Fast growing oil prices and huge losses within the financial industry caused by the credit crunch in most parts of the world are blamed for falling stock market prices in US and UK. The Dow Jones index at the new York Stock Exchange was sliding rapidly into a bear market during Friday.

In London, the Stock Exchange was not falling quite so fast but if recent trends are anything to go by, they will follow suit and may find themselves slipping into a bear market faster than economists expected.

We hear terms like ’sub prime market’, oil crisis and bear market everyday but no one really stops to put the whole thing into simple terms. This isn’t an easy job to do. To interpret what is in effect, ‘economist speak’, is not the simplest of things.

We hear news stories like this but no one explains what it means. It’s full of stock exchange ‘speak’.

The term ’sub prime market’ refers to those lenders who were only too keen to lend money for mortgages to people who they know would struggle to keep up repayments. I say ‘were’ because they aren’t too keen any more. It’s a case of ‘once bitten, twice shy’. The companies who lent money to people who are now struggling because of the rapid increase in fuel prices and the associated hike in food prices, have only themselves to blame. The trouble here is that they were falling over themselves to lend money when the going was good and as soon as things looked rocky they wanted it back. It’s just like lending someone an umbrella when the sun is shining and wanting it back as soon as it rains.

The oil crisis needs no explanation and there are many different reasons for this. The thing that concerns us all is that prices are rising again worldwide and demand will soon exceed supply.

All these things combined with media driven panic mongering, push the world’s stock markets into ‘bear markets’.

A bear market on the stock exchange is a period of time when things are depressed and doom and gloom prevails. Investors get edgy and panic that they might lose money on their investments so they sell their shares. When there are a lot of shares on the market, prices drop and so more investors panic and sell, and so it goes on. On a personal level, pensions are hit and investors can no longer live on their money.

Things do not seem to being recovering very fast despite what the media tells us. The proof we all need is see jobs available, reasonable prices in shops and affordable new homes and cars.  I’m afraid it will be a long haul.

What happened was this:  A Brokerage House (and subsequently, several other major brokerages) was caught with its corporate hand in the cookie jar.

Here’s how it works (or, at least, is supposed to): let’s say that a company needs a hundred million dollars or so to expand. It approaches a financial service firm , seeking to sell new issues of its stock, thereby obtaining the capital it needs.  The Brokerage House then does its homework on the company. If the company’s prospects are economically viable, the Brokerage House will have its brokers attempt to sell you—in legal terms, the “client”—shares in the company.

The Brokerage House is rewarded how much? Let’s be conservative; call it $5 million or so (plus other commissions and fees) for placing the stock with their huge 14,000-broker army, which is spurred on to sell the stock.  Sound fair so far? When it works properly, it is.  But issuing new shares dilutes the per-share ownership in a company, which can have an adverse impact on both existing shareholders and those who purchase the new issue. Or it could be that the company is in an industry that’s not projected to fare well in the near term—making buggy whips comes to mind here. But for whatever reason, the circumstances indicate that an issue of new stock is not always a great deal for investors; as an advisor to individual investors, the stock broker is supposed to wave its clients away from less than-advantageous stock purchases.

However, investigators find out the Brokerage House was releasing glowing reports on the public offering, aggressively urging clients to buy the new issue.  The problem: the Brokerage House already knew the stock was a dog; confidential internal memos among officials said, in effect, an investor would have to be crazy to invest any money in the security.  Meanwhile the Brokerage House was pushing it hard, eagerly pocketing commissions both from the issuing company and from clients they convinced to invest in it. When the stock tanked—which it did, emphatically—a lot of individuals lost a lot of money.  Sadly, this was not a unique case. In fact, it’s been standard operating procedure for a very long time.

Well, what’s up is the game. It’s over, but you don’t know it yet.  Once you went “all in”—a poker term that indicates you’ve ante’d up every penny you have—your value as a client plummeted.  Aside from some minor sell-a-little/buy-a-little chump change, your account has been milked of any potential commissions.  The broker knows that you are unlikely to make major changes in your investments in the foreseeable future—so why bother with you? You have become the albatross around his neck. There’s no incentive to spend valuable time answering your questions when he could be busy snaring another investor—fresh blood that will pump more money to his (and his firm’s) bottom line.

Over time, you’ll probably threaten to move your account. Fine with him—by now, he’s earned all the commissions. If someone else is left holding the bag—i.e., “servicing your account”—that’s no problem for him, and it’s usually your new broker.  Why? You are once again fresh meat. Your new broker sympathizes with you over how you were treated—and then declares your existing portfolio to contain more dogs than the American Kennel Club.  She makes an enthusiastic case for selling out all your positions now: “you have to bite the bullet and eat the penalties before it’s too late!” And of course, she has her own program of investments for you to buy into—and her own commissions to collect.  In most cases such as this, you’d be hard-pressed to find anything but a predator seeking your business. In such circumstances, an honest broker would decline to handle your account. He would tell you the sad truth: he cannot legitimately earn any fees from you. If he took on everybody in your situation, he would bankrupt himself. 

