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November 2012

Paper trading and some other stuff

Friday, November 23, 2012 0

Hi guys,

As a person who wants to learn as much as possible about finance, I have taken a little interest in trading. I am going to be doing paper trading first (trading with fake money) to get the hang of it. I will be doing it on this website:  http://questrade.com/platforms/free_trial.aspx . After that, I plan on learning futures. Since many people have serious trouble with these concepts, I feel it'll definitely give me an edge of competition. As someone mentioned about finance, "It's not hard, nothing is really hard. There's just a lot to know", and this is 100% true. In order to be absolutely great in finance and make accurate and sound decisions, you have to really know how everything works. You have to know all the terms, you have to know all the different types of investment strategies. These things, in my opinion, are the fundamentals. Many people say "blahblah you need a good temperament, focus on emotions first". This helps once you know actually how the heck to invest in the first place. If you have no idea what a bond, derivative, or even a security is, then even with the perfect temperament you will still suck at investing.

In preparation for paper trading, I've been watching a few of these videos as of late.  http://www.youtube.com/user/InformedTrades It's a guy named Simit (if I recall correctly) who works as a trader and teaches you important skills in a concise way. Really informative and great.

Over the past while I've been reading a few articles on Bloomberg here and there. Some of the articles are really interesting and informative and really give you some insight on how certain industries work. For example, I was reading an article on how the Hewlett-Packard share price has dropped significantly due to a write-down of $8.8B. HP wanted to expand into the software industry due to a competitive disadvantage (Apple, Microsoft, etc are all hardware and software producers) and an attempt to reach new markets. They acquired Autonomy, a software company, and everything went great, until auditors figured out that Autonomy counted resales of Dell computers as revenue, when in fact it was Dell's revenue. Therefore, the executives at Autonomy cooked the books and let's just say they're in some deep doo-doo. Unfortunately, HP had to pay the price since it now owns Autonomy.

Recall that price per share = Total Equity ($) / (Total Shares Outstanding)

It's easy to see that if equity goes down, price goes down. If shares outstanding increase, price goes down. Simple math.

..until next time folks.

Stocks falling, the cue for their return is news on government action

Friday, November 16, 2012 0

With people becoming excessively worried over the fiscal cliff in the U.S and the debt crisis in Europe, stocks dropped significantly. What they did wrong is that they sold low and bought high. This is no way to invest, and it is definitely the easiest way to lose any potential gains.

S&P rose 0.5 percent, or 50 basis points to 1359.88 at 4 p.m eastern U.S time. As Walter Hellwig mentioned, any good news is going to cause prices to rise significantly, and any bad news is going to cause them to drop to the pits of... yeah. This is mostly due to the market being oversold and there being a lot of foolish investors. Anybody who can understand basic psychology can really see that the market is full of these type of "reactors" who react on impulse on good or bad news. Thus, with the prices dropping, it's a perfect time to buy in as they rise. The saying "no news is good news" doesn't take effect here. It's "good news is good news" and "bad news is bad news".

As the European debt crisis begins to solve itself, international purchases of U.S assets are down the drain, plunging from $90.3 billion in August to $3.3 billion in November. The U.S needs to take action, and when news comes out that action will occur, it's time to buy those stocks as the prices fly up.

Rules when buying (or holding) Gold and Silver Stocks

Monday, November 12, 2012 0

Today we will discuss three "golden" rules regarding debunked myths around these two precious metals.

Let's first define what volatility is, as mentioned on investopedia:

"1. A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

2. A variable in option pricing formulas showing the extent to which the return of the underlying asset will fluctuate between now and the option's expiration. Volatility, as expressed as a percentage coefficient within option-pricing formulas, arises from daily trading activities. How volatility is measured will affect the value of the coefficient used."

This is basically saying that volatility = risk, however volatility does not equal risk when considering gold and silver stocks. This is because banker cartels can easily manipulate the price volatility of gold and silver derivatives. This in actuality has nothing to do with the actual physical supply and demand of gold and silver. Hence, in this case, volatility is not a valid indicator regarding risk.

Next, it is absolutely imperative that you have patience for small upcoming companies to come out on top. A huge mistake that investors can make is immediately selling out after the price dropped. Gold and silver's volatility is NOT an indicator for actual risk. It is in many cases artificial, so you have to be patient for the price to rise again. For example, a gold company in the great depression lost 50% of its share price, everybody sold out, and then for roughly 6 years it earned 1258% of its share price a year. Patience is a virtue.

