World Events and the Market of Up and Downs. Lesson 122

 

  News, local or global causes the market to either advance, or decline. When the bulls are in control, and profits high, the slightest negative news is a reason for a sell-off sending the market or a stock down. Investors like to see reports that are issued on a regular basis with numbers that are better than expected, when that happens, bulls continue running. If reports are lower than expected the bears take over, and the market pulls back.

  Always buy stocks you understand. By understand, I don’t expect you to know every detail about the business. You need to know something about the business, and how it makes its money.  For example, restaurants receive food products by truck, prepare and sell meals to customers. This is enough information so that I understand that fuel prices (gas and diesel) would have an effect on the restaurant’s margin. Continue reading, and decide if you think what is happening in the Middle East and North Africa would have an effect on a local restaurant chain.

  The last few days have been interesting for investors. Questions about, what world crisis, or financial crisis is coming, and how will the stock market react?  Today March 19, 2011 the Middle East Crisis is front and center, with a huge concern of a reactor melt down potential in Japan, caused by an earthquake, and tsunami.

 First the Middle East; More than three weeks ago, Egypt's people demanded a new leader, and government. Today celebrations of victory, with the Egyptian army taking temporary control of the country, and promising free elections, with a new government.

 More recently we have seen the entire region demand removal of their leaders, and protest for a new government system with elections. The world is watching, and worrying about problems with getting crude oil out of the area, and what will happen to the Suez Canal? Will there be restrictions to ships passing through? Will the oil fields be burned by their leaders as they battle to remain in power, and how many of the population, that are protesting, will be killed by their own armed forces?
 
  Heavy gunfire broke out in Libya's capital as forces loyal to Dictator Moammar Gadhafi opened fire in the city’s streets a day after the longtime leader called on supporters to crack down on anti-government protesters. The world doesn't know if Gadhafi will set fire to his countries oil fields. The fear is that he is in a position to do so, if he wishes. This is sending oil futures higher, even though oil inventory in the United States is over 90% of capacity. Investors are asking, if the price of oil continues rising, raising the price of gas and diesel, how much less will the consumer be able to buy of manufactured products at stores? A higher price at the pump for gas in a car is like a tax on the consumer, reducing household money allocation.
 
  Libya, Yemen, and Syria are in focus. While we continue to have airstrikes in Libya to keep Libyan citizens from being killed by Gadhafi's army, the unrest in Yemen, and demonstrations in Syria, oil price will continue to rise. Today Libya is off line for the foreseeable future in oil production. Saudi Arabia is producing extra oil to make up for the shortage of oil from Libya. The type of oil produced in Saudi Arabia is called ‘Sour Crude’ which is harder to refine into gasoline. ‘Sweet Crude’ is what refiners really want as they go into summer refining. The reduced availability of ‘Sweet Crude’ will keep the price of oil high.
 
  Food and gas are needed purchases; both are more expensive, leaving less or no money to buy manufactured products that would help our economy grow. When there is less money in the average house hold, spending goes down on manufactured goods, and new hiring by companies cannot grow. Without more people being able to get jobs, because there is no hiring, new home and existing home sales will continue to slump, depressing the value of homes, and delaying the need for construction of new homes (no construction workers needed). The housing problem can only be corrected by people having jobs.

  Now that Gadhafi is killing his own citizens in his desire to remain in control, and the world plans to stop the killing, what will happen moving forward? The world’s powers have decided to work together to stop the killing by Gadhafi’s army and air force of civilians, by using military action in the form of bombings and missiles. The foot soldiers are the protestors (citizens) that want Gadhafi out of power.
 
 Oil operations in Libya have shut down as chaos continues. The price of crude oil is holding on to two-year highs. As I write this, crude is $104 per barrel. Markets expect the price of oil to continue rising to the range of $150 or $200 a barrel within a year. Gas prices at the pump in the U.S. are above $3.40 a gallon, and diesel's price is more than $4.50 a gallon. Both gasoline and diesel prices continue rising for the consumer.
 
  A higher fuel price means that the movement of products from manufacturing to the consumer will increase. The higher cost of shipping will then be charged to the consumer, in higher product costs. The price of jet fuel will be a higher percentage of an airline's operating expenses, costing more per seat, and charged to the passenger. This makes travel more expensive, and the shipping of items by air more costly.
 