Ever wonder how the commission is divided at the average Wall Street retail brokerage house? It depends on a host of factors, including:

• How long the broker has been in business (the longer he’s been in it the more is expected out of him in annual commissions)
• His total commissions earned to date in the current year (the more he earns, the more he gets to keep)
• Any contest that may have been running at the time, and
• The type of investment you bought

With minor variations among the different brokerage houses, a broker will usually get from 25 percent to 50 percent of the total commission earned for his efforts. The balance goes to the brokerage house. It’s what pays for all the local-office expenses; the expensive local, regional, and national advertising campaigns that draw new business.

Now that you’ve retired, your income may come in several different forms. You may get returns on your personal savings. You may receive a pension or be able to take withdrawals from retirement accounts. You may be receiving (or entitled to receive) Social Security benefits. Each source, standing alone, may not seem like a whole lot of income. But put them together, and you may be surprised at how large your monthly income really is.

All those years you saved and saved, and for what? A rainy day. Well, here’s that rainy day. Now you can begin to use your savings to give you retirement income. Instead of putting money into these investments, you can begin to take money out of these investments.

• Bond mutual funds – Interest
• Certificates of deposit (CDs) – Interest
• Commercial annuities – Income
• Common stock – Dividends
• Corporate bonds – Interest
• EE bonds – Interest (free from state tax)
• 401(k) plans – Income
• Money market funds – Dividends
• Municipal bonds – Interest (tax free)
• Pensions – Income
• Preferred stock – Dividends
• Real estate investment trusts (REITs) – Dividends and/or capital gains
• Regular IRAs – Income
• Roth IRAs – Tax free if withdrawals taken 5 years

1. After initial contribution and on
2. Account of being 59½ or meeting
3. Other conditions

• Savings accountsInterest
• Stock mutual fundsDividends and/or capital gains

You don’t get any income (or capital gains) when you’re only getting back what you put in (called your basis or investment). So, for example, when you buy a commercial annuity, the only part that’s income is over and above what you put in. Each annuity payment, then, represents a return of your own investment and income earned on the investment; you’re taxed only on the income, not on your own investment.

In terms of what you have to spend, it doesn’t really matter whether the income is labeled interest, dividends, or something else. However, it’s important to know the label because this affects the tax treatment of the income. In the end, it’s after-tax income (what you have left to spend after you’ve paid your taxes on the income) that matters.

For example, you live in New York and receive $1,000 interest from a GM bond and $1,000 interest from a NYS Triboro Bridge and Tunnel Authority. Are both payments equal? The answer is probably no. Let’s say you’re in the 28% federal income tax bracket. After paying tax on the GM bond, you’ll have $720; however, there’s no federal income tax on the NYS bond, so you’ll have the entire $1,000 to keep. But don’t also forget the impact of state taxes. States with an income tax typically levy it on out-of-state bonds but not on in-state bonds (in the preceding example, the NYS Triboro Bridge and Tunnel Authority bond was an in-state bond for a person living in New York). But state income tax applies to both in-state and out-of-state bonds in Colorado, Illinois, Iowa, Kansas, Oklahoma, and Wisconsin. No state income tax applies to in-state and out-of-state bonds in Indiana, North Dakota (if the state’s short form is used), and Utah.

In addition to income on your savings, you can generate payments by using up your capital. For example, suppose that you’ve saved $50,000 that you’ve invested in CDs. As they become due, you can use some of the cash rather than buy new CDs (you can always tap into your CD before it matures, but you’ll pay a bank penalty). You can spend this cash as retirement income.

You will need to open an account with an online stock broker, I use Ameritrade and have been very happy with their service. However, you have a multitude  of brokers to chose from so that is up to you. Most online accounts require that you have a minimum of $2,000.00 to open an account before you can begin trading. All the paperwork for opening up an account is very simple and easy to understand.

Now that you have that out of the way your next step is to select the stock you would like to purchase.  Perhaps, you haven’t a clue of what to buy and don’t know how to get started. If this applies to you,  I would suggest you start  with a company that you do business with on a daily basis such as; McDonald’s,  Walmart, Target and Lowes. These are companies that you are familiar with and for the most part we all hope they are companies that are going to be around for years to come. Therefore, making our first investment somewhat safe but still realizing we are taking risk.

