Epic Finances – Investment Blog

Many new investors spend their time trying to find the next great interesting opportunity without first learning the basics about investing. This can be a little bit like trying to ride a motorcycle if you’ve never even learned how to ride a bicycle. Sure, you may get the hang of it after a while, more than likely you’re going to fall flat on your face at least a couple of times.

With that visual note in mind we thought we put together a blog that features some vital keys to successful investing. If you are a new investor this should be required reading and, if you fancy yourself an accomplished investor, you may want to take a few minutes and look it over as well. You never know, you might pick up something valuable. Enjoy.

One of the most important of these vital keys is that you leave a margin of safety in your investment strategy so that you protect the most important part of it; your portfolio. There are two main ways that you can do this.

1. Always be conservative when you’re talking about valuation and try not to assume too much. The risk here is not that you’re going to overpay for an excellent business but rather that you will end up paying more than you should for a mediocre business. When it comes to estimating future growth rates it is best to err on the side of caution.
2. When purchasing any asset only purchase one that is trading at a substantial discount. If you’ve done your homework and conservatively estimated a stock’s intrinsic value should look for an extra margin of safety as well.

Another vital key is to only purchase businesses that you fully understand.  Is only when you understand the business that you can estimate their future earnings. For example, a company like Hershey’s that makes chocolate will rise and fall with the cost of sugar. If you know this, and you know what it takes to produce their main product, you’ll be in much better shape to decide if they’re a valuable addition to your portfolio or not.

The best way to measure your success with any investment is to take a look at the underlying operating performance of the business that you are purchasing. Simply put, the operating results and the share price will, over time, become inextricably linked. Although it may not start out that way, the underlying business and the price of its stock almost always go hand-in-hand.

When it comes to investments there is one rule that is unavoidable; the more you pay for any asset in relation to what it turns, the lower your return is going to be. For example, a stock that you might consider a terrible investment at $50 a share you might just consider an excellent investment at $15 a share. The fact is, if you’ve done your research, have the aforementioned margin of safety in place and the long-term economics of the business are very favorable you may just view a decline in the company’s stock not as a bad thing but as an excellent opportunity to acquire more. Frankly, if all of these things weren’t in place when you first purchased stock in there there’s a good chance you probably shouldn’t have purchased it in the first place.

One mistake that many new investors make (and some that have considerable experience as well) is to trade too frequently. What happens when you do this is that you substantially lower your long-term results. Why? Because fees, taxes, commissions and ask/bid spreads create what is known as frictional expenses, something that can eat up your returns like termites can eat up your house.  Even a 2% increase over 40 years could mean a significantly lower number in your retirement account when you’re ready to start golfing full-time. Simply put, frequent activity when it comes to investing can be the enemy of excellent long-term results.

The last thing we like to talk about today is the fact that, as an investor, you need to keep your eyes open for new opportunities  at all times. If you’re always scanning the Wall Street Journal or the pages of Barrons or Fortune magazine something that you can add to your portfolio. Many new investors make the mistake of investing in companies that manufacture products or services that are outside of their knowledge base. Simply put, if you don’t understand the economics of an industry you will not be able to forecast where a business will most likely be within 5 to  10 years. If you don’t you really shouldn’t be purchasing their stock. (We learned this from billionaire investor Warren Buffett.)

What we’ve covered here today is really the basics but the basics are where the best investors always get their start. The good news is that you’ve already started learning and probably know more about investing strategies than many people will have much more experience than you do. Best of luck with your investing and, when you need more advice, tips and information, please make sure to come back and see us. See you then.

One of the perks of staying with the company for long time and working way up to corporate ladder that you can be offered stock incentives that, in many cases, will increase in value and afford you a huge amount of profit when you sell them. There are many different kinds of stock options and, depending on the type of company that you work for, how long you been there and how high up in the ranks that you are, the options available to you will certainly change. With that in mind we put together a small blog on one type of stock option that is offered once you make it to what will refer to today as ‘the big time’. Enjoy

A type of stock option that is usually offered only to key employees and those who are in top-tier management, incentive stock options (ISO) (also known as statutory or qualified options) allow these employees to receive, in many cases, superior tax treatment that can be quite enticing along with valuable stocks that they can sell down the road for high profits..

