Blog

It’s important to save money for the children. I’ve heard this since my husband and I first started having kids, and I recently read an article that was discussing the best ways to go about saving money for children.

The expert talked about the savings plans that are available, the tax options, and even the benefits to saving for children. As important as many people see this particular financial path, my husband and I are going about it from a different angle.

We aren’t saving for our children.

Instead of saving money for them, we are teaching them how to save their own money. There have been too many horror stories of people getting large sums of money only to blow it all and end up in debt. Giving our children a large savings – even to use for college – is not as important as teaching the true value of money.

At six, our children can earn an allowance. They get an allowance ($2) if the household chores get done. Every year, they get a raise of fifty cents. There are other things that the kids can do to earn money as well, but it’s never more than a few dollars.

From all the money they earn, ten percent goes to donations. We want them to learn the value of giving as much as the value of money. Sometimes they give the money to the church or their Sunday school class. Sometimes they find an organization they want to give to.

Then next slice goes to taxes. Twenty percent of all earned money goes into a house tax box. At the end of the quarter we vote as a family on how to spend the tax money. I don’t want my kids to enter the “real” world and be shocked by the amount of the real paycheck they receive. If they learn how the tax system works (even on such a basic level) then it will help them to be more responsible citizens in the future.

Now they get to save part of the money for long term. They put back at least ten percent of the gross earnings in this savings account. This is for a big purchase that they have their eyes on. At present, it’s horses. Not only do they have to save enough to buy the animals and the tack, but they also have to help with the expense of building a barn and fence.

The remaining monies are theirs to save or spend as they choose. Just before Christmas, they worked together to save enough money to buy dinner for my husband for his birthday. They bought the gift certificate with change, but it was all their money and they counted it out themselves.

My husband and I are contributing to the long term savings – some. And our goal is to have some money set aside that they can have for college or for after college. We know that teaching our children the value of the money will be more priceless for their lives in the long run.

February 13, 2007

GBP extends losses to dollar

Permalink: GBP extends losses to dollar by Brian Turner

Filed under: Investments, News
Lloyds TSB Home Insurance – A History

The British pound extended recent losses against the U.S. dollar today as cable tested bids around the US$ 1.9400 figure after encountering selling pressure around the $1.9520 level. Technically, today’s intraday high was just below the 23.6% retracement of the move from $1.8515 to $1.9845.

Data released in the U.K. today saw the January annual consumer price index print at 2.7%, down from 3.0% in December and the largest fall since January 2003. RPI inflation growth decelerated to 4.2% from 4.4% and this is important because these data are utilized in wage negotiations. Other data released today saw CML December gross mortgage lending fall 14% m/m to ₤28.6 billion.

Traders await tomorrow’s quarterly Bank of England inflation report and labour market data. Cable bids are cited around the US$ 1.9340 level. The euro moved higher against the British pound as the single currency tested offers around the ₤0.6700 figure and was supported around the ₤0.6645 level.

February 7, 2007

Equities markets mixed

Permalink: Equities markets mixed by Elaine Frei

Filed under: Investments, News
Equities markets mixed

The Tokyo equities markets declined on Wednesday, with the Nikkei 225 down 0.7 percent to 17,292.32 and the Topix index lower by a smaller 0.2 percent to 1,728.36. Export-focused sectors were hurt by strength in the yen ahead of the G7 meeting. The yen was weaker than it had been on Tuesday but was still much stronger than it had been in late January. The auto sector remained nearly even, while electronics companies saw declines.

The FTSE Eurofirst 300 added 0.2 percent on the session to 1,546.70 as the energy sector saw gains but carmakers declined. In the semiconductors sector, Infineon was up substantially. Swiss drug maker Roche declined on full-year profits that were up to predictions but not impressive.

In London, the FTSE 100 added 0.4 percent to 6,369.5, while the FTSE 250 and the FTSE All-Share each added 0.2 percent to 11,502 and 3,301.77 respectively. Both the 250 and the All-Share set new record highs again, for the second day in a row. Shares in British Airways hit an eight-and-a-half high after Merrill Lynch increased both its recommendation and its target share price. Miners were higher after BHP Billiton announced new share buy-backs.

