Finding A Good Business To Invest In
A good business is a business which you can more or less predict with confidence that over the long term, its going to increase its earnings, its profits every year.
As a result, increase in shareholder value and hence the share price. In other words, the share price will go up not because of speculation but because the company is worth more.
Look at past historical performance. If you look at a company records for the last 10 years, and if earnings have been increasing steadily and consistently, then its more likely they continue to do that in the future. Its not a guarantee, but it’s more likely to do so.
Rather than a company who has had erratic profits in the past, look for a company which is consistently increasing in earnings.
The next thing is to look out for is the USP or unique selling proposition. It’s the same for private businesses, same for listed companies. Does the company have a strong unique selling proposition that gives it a competitive advantage?
That when even if rivals and competitors come in to cut prices, they can maintain their margins because they’ve got a unique positioning. The unique positioning could be due to a patent they hold. It could come from the brand they have.
Take for example, Nike. If 10 other companies were to start and compete with Nike and they come up with a brand called Niko, instead of Nike. Will Nike lose all their market share? No, they won’t. Why? Because people buy because its Nike. Because it’s a USP.
One question to ask yourself, “Does this company have room for growth? Can it continue to grow? Are there new markets it has not explored yet?”
So lets say it’s a fantastic education program that has been working in the States, could it work in China? And that gives you growth prospects. Does the company have conservative debt financing, alright. Can it pay back all its long term debt in 3 years?
The next thing is the management that’s in place. For the management, do they hold a lot of shares in the business? If they do hold a lot of shares in the business, they are more likely to hold a vested interest in making sure the company works, rather than siphoning off money for their salary which could happen.
Here’s a final tip, a company can make a lot of money in profits, but you may never see the profits, because it is channelled back to sustain current operations to renewing and refurbishing plant and equipment.
So I always advise investing in businesses where, in which you they don’t have to maintain plant and machinery. Take for example, insurance businesses. Another example, Nike, doesn’t even own their factories. They own the brand.
These are some of the key pointers that you can follow to choose the business to invest in. May it help you to picking the right investment!
Adam Khoo is an entrepreneur, best-selling author and a self-made millionaire by the age of 26. Discover his million dollar secrets and claim your FREE bonus CD ‘6 Ways To Achieve Anything In Life’ at http://www.PavingTheWayToTheTop.com
Should I Attend Property Investment Courses?
Learning is the beginning of wealth. Learning is the beginning of health. Learning is the beginning of spirituality. Searching and learning is where the miracle process all begins, Jim Rohn
Investing in property may seem like todays flavour of the month. However, due to the large amounts of money changing hands, it is not something that you should try without proper training and guidance.
When I first started investing in property, I spent a lot of man hours educating myself. I bought every single book on property that I could lay my hands on. I spent a lot of time and effort attending workshops and seminars. When I had become confident of my abilities, I ventured out and bought my first property.
Buying my first property did not mean that I could now stop learning about property investment. In fact, it was the exact opposite. I was now spending more time learning the different property investment strategies; I was attending more seminars and courses and reading specialised books on investing. Had I stopped learning after my first purchase I would not be a successful property investor today.
A couple of weeks ago, I did some research to see what courses were being offered to help people get into property investment. Quite frankly, I was shocked by the results. I found single day courses and workshops ranging from 500 pounds to 10,000s pounds. And, thats not all.
I even found several portfolio companies requesting 6 figure sums in return for an off the shelf property portfolio! Today, every other person appears to be offering a property investing course. How do you choose which one is right for you?
Firstly, my advice would be for you to not pay anyone to buy a property portfolio for you. If you want success in property, you need to understand at least the basics of property investing. Paying someone a truck load of money to buy a few properties for you will not give you this knowledge.
Attending property courses should by definition increase your knowledge of property investment. However, prior to parting with any money you need to address the following issues:
- What are the credentials of the course organiser? Is he/she a property investor himself and how much experience does he/she have?
The best person to advise you on property investing would be someone who walks the talk – theres little to gain from a presenter who has never bought a property before.
- What are the course contents? Will advanced techniques be addressed?
Its the advanced techniques used by successful property investors that will set you apart from all those other wannabe property investors.
- How many people will be attending the course?
A course attended by hundreds of people may lack the personal touch, but will present networking opportunities to you.
- How much and how long is the course?
Paying several thousand pounds for a one day course is too much. You need to weigh up the cost, length and contents before making up your mind.
- Will I be given the opportunity to network with other attendees of the course?
The property business is a business of relationships. You need to network with others in the same business as you will not be able to do it alone.
- What is the location of the venue?