  Second big item; The quake and tsunami in Japan has caused huge areas of destruction, with 9,099 bodies collected so far, while 13,786 people are listed as still missing. The loss of life is huge and so unfortunate. Had Japan not had an earthquake warning system, many more would have died.

   Manufacturing in Japan is delayed because of infrastructure problems. Power, rail, and roads need to be returned to use to be able to remove all the debri in the areas damaged by the quake and tsunami. After the clean up, roads and rail can be used to move equipment, materials, and supplies for the rebuild of the country. The manufacture of products by industries will follow to rebuild the economy. Japan’s nuclear power plant that ran six reactors in the facility was in danger of a melt down, and was unable to produce power. Rolling blackouts to conserve energy were used for a short time, making operating a factory intermittently impossible.
 
  Corporations had other problems; getting parts. Toyota is delaying reopening its 12 Japanese assembly plants till Saturday. Six days beyond the day the company had planned to reopen. Sony is cutting production at five more plants. The delays in factory restart-ups for Toyota, Sony and others are caused by disruptions to corporate supply chains, which are escalating. If suppliers are unable to produce and deliver the products needed to the factories that produce the finished product, factories remain quiet. Honda Motor Co. is extending its suspension of car and motorcycle production in Japan until Sunday, amid a shortage of parts because of the earthquake, and tsunami. The number of vehicles they were unable to produce is over 20,000 units.

  Today March 21 2011 two days later since starting this blog, investors have changed from a position of fear, to a position of, things appear a bit better. The reactor problem in Japan appears to be more under control. The Japanese Fukushima power plant, which had been in danger of the melt down, of several of its six reactors in the facility, had power lines reconnected by its workers to all six reactor units. This is a significant step in bringing the overheated complex under control. This alone made investors feel better (fear reduced).  Problems of getting uncontaminated water and food, to its people continue. Some food and water supplies have been found to have low levels of radioactive contamination.
 
  Japanese markets opened after a long weekend. The Nikkei 225 (Blue Chip Companies) is back over 9500. The index has gained nearly 17% since the low of the quake period. Why the sudden rise in the Nikkei? Investors seem to be jumping back into risky Japanese assets again. They are beginning to see a positive outcome to the reactor story, and for the people of Japan. Japanese stocks jumped more than 4% today on the nuclear plant progress.

   Japan’s demand of oil is currently down, but it is expected to increase import demand of oil, diesel fuel, and LNG in order to generate power. On this expectation oil prices will rise. As an investor in stocks or the funds in your work place retirement account (401K or similar), we need to pay attention to our investments frequently.
 
  The world is constantly changing, and because of this, our investments could grow on good news, or fall in value on bad news. Those that put there investments on auto pilot complain when they receive a monthly statement, because they lost so much. A loss can be controlled, but only if you’re watching. A once a month look at a statement is the way to lose value in your portfolio, or individual stocks. Stay invested not only in the market, but also in your portfolio.
 
  Know where you money is, and how global events and global economics can affect your investments.
   Good Investing,
    Bruce Cortez

  For more information on investing in the stock market visit http://www.YouControlinvesting.com  Ask for your free Lesson 1 to get started in understanding investing in the stock market.

What Assets to Buy? Lesson 121

  There are two kinds of assets to buy. One is the asset itself that delivers a return to you (a rental property, stocks, a farm). Then there are the assets you buy, that you hope somebody else pays you more later on, but the asset itself doesn’t produce anything (art, gold, etc,).

 

  Those are two different games, and the second can be regarded as speculation. Speculation is a belief that price will go up or down (depending on the needs of the investor). Only demand, shortage, fear, or a lack of these will move the price higher or lower.

  For the average investor there is a lack of time to constantly follow the market gathering information needed to be able to take an educated guess on the direction of oil, cotton, soybeans, corn, silver, gold, etc, in a timely manner to be able to benefit the portfolio in a positive manner. Remember, old news is news after the fact, and too late for entry into the market to be of use.

  The second type of asset, which I favor are stocks. When you look at a stock, as a business, the decision to buy or not is made much easier. As in any business we want to know what the growth was historically, and what will be the future growth. The simple questions are, was the business doing well in the past, and can the business be expected to continue doing well?

