Monday 29 June 2015

Market Volatility As Of Late..

The Markets Are All The Rage


Market Volatility
Market volatility makes investors nervous, and rightfully so. A lot of hard earned money is on the line, and with nervous short-term decisions being made. This can have a tremendous impact on long term gains that may be missed.

Panic and an exuberance of negative views,  leads to panic selling driving down share prices. There is no logical reason for such rationale, unless stocks were bought in speculation and nothing is really known about the company whose shares you just purchased on a whim. A market will have its ups and downs, be turbulent in nature this is a guarantee.  

Once the volatility gives way if you have chosen good investments they will bounce back and carry on with their growth. Companies with great revenues, a well diversified range of products and that are pushing the boundaries of potential, are always good investments to have in your portfolio mix.

What's Causing The Volatility?


Bull vs. Bear Market Who Will Win?
Volatility by it's very nature occurs to bring markets into balance. The reason for the volatility is due to the discrepancy in the intrinsic value. Fundamental analysis needs to occur to see if both qualitative and quantitative factors support the current stock price. Essentially this will provide a true outlook if a business is in favor or out of favor with the market. If out of favor than how much is the current valuation overvalued by? - Investopedia . The following reasons are some of the more pressing issues currently on a macroeconomic level:

  1. Quantitative easing seen throughout Europe and Japan, high levels of debt have caused excessive liquidity being provided to those regions. All the while no definitive timeline in sight for repayment of debt.
  2. Even though the US has shown some headway and positive results, the strong US dollar makes the exports unattractive for exporters.
  3. Current stocks are priced moderately high attached with a lot of expectations factored in for further increased intrinsic value that just simply is not there. 
 "The intrinsic value reflects how much the business underlying the stock is actually worth if you would sell off the whole business and all of its assets." - Source
     4.  The looming dread of the interest rate hike is making the market wary as well. The                        idea has been thrown around for quite some time. Further causing uncertainty is the                    issue, at what point in time will the "Fed" make this adjustment happen. 


Don't Hit The Panic Button And Embrace The Dark Side


Hitting the panic button too soon, can cause you to miss the timing of the market. This equates to missed profits, impacting your portfolio value resulting in a very costly affair. 

The bottom line is that investors should train themselves to embrace volatility in the marketplace. Corrections are a necessity for the market to move on and administer growth in a nominal sense and not an over inflated value due to day to day speculative noise.

"Look At Market Fluctuations As Your Friend, Rather Than Your Enemy."  - Warren Buffet


If you have invested in the recent market rise now may be the time to take advantage of opportunities that the volatility has provided. Profits gained from the recent rise can be taken to reassess your overall portfolio strategy. Add to good quality positions while the prices are lower at the moment, buy low and sell higher in the future. Furthermore, seeking investments at discounted prices is an excellent alternative strategy to consider, that may very well prove to be lucrative once the market corrects itself.


Sunday 14 June 2015

Revving Up Your Credit Score

Organize and Optimize Your Credit Cards


Optimize Credit Card Use
Keeping your credit score optimized is essential in the ever evolving age of technology. Why? This is how cash flows... through the means of electronic transactions.
“Canadian enterprises sold more than $136 billion in goods and services over the Internet in 2013, up from $122 billion a year earlier. As in 2012, wholesale trade, manufacturing and retail trade accounted for the majority (61%) of the value of e-commerce sales." - The Daily, Wednesday June 11, 2014
Given that a vast majority of retail trade occurs through the World Wide Web, this gives a pretty clear indication of the amount of transactions that occur through credit.  


Credit Can Help You Become Rich


Picking supposedly great investments or distressed property is the big focus in the media to hype up ways to get rich, these routes of getting rich are often elusive to a large part of the population. 

I can't recall last time I had a large wad of cash just sitting in my pocket where I could drop it at a moment's notice to pick a great investment or a distressed property to bring it up to code and flip it for an even bigger chunk of change.

Something that is often ignored, but has the potential to make you rich in the long run is your credit score. Now I realize that this may be so simple and basic that you're probably sitting there thinking is this guy for real? That being said.. establishing good credit is the first step for building an infrastructure to getting rich.  

The essence of this matter is simple, if you think about it. How do we make our largest purchases.. CREDIT! If you have a really good credit score you can save tens of thousands of dollars on some of your major purchases. Therefore, this is the benefit of optimizing our credit when it comes to saving money and getting on our way to generating positive cash flows from these interest savings, that we can invest with.

The interest savings created through a good credit score give us a great advantage when it comes to building our nest egg, whether for retirement purposes or simply to "live on your own terms" if you will. 


The Unraveling of The World's Credit


Credit Crunch Unravelling
In essence, what much of the world witnessed in 2008, was the unraveling of credit due to loose standards of practice. These personal spending habits that were based on second and third tier lenders handing out fictitious unsubstantiated credit and unequivocal home equity loans that could not be collected on was in large part the essence of the 2008 credit crunch.






