Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Monday 24 February 2014
The Single Most Important Observation For Anyone Who Buys Stocks Based On Value
The most basic measure of stock market value is the price-earnings multiple.
To calculate it, you take the price and then divide it by the earnings, which is arguably the most important driver of stock prices.
Over long-run, this market multiple has a tendency to revert to its mean.
But in the short-run, it’ll trend above and below the mean for long periods of time.
“Market multiples rarely trade at average levels,” said Morgan Stanley’s Adam Parker. It’s an obvious observation, but it may be the most important observation for anyone who considers valuation before making investment decisions.
Just because the multiple is above its mean doesn’t mean you should start shorting the market like crazy. Similarly, just because the multiple is below its mean doesn’t mean you should expect instant profits by buying stocks.
In 2013, nearly 75% of the stock market rally was driven by the expansion of this multiple, not earnings growth. This is what almost every strategist on Wall Street got wrong in their initial forecasts.
Investing based on value is a game of patience.
“The market can remain irrational longer than you can remain solvent,” said John Maynard Keynes.
Morgan Stanley
http://www.businessinsider.my/market-multiples-rarely-trade-at-mean-2014-2/#.Uwp28-OSySo
The 5 Biggest Stock Market Myths
When fiascos like the Libor scandal, London Whale scandal, and analysts' conflict of interest occur, investor confidence can be at an all-time low.
Many investors wonder whether or not investing in stocks is worth all the hassle. At the same time, however, it's important to keep a realistic view of the stock market. Regardless of the real problems, common myths about the stock market often arise.
Here are five of those myths:
1. Investing in stocks is just like gambling.
This reasoning causes many people to shy away from the stock market. To understand why investing in stocks is inherently different from gambling, we need to review what it means to buy stocks. A share of common stock is ownership in a company. It entitles the holder to a claim on assets as well as a fraction of the profits that the company generates. Too often, investors think of shares as simply a trading vehicle, and they forget that stock represents the ownership of a company.
In the stock market, investors are constantly trying to assess the profit that will be left over for shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and so are the future earnings of a company.
Assessing the value of a company isn't an easy practice. There are so many variables involved that the short-term price movements appear to be random (academics call this the Random Walk Theory); however, over the long term, a company is supposed to be worth the present value of the profits it will make. In the short term, a company can survive without profits because of the expectations of future earnings, but no company can fool investors forever — eventually a company's stock price can be expected to show the true value of the firm.
Gambling, on the contrary, is a zero-sum game. It merely takes money from a loser and gives it to a winner. No value is ever created. By investing, we increase the overall wealth of an economy. As companies compete, they increase productivity and develop products that can make our lives better. Don't confuse investing and creating wealth with gambling's zero-sum game.
In the stock market, investors are constantly trying to assess the profit that will be left over for shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and so are the future earnings of a company.
Assessing the value of a company isn't an easy practice. There are so many variables involved that the short-term price movements appear to be random (academics call this the Random Walk Theory); however, over the long term, a company is supposed to be worth the present value of the profits it will make. In the short term, a company can survive without profits because of the expectations of future earnings, but no company can fool investors forever — eventually a company's stock price can be expected to show the true value of the firm.
Gambling, on the contrary, is a zero-sum game. It merely takes money from a loser and gives it to a winner. No value is ever created. By investing, we increase the overall wealth of an economy. As companies compete, they increase productivity and develop products that can make our lives better. Don't confuse investing and creating wealth with gambling's zero-sum game.
2. The stock market is an exclusive club for brokers and rich people.
Many market advisors claim to be able to call the markets' every turn. The fact is that almost every study done on this topic has proven that these claims are false. Most market prognosticators are notoriously inaccurate; furthermore, the advent of the internet has made the market much more open to the public than ever before. All the data and research tools previously available only to brokerages are now there for individuals to use.
3. Fallen angels will go back up, eventually.
Whatever the reason for this myth's appeal, nothing is more destructive to amateur investors than thinking that a stock trading near a 52-week low is a good buy. Think of this in terms of the old Wall Street adage, "Those who try to catch a falling knife only get hurt."
Suppose you are looking at two stocks:
- X made an all-time high last year around $50 but has since fallen to $10 per share.