My next suggestion would be  to take your $2,000.00 dollars that you opened your account with  and divide it three ways and allocate  $600.00 each for the three stocks that you wish to purchase.  With this amount of money you are going to be purchasing only a few shares but that is fine because you are doing something that you have never done before and you need to learn how to crawl before you walk.

Now that you have purchased your stocks,  plan on holding them for several years and as time goes by they should increase in value. However,  from time to time when you have some extra money you might want to purchase more shares of  the stocks you are holding in your portfolio or purchase other companies.

Buying stocks can be very rewarding and can certainly help you reach your financial goals. Just remember, you are investing and you can’t  invest with scared money. It must be money that you can afford to toss out the window.

Next, search the web to see if any of industry analysts cover the relevant area. A lot of their research has to be paid for, but one way to get some basic information is to look through their press releases. That might give you the size of the market, together with some estimates for growth and a flavour for the competition.

Your next step is to find who the competitors are (either from the company or from the industry analysis) and check out their web sites. Does what they are saying about the market tally with what your prospect company is telling you? How does their rate of growth compare?

This is half the job done. But to go a bit further, let’s use Porter’s ‘Five Forces’ to analyse the market. We’ve already considered the obvious competition to your investment prospect – but there are other aspects to a market too, and the next stage is to look at those. (If you haven’t come across Porter’s five forces before, they are: buyers, suppliers, substitute products, new entrants, and existing rivals.)

Research the buyers. What are their characteristics? How many are there? Some companies have a massive dependence on single large buyers – for instance firms making aircraft components might only supply Boeing and Airbus. Who’s got the upper hand? Intel, for instance, clearly has a strong hand when it’s dealing with computer manufacturers, since its product is crucial to the performance of their PCs. You might also want to look at buyers’ margins (if they’re corporate) or levels of income (if they’re individuals) – that will give you an idea of how price sensitive they might be.

Research the company’s suppliers, too. Again you’re looking for the balance of power. Is the company reliants on a single supplier, or can it source competitively? How important is the resource they need to the company’s product – does it matter if it’s a bit lower quality?

You’ll also find that suppliers, and perhaps corporate buyers, will also have views on the industry that will come across in their documentation (annual reports and investor presentations can be a great source of information). This is all grist to your mill in researching the market.

Don’t forget to look for substitute products. This is a step that’s often missed out and can lead to investment mistakes. For instance, if you researched the market for Customer Relationship Management software, but you didn’t realise that it was competing with ERP software as a substitute product, you’d have missed quite an important factor. You might need to apply a bit of lateral thinking to find the substitute products – but once you’ve done that, research the suppliers of that product, and its market, the same way you already did for your prospect company’s product.

Finally, look out for potential new entrants. This is a thinking task, rather than a research task – who might have an interest in entering the market? Might a supplier take over one of the existing companies, to move upstream and increase its margins? Might a customer want to enter the market – for instance, a retailer making its own products instead of buying them in? Could suppliers of products that address a similar customer base, or share similar base technology, expand their operations into this market?

Once you’ve done this research, and noted down your results, you should have a good feeling for the company’s market. Not just for size and expected growth – and remember, growth estimates have a habit of being wrong, as the dot-com boom showed – but for the dynamics of how the different companies involved relate to each other, and who’s going to make the real money. That should show you just what kind of stock you’re buying – and you know something? You’ll probably, by now, have as good an idea of that as the company’s CEO!

Strengths and weaknesses are both internal – intrinsic to the company. For instance it might be the lowest cost operator in its sector; that’s definitely a strength. You should look at all aspects of the company in assessing its strengths and weaknesses; for instance its marketing, in which brands might be a key strength, or focus on a particular demographic such as Generation X. But a strong balance sheet or access to funds through joint venture operations with better funded partners could also be key strengths, particularly in a sector like oil and gas exploration where many smaller companies are not well funded and may find it difficult to raise finance.

You’ll probably find with most companies that it’s much easier to fill one side than the other – there are five or six key strengths that you can think of, and only two weaknesses, or vice versa. That’s very useful to know – it is an indicator of the quality of the company. A company where you find it much easier to find weaknesses than strengths is probably not a good investment prospect!

Opportunities and threats, on the other hand, are factors external to the company – moves in the markets, or by competitors, of which the company can take advantage, or which might impact its operations. For instance, changing technology could represent an opportunity to reduce costs – for instance in solar panels, where bringing down the cost of photovoltaic panels could help create a much wider market for the technology. Government moves might pose a threat – for instance if a government expropriates assets, imposes tighter regulation on a sector, or increases taxes.

Again, if a company appears to have significantly more opportunities than threats, that’s an indication of a better investment prospect. Of course, you do need to think about the relative risks involved – if a company has four or five ways it could grow 10%, but the government might close it down completely, the risk/reward ratio is not good despite the apparent balance in favour of opportunity. That might be the  case, for instance, with online gaming companies – they have lots of room to grow, but a single vote in the US could close them down. That’s why online gaming companies have tended to be relatively cheaply valued over recent years.