Investing with confidence, means you have the knowledge to gather and understand the information provided about the stock you’re considering.

At www.YouControlinvesting.com each step is explained in our course, so that anyone willing to put in the effort to understand stocks can profit.

  There is a wealth of information available to the stock investor to determine past and future business performance. At www.YouControlinvesting.com you will learn to always start with Return of Invested Capital (ROIC), to find the best stocks for further fundamental analysis. With ROIC we can learn if management puts all company assets to good use. When we find a company with ROIC, at a growth rate of 10% or greater, that is a good start.

 There is more information available to the investor to determine the growth rate (very important), or non growth rate (equally important, to prevent loss of your investment).  When considering a business, we will look at Earnings Per Share (EPS), Revenue or Sales (the same thing), Equity, and with ROIC, we can understand how the business performed in the past, and estimate future performance.

  With all the above information, we can also determine the correct price to pay for a business. Remember, that the price of a business (stock) you see on your computer, is the price the last person was willing to pay. Did that person pay too much? You need to know. Paying too much for anything will make it hard to find somebody willing to pay even more to give you a profit.

  Paying only half of what a stock is worth is an important part of investing. If the current price of a stock you are considering is priced at $40, and you determine that what it’s worth is $30, that is a savings when it comes time to buy.

 

  To save even more visit www.YouControlinvesting.com and ask for your free Lesson 1 about  ROIC to get started.

 Stocks are a part of a business. A quality business has the ability to make money over time. Look for a business that has consistent predictable growth rates. Consider any business with the idea of buying the entire business. Spend the time to do the work needed (research) before buying. When you buy a quality business, and the stock moves lower because of the market, you will know the only reason the price is falling, is not due to the business being of low quality, but only due to the market.

  Think of it this way, buy a house at half of what its worth, a good price. This allows you to make a profit when you sell in the future. Now the price of houses in the area falls because of the housing market. There is no change in the quality of the house, or the ability for you to sell it in the future to make a profit. If you had the money, you would buy a second house at this even better lower price. Over time the value of the houses in the area will return to where they were when you bought the first house, and rise above that level, allowing you to sell both houses at an even greater profit as planned.

 Buying more of your quality business as the stock falls, is an opportunity to create more wealth when the price bounces back. By paying only half of what a business is worth allows more shares to be bought. Knowing what the business is worth allows you to buy more as the price falls, due to the markets’ normal moves. This gives you confidence and allows you to sleep at night.

There is no trick to investing in stocks. We don’t buy and hope. Past company performance, and expected future performance are two of the things needed to find quality companies to invest your money. Visit our site, www.YouControlinvesting.com  and get started on your way to understanding buying and selling stocks to create profits. 

    

Good Investing,

      Bruce Cortez

Things Never Remain The Same Lesson 120

  In the past, the investor could pick a stock and forget about it. The expectation was for the stock to increase in value, and when the money was needed from the investment it would be there consistantly.  The details of how the company operates, its earnings, balance sheets, dividends, revenue, return on invested capital, return in equity, debt ( long and short term) were of no concern. The investor of the past expected the stock that he owned to rise as reliably as the sun rises each morning in the East to begin another day.

  The investor expects the stock to rise in value each day and each year without having to do anything at all except to pick a stock, then forget about it. Like a plane in flight, the passenger thinks that the pilot needs only to set the autopilot, he will then take a nap, and when near the destination airport, he will wake-up, take the controls, and land the plane. Because of the pilots knowlege of the many problems he must control to have each and every flight have a successful completion, he pays attention to each and every detail of the flight.

  The mentality of the past, of putting a stock on auto-pilot and forgetting about it, is the worst thing that the investor of today can do. In the path of a plane is high terrain, weather, equipment malfunction, and more. In the path of the investor we have world economic problems, weather, competition in the market place, new financial rules set forth by the Fed Reserve, inflation, and interest just to mention a few. To fly a plane instruction is needed to be a pilot, and to invest instruction is also needed.

  The new and advanced investor should know that the market is always changing. Today as I write this China is planning to start buying Euro Zone debt to back the euro currency, just as China has been buying U.S. Treasuries to back and support the dollar. China wants to diversify itself in currencies, because it does not want to rely uniquely on the U.S. dollar. This will effect the investing markets.