- Y is a smaller company but has recently gone from $5 to $10 per share.
Which stock would you buy? Believe it or not, all things being equal, a majority of investors choose the stock that has fallen from $50 because they believe that it will eventually make it back up to those levels again. Thinking this way is a cardinal sin in investing! Price is only one part of the investing equation (which is different from trading, which uses technical analysis). The goal is to buy good companies at a reasonable price. Buying companies solely because their market price has fallen will get you nowhere. Make sure you don't confuse this practice with value investing, which is buying high-quality companies that are undervalued by the market.
4. Stocks that go up must come down.
The laws of physics do not apply in the stock market. There's no gravitational force to pull stocks back to even. Over 20 years ago, Berkshire Hathaway's stock price went from $7,455 to $17,250 per share in a little more than five years. Had you thought that this stock was going to return to its lower initial position, you would have missed out on the subsequent rise to $170,000 per share over the years.
We're not trying to tell you that stocks never undergo a correction. The point is that the stock price is a reflection of the company. If you find a great firm run by excellent managers, there is no reason the stock won't keep on going up.
We're not trying to tell you that stocks never undergo a correction. The point is that the stock price is a reflection of the company. If you find a great firm run by excellent managers, there is no reason the stock won't keep on going up.
5. A little knowledge is better than none.
Knowing something is generally better than nothing, but it is crucial in the stock market that individual investors have a clear understanding of what they are doing with their money. Investors who really do their homework are the ones that succeed.
Don't fret — if you don't have the time to fully understand what to do with your money, then having an advisor is not a bad thing. The cost of investing in something that you do not fully understand far outweighs the cost of using an investment advisor.
Don't fret — if you don't have the time to fully understand what to do with your money, then having an advisor is not a bad thing. The cost of investing in something that you do not fully understand far outweighs the cost of using an investment advisor.
The Bottom Line
Forgive us for ending with more investing clichés, but there's another old adage worth repeating: "What's obvious is obviously wrong." This means that knowing a little bit will only have you following the crowd like a lemming. Like anything worth anything, successful investing takes hard work and effort. Think of a partially informed investor as a partially informed surgeon; the mistakes could be severely injurious to your financial health.
Read more: http://www.investopedia.com/articles/02/061902.asp?partner=rss_article_tutorial#ixzz2uBh7yrw5
Sunday 23 February 2014
The 7 Habits of Highly Effective People
Saturday 22 February 2014
When Call Options May be Used?
1. Call options benefit buyers when the price of the underlying stock rises above the strike or exercise price.
- Investors buy calls when they are bullish on the stock.
- If an investor bought the call option instead of the stock, the greatest percentage return would come from selling the option, due to the concept of leverage.
- If the market price of the stock declines below the strike price of the option, the most the investor would lose is the option premium.
2. Call options may also be used as a hedge against an upturn in the price of a stock on a short position.
- Assume that an investor had sold short 100 shares of stock A when it was $80 per share.
- When the price of stock A declines to $69 per share, the investor wants to protect the $11 profit per share against a rise in the price of the stock A.
- The investor could buy a call option , which has a strike price of $70 per share.
- For every $1 increase in stock A above $70 per share, there is a profit on the call option that offsets the loss on the short sale..
- If, however, stock A continues to go down in price, the investor has lost only the amount paid to buy the option.
- This strategy allows an investor to protect profits without having to close out his position.
How to benefit from call options?
A call option gives the holder the right to buy 100 shares of the underlying stock at the exercise or strike price up through the date of expiration of the option.
The basic problem is that the stock would have to move up in price above the strike price before the option expires because the option is worth nothing at expiration.
Intrinsic value of call option = Market Price of the Stock - Strike Price
The option premium price fluctuates depending on two factors:( a) the underlying price of the stock, and (b) the time left until the expiration of the option.
The basic problem is that the stock would have to move up in price above the strike price before the option expires because the option is worth nothing at expiration.
Intrinsic value of call option = Market Price of the Stock - Strike Price
The option premium price fluctuates depending on two factors:( a) the underlying price of the stock, and (b) the time left until the expiration of the option.
Should you Buy and Sell the Option or the Stock?
