I know this is a non-stock blog, but I know most people are still interested in stocks.
I've been reading a lot about where people think the market bottom will be. Most analysts think that the low end for earnings next year for the S&P will be around $63. Now if that is true, if we take a conservative 10 multiple, that brings the S&P to around $630 versus its close of $735 on 2/28/09.
Why is this important, well, a large portion of the gains in the market happen in the few years after the bottom, so people love to guess when the bottom is and make the greatest gains. Now there are people who think that the S&P could go to 450. So, you might want to wait till then to put your money in.
Lower
Lower still!
Saturday, February 28, 2009
Friday, February 20, 2009
Debt Payments
I just noticed that a majority of the corporate bonds that I own have a debt payment in March/April and September/October. I am not sure why that is so, but it is something I noticed. The reason I bring this up is because that means there will be a lot of companies that won't have as much cash in March as they did when they make this payment. Of course their liabilities will be reduced, but having cash is probably better. I don't know what kind of effect it will have on their stock prices but I doubt it is good.
Sunday, February 15, 2009
Scary
A couple articles I read scared me recently. I had read the same things on blogs and the non-mainstream media, but when you start seeing them in the mainstream media, it begins to scare me. Basically, they are saying the govt may not be able to borrow all the money it needs for the stimulus since countries don't have the money they used to. Interest payments are the 4th biggest expenditure for the US govt after Social Security, Medicare, and defense. The article that scares me the most is the one that says it is possible that the US govt loses their AAA rating. If that happens the dollar could collapse and that would be trouble. Maybe we should be buying gold!
Couple links:
Can countries afford to pay for our bailouts?
These links are embedded in the above link:
Biggest debt buyers
AAA rating ok?
Couple links:
Can countries afford to pay for our bailouts?
These links are embedded in the above link:
Biggest debt buyers
AAA rating ok?
Real Estate
I haven't blogged on real estate, but I think it is an obvious investment (when the prices make sense) and now would be an optimal opportunity. I would suggest anyone who does not own a home and wants to should seriously start looking and buy this year. Obama is giving first-time homebuyers who purchase their homes before Dec. 1 an $8,000 tax credit. I expect home prices to go down another 20% in the next 6 months, so now would be a good time to start looking.
Couple things to consider.
Couple things to consider.
- The treasury has been buying bonds in order to lower the interest rate
- If you're job in is trouble, it might not be a good idea to buy a house and then have to foreclose on it.
- Of course you also get to deduct the mortgage interest on your house.
- Look into Mortgage credit certificates in your county, you can save a lot of money by getting tax credits through the life of the loan.
Tuesday, January 27, 2009
Covered Calls
I know this is a non-stock blog, but I know most of you are most familiar with stocks. And, you probably have a lot of stocks that are stuck at these low points and are not moving much that you didn't sell when the market crashed. One way to make a little extra money is to sell covered calls. This is only good if you think the stock is not going to go down much or will either stay the same or go up. In order to sell a covered call, you will need level 2 access from your brokerage which is easy to get, most of the time you just have to fill out a form.
Let me give you an example of a covered call.
Say you own the stock TER (Teradyne, a company I used to work for). Say you bought it at $7. On 1/27 the stock was trading at $5.09. Now you are $2 in the hole. You probably don't want to sell it because you think it might go up. Now the stock has not moved much in the last month or so, and you are not sure what to do. So you probably want to sell it the next time it goes up or you could sell a covered call.
If you look at the options for TER, you can see that the February $5 call option is selling for .50. What does this mean? A call option is a contract written by a seller that conveys to the buyer the right — but not the obligation — to buy a stock. So if you buy a $5 call option, you have the right to buy the stock at $5 no matter what the price of the stock is. The option usually expires on the 3rd Friday of the month. Now I have learned that you don't make money buying things, you make money selling things. So, what you should be doing is selling the call option. When you sell the option, you collect the .50, or what is called the "premium."