Your Credit Score vs. Credit Report What Does It Mean? 
Your credit score is a snapshot of your financial health , at a specific point in time. It creates a picture of risk or liability if you will, to your lenders in comparison to other consumers. Credit reporting agencies use a scale from 300 to 900, the higher the score on this scale the better.
Additionally, it is up to the lender`s discretion as to how low of a credit score they are willing to accept. Nothing is set in stone as the lender is liable for the money they have lent to you, if you are not able to repay the balance owing. It should also be noted that your score will also determine the interest rate you will pay, once again the higher the score the lower the possible interest rate.

Your credit report is the summary of you credit history, this has occurred if you have ever taken out a loan, bought items through a credit card or been involved in one of those buy now - pay later type of deals. I do not personally recommend the buy now - pay later deals unless you`re a very conscientious and strong will powered individual. I would assume that many of you know what I am referring to, as many of us have been in this type of situation especially when being younger in age. Staring at a d-day of repayment, but being far too young and wanting to have fun in the moment.  This for many, is where the true unraveling of the personal credit crunch begins.


Tuesday 2 June 2015

Capital Budgeting Role In Business

http://www.freedigitalphotos.net/images/Money_g61-Money_Tap_p65474.htmlCapital budgeting process is defined as an estimation and risk assessment of cash flows, to arrive at a net present value of retained cash flows and .calculate your return on investment (ROI). What does this mean to you? Well when running a business it is important to understand the process of evaluating future projects / contracts that your company wishes to take on and assess if they might be profitable or not. Are they worth your time, money and attention?

             

Annual Capital Budgeting Process

The capital budgeting process is a significant undertaking and generally keeps a lot of business owners up at night. There is always a level of risk associated with under taking projects. The beta of the project will be higher in comparison to the marketplace beta depending on the level of systematic and business risk your company is willing to undertake.
There is much planning and process implementation, before a company can pull the trigger so to speak, about projects that span 2 to 3 years into the future if not longer. When committed to a new venture, it also takes up a lot of financial resources, such as immediate cash requirements which might be otherwise directed to a different project - this will impact your so called opportunity costs. Needless to say if you are a risk adverse organization who prefers returns from investments with low volatility then perhaps, bonds and money market funds are more your cup of tea. Of course, this would be a preferable course of action, if you would rather avoid the stress.

Preparation of Budgeted Proposals

Sources of the initial idea of a new business proposal for a lot of organizations can come from many sources. These sources include:
  • Floor Employees
  • Sales Personnel
  • Marketing Personnel
  • Division Managers
  • Senior Level Managers
For an organization to get the best quality ideas rolling, idea generation should not be confined to a restricted set of people within the company. Employee participation no matter at what level within the company, should be very much encouraged and rewarded. This will make employees within the organization engaged, and creates job satisfaction. Generally keeping your staff engaged as part of your business also ensures lower turn-around staff numbers.
A large project will have an extensive scope involving many employees. This can be quite labor intensive and time consuming at all levels within the company and it is a guarantee that the company's resources will be stretched particularly employees' time. The following are steps that need to be addressed through analytical work to ensure that the new venture is an appropriate fit for your company:
  1. Assess market share available based on supply & demand requirements
  2. Forecast Sales to appropriate market share requirements
  3. Align Procurement with supply chain requirements
  4. Follow through with necessary labor overhead

Assess Possible Market Share Increase 

 If a project is to be taken on then a sales forecast needs to be developed, with sales orders and sale commitments for distribution of the new product being produced. As an example we'll take a firm that is looking to  have additional equipment upgrades to an assembly line to relieve manufacturing line bottlenecks from a possible market share increase. Producing a sales forecast to ensure that the ample supply of new product has increased revenue possibility - economies of scale theory - should be a MUST. If the project still seems to have profit earning and increased market share potential lets move on to the next step

Forecast The Supply Chain And Productivity

This will surely need a schedule of forecasted units of production, a procurement team assuring with suppliers that additional raw material would be available on time, and additional qualified and trained staff to assemble units to take product from raw material all the way to a finished good ready to be sold.

Evaluating Proposals

Projects that will survive the so called brainstorming stage and put on paper must now go through the evaluation process. The entire goal of evaluating the proposals that survive the brainstorming stage now need to be assessed for their cash flow estimation. The degree of risk with the possible positive net cash flows must be considered by using a discount rate that gives us a realistic amount of cash taking into consideration a cost of equity (Ke) and a Cost of Debt (Kd). There are different facets of this process, so one must consider the following:
  • How is the project being funded through equity or debt?
  • If funded through debt is the company leveraging the firm further specifically for the project?
  • Have all tax saving opportunities based on interest payments on the debt been recognized?
  • What is the tax shield on property, plant and equipment?
  • Is there a salvage value on the equipment? - This will result in a reduction in your tax shield (later recovered by the sale of the salvaged equipment)
  • Is there net working capital, additional inventory, and payable costs involved which will require more resources from the organization?
In the end all these factors have to be taken into consideration to bring us to a positive net present value (NPV). Therefore, if the amount calculated results in negative cash flows; than the project should not be accepted as it will result in a negative ROI.  Stay tuned as I will have a lot more to say on this topic as it is quite extensive and detailed.