Managing your Personal Finances Wisely

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Markets Plummet As The Fear On Europe’s Debt Crisis Dominates 0

Posted on July 11, 2011 by admin

After a period of recovery, stock markets fell sharply this Monday, as fears on Europe’s debt crisis keeps dominating. Whereas the problems around Greece have been postponed, new fears arise that Italy, Europe’s second largest economy, might might fall into a debt crisis.

According to Reuters, the IShares MSCI Italy Index Fund, dropped by 4.9% to a value of 15.63 USD (read the full article here). Additionally, the FTSE Italia All-Share fell by 4.33%. One hour after opening, the Dow Jones fell by 1.45%. The fear, that the debt crisis may expand into the entire European region, is clearly dominating.

Especially finance-related stocks have much to endure today. Banks and insurance companies, which are largely sensitive to the global economy, fell sharply. Again, fear seems to dominate the market, at least on the short-term, while all eyes are looking toward the beginning of the Q2 results announcements. Alcoa is traditionally starting the season later today.

Personally, I am putting a hold on taking on any new positions. I will sell any investments at my stop-loss immediately, and generally simply lay back and watch the show. The Q2 results will surely be very interesting, but it will be more interesting whether companies will make statements to their expected Q3 and Q4 results.

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Rising Stock Markets, But With Caution 0

Posted on June 30, 2011 by admin

Stock market sure have been on a roller coaster ride lately. First the terrible unfortunate events in Japan and the Middle East caused markets to rapidly decline, after which they recovered for the most part. At a later point, concerns over Greece took over, and stock market took a dive starting in April.

Earlier this week, the Greek parliament agreed on cost-cutting measurements, which was confirmed by a second agreement today. This decision frees the way for further financial support, such as today’s agreement between the German government and banks to support Greece with an additional 3.2 billion Euros.

One thing is certain: markets are emotionally loaded. Fear, relief, and euphoria seem to dominate the daily trends. As of yesterday, many markets are back on a rise due to relief regarding the situation in Greece.

But will this last? That is the question.

Although the economy has improved in many areas, many areas are still having a hard time, such as housing or unemployment. Markets have recovered greatly from the recession, many stocks having exceeded its pre-recession prices, but economic recovery is still in progress.

It is hard to really look at where the markets are going; they are extremely emotionally loaded at the moment, and they move according to what is “hot” and what is “not”. On the short term, markets may recover from the decline over the past weeks, and months. But will markets keep the positive trend and recover further? Read the rest of this entry →

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Passively Investing In Turbulent And Insecure Times 0

Posted on June 15, 2011 by admin

I have to be completely honest: I love watching the markets and investing parts of my capital actively, but the current turbulence is driving me crazy:

  • Greece is in the news, stocks go down,
  • According to analysts stocks are oversold, so they go up,
  • Productivity over the last month has increased, nothing happens,
  • Volcano erupts, stocks go down,
  • And the list goes on …

Currently there is so much emotion and insecurity present on the stock exchanges, that it is really hard to predict what is going to happen next. Whereas optimists claim that this is only temporary, and markets are bound to go up when certain uncertainties have been settled, others claim that this is only the beginning of a double-dip recession, or perhaps worst.

So, I decided to stop taking any new positions for the moment, at least concerning individual stocks and derivatives, and I have implemented the following action plan for the upcoming weeks or months: Read the rest of this entry →

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When Investing, It’s Not ‘Gonna Be Allright’ 0

Posted on June 06, 2011 by admin

I have to admit I made a big mistake over the past few months. Actually, it is warned about in books, blogs, and websites, and still I did it. Call it a combination of laziness and wishful thinking.

My investment style

I invest a lot with options (in addition to other types of investments), and although I know it is a risky business, I find that options provide a great opportunity to use the leverage in both directions. I tend to take mid-term to long-term positions, aiming at selling them on the short-term or mid-term. I usually buy call options, using put options only to hedge an already existing portfolio. Read the rest of this entry →

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Investing in Options as an Alternative to Stocks 1

Posted on September 11, 2010 by admin

I started investing my money actively around three years ago. My first approach was to invest a small amount of my money into mutual funds, in order to secure my retirement. But in addition to that, I wanted to get more active, invest a bit more of my assets, and start to invest in mid-term market movements.

A great way to do that is to build your own portfolio, using stocks and bonds. However, with stocks I found that you actually need a substantial amount of money in order to profit from it. If I only consider the commission I have to pay for buying the stocks, the smaller the invested amount, the bigger % profit I need to realize to get out with a good profit.

In addition to stocks, I have been using options for quite some time to profit from short-term market movements. However, options are also a great tool to profit from mid-term market movements. The profit can be much more substantial than when you invest in stocks, and a much lesser amount is needed to get out with a good profit. Also, I find options to be ideal if you want to ‘test’ the market, if you are a beginner.

Options may seem a lot more complex than they really are. Basically, options are are rights on their underlying value, in this case stocks, which simply gives you the right to either buy a particular stock at a certain price during a specific time range, or it gives you the right to sell a stock at a set price during a specific time frame. Of course you are not forced to exercise your right; when stock markets move, so will option prices, and you can simply sell the option at a later time.

I find options such a great tool due to the leverage effect they offer; whereas I might have had a 9% profit on a stock, I might have realized a 60% profit with an option on that stock. The key point is that you are anticipating the stock to move in a certain direction within a specified time, in stead of buying and holding your investment for years.

Options are very volatile instruments, and surely your potential to lose money is just as big as to earn money from it. Therefore, I assign only a smaller percentage of my portfolio to options. Still, I find them to be quite a good enrichment to my portfolio, and they helped me a great deal to play the market with only very small investments.

Although option trading has a very speculative image, I feel they can be treated very similar to stocks, if:

  • I focus on up-trends. Markets tend to focus upwards on the long run. Speculating on market corrections or crashes can be quite risky, so I tend to focus merely on call options.
  • I focus on a 3 to 24 month development. Stocks tend to make very swift market movements, and often stocks can dip for one or two months before increasing for months to come.
  • I focus on fundamentally healthy companies only. I use the same kind of company analysis as I would have done with stocks. Technical analysis will also give me a hold on a stock’s trend and turning points, as well as whether the timing is good or not, but I will never invest in poor performing companies.
  • Options can be very volatile, and sometimes a tiny negative stock movement can push the value of the option to a -40% loss, before increasing to a 60% profit. Still, if the value of my option drops below -50%, I consider it a loss, learn from the situation, and sell the option. On the other hand, I would sell my option at a profit of anywhere between 60% and 100%. I might buy the same option at a later time, if the timing is right.

You can read more on how options work in my previous post here.

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