So if you own 100 shares of TER, you can sell 1 call option (1 option gives the right to buy 100 shares). So say you sell the .50 Feb $5 call. You will get .50 upfront. So let's see what happens:
1) If the price of TER is $5.25 on 2/20 (3rd Friday) the option will execute and the person who bought the option will pay you $5 per share. So you would have gotten the .50 plus $5 for a total of $5.50/share.
2) If the price of TER < $5 on 2/20, the option will expire worthless and you can keep the .50 that was paid upfront. Of course, you would have lost money on your shares. You can always sell the option again for the next month.
3) If the price of TER is $6 on 2/20, the option will execute and you will be selling your shares for $5.50.
Now, once you sell a call, you cannot sell your shares unless you buy back the call. So if your stock is tanking, you need to buy back the option. Of course it will be cheaper than when you bought it. An option will be more valuable if the market thinks that the price will move, this usually happens before earnings come out. Also, you will receive a higher premium if there is a longer time to expiration. There is a lot more to options, but this is a good way to start. If you have questions, let me know.
Let me give you an example of a covered call.
Say you own the stock TER (Teradyne, a company I used to work for). Say you bought it at $7. On 1/27 the stock was trading at $5.09. Now you are $2 in the hole. You probably don't want to sell it because you think it might go up. Now the stock has not moved much in the last month or so, and you are not sure what to do. So you probably want to sell it the next time it goes up or you could sell a covered call.
If you look at the options for TER, you can see that the February $5 call option is selling for .50. What does this mean? A call option is a contract written by a seller that conveys to the buyer the right — but not the obligation — to buy a stock. So if you buy a $5 call option, you have the right to buy the stock at $5 no matter what the price of the stock is. The option usually expires on the 3rd Friday of the month. Now I have learned that you don't make money buying things, you make money selling things. So, what you should be doing is selling the call option. When you sell the option, you collect the .50, or what is called the "premium."
So if you own 100 shares of TER, you can sell 1 call option (1 option gives the right to buy 100 shares). So say you sell the .50 Feb $5 call. You will get .50 upfront. So let's see what happens:
1) If the price of TER is $5.25 on 2/20 (3rd Friday) the option will execute and the person who bought the option will pay you $5 per share. So you would have gotten the .50 plus $5 for a total of $5.50/share.
2) If the price of TER < $5 on 2/20, the option will expire worthless and you can keep the .50 that was paid upfront. Of course, you would have lost money on your shares. You can always sell the option again for the next month.
3) If the price of TER is $6 on 2/20, the option will execute and you will be selling your shares for $5.50.
Now, once you sell a call, you cannot sell your shares unless you buy back the call. So if your stock is tanking, you need to buy back the option. Of course it will be cheaper than when you bought it. An option will be more valuable if the market thinks that the price will move, this usually happens before earnings come out. Also, you will receive a higher premium if there is a longer time to expiration. There is a lot more to options, but this is a good way to start. If you have questions, let me know.
Sunday, January 25, 2009
Prosper
Prosper is a site that I was skeptical at first. But it's one of the only places that I have made money on. Basically you deposit some money in a Prosper account and you loan it out to people, you are like a bank. People will present their reasons why they need the money (starting a business, paying off other loans, etc.). Prosper also gives their own credit rating to the person based on their credit score and other items. Since I was skeptical, I only put $500 and made 15% which is great. I wouldn't recommend putting a large amount of money, but around $1000 would be good. Prosper isn't accepting new lenders right now since they are doing some type of filing but should be accepting them once the filing is done. Something to try out....I have to give credit to Tony Thomas (my best follower) since he introduced me to this site.
Sunday, January 18, 2009
Some good links
Every now and then I'll find some I'll find some good articles worth posting. Here's 2.
- India seems to know how to do banking. Maybe Dr. Reddy should be our new treasury secretary or new chairman.
- This guy might be the only guy worth listening to. Also, click on the link for his 2008 predictions, he was right on.
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