Stock Price $35 Option Price $0.50 Strike Price $35
Stock Price rises to $42 Option premium price increases to $7.25
Scenario Analysis
1. Buying the Stock
Buy 100 shares of the stock at $35 per share Total Cost $3,500
Sell 100 shares of the stock at $42 per share Total Proceeds $4,200
Profit = 4,200 - 3,500 = $700
Return on Investment = 700/3500 = 20%
2. Buying and Selling the Option
Buy stock option Total Cost $50
Sell stock option Total Proceeds $725
Profit = 725 - 50 = $675
Return on Investment = 675/50 = 1350%
3. Exercise Option
Buy stock option Cost $50
Cost to exercise option at strike price Cost $3,500
Total Cost = 50 + 3500 = $3,550
Sell stock at $42 per share Total Proceeds $4,200
Profit = 4,200 - 3,550 = $650
Return on Investment 650/3550 = 18.3%
- Buying and selling the stock, in scenario 1, results in a 20% return.
- This is not to be sneezed at, but compared to buying and selling the option in scenario 2, buying and selling the stock comes in as a poor second to a return of 1350%.
- Comparatively, scenario 3, buying and exercising the option, produces the smallest return of 18.3%.
- Moreover, this scenario 3 also requires the largest outlay of capital ($3,550 versus only $50 for the call option and $3,500 to buy the stock).
Stock Price $35 Option Price $0.50 Strike Price $35
Stock Price falls to $30
Scenario Analysis
1. Buying the Stock
Buy 100 shares of the stock at $35 per share Total Cost $3,500
Sell 100 shares of the stock at $30 per share Total Proceeds $3,000
Loss = 3,500 - 3,000 = $500
Return on Investment = -500/3500 = -14.28%
2. Buying and Selling the Option
Buy stock option Total Cost $50
Stock option expires Total Proceeds $0
As the strike price is above the current price, the intrinsic value of the option is zero.
Loss = cost of buying the option = $ 50
3. Exercise Option
Buy stock option Cost $50
Cost to exercise option at strike price Cost $ -
As the strike price is above the current price, so the option would not be exercised.
Loss = cost of buying the option = $50
- However, if the stock price declines to $30 per share, buying the stock at $35 and selling it at $30 results in a $500 loss and a 14.28% loss (= -500/3500)
- Buying the stock option and having it expire results in a 100% loss on invested capital and a $50 loss of capital.
- There is no third alternative; the strike price is above the current price, so the option would not be exercised. The maximum loss is the cost of the option, $50.
Conclusion:
- Buying and selling the option not only gives the greatest return on investment but also requires the lowest capital outlay.
- By buying a call option instead of the stock, the investor invests a small fraction of the cost of the stock.
- If the stock price rises significantly above the strike price within the period before expiration, the investor can profit by selling or exercising the option.
- In the later case, the investor can then sell the stock or hold it for long-term capital appreciation.
- The most an investor can lose from buying a call option is the cost of the option.
- Thus, the downside risk is limited, as opposed to the potential loss in the case of buying the stock.
- There are many examples of high-flying stocks that have risen to abnormally high prices only to fall back into oblivion, resulting in tremendous losses for those investors who had invested when the stocks were trading at excessively high price.
How to use stock index options?
- Stock index options allow investors to take long and short positions on the market without having to buy or sell the stocks that make up the index.
- A stock index option is a put or call written on a market index.
- Options are offered on most of the major stock market indices.
- Settlement for stock index options is in cash rather than stocks.
- If you think the market is going to decline, you can buy a put option.
- With stock index options you can track the markets without having to buy or sell the stocks.
- Options on stock indices are valued and trade in the same way as options on individual stocks with the notable exceptions that settlement is made in cash for the former.
- The use of stock index options can assist individual investors with large stock portfolios to hedge against potential losses.
- If the investor does not want to sell holdings of appreciated stocks int he portfolio, the investor can protect these gains by buying stock index put options.
- If the market declines, the stock index puts will rise in value, which will offset the losses on the individual stocks.
- Instead, if the investor wrote call options on the stock index resembling the portfolio, the value of the options would decline if the market declined.