Typically, when gold/silver have a low risk high reward setup, the news, bankers, etc are very likely to say there is no opportunity. This is a decent point to buy in, since there's a fair chance risk is actually a lot lower than it is made out to be. Conversely, when silver/gold prices are rising, many will try to persuade you (directly or indirectly) to purchase stock. Interestingly enough, right after this, the price will drop a ton. This is all based on historical evidence.

So in conclusion, this all sounds like a conspiracy theory, however as I mentioned above it's based on factual evidence. Good luck!

Bombardier Pitch Information

Wednesday, November 7, 2012 0

Our research group pitched Bombardier today. Here are a few relevant facts that we gathered, however the most important was the introduction of their new CSeries aircraft. Q3 was just released today too, and it fulfilled our expectations, which were to depress the stock even more just so it rises in due time.

Business Aircraft
At a total retail price exceeding $6.7 billion US, NetJets' order is
the second largest aircraft purchase agreement in the history of
private aviation, second only to NetJets' unprecedented aircraft order
in June of 2012 which included firm orders and options for upto 275
Challenger jets from Bombardier with a potential value of $9.6 billion

-Net ordersf or business aircraft have been increasing

Commercial Aircraft
Subsequent to the end of the quarter, we received a conditional order
from an undisclosed customer for
5 CS100 and 10 CS300 aircraft and we signed a letter of intent with
Air Baltic Corp. for 10 CS300 aircraft. Based on list prices, firm
orders would be valued at $1.02 billion and $764 million,

-Lower demand for commercial aircraft, however the CSeries may spark
some bullishness

Emerging Markets
Significant orders:
Nordic Aviation Capital A/S (Denmark) 12 CRJ1000 NextGen - $595 million
PrivatAir (Switzerland) 5 CS100 5 CS100 $309 million
PT. Garuda Indonesia (Persero) Tbk. 6 CRJ1000 NextGen 18 CRJ1000
NextGen $297 million
Eurolot S.A. (Poland) 8 Q400 NextGen 12 Q400 NextGen $246 million
Ethiopian Airlines 5 Q400 NextGen - $160 million

Signed several significant contracts, with: San Francisco Bay Area
Rapid Transit District (BART), U.S., for
410 metro cars, valued at $897 million

Other points:
In the second quarter of 2012, the regions Asia-Pacific and Other had
moderate levels of activity mainly explained
by a temporary slow-down of rail investment in China. We expect growth
in rail investment to resume in China as
well as in other emerging markets, driven by the strong need for
mobility to support rapid urbanization and
continued economic growth

Growth in rail investment in the region Other will continue to be driven
by the Middle East, Brazil and Russia.

In India, investment in mass transit continues to be promising with
multiple cities
expected to invest in metros and monorails

We continued our long-term investment in emerging markets, with: the
opening of the monorail facility in
Hortolândia, Brazil, in April 2012

In North America, the level of activities increased due to major metro
contracts awarded in New York and San
Francisco, which represent a significant share of this marke

WACC... what is that?

Saturday, November 3, 2012 0

Many people seem to be having trouble with understanding what this number means. Let's start off with a definition, from investopedia:

"A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk."

What the heck does this even mean, really? What is a cost of capital? What's a beta? Valuation? WHAT?!

WACC stands for weighted average cost of capital. 

The cost of capital is simply the minimum rate of return that investors expect when they buy stocks, lend etc to the company. More concisely put, it is the rate of return an investor should expect on a project given a specified risk.

The beta of a firm is simply its overall volatility compared to a benchmark, usually the market (S&P 500).
Ex// The beta of a new technology company is 2.0 and the market is ALWAYS 1.0. This means the volatility is 2x more risky than a company with average volatility. This company will either do extremely well given good conditions, or hit rock bottom. It is very sensitive to changes in economic activity, etc.

Valuation is simply the value of the company/stock. If the WACC increases, then its minimum return on projects are larger and thus riskier. In summary, a lower WACC (2%, e.g) will always be better than a higher WACC (10%, e.g) although the case of 2% is quite rare and may not be realistic. Certain industries will always involve higher WACCs, such as precious metals.

Hope you learned as much as you can -- I had to be concise. Time is money.

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