Tips of investment

1.Two Laws on Bullish and Bearish Economists

by William Sherden
Remember the First Law of Economics: For every economist, there is an equal and
opposite economist--so for every bullish economist, there is a bearish one. The Second
Law of Economics: They are both likely to be wrong.
2. Why Short-Selling May Work (for You)
Regarding short-selling, some investors are better at identifying overpriced, bad
companies than underpriced, good companies. Brokers and analysts focus on what
to buy, not what to sell, so the good news is more widely known than the bad
news. When an analyst issues a sell recommendation on a stock, they find it
much harder to get information from the company's investor relations
department, and the analyst's firm would never get an opportunity to raise
capital or float a bond for the company, so they focus more on good news than
bad. If you discover bad news, it might not yet be totally factored in to the
current price of the stock.
3. A Caution on "Black Box" Systems in Forex Trading
Be very careful and wary about infamous "black box" systems in forex trading. These so-
called trading signal systems do not often explain exactly how the trade signals they
generate are produced. Typically, these systems only show their track record of
extraordinary results - historical results. Successfully predicting future trade scenarios is
altogether more complex. The high-speed algorithmic capabilities of these systems
provide significant retrospective trading systems, not ones which will help you trade
effectively in the future.
5. Calculating Your Portfolio's Beta
Calculating your portfolio's beta will give you a measure of its overall market risk. To do
so, find the betas for all your stocks. Each beta is then multiplied by the percentage of
your total portfolio that stock represents (i.e., a stock with a beta of 1.2 that comprises
10% of your portfolio would have a weighted beta of 1.2 times 10% or .12). Add all the
weighted betas together to arrive at your portfolio's overall beta.
6. A Wise Saying on Money
A wise man should have money in his head, but not in his heart.

7. How to Double Your Money

The safest way to double your money is to fold over once and put it in your pocket.
8. 21 Investing Principles Utilized by Peter Lynch
Peter's Investing Principles:
1. When the operas outnumber the football games three to zero, you know there is something wrong with
your life.
2. Gentlemen who prefer bonds don't know what they are missing.
3. Never invest in any idea you can't illustrate with a crayon.
4. You can't see the future through a rear view mirror.
5.There's no point paying Yo-Yo Ma to play a radio.
6. As long as you're picking a fund, you might as well pick a good one.
7. The extravagance of any corporate office is directly proportional to management's reluctance to reward
the shareholders.
8. When yields on long-term government bonds exceed the dividend yield of the S&P 500 by 6 percent or
more, sell your stocks and buy bonds.
9.Not all common stocks are equally common.
10.Never look back when you're driving on the autobahn.
11. Never bet on a comeback while they're playing "Taps".
12. The best stock to buy may be the one you already own.
13. A sure cure for taking a stock for granted is a big drop in the price.
14. If you like the store, chances are you'll love the stock.
15. When insiders are buying, it's a good sign -- unless they happen to be New England bankers.
16. In business, competition is never as healthy as total domination.
17. All else being equal, invest in the company with the fewest color photographs in the annual report.
18. When even the analysts are bored, it's time to start buying.
19. Unless you're a short seller or a poet looking for a wealthy spouse, it never pays to be pessimistic.
20. Corporations, like people, change their names for one of two reasons: either they've gotten married,
or they've been involved in some fiasco that they hope the public will forget.
21. Whatever the queen is selling, buy it. (when the government privatizes a company, buy it).

9. Two Kinds of Statistics:

There are two kinds of statistics - the kind you look up, and the kind you make up.

10. Where Big Money is Made

Throughout all my years of investing I've found that the big money was never made in the
buying or the selling. The big money was made in the waiting.