Carrying out a SWOT analysis is easy and won’t take you much time. But it’s a great way to summarise the attractions of a company – and to take stock of the research you’ve already done.

Image via Wikipedia

Image via Wikipedia

Image via Wikipedia

Green investing may come with a heavy price to bare. Identify what  is truly a good Green investment verses a bad one. For big profits, the players will say go green. I say follow the money on the trends you choose to invest in. Yes Green is in and now we must pay close attention to the  new crooks who have a set plan to generate large profits off bad decision from average people.

The steaks are very high to change our current fuel consumption into BIO fuels for the future. Money will be made from these type of investments as company’s offer people simple portfolio on clean products. Look around in our world today, we are moving in a positive direction to  make living on this earth a health place.

Beware the Green Giant is laying it’s scam products on the line in our market as well. Just when you think your money is safe some wise old fool comes’s up with a better plan to steal every dime out your pocket. Hot Topic a must read:( http://www.mainstreet.com/article/smart-spending/bamboo-scam-beware-not-so-green-fabrics?cm_ven=msunited)

With all the public attention geared around saving the environment,  We must stay in touch with the bad apples who bring the great plans that lead you to bankruptcy. Make sure you get good advise when it comes’s to capitalizing on the hot trends in alternative energy.

The trouble with this strategy is that your capital itself will not grow. Indeed, its purchasing power will shrink as inflation takes hold.

Invest in equities, and if the company you’ve bought shares in pays dividends, this is how you’ll get your income.

The disadvantage is that the company doesn’t have to pay dividends – it’s up to management’s discretion. So your income is not quite as reliable as it would be if you’d put the money in a deposit account.

On the other hand, if the company increases its profits, it will probably increase its dividends. This will have two effects – both of which are in your favour. First of all, of course, it means your income has gone up. So if you invested in a stock that yielded 4 percent, but the dividend doubles over a few years, you’ll be getting an 8 percent return on your original capital.

Secondly, if profits increase, it’s likely that the share price will also rise. So you are getting capital growth in addition to increased income.

How, then, to pick the right companies for income?

First of all, use a stock screener to search for equities that are paying a decent yield. (Yield is calculated by stating the dividend as a percentage of the share price. A share that trades at a dollar and pays a dividend of four cents has a yield of 4 percent.) Typically, look for shares that are yielding from 25 percent less than a good deposit account, upwards.

Now this inevitably will be calculated on the basis of what companies paid out in dividends this last year. What you’re really interested in, of course, is what they’ll pay next year. Analysts probably have made their forecasts and you can always look at these. But analysts aren’t always right, so you’re going to want to look at the dividend cover ratio, too.

This shows how much margin the company has in paying its dividends. You take earnings per share, and divide by the dividend – so a company with 2 dollars earnings and a 1 dollar dividend has 2x cover. A good rule of thumb is that above 2 times cover is good – below 1.5 is risky. If earnings slide, a company with higher cover can still pay the dividend – a company with lower cover may see earnings lower than its dividend, and could be driven to cut the dividend.

(In fact, what determines a company’s ability to pay the dividend isn’t earnings but the balance sheet. A company can pay a dividend as long as it has funds to do so, whatever the level of earnings, and some companies which are cyclical or have high levels of fixed assets, like property investment companies, attempt to smooth their dividend stream over the cycle by paying out more than earnings in some years. But don’t depend on it.)

Once you’ve screened for high yields and good cover, you need to look hard at the stocks that are offering the highest yields. Often, a stock will trade on a very high yield if there’s substantial doubt as to whether it will pay its dividend, or if most market participants expect it to cut the dividend. (Obviously, a stock on an 8 percent yield that halves the dividend will end up paying a 4 percent yield – still pretty good, but not a stand-out.) You’re probably better off investing in the mid-range stocks rather than going for the highest yields.

It’s also useful to look at a company’s dividend history. Has the company always paid a dividend? Has management shown a progressive dividend policy – that is, increasing the dividend every year? These are good signs. On the other hand a company that has only sporadically paid dividends, and does not appear to be increasing its payments, is probably not one you’ll want to hold in an income portfolio.

Your final step, as with any stock investment, is to research the industry and the company thoroughly. Are there any disruptive influences that could derail your dividend income? For instance oil stocks are typically a good yielding sector – but what do you think is happening to the oil price?

Follow these steps and you should be able to generate an income from equities that is not inferior to what you’d get holding the cash in a deposit account. More importantly, you’ll also be exposed to growth in both your dividend income, and the prices of the shares in your portfolio – if not right now, certainly in the longer term.