- The stocks in the portfolio would lose value, but this loss would be offset by the premiums received from writing the call options.
Related:
Friday 21 February 2014
Should you bother with options, rights, or warrants?
Options
Options are relatively complicated financial instruments. Most people lose money using options. The obvious question is whether you should even bother with using options.
Options do have characteristics that make them unattractive to some investors:
There are also a number of reasons for using options:
Options are relatively complicated financial instruments. Most people lose money using options. The obvious question is whether you should even bother with using options.
Options do have characteristics that make them unattractive to some investors:
- Options contracts have short lives, and investors could lose their entire investment if the stock price does not change in the predicted direction within the time frame.
- Investors could lose their entire investment even if the stock price moves in the predicted direction after the time frame.
- The risk of loss is not limited when selling uncovered calls or puts.
There are also a number of reasons for using options:
- Investors can profit from using options without having to invest larger amounts to buy the underlying equity. In other words, investing in options costs a fraction of the cost of buying the stock.
- Returns on invested funds from the use of options is much greater than investing in stocks.
- The risk of loss is limited to the cost of the premium paid on the option when buying options.
- Mini options were launched on March 18, 2013. They represent 10 shares of stock, as opposed to regular options contracts, which represent 100 shares, with the aim of creating a broader audience for this market.
Rights and Warrants
Understanding what rights and warrants are can assist investors in determining a course of action when faced with having to make decisions about them.
Related:
Related:
Options, rights and warrants
Dengue Fever Information - What did people with dengue die of?
Dengue Fever Information
For people who live, work or travel extensively in the tropics
Especially those who have had Dengue and are worried about getting it again,
as subsequent infections can have a much more severe reaction
http://oasisdesign.net/health/dengue.htm
For people who live, work or travel extensively in the tropics
Especially those who have had Dengue and are worried about getting it again,
as subsequent infections can have a much more severe reaction
Summary: Dengue hemorrhagic fever is not particularly difficult to treat, nor that dangerous if your treatment is good. This document describes hard to find info for good monitoring and treatment. Print it out and take it with you to areas where dengue is endemic, for peace of mind to and as a quality control checklist for proper treatment in of dengue. Please link to this page to make it easier for others to find.
My wife and I came down with Dengue fever while working on water, sanitation and health care for an Indigenous community in Michoacan, Mexico.
Search on the internet and it is easy to find out that if you've had dengue before, you're at higher risk for contracting dengue hemorrhagic fever (DHF) and dying a gruesome death.
Numerous authorities give the excellent, but difficult to follow advice that boils down to:
"...avoid getting bit by the dengue transmitting mosquito."
Well...the dengue mosquito bites primarily during the day, but if it's still hungry, it will bite at night, too. So, unless you leave and never come back, or you're in a bee keeping suit with DEET all over it, day and night (unlikely, considering most places where there is dengue it is hot), there is a good chance you might get bit again.
So what to do—short of never living in/ visiting/ working in any tropical place ever again?What if you do get bit again, despite precautions?
It was very difficult to find out what the actual odds of getting DHF are, and what to do if you do get dengue again. A few days search was almost fruitless, until I reached Enid Garcia at the Center for Disease control in Puerto Rico. In stark contrast to the other sources, she is a veritable font of excellent, practical information and advice.
Here's some general info on dengue, followed by the information she shared with me:
General info on Dengue
Dengue is the most important mosquito-borne viral disease affecting humans; its global distribution is comparable to that of malaria, and an estimated 2.5 billion people live in areas at risk for epidemic transmission (1997 numbers).
Each year, tens of millions of cases of dengue fever occur and, depending on the year, up to hundreds of thousands of cases of DHF. The case-fatality rate of DHF in most countries is about 5%; most fatal cases are among children and young adults.
Dengue and dengue hemorrhagic fever (DHF) are caused by one of four closely related, but antigenically distinct, virus serotypes (DEN-1, DEN-2, DEN-3, and DEN-4), of the genus Flavivirus. Infection with one of these serotypes does not provide cross-protective immunity, so persons living in a dengue-endemic area can have four dengue infections during their lifetimes.
