One of the problems many people find when they first go to make a large purchase such as a car or house is that they do not have the necessary credit in order to receive financing. This does not mean that they have bad credit, but they have not proven that they are responsible with credit to any potential lenders.
There are several steps you can take to establish your credit. One of the first things you will want to do is to open a checking and savings account. You should be able to get these for no fees and low if any balance requirements, making them easy to use. Though it’s possible to live without such accounts, they are a positive way to build credit and prove that you have money in the bank. Another great reason to get a checking or savings account with a financial institution such as a bank or credit union is that they are a great place to apply for loans in the future since you have already established a relationship with them.
Another way to establish and build credit is to open a credit card. A store card is easier to obtain, but it also less usable and will have a smaller balance. A major credit card will carry a larger balance and be accepted at most locations. Regardless of what type of card you get, you will want to make sure to pay off the balance each month in order not to have to pay any fees or interest. If you are worried that you will be tempted to spend beyond your means, do not carry your card around with you but instead file it somewhere safe.
Once you have started these small steps to establishing credit, you will be better equipped and prepared to make larger purchases on credit. These steps you take today will help you reach your financial goals in the future.
Thursday, July 31, 2008
Life Insurance: 7 Reasons Why You Might Like Life Insurance
Life insurance is planned to protect your household and others who may depend upon you for financial support. Having insurance protection may secure anybody of semipermanent financial freedom and peace of mind. Here are 7 reasons why you might like life insurance.
Reason #1:
A life assurance policy is valuable whenever you have somebody depending upon you for financial support.The policy stays active until you either cancel it, stop paying insurance premiums or pass away. In the case of your death, an amount of money is paid out to the beneficiary you named. The policyholder has womb-to-tomb coverage without any future medical checkups, unless an alteration is made to the policy's contract.
Reason #2:
The cash in value of a policy is the amount of money you could receive should you choose to cancel your policy.If you live longer than the length of a term life policy, no money will be paid out to you. If this takes place with a whole life insurance policy, you will still have an investment fund share left.
Reason #3:
Whole life insurance consists of life assurance plus an investment on which you are able to earn interest.Whole life blends a term life policy with an investment element. You consequently pay part of your premium for the insurance coverage and the other part for an investment fund that earns interest.
Reason #4:
Term life insurance costs less than whole life insurance since the premium you pay is for life assurance alone.Term insurance covers the policyholder for the duration of the policy and has no investment funds connected to it. A Term life insurance policy may be a better alternative if you are going to keep it for shorter than twenty years.
Reason #5:
You can borrow money against the cash in value at the latest policy loan rate of interest.A part of the money you pay into a whole life insurance policy is invested and collects a cash in value. The life insurance premium you pay is carved up between the insurance coverage and tan investment fund. The income on the cash value of the policy can be withdrawn or borrowed against in the form of a policy loan by the policyholder.
Reason #6:
A whole life policy may be employed as an estate-planning medium.A policyholder can establish an insurance trust which will use the returns of the policy to pay the estate taxes once the policyholder dies.
Reason #7:
The policyholder commonly pays a steady premium for whole life which ordinarily does not increase as a policyholder matures.A whole life insurance policy may be a better alternative for older folks since term life insurance gets increasingly more expensive as you reach 60 years of age.What type of policy might accommodate you the best?
Whole life insurance or term life insurance? You should consider your fiscal budget, estimate how much you are capable or willing to pay for a policy and then do a life insurance comparison.
The solution to your life assurance needs is a subjective and fiscal one that had better be considered carefully before arriving at a decision.
Reason #1:
A life assurance policy is valuable whenever you have somebody depending upon you for financial support.The policy stays active until you either cancel it, stop paying insurance premiums or pass away. In the case of your death, an amount of money is paid out to the beneficiary you named. The policyholder has womb-to-tomb coverage without any future medical checkups, unless an alteration is made to the policy's contract.
Reason #2:
The cash in value of a policy is the amount of money you could receive should you choose to cancel your policy.If you live longer than the length of a term life policy, no money will be paid out to you. If this takes place with a whole life insurance policy, you will still have an investment fund share left.
Reason #3:
Whole life insurance consists of life assurance plus an investment on which you are able to earn interest.Whole life blends a term life policy with an investment element. You consequently pay part of your premium for the insurance coverage and the other part for an investment fund that earns interest.