11. Different P/E Ratios for Different Types of Investors

Growth investors love buying stocks with higher P/E ratios because there are high
expectations the company will see significant growth. However, those high
expectations come with higher prices for the stocks and GARP (Growth at
Reasonable Price) investors like to find investments that have been slightly under
valued by the market. Higher P/E numbers tend to indicate businesses that are
actually over valued, which is why they are not sought out by GARP investors.
12. The Best Time to Invest
The best time to invest is when you have money. This is because history suggests it is not
timing which matters, it is time.
13. 6 Ideal Conditions for Buying a Stock
The best conditions for buying a stock are when it's unpopular, it's cheap, there's limited
downside, it's relatively undiscovered, you understand the company and its business
better than other investors do, and company management is incentivized to build
shareholder value.
14. The 3 Most Timeless Investment Principles (1 of 3)
Always Invest with a Margin of Safety: Margin of safety is the principle of buying a
security at a significant discount to its intrinsic value, which is thought to not only
provide high-return opportunities, but also to minimize the downside risk of an
investment. In simple terms, Graham's goal was to buy assets worth $1 for $0.50. He did
this very, very well. To Graham, these business assets may have been valuable because of
their stable earning power or simply because of their liquid cash value. It wasn't
uncommon, for example, for Graham to invest in stocks where the liquid assets on the
balance sheet (net of all debt) were worth more than the total market cap of the company
(also known as "net nets" to Graham followers). This means that Graham was effectively
buying businesses for nothing. While he had a number of other strategies, this was the
typical investment strategy for Graham. This concept is very important for investors to
note, as value investing can provide substantial profits once the market inevitably re-
evaluates the stock and ups its price to fair value. It also provides protection on the
downside if things don't work out as planned and the business falters. The safety net of
buying an underlying business for much less than it is worth was the central theme of
Graham's success. When chosen carefully, Graham found that a further decline in these
undervalued stocks occurred infrequently. While many of Graham's students succeeded
using their own strategies, they all shared the main idea of the "margin of safety."
15. Hidden Dangers of Monthly Payments
Focus on the long-term cost of the loan, not the monthly payment. "Many car
dealers or even mortgage lenders will entice borrowers by asking how much
they can afford to pay each month," said Janet Kincaid, FDIC Senior
Consumer Affairs Officer. "It may be better to pay slightly more money each
month, but for a shorter time period, if it means you will be paying less in
total interest."
She also said that some people look so much at the monthly payment that
they don't notice certain fees or service charges that are imposed. "You've
got to look at the full picture before signing a loan agreement, including the
APR and provisions of the loan that can increase fees," Kincaid said.
You can also avoid unnecessary interest charges if you pay for certain costs
out of your own pocket instead of borrowing that money, too. Let's say you're
getting a new mortgage and you're offered the chance to add the closing costs
to the loan instead of paying them upfront. Sounds good on the surface, but
remember that you're not getting out of paying the closing costs -- they're
added to the loan balance, so your monthly payments will increase and you'll
be paying interest on the closing costs.
16. 6 Ideal Conditions for Buying a Stock
The best conditions for buying a stock are when it's unpopular, it's cheap, there's
limited downside, it's relatively undiscovered, you understand the company
and its business better than other investors do, and company management is
incentivized to build shareholder value.
17. Acquiring a Business with Solid Management
Of all our activities at Berkshire, the most exhilarating for Charlie Munger and me is the
acquisition of a business with excellent economic characteristics and a management that
we like, trust and admire. Such acquisitions are not easy to make but we look for them
constantly. In the search, we adopt the same attitude one might find appropriate in
looking for a spouse: It pays to be active, interested and open-minded, but it does not pay
to be in a hurry.
18. Selecting Stocks During Recessions
When investing in stocks during recessionary periods, the relatively safest places to
invest are in high-quality companies with long business histories, as these should be
companies that can handle prolonged periods of weakness in the market. For example,
companies with strong balance sheets, including those with little debt and strong cash
flows, tend to do much better than companies with significant operating leverage (or
debt) and poor cash flows. A company with a strong balance sheet/cash flow is better able
to handle an economic downturn and should still be able to fund its operations as it
moves through the weak economic times. In contrast, a company with a lot of debt may
be damaged if it can't handle its debt payments and the costs associated with its
continuing operations. Also, traditionally, one of the safe places in the equity market is
consumer staples. These are typically the last products to be removed from a budget. In
contrast, electronic retailers and other consumer discretionary companies can suffer as
consumers hold off on these higher end purchases.
19. 8 Tips to Investing Successfully
According to Charlie Munger, here are the essential considerations for successful
investing:
1. Risk: measure it, avoid it if possible, have a margin of safety, and limit downside.
2. Independence: don't follow the herd, the herd will only do average.
3. Preparation: learning, building mental models, and continual improvement.
4. Humility: acknowledge what you don't know, don't be overconfident, stay within your
circle of competence, and watch for errors.
5. Analytic rigor: calculate value before looking at price, and be a business analyst and
not a securities analyst.
6. Allocation: consider opportunity costs.
7. Patience: Wait for the right opportunities.
8. Decisiveness: great ideas are rare, so bet big when they come along and when you have
confidence in them.

