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Month: November 2018

Why Do Signals Help You Make Smart Investing Choices?

Making smart investing choices is the key to making a profit and avoiding losses. But, how do you make smart choices? What analysts do you listen to and when do you follow the herd versus being a contrarian? There are signals that seem to occur in every market situation. But, why do signals help you make smart investing choices? Avoiding the Twin Demons of Fear and Greed When the value of an investment, like a stock, is going up, it is easy to become greedy. And, when the value of that investment starts to fall, it is easier to become fearful. These traits are not limited to you, Ms. or Mr. Investor. They tend to be shared by the majority of investors. Successful long term investors have gone through many business cycles and have come to recognize some basic signals. None other than Warren Buffett has advised investors to be fearful when others are greedy as noted in an article by Investopedia. Warren Buffett once said that as an investor, it is wise to be “Fearful when others are greedy and greedy when others are fearful.” This statement is somewhat of a contrarian view on stock markets and relates directly to the price of an asset: when others are greedy, prices typically boil over, and one should be cautious lest they overpay for an asset that subsequently leads to...

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Why Is There a Flight to Quality Investments?

The US stock market is down a bit as investors are flocking to quality stocks, as reported by CNBC. What is going on? Why is there a flight to quality investments? Both before the market’s October sell-off and in the two-week bounce, investors have shown a clear preference for “quality” stocks. Not the same as cheap “value” stocks, these are companies with less debt, stable businesses and some defensive characteristics in a tougher market or economy. A grouping of such companies by Citi surfaced the likes of Walmart, McDonald’s, Pfizer, Procter & Gamble, Amgen and Quest Diagnostics. While not predictive in itself, this pattern is one seen in the run-up to a bear market. So, what is a quality stock? CNBC notes this. Quality has no single, strict definition. But the common traits are a sturdy business not reliant on a strong economy; high and resilient profitability; and a strong balance sheet unburdened by much debt. The point is that many investors are hedging their investment risk as the bull market gets older and older, the trade war does not appear to be going away, and a House of Representatives controlled by Democrats may be a thorn in the side of the Trump administration. Does a Quality Investment Need to Be a Stock? An investment that is highly likely or even guaranteed to make a profit and is very...

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Reward and Risk in Alternative Investments

The point of investing is to make a profit. Some folks are happy to stay a percent or two ahead of inflation and simply not lose any of their hard-earned money. And others would prefer to multiply their holding every few years. How do you find success in making more money and not taking on more risk? One of the approaches that have worked is to pool assets and then invest in a broad range of more risky but better paying alternative investments. In regard to reward and risk in alternative investments, we would like to look back a few years to Michael Milken and junk bonds and then fast forward to today and a company that is selling alternative investments and wants sell them to masses. Michael Milken and Junk Bonds When he was only a 20-year-old student at the Wharton School of Business, Michael Milken read something written by a member of the Federal Reserve Board and over the years put the idea into action. Companies that were poor investment risks had to pay much higher rates of interest in order to sell their bonds. Investors demanded a higher return because of the increased risk that the company would default on its debt. But, if an investor purchases a wide range of these bonds, the rate of return was such that, even with defaults, the total investment...

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Trade War Damages Investments in Agriculture

Over the years much of American agriculture has become a highly leveraged and high cost of entry business. How the trade war damages investments in agriculture is compounded by these facts. A recent article in The New York Times focuses on the loss of soybean markets in China due to the trade war and the damage that is doing to North Dakota soybean growers. Many investors have never visited, much less worked on, a farm or have any idea about how US agriculture has changed over the recent decades. Mechanization and Consolidation of US Farms The Midwestern USA is...

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