(Note: it is the subsequent infections which are much more severe)
Dengue is primarily a disease of the tropics, and the viruses that cause it are maintained in a cycle that involves humans and Aedes aegypti, a domestic, day-biting mosquito that prefers to feed on humans. Infection with dengue viruses produces a spectrum of clinical illness ranging from a nonspecific viral syndrome to severe and fatal hemorrhagic disease. Important risk factors for DHF include the strain and serotype of the infecting virus, as well as the age, immune status, and genetic predisposition of the patient.
Dengue symptoms
Once an infected mosquito has bite a susceptible person, the virus has an incubation period of about 4 - 7 days in the body, prior to the development of symptoms. Dengue may produce very mild or severe illness. The disease is characterized by sudden onset of fever (at or over 38°C during the first 3 to 5 days), headache, general malaise, bone pain, and muscular pain. Also some people may present with vomiting or diarrhea, a generalized rash and in some persons, hemorrhagic manifestations that are usually very mild. The symptoms may last from 5 to 7 days. A small proportion of patients may develop low platelets, low blood pressure and severe bleeding requiring hospital care (Dengue hemorrhagic fever or DHF).
What are odds of getting and dying of hemorrhagic or shock dengue if you've had dengue and you get it again?
- DHF usually results from a second infection from a different serotype
- The theory is that antibodies that prevent reinfection by one serotype somehow help other serotype viruses do worse damage
- Most DHF cases are secondary infections. About 90 % of DHF patients have a previous history of dengue (secondary infections). But even if you have a second infection it does not mean that you will develop DHF. Usually 10- 12.5% of secondary infections develop DHF
- Your risk of dying from DHF with inadequate treatment is 10--15%
- Your risk of dying with adequate treatment is less than 1%, regardless of age group.
- In the majority of cases, the actual cause of death is dehydration from loss of plasma volume, not the hemorrhage itself.
The causes of death from DHF by rank (these are causes of poor prognosis of dengue)
1. Shock due to dehydration
2. Severe Hemorrhage
3. Encephalitis
4. Hepatic failure
Precautions for people who've already had dengue
If you are returning to a dengue area after already having had dengue, you're at greater risk.
- Avoid getting bit
- Research beforehand a physician, clinic, or hospital which you trust to give you adequate treatment should you develop DHF.
- If you are in endemic areas as part of a development program and you're far from major medical care (as we are), see if you can include part or all of the elements of a "dengue mini-clinic" in your program (see below) so you can monitor your own or other dengue cases locally.
Small dengue clinic list
This list is of equipment for monitoring for possibly emergent DHF in a non-hospital setting, to determine if hospitalization is necessary or not:
- CBC Counter (for WBC, Hematocrit, and platelet count)
- Sphygmomanometer (for blood pressure monitor)
- Thermometers (for children, adults)
- Syringes
- IV fluids & setup: Normal saline solution
- Ring Lactate
Monitoring dengue patients for onset of DHF
Usually people who develop DHF do so after the fever goes down. It is most critical to monitor closely during the 24-48 hours after the fever goes down. In mild cases of DHF changes in vital signs are minimal and transient, patients recovering spontaneously or shortly after a brief period of time. In more severe DHF cases the disease might progress rapidly into a stage of shock. If you can, get a platelet count, blood pressure, and hematocrit at the onset of regular dengue symptoms, as a baseline.
- Hemorrhage, decrease in blood pressure, declining platelet count, or increasing hematocrit are all warning signs that DHF may be developing and you should head towards your medical backup/ hospital.
- If you're far from hospital, go early. Don’t wait.
- If you have any hemorrhage look for medical assistance. Hemorrhage by itself does not mean you will be hospitalized. Your physician needs to evaluate you.
- You can have dengue and mild hemorrhage without it being considered DHF.
- Typical hemorrhage is nosebleed, gum bleed, small red dots in skin (pitequeas), and vaginal bleeding. Less common is vomiting blood.
- Transition from dengue to DHF can happen pretty fast (hours, not days), so make sure to be prepared to respond in case of clinical deterioration.
Patient follow up
- Attend to the patients overall state of well-being
- Check and close monitor blood pressure. If it is falling, then probably more fluid is needed possibly IV.