There are a number of scheduling details that one must know about incentive stock options.  The date that ISOs are issued is known as the grant date and the exercise date is the date when an employee that’s been offered an ISO exercises their right to buy them. After this second date the employee will then have the freedom to either get rid of the stock right away or hold onto them for a specific period of time.  10 years is the offering period for ISOs (unlike non-statutory options) after which time an employee’s option to buy the stock expires.

ISOs also contain something known as a vesting schedule which is usually three years. At this time the employee usually becomes fully vested and is open to taking advantage of all the options, including ISOs, that are available to him or her.

There are some things about ISOs that resemble non-statutory options including that an employee can either pay cash upfront to exercise them or can acquire them by using a stock swap with no cash changing hands. In some cases an ISO can be exercised at a price that is actually below the current market value, allowing the employee to make an in immediate profit if they choose to sell them right away.

A clawback provision is something that allows employers to take back ISOs if an employee leaves the company for any reason besides their retirement, placement on disability or death. This can also happen if a company suddenly becomes unable to meet its financial obligations with the ISO options.

As we stated earlier ISOs are typically offered only to executives and key company employees, a form of legal discrimination as most other types of employee stock plans are offered to any employee who meets certain minimum company requirements.  In some ways an ISO is similar to a nonqualified retirement plan that is offered to a company’s top people whereas a qualified plan must be offered to all employees.

As far as tax treatment, ISOs receive the most favorable tax treatment of any type of employee stock purchase plan, setting them apart from practically all other forms of compensation that is share-based. That being said, in order to be able to qualify for an ISO a company employee must meet certain criteria and obligations. One of these is a  qualifying disposition, when an ISO is sold at least one year after options were exercised and two years after the grant date. On the other hand, a disqualifying disposition is when the sale of an ISO, for whatever reason, does not meet the requirements of the prescribed holding period.

Similar to non-statutory options,  when an ISO is either granted or an employee is vested there are no tax consequences.  That being said, the rules concerning taxes for the exercise of an ISO and its sale can, in many cases, be quite complex. The bottom line is that an ISO will, in most cases, provide a substantial profit to its holder. In most cases if  they’re available to you the best thing to do be to consult your financial advisor or an HR representative from your company to find out what your options are.

We hope you enjoyed this blog about incentive stock options and that you will one day and work your way up to where you yourself can receive them. If you’re already there congratulations and we hope that this article has given you a little bit of insight as to how they work. In any case please come back sometime soon and visit us again as were always providing excellent blogs filled with equally excellent advice about all things financial. See you then.

Normally on our blog we do the research and the information we provide here is sort of put through our ‘filter system’. Today’s blog is differentonly in that rather than give our opinions or advice we’re going to give you the advice of Morgan Stanley’s Global Investment Committee (GIC). As one of the leaders globally in investing we figure that they have a few good ideas and were glad to be able to share them with you, our dear readers. Enjoy.

The way Morgan Stanley sees it the economies of many emerging markets are going to grow in response to any of the policy easing steps recently passed. This is good news for commodity demand in these emerging markets as economic activity in these areas is generally more resource intensive than in economies that are more developed. This, in their opinion, will in turn spur the demand for investment in gold due to concerns about future inflation and currency debasement.

An asset class that has undergone a re-rating over the last several years, emerging market bonds are one of the more attractive sectors in the bond industry. The reason is that there sovereign issuers have improved their underlying credit quality. Morgan Stanley is encouraging their investors to seek unhedged, local currency denominated bonds.

Dividend paying equities, as far as they are concerned, should continue being an attractive alternative for investors looking for income. As they have consistently raised their dividend payout over the last several years, they are advising large, blue-chip companies.

Corporate balance sheets have strengthened under recent persistence of low interest rates and a rise in stock values. This has made investment-grade corporate bonds more attractive with their combination of higher yields and high credit quality.This makes them even better, as far as Morgan Stanley is concerned, than a traditional safe investment like US Treasury bonds.

Underpinning the demand for tax exempt municipal bonds will be the return to a 39.6% US income tax rate. Morgan Stanley favors A rated or better bonds that are general obligation and/or essential service revenue bonds. BBB rated or better with 5 to 11 year maturities are what they recommend.