Wall Street was mixed at mid-afternoon. The Dow Jones Industrial Average dropped 0.2 percent to 12,645.48, while the S&P 500 was even at 1,447.93 after gains early in the day reversed. The Nasdaq Composite was 0.6 percent higher to 2,486.12 on fiscal second quarter results from Cisco Systems, released after the close on Tuesday.

Crude oil prices were down by more than $1 per barrel in the afternoon after initial increases shortly after the Energy Information Administration released new US inventories figures. The new data showed crude oil unexpectedly lower. While distillate inventories were lower as well, demand was lower than had been anticipated. Gasoline inventories were up more than expected during the week ending Feb 2. In other commodities, base metals prices were lower, while gold prices advanced slightly.

The yen weakened as it became less likely that recent declines for the Japanese currency would be a major topic at the G7 meeting coming up in Germany. The Swiss franc was slightly stronger, as was the euro, while sterling declined versus the US dollar ahead of this week’s meeting of the Bank of England’s Monetary Policy Committee.

“Trading Rules That Work” by Jason Jankovsky

Permalink: “Trading Rules That Work” by Jason Jankovsky by Khurram Naik

Filed under: Investments, Blog
Insurer Aviva notches record sales

[Disclaimer: I work with Jason Jankovsky on trader education]

The markets come with their own basic rules. In the case of futures and foreign exchange, the most important rule is that these are zero sum markets. That is, for every winner there is a loser. The other basic rule is that order flow dictates price action. If there are more orders to buy than sell, as the orders match up with sellers the lowest selling prices get exhausted and prices climb. These two basic rules are enacted by market participants. Each of these participants has the goal to be profitable. What information about the market they are using and when they plan on trading may be in conflict with one another. Despite all the complications that ensue when participants interact, the most basic rule holds, that order flow is the ultimate source of price. If one’s trading plan does not accommodate this basic fact, you will not be profitable.

What’s not obvious is that given these most basic rules, the markets actually allow you to participate very flexibly. Most traders, however, are not profitable. It seems that traders either do not know the rules of the market or do not act upon them consistently. Jason Jankovsky does the favor of clarifying what the rules of the markets are, and explain that since traders are loss averse why they might not act on them consistently. The underlying goal of trading the markets lies in understanding market psychology. The dynamics of order flow are nothing more than trader’s expression of and reaction to this sentiment. A losing trader suffers the double indignity of eventually needing to admit they were wrong by contributing to the order flow pushing against them in order to close.

At the heart of this understanding is a plan. A trading plan is not the same as trading strategy. Trading strategy dictates favorable entry points to the market. Once you’re in, you’re subject to the probability that your plan is effective. What you do when you move to profitability or loss is determined by your plan. A good way to think about this is that our financial goal is to earn money. If you then win the lottery, would you have a plan for retaining that money? Without a plan, you will suffer the fate of many such winners who have no discipline and lose all their money. The most basic part of this plan is determining what your goals are for trading and what your temperamental style is. In sections covering topics such as determining the time frame of your trades, Jankovsky does an excellent job of showing just why there can be many solutions to establish a trading plan and how you determine whether you are matching your trading needs. In this section he also shows how different traders with different objectives may play off each other, as when a long term bullish trader can use the short term bearish trader to accept the order flow in his direction.

By maintaining discipline and a trading plan that suits your style, you will be able to exercise with confidence all the components of your plan. Rules like cutting your losses are well known to traders, but the cost of being strict in your losses can be made up by being generous with your gains by adding to your winners. If you have correctly identified that order flow is on your side, then adding to your winner will strengthen this force. Thus by definition if you are right, adding to your winner is a good idea. Jankovsky also does a good job of illustrating how to select values for somewhat arbitrary factors like timeframe or establishing a ratio for reward to risk for each trade to show how a trading plan can be coherent but based on individual experience and needs. One chapter that particularly merits reading is “All Markets are Bearish”, in which Jankovsky illustrates the logical basis for markets lies in providing hedgers with the opportunity to limit risk and get the best price possible for their asset and this necessarily entails that hedgers will ultimately exert selling pressure on the market.