20. Limit Your Exposure While Trading Forex

Never risk more than 2-3% of the total trading account. One important difference
between a successful and an unsuccessful forex trader is that the first is able to survive
under unfavorable conditions on the market, while an unsuccessful trader will blow up
his account after 5-10 unprofitable trades in a row. Even with the same trading system 2
traders can get opposite results in the long run. The difference will be again in the money
management approach. To introduce you to money management, let's use one fact: losing
50% of total account requires making 100% return from the rest of money just to restore
the original balance.

21. Selling a Stock

When you have a stock that's performing the way you want it to, one of the hardest
things to do can be getting out. Selling a booming stock seems counterintuitive. After all,
if it's still going up, why would you sell? When (and if) you reach that sought-after target
price, it's time to reevaluate whether you should sell the stock. If the target price makes
sense, it makes sense to sell. Group mentalities might suggest that holding on a little
longer could bring another $0.20 per share, but invest with your mind, not with your gut -
if a price is artificially inflated, it's a lot more likely to fall hard. Trust your analysis.
22. Retirement Planning
Although it might sound grim, it's helpful to calculate your expected longevity in
order to estimate how many years you'll need to have retirement income for. The further
away your retirement is, the more risks you should be willing to take in pursuit of higher
returns. In general, this means investing in stocks (and stock mutual funds) when
retirement is far away, and a mix of stocks and bonds as retirement approaches.
Whenever possible, it usually makes sense for the bond investments to be in a tax-
deferred account, so that you can avoid paying taxes on the interest earned until you
withdraw the income during retirement.
23. How Expensive Credit Card Interest Rates Are
The reason self-control is so important when it comes to your finances isn't a moral or spiritual thing: it's a practical thing.
Credit card interest rates are high, which can make financing your purchases expensive. If you don't have the money to pay cash
for something in the first place, you probably don't want to make it even more expensive by adding interest to the price. If you buy
an item for $1,000 using your credit card (with its 18% interest charge) and you only make the minimum payment every month,
over one year you will end up paying $175 in interest. And to top it off, you will still owe $946 on your purchase.
24. Fundamental and Technical Analysis Goes Together:
Rarely can you make profits in forex trading by utilizing either fundamental analyses or technical analyses. In order to
maximize your profits, you need to utilize some degree of both types of analyses. If you do not, you may still be profitable, but you
will have a less refined timing system. Look at it this way: using one strategy to time your forex trades is like jumping into a
boxing match while using only one arm. You may still be able to win and you may get a few lucky punches in, but by and large you
would be better off if you used both of your arms, just like if you used a degree of both styles of analyzing.
25. Affording to Save for Retirement:
For most people, you can't afford not to participate in tax deferred retirement plans. Contributions to 401(k) and similar
employer sponsored plans may reduce your current taxation. In addition, taxes are also deferred on earnings, so retirement
savings have the potential to grow faster than others do. Best of all, many employers match all or part of your contributions to
employer sponsored retirement plans, giving you money you would not otherwise have. The one drawback is that you may have to
pay a 10-percent penalty, plus current income taxes, if you withdraw money out of a retirement plan before you're 59 1/2.
26. An Argument Against Technical Analysis:
Technical analysis is doomed to fail by the statistical fact that stock prices are nearly random; the market's patterns from the
past provide no clue about its future. Not surprisingly, studies conducted by academicians at universities like MIT, Chicago, and
Stanford dating as far back as the 1960s have found that the technical theories do not beat the market, especially after deducting
transaction fees. It is amazing that technical analysis still exists on Wall Street. One cynical view is that technicians generate
higher commissions for brokers because they recommend frequent movement in and out of the market.
27. Understanding a Credit Crisis and Analyzing Its Factors:
A credit crisis occurs as a result of an unexpected reduction in accessibility to loans or credit and a
sharp increase in the price of obtaining these loans. The credit markets are good indicators of the depth of a
credit crisis. They can also provide clues as to when that crisis will ease up. To understand how to judge the
severity of the crisis, we must be able to look at a number of factors, such as what is happening with U.S.
Treasuries, how it is affecting the London Interbank Offered Rate (LIBOR), what effect this has on the
TED spread and what all this means for commercial paper and high-yield bonds.
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