Is it worth travelling hundreds of miles to a course that may be offered closer to where you live?
- What support will be provided after completion of the course?
Course attendees quite often become unstuck after attending a course. You need to find out if any support is offered after you complete the course.
Only once you are satisfied with your answers to the above questions should you part with any cash.
Be warned though, attending a course by itself will not make you into a successful property investor. What will set you apart from any other attendee on the course is your level of motivation and determination to succeed in property investing.
Dr Javaid Kiyani is a successful Property Investor and Internet Marketer. With 10 years experience of property, his knowledge of property investment is vast as evidenced by the books he has written. For his FREE Property Investment Course, visit http://www.hmopropertyriches.com/
Options Trading Lesson: Volatility
To get a firm grasp of volatility’s effect on vertical spreads, let us examine three spreads against different implied volatilities while keeping the stock price constant at 67.5. These are the 60 – 65, 65 – 70 and 70 – 75 call spreads.
In-the-Money Vertical Spreads
Looking at the in-the-money spread (June 60 – 65), we see that as volatility increases, the value of the spread decreases. This is because with the increased volatility, the stock has a greater tendency to move. That brings a higher probability of the stock moving to a price where the June 60 – 65 call spread will no longer be in-the-money.
To adjust for higher volatility risk, the spread will have less value. A general rule of thumb is that as volatility increases, the value of an in-the-money vertical spread decreases. Conversely, an in-the-money vertical spread’s value increases as volatility decreases.
At-the-Money Vertical Spreads
A change in volatility has very little effect on the at-the-money vertical spread (June 65 – 70). With the stock price located equidistant from the two strikes, each strike’s volatility component will be very similar. Therefore, both options will increase equally once volatility increases. Being long on one and short on the other, the increase in values will offset each other so the spread’s value will hold fairly constant. When volatility increases or decreases, the value of an at-the-money vertical spread will stay reasonably constant.
Out-of-the-Money Vertical Spreads
The out-of-the-money vertical spread (June 70 – 75) has the opposite effect of the in-the-money vertical spread (June 60 – 65). As volatility increases, the value of the out-of-the-money vertical spread will increase. This is because the increase in volatility assumes that the stock price is more likely to move. Thus, the out-of-the-money vertical call spread is more likely to finish in-the-money.
Because of this spread’s increased potential to finish in-the-money, its value will increase. The spread’s value will decrease if volatility decreases. On the other hand, an out-of-the-money vertical spread’s value increases when volatility increases.
When trying to estimate how your spread will change in price with volatility movement, you must understand how the price and Delta of both of your options – long and short – will act.
It bears repeating again that each spread is different and will act differently depending on where the stock is in relation to the spread and what implied volatility does.
Median Value
An important thing to note is that when volatility increases, spreads crunch to their median value. For example, the median value of a $5.00 spread will be $2.50 while a $10.00 spread will have a $5.00 median value.
Crunching to the median value means that a $5.00 spread with a median value over $2.50 will lose value and head toward the median price. That happens with an increase in volatility. Meanwhile, increased implied volatility will make a spread with a value less than $2.50, increase in value and rise toward median value.
When implied volatility decreases, the value of a $5.00 spread will move away from the median price of $2.50. Therefore, when implied volatility decreases, all the spreads valued above $2.50 will increase in value toward maximum value. Spreads valued below $2.50 will lose value and head toward $0.
The Effect of Time
Time affects the spread differently depending on where the stock is. Look at the QCOM 65 – 70 call spread. Look at the spread’s reaction to the passing of time with the stock price of $65.50.
The chart below shows what the spread’s value does as expiration approaches.
Month Months to Expiration 65 – 70 call spread value Change from prior
Jan. 05 (8 month option) 2.06 N/A
Oct. 04 (5 month option) 2.05 -.01
Jul. 04 (2 month option) 1.92 -.13
June 04 (1 month option) 1.65 -.27
With the stock at $65.50, the spread has $.50 of intrinsic value. Holding the stock price frozen at $65.50 until expiration, the spread would be worth $.50. The table above shows that the spread loses value as time passes and decreases in value toward its $.50 intrinsic value.
Next, look at the 65 – 70 spread’s reaction to the passage of time with the stock priced at $67.50.
Month Months to Expiration 65 – 70 call spread value Change from prior
Jan. 05 (8 month option) 2.33 N/A
Oct. 04 (5 month option) 2.37 +.04
Jul. 04 (2 month option) 2.44 +.07
June 04 (1 month option) 2.47 +.03
With the stock price located directly in between the two strikes, the price of the spread holds at approximately $2.50 throughout the passing of time. Take note that time has very little effect on a vertical spread when the stock price lies halfway (equidistant) between the two strikes of the spread.