Offering the same tax benefits as a limited partnership structure but coupling it with the liquidity of publicly traded securities, Master Limited Partnerships are a Morgan Stanley recommendation. They also recommend MLPs that concentrate on natural resource industries like minerals extraction, natural gas and oil. The reason they are attractive to income seeking investors is that, more so than conventional equity investments, they typically offer much higher dividend yields.

With a much better footing than their developed market counterparts, emerging market (EM) economies are the place to invest, as far as Morgan Stanley is concerned. The way they see it, growth in these markets is going to accelerate due to the policy easing steps that have been taken as of late.

While we’re not sure if Morgan Stanley coined this term, ‘Global Gorillas’ are one of their recommendations. These are large domestic market companies with oversized exposure to emerging markets and Morgan Stanley expects them to account for 80% of growth this year globally. Their best bets; India, China and Brazil, where rapid consumer spending growth is likely to happen over the next several years.

The last recommendation from our pals at Morgan Stanley is simply this; water. If there ever was an example of supply and demand water is it and, as the supply dwindles and the demand rises, the investor who has water in his portfolio is going to do quite well. It’s a global problem with global investment ramifications and there will be many new companies popping up that are going to search for ways to increase water’s availability, opening up many investment opportunities.

And there you go, Morgan Stanley’s opinions about the coming investment opportunities this year and into the future. We found them quite interesting and we hope you did also. Please come back and join us again soon when we get back to our regularly scheduled, advice filled and valuable tip heavy blogs. See you then.

Recently we brought you a blog  filled with tips and advice for investing in silver.  Today’s blog is going to be similar and yet quite different as it focuses on  the precious metal gold, including gold coins and gold bullion. If you’re looking to diversify your portfolio and invest in a bit of one of the world’s most famous and popular metals then you’ve come to the right place. So sit back, relax and as usual,  enjoy.

Investors who  love gold will tell you that, if you want to protect your investment against inflation, weakness at the stock market, currency fluctuations and many other financial uncertainties, there is one item that you must have in your portfolio and that is gold bullion and/or gold coins. Most experts will say that, if you’re going to invest in gold, you should do it  as a long-term investment and be prepared to hold onto it as long as possible.

The type of gold that you should invest in depends on the reason that you’re interested in investing in it in the first place. If you want to hedge financial uncertainty or take advantage of a price movement then you would do well to invest in contemporary gold bullion coins. Most experts agree that both this type of gold coin and historic gold coins normally trade at modest premiums over their melt value and enjoy internationally strong  liquidity, so interestingly neither one is probably an equal bet.

Some investment experts will tell you that gold is ‘ wealth insurance’  and that the best time to buy it is when you can. They will also tell you that you can’t approach gold the same way that you would stocks or investing in real estate. Even further, some will say that the best reason to buy gold is to make sure that, when economic catastrophe looms like the kind were seeing in Europe and Japan right now, gold will suddenly appear like a very intelligent investment.

As far as who is investing in gold you might be surprised to know that it’s not the super-rich by any means. In fact, teachers, dentists, carpenters, attorneys, small business owners and university professors own gold, usually in the form of bullion or coins as we mentioned,  which has made gold a  very popular part of many portfolios. Recently a Gallup poll showed that gold was rated the best investment by 34% of American investors, higher than stocks, bonds, bank savings and real estate.

One of the biggest differences between gold and the vast majority of capital assets is that gold is the only one that does not rely on someone else’s ability to pay in order to get its value. Unlike bonds, stocks and other investments, gold is always an asset for you but never a liability for someone else. Even more, no matter what happens with the dollar, the stock market or the economy, gold is tangible and has an intrinsic value that cannot be overstated.

As far as how much of your portfolio should be made up with gold investments the general rule is between 10% and 30%. A recent analyst on CNBC advocated investing 20% of your portfolio in gold if you’re keen on protecting your investments from the current economic, financial and political situation happening all over the world.

There are also in gold stocks that you can invest in but most people make the mistake of thinking that they are an exact replacement for physical gold in coins or bullion. If you ask some mine owners about their recent experience with gold stocks they will more than likely express their dismay that, even as the price of gold rose, their stocks failed to do the same. Keep that in mind if you’re keen on purchasing gold stocks.

Well, we sure hope this information has been golden (excuse the pun) for you. Good luck with your adventures in gold investing and always remember to invest intelligently. See you back here soon