November 30, 2010

Crazy Predictions

I just finished reading another crazy prediction from a so called investment professional.  This is really getting old.  One day a guy says the Dow is going to 5000.  The next day, another guy says the Dow is poised to go as high as 20000. 

I'm pretty sure they make these outrageous predictions to get some press, which they sure seem to.  No wonder I haven't sold as many books as I'd like :) 

No crazy predictions here, just good solid rational thinking.  Advice without an agenda.

It's really hard not to get caught up listening to all the noise so as Nike doesn't say, just don't do it :)

Remember, I am available for coaching, see here for more information or just keep up with this blog or buy my book.

November 19, 2010

Derivatives

99.9% of investors have no business with derivatives.  If a financial guy suggests one to you, hang up the phone.

A derivative is a financial instrument whose value is some percentage of the future value of the underlying asset which is usually a stock, commodity or currency.

There are few instances when a derivative is appropriate for non-speculators.  A good example is a cotton farmer hedging or locking in the current price of his crop.  This lowers his risk.

Derivatives have become increasingly complex and more and more stockbrokers, financial advisors and planners are recommending them to their clients. Ouch!  All you are doing is taking on more risk.

As with most financial products, they sound great but they are not and you have no business 'investing' in them. 

November 12, 2010

GM IPO (and all IPO's)

The news today was that the GM IPO (Initial Public Offering) is going to happen sometime next week and that most average investors will not get to participate.  Why?  Because good IPO's in demand are never allocated to individual investors.  Never have.  Never will.

I was a stockbroker for a long time and in my experience, I learned simply that the best IPO's are held tightly by the Wall Street firms that do the underwriting. The worst IPO's are distributed to anyone and everyone.  Interestingly, I could sell preferred stock via IPO all day and hide the commission, more on that in another blog post.

There is an old saying on Wall Street, ''if you can get your hands on an IPO, you don't want it''. 

IPO's are usually priced low enough so that the initial owner takes on very little risk.  The irony is that successful IPO's are flipped (sold) by their original and very temporary owner (hedge funds, mutual funds, etc) to average investors who are likely to hold and own the shares over a longer period of time which is ultimately what the underwriters (investment banks) like to see.

So why don't the underwriters (investment banks) sell to average investors?  Its simply payback time, for all the commissions that the hedge funds and mutual funds have generated.