Now, set the stock price at $69.50 and observe how the spread reacts over time.
Month Months to Expiration 65 – 70 call spread value Change from prior
Jan. 05 (8 month option) 2.55 N/A
Oct. 04 (5 month option) 2.67 +.12
Jul. 04 (2 month option) 2.96 +.29
June 04 (1 month option) 3.27 +.31
This spread increases in value as time passes. With the stock at $69.50, the spread has an intrinsic value of $4.50. If the stock held at $69.50 until expiration, the spread would be worth $4.50 because that is the amount of the spread’s intrinsic value. As time passes, the spread’s value will increase to finally reach $4.50 at expiration.
In conclusion, time’s effect on a vertical spread is contingent on where the stock is in relation to the spread.
Ron Ianieri is currently Chief Options Strategist at The Options University, an educational company that teaches investors how to make consistent profits using options while limiting risk. For more information please contact The Options University at http://www.optionsuniversity.com or 866-561-8227
Options Trading: The Protective Put Strategy In Different Scenarios
As previously stated, when we buy a stock, three potential outcomes exist. The stock can go up, go down, or remain stagnant. Let’s hypothesize results across these three scenarios. Say you buy the stock for $31.00 and buy the front month 30 put for $1.00.
In the ‘up’ scenario, let’s assume the stock price is $31.50 at expiration. The results are that you have a $.50 gain from capital appreciation and a $1.00 loss from the purchase of the put which combined gives us a $.50 overall loss.
It is important to realize that the up scenario will only produce a positive return if the stock gain is greater than the amount paid for the put. That being the case, you calculate the breakeven point for the protective put strategy by adding the purchase price of the stock to the price of the put.
In the ‘up’ scenario, add the stock price $31.00 plus the option price $1.00 and you get a breakeven of $32.00. So, until the stock reaches $32.00, the position will not produce a positive return. Above $32.00 the position will gain the amount equal to the stock price minus the premium paid for the option..
In the ’stagnant’ scenario, the position will produce a loss. Since the stock hasn’t moved, there will be no capital gain or loss and with the stock at $31.00 at expiration, the puts are worthless. The position lost $1.00, the amount you paid for the puts.
In the ‘down’ scenario, the position will again produce a loss. If the stock price were to trade down $1.00 to $30.00, then you would have a $1.00 capital loss.
With the stock at $30.00, the 30 puts will be worthless, thus you incur a $1.00 loss because that is what you paid for them. Your total loss will be $2.00.
However, in the ‘down’ scenario, the protective put will set a cap on your losses. Let’s see how that works. We’ll set the stock price down to $28.00. Since you purchased the stock at $31.00, there will be a capital loss of $3.00.
The puts, however, are now in the money with the stock below $30.00. With the stock at $28.00, the 30 puts are worth $2.00. You paid $1.00 for them so you have a $1.00 profit in the puts.
Combine the put profit ($1.00) with the capital loss (-$3.00) and you have an overall loss of $2.00. The $2.00 loss is the maximum amount you can lose regardless of how low the stock declines, even if it goes as low as zero. This is what is meant by maximum protection.
In every protective put position it is possible to calculate your anticipated maximum loss. Use the formula: (stock price minus strike price) minus the option’s price equals total maximum loss.
Maximum Loss = (Stock Price – Strike Price) – Option Price
For example, suppose you paid $30.00 for your stock. You bought the front month 27.5 put for $1.00. Next, assume the stock closes at $27.50 on expiration day.
Your maximum loss calculation would be:
($30.00 – $ 27.50) – $1.00 = $3.50
$30.00 (stock price) minus 27.5 (strike price) equals a $2.50 capital loss. Do not forget that with the stock at $27.50, the 27.5 puts will be worthless.
Add the capital loss ($2.50) plus the option loss ($1.00). The total is $3.50 which is your maximum possible loss in that position. This formula will work every time.
Looking at the three hypothesized scenarios, we find that only one scenario, the ‘up’ scenario, can produce a positive return and that’s only when the stock increases more than the amount you paid for the puts.
The other two scenarios produced losses. If the stock is stagnant, you lose the amount you paid for the put. If the stock goes down, you lose again- but the loss is limited. It is the limiting of loss that makes the protective put an attractive and useful strategy.
Ron Ianieri is currently Chief Options Strategist at The Options University, an educational company that teaches investors how to make consistent profits using options while limiting risk. For more information please contact The Options University at http://www.optionsuniversity.com or 866-561-8227