- Dehydration —Main characteristic of DHF is that people dehydrate faster, through capillary leakage. The fluid may collect in places other than the arteries and veins, such as lungs and abdomen.
- Get hematocrit, platelet count when symptoms/fever starts for baseline.
- Keep monitoring daily. If it goes up by 20% from what they had, this suggests dengue hemorrhagic fever, but don't want to wait this long.
- Do daily/ 2x daily hematocrits, if increasing could indicate leaking of the capillaries.
Criteria for hospitalization
- Increasing hematocrit
- Platelet count --less than 100,000mm3
- Any spontaneous bleeding
- Any warning sign for shock ( see shock related symptoms)
- If not adequately treated, dehydration is what kills people (shock from loss of fluid), not the hemorrhage.
- Give a lot of oral fluids and IV fluids without overload
- Can hydrate adequately just from drinking in most cases
Shock related symptoms
Dengue shock symptoms which indicate that the patient should go to a hospital immediately:
- Clinical deterioration
- Severe abdominal pain as dominant symptom (worse than headache, pain in bones)
- Change in mental status-does not respond, loses sense, can't wake up.
- Drastic change in temperature (cold, clammy or mottling skin)
- Severe vomiting
- Not passed urine in 4 – 6 hours
If you have the equipment & know-how, it could benefit a severely dehydrated patient to provide IV fluids during transport if it is a long way to the hospital.
Testing
You need to send blood to a well-equipped laboratory for dengue testing.
Virologic testing
Virologic testing (to see which of the four serotypes of dengue you've got) has to be done during the acute stage (1-5 days) of the illness to isolate the virus. Afterwards it won't be easy to determine which serotype it was.
The public health service in some countries do virologic analysis by area and outbreaks. Thus, if you've been infected, you might be able to find out the likely serotype by asking around, even if it is too late to test yourself.
Serologic testing
Serologic testing is to see if you have develop antibodies against dengue virus. This will let you know your risk factor for subsequent infections.
IGM testing will give let you know if you've had dengue or not, within 30 days of infection.
IGG testing will let you know if you had dengue in the past (long term immunity)
If you think (or know) you've been exposed to dengue years before, IGG testing will show if you still have the antibodies, and thus are at greater risk of contract DHF from a subsequent infection—this is the most critical information.
Infants exposed to antibodies via pregnancy or mothers milk
- An infant who has been exposed to antibodies through pregnancy or mothers milk and still has them will react exactly the same as somebody who had dengue before. Maternal antibodies usually last up to 6 months or more.
- You can do an IGG test for infant, to determine. If your baby has antibodies or not.
- If a baby tests positive for IGM, they had their own direct infection.
- Not all babies get IGG from breast milk.
- If they test negative for IGG, they will respond to a subsequent dengue infection as an initial infection, not as a more dangerous second infection.
- Retest the baby six months after breastfeeding stops to see If he has own immunity, usually mom's antibodies only last 3-6 months.
- Classic dengue is generally milder in young people. But the risk of DHF increases in infants (less than 1 year) due to the presence of maternal antibodies. Risk of fatality from DHF with adequate treatment is similar across different age groups.
- More children contract dengue, because they have not been exposed to the virus previously and are susceptible.
At the hospital
Should you fly to a hospital in an industrialized country?
The care for dengue is relatively simple, and hospitals in endemic areas are probably more experienced with dengue than most hospitals in overdeveloped countries.
If the facility is reasonable, the personnel reasonably competent, and the patient reasonably happy, it's probably best to stay put.
An ideal situation might be a local hospital close to an airport.
Adequate follow up in a hospital (or small dengue clinic If there is no alternative):
- Frequent (daily or twice daily) platelet count, hematocrit, blood pressure.
- Adequate but not excessive hydration, IV If necessary.
- Monitoring of patient well-being
Before discharge
- Platelet count
- Must have stable or increasing platelet count higher than 50,000
- (below 50,000 risk of spontaneous bleeding is higher)
- Blood pressure
- Stable blood pressure (shows good hydration)
- Hematocrit
- Stable or falling (indicative of no or improvement in capillary leakage)
- Pass 48 hours without fever
- No vomiting
- Doesn't have respiratory distress
- From fluid in lungs.
- Improved general constitution
Good luck!
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