The market is a machine. If you drive a car and do not understand how to use the car you can be faced with costly loss. There’s no need for your car to break down when gas stations are plentiful. If you needed to fill your tank before an important appointment, that is not the fault of the car but your time management. If you do not have enough money for gas, that is also external to the car. If you drive with the low-gas indicator on, you are constantly in fear of the car breaking down under you. By maintaining discipline and a trading plan, you ensure that you are using the car and that the car is not using you.

Khurram Naik is a derivatives broker at Infinity Futures in Chicago. He is a graduate of Carnegie-Mellon and has worked in research in cognitive science and education at Princeton, Harvard and Carnegie-Mellon University. He is also a former field director for a political campaign. He maintains a blog on literature and cognitive science. He can be reached at [email protected]

February 6, 2007

What are the futures markets for?

Permalink: What are the futures markets for? by Khurram Naik

Filed under: Investments, Economy, Blog
Insurer Aviva notches record sales

What are the futures markets? Let’s begin with a story about trains. Before trains, the nation was divided into small markets for various commodities, but with trains came the first truly national markets. Now it was cheap for farmers and grain merchants to deliver goods to the places that needed them most - and would pay the most. Chicago became a central location for these grain merchants to deliver their goods and compete for clientele. Now the problem with grain is this. It goes bad. The grain markets were subject to a lot of volatility in price, depending on weather conditions, the ability to export and so forth. A farmer who had a great deal of grain was subject to the risk that the value of their commodity would plummet, and they would be ruined. Farmers and commodity owners needed a way to limit their risk. So they were able to find people who were willing to assume their risk, people with capital to speculate on the price of grains. If these speculators were correct, they would make a profit. If they were incorrect, they would lose.

So we have people with money, and people with risk. The futures markets allows these two groups to match up. What gets traded in these markets are futures contracts. A futures contract is the right, but not the obligation to purchase some asset on a specific future date. The value of such a contract is determined by the market, the net of buyers and sellers interested in trading these assets. When you “buy” a futures contract, you think the asset will increase in value for some time. When you “sell” a futures contract you think the asset will decrease in value. A buyer of a futures contract needs a seller.

The easiest way to understand this is to think of an asset you own. I imagine most people here are homeowners. Your house is an asset. It’s a risky asset. It typically appreciates, but it’s also subject to loss. Real estate is a risky asset. Let’s say you own a house for $500,000 and you want to sell it in a year’s time. You’d really like to get $550,000 in a year’s time, but you’re very concerned with a housing bubble and you don’t want to get stuck with a $400,000 sale. An investor is shopping around, and he wants to buy a house in a year’s time for around $500,000, but he (or she) is concerned the price may get up to $600,000 for that neighborhood. What the two of you can do is enter a contract. You agree to sell the house to the investor in a year’s time for $525,000. You’ve given up some profitability, and so has the investor, but you’ve both limited your risk. The key feature that allowed them to to this was entering a contract to transfer one person’s risk of loss in value in a property to another person who anticipated he couldn’t get a better deal at a later date.

Now this was pretty cumbersome. If you wanted to do this again, it would be an involved process to find another person who’d be interested in this sort of deal. It would be good if there was a whole bunch of people lined up who were interested in buying your house, all in one place. Maybe you get someone to even take you up on a similar contract for $550,000. Or maybe you’d find out other people were cutting deals at $475,000, and so you’d better take sometime around that price. And it would be good if you could standardize the details of the contract so people would know exactly what is being offered, the only issue to discuss is price. This is what the futures market accomplish. By taking standardized contracts for assets that owners need to limit their risk on, futures markets allow speculators to enter the market to trade and invest by assuming this risk.

Khurram Naik is a derivatives broker at Infinity Futures in Chicago. He is a graduate of Carnegie-Mellon and has worked in research in cognitive science and education at Princeton, Harvard and Carnegie-Mellon University. He is also a former field director for a political campaign. He maintains a blog on literature and cognitive science. He can be reached at [email protected]

January 29, 2007

US banks mixed on merger news, rumors

Permalink: US banks mixed on merger news, rumors by Elaine Frei

Filed under: Investments, Economy, News

New York equities markets were slightly higher on Monday. By midday, the Dow Jones Industrial Average was up 0.1 percent to 12,504.88, while the Nasdaq Composite had gained 0.15 percent to 2,439.12 and the S&P 500 added 0.04 percent to 1,422.71.

