Tuesday, 23 June 2015

Weekly Investor #2

I see your gambling addiction and raise you purpose

Gambling_stock_market

In my previous article I wrote on what the stock market is and the basics of trading stocks. I also mentioned that this is not a weekly article, rather, I’m a person who checks their portfolio on a weekly basis.

What is a portfolio?

A portfolio is the hand of cards you are dealt. Or in investor terms – a list of all the companies you own shares of.

 

Unlike a casino though, you are the dealer – and supposedly the concept where “The house always wins” should technically apply to you. Except, if that were always the case no one would ever go to the casino – and – as the dealer it is important that you implement a system where you can maintain profitability. To do this you will need to know the rules of the game.

The first and main rule of the stock market is:

Buy Low and Sell High. I really don’t need to explain this… It’s more than obvious, when you sell the same thing for more money then the difference is all profit. If the act of selling your stocks is the equivalent to playing a hand of cards – then – you want the most valuable cards in the game. right? do you? The problem here is the cards you deal yourself may have values – but those values aren’t stamped on the card, if you buy the card with the Apple logo on it, you can argue that this card is the most valuable but what is the likely hood of that remaining the most valuable? and will you be able to sell it more than it is now?

Here is a chart of the most valuable companies in the world – and as big as they are – they seem to vary greatly in the ranking where over a span of 6 years there have been 25 companies in the top 5.

 

Top5MarketCapRanks14

 

Alternatively, the least valuable stocks are not subject to the inverse logic as the saying “the only way to go is up” doesn’t really apply as companies regularly get delisted from stock exchanges for poor performance, and the fail rate of business is shockingly high even in good economies. As I write this I am reminded about this fact as one of the earliest valuations/purchases I made finally got delisted: “Groupe Bikini Village” representing a card in my hand for what must have been near 10 years. I purchased this stock when it was most valuable – and today – it’s worth nothing on the stock market  as it doesn’t meet the requirements to be traded on the Toronto Stock Exchange – I will sourly miss the $200 I invested in that company that deals in product I would never personally purchase myself. (yes, there is a lesson here, but I’ll save that for another article)

Screenshot 2015-06-23 14.21.40

 

The truth is, how you value a company is an investment strategy that you will have to develop on your own, with considerations for risk and hopes for reward. There are plenty of resources for that out on the world wide web – and maybe – I will outline a few in upcoming postings. The real question is:

Why invest with the stock market?

The idea that you are trading with people who share the same interest of making money over anything, even at your expense, is a daunting one. Trading in the stock market can be compared to jumping into a shark tank and pretending you are  a shark yourself. It’s really hard to assume you are likely to win any money in gambling in such a way – and anyone who is ignorant to the risks involved really doesn’t know the stock market.

 

This dark perspective can be applied to every aspect of life though, you don’t really work a job strictly for the love of the job, you do it for money. There is an element of “greed” or in the case of a job “survival” that takes precedence over other factors to what it is you do.

 

No, you’re not a shark.

 

You are simply a person who has been given money – and I hate to break it to you but money means nothing…. until it is spent. The value of the $50 you have in your drawer is determined when you buy something with it. If it gets you a car or a slice a pizza it is then the value of that $50 is recognized.

 

Storing money puts it subject to inflation, as it will buy less and less over time, so it is important that we invest through the purchase of assets. The problem is, there are a limited set of tangible assets an individual can buy – and a crazy ton of tangible liabilities – like that Refresher Tea-Juice thinger at starbucks. I personally find it expensive, and the taste really isn’t there for me. But – rather than treat Starbucks as an individual that is in the business of taking everyones money – and hating people around you because you believe they will remain successful at doing so, the stock market enables you to “Be Starbucks” or at least, be a part of “Starbucks” and take ownership of their success. This inherent freedom both drives the economy and allows individuals of a society to have access to assets/wealth generated from the society.

 

That money you use to buy into the company then is leveraged by the company to invent the next pumpkin spice latte, next generation of consumer technology, go to space, drill for oil, build solar panels or whatever people do next.

 

You are funding the society of tomorrow.

The most interesting thing about this concept is, if you can realistically figure out what the future holds for society – and can identify what companies will bring that future to people, you will likely be rewarded quite well.

 

/Regards

 

 

References:

  1. https://en.wikipedia.org/wiki/List_of_public_corporations_by_market_capitalization#/media/File:Top5MarketCapRanks14.png
  2. http://www.tmxmoney.com/HttpController?GetPage=ListedCompanyDirectory&ListedCompanyTab=RecentlyDelisted&Market=V&Language=en

Friday, 5 June 2015

Weekly Investor #1

Welcome to the stock market

 

Don’t let the title fool you, I do not intend to post every week a column on investing – rather – I intend to post some information I have picked up as someone who dabbles in trading on a weekly basis.

 

The intention is to unveil information that is essential for the casual investor, or share some pointers for those interested in investing!

 

lets start at the beginning…

What is the stock market?

If you have a quantity of anything that can be sold, you have something in “stock”. A registered business itself can be bought and sold, as well as divided into different sellable quantities.

Each (equal) division of a business is considered a “share” and the process of selling those shares in quantity and publically are done formally through a stock market.

 

The market I use primarily is the Toronto Stock Exchange because it’s the market most local to me --- there is usually no issue with trading internationally and I dabble in other “exchanges/markets” from time to time. Just be aware that foreign ownership tax rules, legal limitations, and currency exchange comes into play when you trade abroad – so if you are starting out, stay local.

How do you trade stocks?

To access the stock market you will need a “broker”. Only brokers are allowed to buy and sell stocks in a process called “trading” and how this process is done is quite magical and completely unknown to me. All I picture is a big group of guys on a dance floor waving papers in the air yelling out numbers. Anything less would be disappointing. How trades are done should be none of your concern, it is more important to identify which broker/brokerage firm you use as they will facilitate the trading on your behalf.

 

For casual investors, here is a list of online (discount) do-it-yourself brokerages you should use:

  1. TD Waterhouse

Yes, that’s it. I shopped around and the fees embedded on other services are too overwhelming and complicated to keep up with. TD is simple, $10 per trade. No annual fee, no monthly fee, no minimum trade fee, no maximum trade fee, and very few conditional fees.

 

Remember the act of buying and the act of selling stocks/shares of a company is considered a “trade” therefore you should always factor in the brokerage fee twice, once each for when you buy and when you sell stock.

 

 

If you want to make any corrections, or have any suggestions for anything I wrote above. Leave a comment.

 

Regards,

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