Reason #4:
Term life insurance costs less than whole life insurance since the premium you pay is for life assurance alone.Term insurance covers the policyholder for the duration of the policy and has no investment funds connected to it. A Term life insurance policy may be a better alternative if you are going to keep it for shorter than twenty years.
Reason #5:
You can borrow money against the cash in value at the latest policy loan rate of interest.A part of the money you pay into a whole life insurance policy is invested and collects a cash in value. The life insurance premium you pay is carved up between the insurance coverage and tan investment fund. The income on the cash value of the policy can be withdrawn or borrowed against in the form of a policy loan by the policyholder.
Reason #6:
A whole life policy may be employed as an estate-planning medium.A policyholder can establish an insurance trust which will use the returns of the policy to pay the estate taxes once the policyholder dies.
Reason #7:
The policyholder commonly pays a steady premium for whole life which ordinarily does not increase as a policyholder matures.A whole life insurance policy may be a better alternative for older folks since term life insurance gets increasingly more expensive as you reach 60 years of age.What type of policy might accommodate you the best?
Whole life insurance or term life insurance? You should consider your fiscal budget, estimate how much you are capable or willing to pay for a policy and then do a life insurance comparison.
The solution to your life assurance needs is a subjective and fiscal one that had better be considered carefully before arriving at a decision.
Sunday, March 23, 2008
Students Guide To Making Money To Pay Student Fees Without Student Loan Consolidation
Student loans are a major factor in making students get in debt, just to have a good education. Student debt consolidation can make the problem worse, as you keep adding debts. Another alternative is to use your own initiative by bootstrapping and making your own business to pay for your tuition fees.So, you want to leave the student loan consolidation, and find alternatives to pay for your tuition fees.
Paying your student tuition fees without the need of student loan consolidation is possible, when you take a look at what is available to you. As you are reading this likely online, then I will focus on online methods, as the internet is a great place to start a project which can pay your student tuition fees, your student loan, and hopefully provide you a long term nest egg.
Now you may be thinking that starting your own business would be a costly venture marked with loads of risk. You are absolutely right, if you want a McDonald's franchise, but what we are looking for is something small that has potential to grow, depending on how much time you invest into this.
Even with only a few hundred dollars, you could soon be on your way to not needing a student loan consolidation loan; you could even start with no money! Now, you may be wondering how is it possible to not get a student loan consolidation loan and be able to pay your student tuition fees.
First we need to take stock of your abilities, and here is where an important key will come in. Consider what you are good at, maybe it is a subject you are studying, maybe it is your passion or your hobby.
The areas we will focus on are eBay, Affiliate Marketing, and Freelancing. All these options are easy to get into, and with consistent effort, can bring you many rewards. Let us begin by looking at an example - a student who likes to DJ. In this example this person could sell on eBay DJ products, music or many other items. As an affiliate marketer you could do the same thing, but with your own web site, and with freelancing, you could make music or mix music for people who need music made.
You may be wondering what is all of these different options, you may have heard of eBay or you may not, you may have heard of affiliate marketing or you may have not. I will cover these so you can get a firm grip of how important they can be to pay student tuition fees, and also cut out the need to get a student loan consolidation program in effect.
eBay to cut out getting student loan consolidation loans:
eBay is an online auction platform. Each day millions of dollars worth of products are sold all across the world through eBay's auction platform. The best way to cut out the need to get a student loan consolidation just to fund your new venture, is to look at old things you no longer need. You could sell old things you do not need, then you could find wholesalers or suppliers selling what you want to sell. You make a mark up (your profit - costs), and continue to do, and increase profits (part of which can be used to mitigate the need of student loan consolidation loans).
Affiliate Marketing to cut out getting student loan consolidation loans:
Affiliate marketing is similar to selling on eBay, the only difference, is that you are promoting a product which someone else sells and delivers, and pays you commission. This makes starting this project very easily to cut out the need for extra student loans or student loan consolidation loans. Though be aware that you will need to learn about online marketing and find the right formula that works for you.
