Moneywise24 Personal Finance

Looking at life as a whole, life is generally defined by three major areas: finance, health, and relationships. What ever we do, who we are, or where we are, we encounter these three areas which define every single day of ours.

Finance mainly focuses on money. It concerns career, it means business, it includes the money you earn, and the money you spend. It includes all investments, all stocks, bonds, mutual investments, retirement planning, insurance payments, debts and savings. Read the rest of this entry →

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CFA stands for Chartered Financial Analyst, and its designation is gaining popularity within the world of finance. The CFA is a certificate, which can be obtained at the CFA Institute. On its website, the CFA Institute states the following:

“CFA Institute is a global, not-for-profit organization comprising the world’s largest association of investment professionals. With over 100,000 members, and regional societies around the world, we are dedicated to developing and promoting the highest educational, ethical, and professional standards in the investment industry.”

Source: http://www.cfainstitute.org/about/strategy/Pages/index.aspx, 8 June 2011

But what does the CFA mean for candidates? What does it do, and what does it not do? How much does it cost, in terms of money and time, to complete the CFA program and to become a CFA member? And most importantly, how does the CFA enhance one’s career perspective? Read the rest of this entry →

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If I think back to the development of cellphones, I can still remember my first mobile phone I bought back in 1998. It had a black and white display, was quite big, and got stolen at university 6 months later. Then I bought the legendary Nokia 5110, then another one. Now, I have a smartphone. Thank God for the existence of Smartphones.

Actually, when I went to my telecom provider to buy a new phone, I was still skeptical about buying a smartphone. I thought they would break easily, and actually I simply felt that a cellphone should be able to phone with, and that’s it. I am glad that I didn’t listen to my rational thinking, but rather decided for the smartphone emotionally, since I just love little gadgets. And I am positively surprised; in fact, my smartphone is directly helping me to reach my financial goals, step by step, and helping me directly with 3 of my 24 commitments.

Time Management

One of the best inventions of the last few years is mobile internet. I admit, I am not carrying my laptop around at all times, but my smartphone allows me to browse the web whenever I need to, or want to. Smartphones can directly help you with time management, in a sense that they allow you to do some ‘work’ when traveling between places, or when a computer is not readily available. If you are traveling between places frequently, even if it is only for 10 or 15 minutes, you can use your smartphone and mobile internet to get updated on the latest news or stock market developments, whenever you would like to. Or, you may want to check your e-mail, or perhaps see what the weather will be like this evening.

Not only will you spend your time useful in situations at which you would have normally wasted your time, but you reduce the time required at another time during the day. For example, if you would normally take half an hour in the morning to watch CNBC or CNN before you start your day, you can use that time to do something else, or get out of the house quicker.

Investing

There are thousands of apps available for about everything. One thing I absolutely love are financially focussed apps. Besides the time management aspects of such apps, I find that they help me to track my investments during the day. Many apps are multi-functional, meaning they will only provide quotes, but they would also show some background statistics on the company, provide a chart with a number of common indicators, or provide the latest news on the company. This information allows me to react quickly when required… especially with highly volatile derivate products this is a great benefit.

Taking notes

The last, but perhaps biggest benefit I get out of my smartphone is to take notes immediately, and when I need it. If you install a notebook app, you can take notes whenever you need it, where ever you are. Perhaps you want to write down the name of a stock with solid profit results, or you may want to write down the name of a headhunter you just heard about. Or how about some crazy business idea… you surely don’t want to forget about that.

I find that smartphones have dramatically changed my life. Some smartphones actually come rather cheap with certain telecom subscriptions. But the benefits are tremendous. And to be honest: I never thought I would have needed one, whereas now I could hardly do without one.

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Many books and websites write about analyzing stock performance, fundamental analysis and financials. However, many forget to include where to find all this information. I thought it would be logical to first write about the various resources available, before digging into the details of fundamental analysis.

Official annual / quarterly reports

If you want to know more about a company, the first place you might think of are official publications of that particular company. This usually includes the annual and quarterly reports. The main benefit of such reports is that they are extensive, complete, they come directly from the source, and that they include a lot of background information. Annual reports usually include an extensive background of the company, its divisions, products, and markets. Additionally you will find all the financial figures you need for your analysis, and the report might provide extensive information about the direction the company wants to head, and possible problems they might encounter in the next years.

The downside of such reports is that it is very time consuming, and you will need to know the company you want to invest in, in order to visit their website and download their reports.