The banking sector was mixed on mergers news and rumors. First Republic Bank added 40.2 percent to $53.69 after Merrill Lynch announced that it would buy the bank. Merrill Lynch dropped 1.5 percent to $93.15. Bank of America dropped 1 percent to $51.50 and Countrywide Financial added 4.3 percent to $43.80 on investor reaction to a Friday report that the two were in talks about a merger. Meanwhile, Citigroup was 1.1 percent lower to $54.07 on the announcement that it will purchase Egg Banking from Prudential in the UK.

In the semiconductors sector, Intel gained 2.1 percent to $20.96 after it said it has had success in making, smaller, more powerful microchips.

Pharmaceutical company Bristol-Myers Squibb added 5.9 percent to $27.75 on rumors of a buyout.

Tyson Foods was 3.8 percent higher to $17.33 after it said that profits were up 46 percent in its fiscal first quarter. Earnings were 16 cents per share, well above predictions of 6 cents per share.

British Airways gains 2.7 percent as strike is averted

Permalink: British Airways gains 2.7 percent as strike is averted by Elaine Frei

Filed under: Investments, Economy, News

The London equities markets were mixed on Monday as only 2.5 billion shares traded hands on the session. The FTSE 100 added 0.2 percent to 6,239.9, but the FTSE 250 dropped 0.1 percent to 11,104.

In the airlines sector, British Airways added 2.7 percent to 542p as investors were relieved that a threatened 2-day strike by cabin crew members had been avoided.

Tobacco did well ahead of results due later in the week from British American Tobacco. Citigroup said that BAT could return an estimated £1.5 billion to shareholders without harm to its credit rating. The figure was much higher than the £500 million it currently returns each year. BAT gained 2.8 percent to a record high share price of £15.60. Imperial Tobacco was 0.8 percent higher, to £21.24.

Publisher Yell Group gained 1.5 percent to 608p on positive comments from Merrill Lynch.

Pubs operator Mitchells & Butlers was 1 percent higher to 686½p on reaction to the news that financier Robert Tchenguiz has increased his holding in the company to almost 15 percent.

Brewer SABMiller dropped 1.1 percent to £11.70 as Goldman Sachs took it off it’s “buy” list on valuation concerns.

J. Sainsbury also fell 1.1 percent, to 432½p, as one shareholider placed 12 million shares with Morgan Stanley. The shares were priced at 432p each.

European telecoms decline on Deutsche Telekom profits warning

Permalink: European telecoms decline on Deutsche Telekom profits warning by Elaine Frei

Filed under: Investments, Economy, News

In Europe on Monday the FTSE Eurofirst 300 added 0.3 percent to 1,517.07 on Monday despite declines in the telecommunications sector.

Telecoms were lower after Deutsche Telekom issued its second profits warning in six months, citing competition and currency issues. Citigroup lowered its recommendation on the German telecom from “hold” to “sell” and Deutsche Telekon dropped 4 percent to €13.60. Elsewhere in the sector, France Telecom fell 0.9 percent to €21.18, while Telecom Italia and Swisscom were each 1.5 percent lower, to €2.27 and SFr471.50 respectively.

Car and truck manufacturers was gains on the session. On rumors that it could be a target for Volvo, MAN added 2.6 percent to €78.86. Volvo was 1 percent higher on the talk, to SKr502, while Scania, the recent target of MAN’s failed hostile bid, was up 3.5 percent to SKr485. Fiat gained 2.8 percent to €16.67 on a target share price hike from JP Morgan.

The airline sector was up on merger hopes and on upgrades from UBS, which raised its recommendation on Lufthansa and Iberia from “neutral” to “buy” and hiked target share prices for both Ryanair and Air France-KLM. Lufthansa was up 1.1 percent to €21.38, Ryanair gained 1.3 percent to €11.04, Air France was 1.5 percent higher to €32.67, and Iberia gained 3.3 percent to €3.10. Meanwhile, Alitalia added 1.9 percent to €1.10.

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