Freelancing to cut out getting student loan consolidation loans:
Freelancing is pretty easy to get started in. For one, you do not need to have money in most cases to get started. If you have an experience or are studying a subject, you may have knowledge and skills which others would be willing to pay you for your time. eLance and other websites allow you to put up your details, and bid for jobs. These jobs can easily be worked around your busy student life schedule! It can also be a great way to earn money, some people even find that it pays a full times salary, depending on how much time you put in.
There are many ways to get started to earn money, and reduce the need for student loan consolidation loans. So many students today get into debts which could take over a decade to pay back. By taking your own initiative, and with calculated risk, you could easily get into a position that gives yourself a life long enjoyable career. Debt into wealth!
Paying your student tuition fees without the need of student loan consolidation is possible, when you take a look at what is available to you. As you are reading this likely online, then I will focus on online methods, as the internet is a great place to start a project which can pay your student tuition fees, your student loan, and hopefully provide you a long term nest egg.
Now you may be thinking that starting your own business would be a costly venture marked with loads of risk. You are absolutely right, if you want a McDonald's franchise, but what we are looking for is something small that has potential to grow, depending on how much time you invest into this.
Even with only a few hundred dollars, you could soon be on your way to not needing a student loan consolidation loan; you could even start with no money! Now, you may be wondering how is it possible to not get a student loan consolidation loan and be able to pay your student tuition fees.
First we need to take stock of your abilities, and here is where an important key will come in. Consider what you are good at, maybe it is a subject you are studying, maybe it is your passion or your hobby.
The areas we will focus on are eBay, Affiliate Marketing, and Freelancing. All these options are easy to get into, and with consistent effort, can bring you many rewards. Let us begin by looking at an example - a student who likes to DJ. In this example this person could sell on eBay DJ products, music or many other items. As an affiliate marketer you could do the same thing, but with your own web site, and with freelancing, you could make music or mix music for people who need music made.
You may be wondering what is all of these different options, you may have heard of eBay or you may not, you may have heard of affiliate marketing or you may have not. I will cover these so you can get a firm grip of how important they can be to pay student tuition fees, and also cut out the need to get a student loan consolidation program in effect.
eBay to cut out getting student loan consolidation loans:
eBay is an online auction platform. Each day millions of dollars worth of products are sold all across the world through eBay's auction platform. The best way to cut out the need to get a student loan consolidation just to fund your new venture, is to look at old things you no longer need. You could sell old things you do not need, then you could find wholesalers or suppliers selling what you want to sell. You make a mark up (your profit - costs), and continue to do, and increase profits (part of which can be used to mitigate the need of student loan consolidation loans).
Affiliate Marketing to cut out getting student loan consolidation loans:
Affiliate marketing is similar to selling on eBay, the only difference, is that you are promoting a product which someone else sells and delivers, and pays you commission. This makes starting this project very easily to cut out the need for extra student loans or student loan consolidation loans. Though be aware that you will need to learn about online marketing and find the right formula that works for you.
Freelancing to cut out getting student loan consolidation loans:
Freelancing is pretty easy to get started in. For one, you do not need to have money in most cases to get started. If you have an experience or are studying a subject, you may have knowledge and skills which others would be willing to pay you for your time. eLance and other websites allow you to put up your details, and bid for jobs. These jobs can easily be worked around your busy student life schedule! It can also be a great way to earn money, some people even find that it pays a full times salary, depending on how much time you put in.
There are many ways to get started to earn money, and reduce the need for student loan consolidation loans. So many students today get into debts which could take over a decade to pay back. By taking your own initiative, and with calculated risk, you could easily get into a position that gives yourself a life long enjoyable career. Debt into wealth!
Wednesday, March 5, 2008
THING TO DO WHEN YOU'RE IN CAR ACCIDENT - INSURANCE
Getting into a car accident can be a traumatic shock to the system. Even if you aren't injured, the fear and adrenaline that inevitably accompany such an event can quickly cloud your judgment. It is for this reason that experts recommend preparing for such contingencies ahead of time, as you don't want to be faced with multiplying choices and confusion at the scene of the accident. The good news is that governing bodies in transportation have agreed on some basic guidelines you can use to make sense of such situations as they arise.
Auto insurance quote provides you the best possible car insurance for life. Keep yourself prepared for any contingency and you may find such accidents become far more manageable. Keep yourself prepared for any contingency and you may find such accidents become far more manageable.The first priority in the event of a car accident is to get you and any injured passengers to safety.