  China is planing to build airliners, and sell them world wide. The effect of this on Boeing (BA) will be huge, and with China trading at an unfair advantage due to their currency manipulation Chinese made airliners are expected to be priced well below those made be Boeing.

  China is worried about a lack of jobs in their country, and inflation. China is doing things to slow their economy. The world sees this action as a lower demand in commodities. Commodity markets see this as a reduction in need. Prices are falling for crude oil, wheat, gold, silver, copper and other metals. Stocks that are involved in commodities are also being effected to the down-side, and at the same time the dollar is stronger.

  Weather has a great effect on what goes on in the markets. Cold freezing weather damages many crops, which effects companies that require the crops to create revenue, like Del Monte (DLM). Del Monte will need to pay more for what's left of the crops needed to produce product, because of this, profits will be reduced. High winds that damage property are a plus for companies that sell tools, nails, and wood for pre-storm protection. Then after the storm these same companies supply the tools, nails, wood, and paint for the repairs. Two companies in this area that everybody knows are Lows (LOW), and Home Depot (HD).
 
  Anyone planning to place their money in the market either by buying stocks, or by being in a work place 401K or similar retirement account needs to be informed as to the hazards when investing. Just being told that the options are 'low risk',  'medium risk', and 'high risk' is not enough. What is ment by risk? Most people don't know, so they mark the same box as the other guy who also doesn't know. There is comfort in being with a group who do the same.

  As a pilot completes his preflight cockpit check list, he makes sure the attitude indicator gyro is spinning to provide horizon and wings level information, the compus is correct in relation to the runway he's on, flight controls are free and correct, before beginning his take-off run. Then as the flight progresses he is vigilant as to every need of the flight by constantly getting current information concerning  his flight.

  The investor needs to always pay attention to the stock he or she is planning to buy. All the information needed is provided online free of charge. Yahoo.com, and MSN.com are only two of the many sites that offer this information for free. For instructions to get started visit http://www.youcontrolinvesting.com/ and ask for your free lesson 1 about ROIC. The lesson is free, and the instructions will let you know that you can be a profitable investor.

  If your money is in a 401K or similar account, you still need to watch your money. A 401K account normally offers funds, which are a blend of stocks and bonds. Because funds have stocks as part of the 'package', you should take a look to see what companies (stocks) are in the package. If you see that the fund is heavy with banks and other financials, which you believe are bad to own at this time, then you should look at another fund being offered. The funds Prospectus is yours for the asking, and explains everything about the fund.

   The money manager is the person or persons that created or guides the investment direction of the fund.  If you don't have an interest in doing alot of work in researching for the best fund for you, or the information is overwelming, then we can keep things simple. This is not the best thing to do, but better than nothing.

  Start by learning the ticker symbol of the fund you are looking at. The paper work you received about your retirement account should have it, or perhaps going to the website of your retirement account, will provide you with the ticker symbol. Example; ticker symbol (FCNTX) for Fidelity Contrafund. Now with the ticker symbol in hand we go to the computer and in the address window type in Morningstar.com and click.
  Morningstar is all about fund research, it's what they do. In the 'Quote' window type in the fund symbol, and click again. What you will see is all the information about your fund, and what you're looking for is the name of the person controlling your money. For (FCNTX) the name William Danoff is the manager. If a fund is managed by a 'Team' or similar (no names given), I would move on the the next fund on my list.

  Look on the Morningstar page for articles about the funds' money manager to learn about his skills in making money for the fund. If you want more information about the manager, go to google.com and type in the managers name. If you learn that the manager cannot make money when all is wonderful, then stay away from the fund, but if the manager is making money when everything is filled with doom and gloom, then that's the person for you. It takes time, but you can eliminate the bad from the good.

  For more information on investing email me Bruce@YouControlinvesting.com or visit http://www.youcontrolinvesting.com/ and go to our 'Contact Us' page. We look forward to helping you understand investing which will give you a brighter financial future.

                         Good Investing,

                          Bruce Cortez

  More information, with daily market updates at www.Twitter.com/StockMktTeacher , come follow me.