Your bank

Banks usually have their own business unit for investors. A bank will usually be able to provide you with some consolidated information, such as the latest company results, the latest news pertaining to certain stocks, as well as their rating of particular stocks. Banks might recommend to buy, hold, or sell stocks, based on their analysis.

However, banks are still somewhat limited in the information they provide. Many banks are limited to only certain markets or stock exchanges, and the analyses they provide is a mere summary of facts from one of the analysts. Additionally, the analyst’s recommendation is quite subject, as he/she will need to interpret his findings in order to make a recommendation, and interpretations may vary from person to person.

Newpapers

Newspapers are a good source for recent micro- and macro economic developments, Mergers & Acquisitions, crises, etc. Additionally, newspapers offer an overview of stock prices.

Of course, printed media are never as up-to-date as online media, the stock prices are from the previous day, and the news is not the latest. If you are relying on broadcastings (radio, television), you are usually restricted to pre-set times of when news will come available, as well as what they choose to broadcast. Personally, I hardly use any print media anymore in order to conduct my fundamental analysis.

Finance portals

Finance portals, such as Yahoo! Finance or Reuters are platforms, which consolidate certain information. For example, Reuters offers the latest news of a particular company, it offers financial figures and ratios over the last 4 years or 4 quarters, and it offers analyst research and findings. Some portals (e.g. Yahoo! Finance) offer a filter, allowing you to filter down available stocks according to a number of criteria. In other words, you will find everything in one place.

The downside of such financial portals is that information is supplied by other sources, and therefore certain information might either be not up-to-date or not available.

My personal experience has demonstrated, that using a few resources simultaneously works best for me. Usually, I would first visit a finance portal, narrow down my search for available stocks, and I would take a glance at the financials, the available ratios, and the latest news about that company. If I have a good feeling about this particular company, I would download their annual report for further reading. This would allow me to make a personal recommendation of whether I would buy, hold, or sell the stock. Last, I would visit the website of my own bank and view the recommendations of its analysts; this is to assure that there is an overlap of my findings and their findings.

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I consider long-term investing in stocks/shares as a crucial element of building wealth; in fact, you will most probably find this confirmed by most personal finance blogs on the internet. This also brings a number of interesting questions, such as how we can pick the best investment opportunities, and on what do we base our investment decisions. In the next few weeks, I intend writing a number of articles, focussed on how to analyze company stocks and investment pportunities.

Currently, there are two main methodologies for analyzing and possibly predicting the future value of a stock or share. These are:

• technical analysis
• fundamental analysis

Technical Analysis

The basic principle of the technical analysis, also called chart analysis or market analysis, is to identify potential buying or selling signals, and generally predict the future development of a stock price by its historical price and volume data. While doing this, the actual company data (e.g. annual reports, strategies, developments) as well as other economic factors are are not being involved in the technical analysis. Technical analysis is based on the fact, that particular price and volume patterns in the past have frequently been followed by a particular price and volume movement. Technical analysts attempt to identify these patterns, via the calculation of many different indicators, aiming at identifying buying and selling signals.

Technical analyses can be conducted using different time frames; long-term, mid-term, or short-term.  Additionally, technical analysis is largely based on the fact, that a stock’s price is largely determined by supply and demand of investors, irrelevant to what the actual company is worth. However, many technical analysts combine their technical findings with current macro and micro economic trends, in order to find whether these are in line with each other or not.

The topic of using technical analysis as a stock analysis method is quite controversial, as it does not attempt to involve the actual company’s performance. Many analysts swear by the technical analysis, others prefer using fundamental analysis methods.

Fundamental Analysis

The fundamental analysis is based on researching the fundamentals of the economy and the company. The fundamental analysis includes analyzing the annual reports of companies, specific ratios, the strengths and weaknesses of a company, potential development opportunities or threats, as well as macro economic developements. Fundamental analysts assume that generally the stock price reflects a company’s real performance, keeping in mind that sudden micro or macro economic news, market fluctuations, or sudden panic might let the stock deviate from its course. The fundamental analyst therefore attempts to identify which stocks are undervalued, overvalued, yearly earnings, and future potential.

Fundamental analysis is adopted by many large financial institutions, who publish their mid- and long-term view on a particular stock’s development. Also Warren Buffett used the fundamental analysis to select his stocks, or why do you think that the book “Warren Buffett and the Interpretation of Financial Statements” is about a company’s financials rather than technical analysis?

Each person will have his or her own preferences. Myself, since I aim to invest with a long-term vision and also share the idea that generally a stock will move in the direction of a company’s performance or potential, tend to adopt the fundamental analysis as my main investment strategy.

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