If the cars are still operating, that means turning on your hazards and moving everything to the side of the road. If you have lost such mobility, you will want to put cones or flares down the road to give the scene a wide buffer zone of safety. A number of car safety kits include such equipment as a matter of course, so it may be wise to look into a preventive purchase such as this.Once the scene is secure, it is time to exchange information with other drivers. Resist the urge to make accusations at this point - the essential thing is to get the data you need so you can sort out the financial details later. Be sure and get the other driver's name, address, phone number, insurance company, policy number, driver's license number and plate number. You may also want to take photographs and create a written record of precisely what happened. Next the police report. Again, you want to be as detailed as possible here, including any charts or diagrams you think might be illuminating. A number of drivers balk at this step of the process, hoping they can work out an independent payment scheme with the other driver and keep insurance out of the picture. In fact, such plans rarely go as one might hope, especially as other drivers may file their own reports without telling you. If you want to avoid lone liability or an exorbitant repair estimate, it is wise to protect yourself with a trail of paperwork from day one.It is important as well to read your own insurance policy ahead of time, as a number of specific conditions may be required immediately after a car accident. Fast filing and ready compliance will likely save you money down the line. It's also useful to know what kind of services you can expect in the immediate aftermath of an event like this - some policies pay for towing, for instance, while others may not.Good preparation and a level head are the surest ways to keep you safe, secure and protected following a car accident. Whether you have been in a wreck recently or simply want to plan for an uncertain future, smart preventive measures can save you considerable headaches down the line.
Auto insurance quote provides you the best possible car insurance for life. Keep yourself prepared for any contingency and you may find such accidents become far more manageable. Keep yourself prepared for any contingency and you may find such accidents become far more manageable.The first priority in the event of a car accident is to get you and any injured passengers to safety.
If the cars are still operating, that means turning on your hazards and moving everything to the side of the road. If you have lost such mobility, you will want to put cones or flares down the road to give the scene a wide buffer zone of safety. A number of car safety kits include such equipment as a matter of course, so it may be wise to look into a preventive purchase such as this.Once the scene is secure, it is time to exchange information with other drivers. Resist the urge to make accusations at this point - the essential thing is to get the data you need so you can sort out the financial details later. Be sure and get the other driver's name, address, phone number, insurance company, policy number, driver's license number and plate number. You may also want to take photographs and create a written record of precisely what happened. Next the police report. Again, you want to be as detailed as possible here, including any charts or diagrams you think might be illuminating. A number of drivers balk at this step of the process, hoping they can work out an independent payment scheme with the other driver and keep insurance out of the picture. In fact, such plans rarely go as one might hope, especially as other drivers may file their own reports without telling you. If you want to avoid lone liability or an exorbitant repair estimate, it is wise to protect yourself with a trail of paperwork from day one.It is important as well to read your own insurance policy ahead of time, as a number of specific conditions may be required immediately after a car accident. Fast filing and ready compliance will likely save you money down the line. It's also useful to know what kind of services you can expect in the immediate aftermath of an event like this - some policies pay for towing, for instance, while others may not.Good preparation and a level head are the surest ways to keep you safe, secure and protected following a car accident. Whether you have been in a wreck recently or simply want to plan for an uncertain future, smart preventive measures can save you considerable headaches down the line.
Sunday, March 2, 2008
The Securities Market is nothing but speculation
A lot of folks will be transformed into angry and annoyed intellectual after reading the topic of my article. And they will have to be placed over some liquid refreshments to bring their temper down. But that's alright as this whole routine is something we have been exercising for many years now.
Dictionary meaning of Speculation is 'engagement in business transactions involving considerable risk but offering the chance of large gains, esp. trading in commodities, stocks, etc., in the hope of profit from changes in the market price.
'In my view, Speculation is a state of mind. The only difference between an investment and speculation is not what an investor does but to what he wants and what his level of knowledge is. For example, Someone tells you that X stock is going to go up and you just go ahead and buy it without any further research. By comparison, someone else could know everything about X, it's prospects, the industry, it's peers and come to the conclusion that it's a good buy. Clearly, the very same action, depending on how much an investor knows, could be intensely speculative or could be a carefully considered investment.
