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Archive for August, 2006

Fundamental Analysis of Investment

August 23rd, 2006

This method attempts to ascertain the inherent value of a security based on the present value of future earnings. Fundamental analysis involves predicting the level of those earnings by relying heavily on economic data such as earnings, dividends, and growth rates. Divining the future is no easy task, so practitioners study many factors that could affect a security. For example, in analyzing General Motors stock, the analyst would try to predict how the industry would be affected by social and economics changes.

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Tags: general motors, success
Posted in Economy, Investment | Comments (0)

Technical Analysis of Investment

August 22nd, 2006

This method is based on the examination of patterns, trends, or cycles in the securities market. Technical analysis attempts to predict future prices based on past volume and price changes. Technical analysts believe that all investors have the same information available and that current market prices reflect this information. However, these analysts recognize that there are delays in the spread of new information. Prompt recognition of early trends or changes in direction could produce profits. Unfortunately, one characteristic of technical analysis is prematurely entering the market before it has reached bottom or selling too long after the market has passed its peak.

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Tags: Community, discount, indicator, money, profit, profits
Posted in Economy, Investment | Comments (1)

Methods and Theories of Investment Analysis

August 21st, 2006

No matter what type of investment vehicle is being considered, financial planners and clients must decide whether the price represents a good value and whether the timing is favorable in pricing decision.
While price and timing can often be viewed as a single problem, how this matter is considered differs depending on the theoretical perspective of the analyst. In this context, an investment may be analyzed in several ways.

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Investment Securities

August 21st, 2006

A common concern for small investors is the difficulty of purchasing a diversified group of assets in order to minimize risk. However, for small investors, the cost of diversification may be prohibitive. For example, most bonds have face values of $1,000 and are sold in blocks of five units. The typical trading unit of stock listed on an exchange is 100 shares. Trading smaller blocks of stock is disproportionately more expensive. Thus, investors with a few thousand dollars could wind up placing all their eggs in one basket.
Without diversification the risk of loss can be high. Statistically it is more common for one stock to produce a significant loss than for a portfolio of 50 different stocks to all show a loss. In the multistock portfolio, “winners” tend to cancel out “losers,” and portfolio performance tends to emulate that of the overall stock market.

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Tags: capital, customer, money, performance, profit, safe, success, trading
Posted in Economy, Investment | Comments (3)

Real Estate Limited Partnerships

August 19th, 2006

Real estate has long been the backbone of many investment portfolios. In point of fact, statistics show that more money has been placed in real estate partnership than in other types of investment partnerships. Motion pictures and television programs have dramatized the fear, excitement, greed, riches, and scarcity factors which this vehicle can produce. This was especially evident in the latter half of the 1970s when an enormous amount of profit was made in real estate.
Whether real estate partnerships are very conservative or extremely aggressive in terms of potential risks, rewards, and tax deductions depends on the use of debt. Real estate is not currently subject to the at-risk rules, so financing can be obtained through nonrecourse loans. This type of debt can lead to a great deal of abuse. To minimize inappropriate creativity in financing real estate investments, Congress enacted the overvaluation rules. These rules penalize investments that increase the cost of property by creating fictitious nonrecourse debt. Previously, unscrupulous promoters were able to offer high write-offs, such as depreciation and interest deductions, because the basis was dramatically increased through the use of debt. At the same time, the fair market value of the real estate was significantly below the value of the stated nonrecourse debt.

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Tags: capital, illustration, money, profit
Posted in Economy, Investment, Real Estate | Comments (0)

Leasing Investments

August 19th, 2006

Leasing limited partnership can provide significant benefits and surprises. Investors need to know the purpose of the investment, its tax consequences, the level of risk involved, and the potential yield.
The leasing of office equipment, machinery, and vehicles has become a big part of the national economy. The person or entity owning such equipment is called the lessor. The lessee is the person or business leasing the equipment.
Individuals may lease a car because they do not want to purchase, or cannot afford the down payment for a new car. Corporations may lease equipment rather than buying it because they:

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Tags: capital, machine, machinery, money
Posted in Economy, Investment | Comments (0)

Hard Asset and Collectibles

August 19th, 2006

During periods of inflation, gold, silver, gems, stamps, coins, art, antiques, and other collectibles have produced significant increases in value. In periods of political unrest or economic uncertainty, such investments may also show impressive profits.
Investors who purchase these assets will receive the benefits of long-term capital gains if they hold the investments for at least six months. However, generally speaking, no significant tax deductions are available. For example, gold, diamonds, and art cannot be depreciated. (Antiques used as furniture in a trade or business are depreciable.)

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Tags: capital, discount, experience, money, profit, profits, trading
Posted in Economy, Finance, Investment | Comments (0)

Due Diligence

August 19th, 2006

The longevity of the financial planning profession will be directly related to the service it provides. Whether a financial planner receives fees or commissions, it is essential that the risks and rewards of various investments be evaluated. One of the more common terms in describing this process is due diligence. Gathering the information for a thorough evaluation is extremely difficult and costly. Financial planning firms and brokerdealers may have their own in-house team to accomplish this task. Nonetheless, financial planners must at some time do their own investigations. The degree and complexity of this endeavor may vary, but planners must still take full responsibility for the investment recommendations they make.

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Tags: experience, money, performance
Posted in Economy, Finance, Investment | Comments (0)

Prospect Reviewing

August 19th, 2006

Stocks and bonds have been the subject of extensive analysis over several decades. The same is not true of investments structured as partnerships. Yet, over the last 15 years, this form of investing has grown significantly. Nonetheless, these forms of investment must also be analyzed. To begin an analysis of a partnership, the prospectus must be reviewed. This rather thick document should reveal all information necessary to investors. However, unscrupulous promoters may declare that their investments are not structured as partnerships, but as sole proprietorships. If this is done and an investment is not deemed a security, then full disclosure will not be required.
The definition of a security can be complex. For example, abusive tax shelters are often sold as sole proprietorships in an attempt to avoid the legal and accounting required in a prospectus. If promoters are attempting to sell products without conforming to security regulations, a planner should obtain a qualified legal opinion. If any doubt remains, contact federal and state agencies that deal with security violations.

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Tags: experience, money, performance, profit, profits
Posted in Economy, Investment | Comments (0)

Investment Selection

August 19th, 2006

After a planner thoroughly investigates a specific investment, a determination must be made as to whether it is appropriate in a client’s investment portfolio. To accomplish this, planners must: 1. Know the client’s specific objectives and the length of time necessary to fulfill them. Is the client investing for growth, children’s education, retirement, or a vacation?

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Tags: capital, performance, trading
Posted in Economy, Investment | Comments (0)