A carefully taken decision not only reduces the risk of loss but it also gives you a confidence to hold on to your stock if there is a fall in the overall market. There is nothing wrong in checking the calls of various financial advisors on TV or in some Stock Market Tips Website but you must do your own research and check all the important details of company, its competitors, valuations, future prospects et cetera.
Are you, in this sense, a speculator? Here are a few checkpoints. The more of these you answer yes to, the closer you are to being a speculator:
a) You never try to balance risk between different investments.
b) You buy stocks of companies without a clear idea of how their businesses work.
c) You choose which new issues to invest in based on the ads of those new issues.
d) You buy stocks because they've gone up.
e) You sell stocks because they've gone down.
f) You think a stock with a lower price is cheaper than one with a higher price.
g) You think the previous checkpoint is a mistake.
h) You answered yes to most of these checkpoints and yet you are sure you are an investor and not a speculator.
Dictionary meaning of Speculation is 'engagement in business transactions involving considerable risk but offering the chance of large gains, esp. trading in commodities, stocks, etc., in the hope of profit from changes in the market price.
'In my view, Speculation is a state of mind. The only difference between an investment and speculation is not what an investor does but to what he wants and what his level of knowledge is. For example, Someone tells you that X stock is going to go up and you just go ahead and buy it without any further research. By comparison, someone else could know everything about X, it's prospects, the industry, it's peers and come to the conclusion that it's a good buy. Clearly, the very same action, depending on how much an investor knows, could be intensely speculative or could be a carefully considered investment.
A carefully taken decision not only reduces the risk of loss but it also gives you a confidence to hold on to your stock if there is a fall in the overall market. There is nothing wrong in checking the calls of various financial advisors on TV or in some Stock Market Tips Website but you must do your own research and check all the important details of company, its competitors, valuations, future prospects et cetera.
Are you, in this sense, a speculator? Here are a few checkpoints. The more of these you answer yes to, the closer you are to being a speculator:
a) You never try to balance risk between different investments.
b) You buy stocks of companies without a clear idea of how their businesses work.
c) You choose which new issues to invest in based on the ads of those new issues.
d) You buy stocks because they've gone up.
e) You sell stocks because they've gone down.
f) You think a stock with a lower price is cheaper than one with a higher price.
g) You think the previous checkpoint is a mistake.
h) You answered yes to most of these checkpoints and yet you are sure you are an investor and not a speculator.
Invest in quality businesses, not stock symbols
For most people investing in a stock is little more than watching the trail left by the stock symbol as its price wanders along some drunken path. They know that the symbol is associated with a company while not being too sure what is expected of this company to ensure that its share price will rise. It is a case of let�s sit back and hope for the best.
Then there are others who deliberately do not want to know anything about the activities of the company. They want to study the pure movement of the stock price with the belief that they can use this information to make forecasts about the future movements of the price. This is like trying to play bridge without looking at the cards. It just makes no sense to ignore the fact that the stock symbol is attached to a company. And it makes no sense not to apply sound business principles to analyze these companies. The more we know about the company, then the more confident we can be about the price of the stock. Not on a day to day basis, but over time.
So before buying a stock, think of it in terms of buying a whole company, just as if you were buying a store down the street. If you were buying a store you would want to know all about it.
What were its products?
How consistent are the sales?
Do they keep trying new products or do their products stay fairly constant?
What competitors does the store have and what distinguishes it from them?
What would be the most worrying thing about owning such a store?
This leads to the idea of looking for companies that have a strong and durable economic moat. Just as castles have moats to protect them from invaders, so companies can have economic moats to protect them from challenges of competitors and changes in consumer preferences. The moat can be made up of attributes such as brand name, geographical position or patents and licenses.
All these principles about purchasing businesses are equally applicable to purchasing shares. It becomes one of the most enjoyable parts of investing to look into the �business� aspects of any company that you are considering adding to your portfolio.
Don�t invest for ten minutes if you�re not prepared to invest for ten years
When we look at the share price of a company we usually see a wildly fluctuating graph with mighty hills and plunging chasms. For example, on the right is the graph of the daily closing prices of a company over ten years. It would be a brave person who could look at this graph and say what was going to happen in the next 24 hours, let alone the next 5 to 10 years. Yet this is a typical graph of the prices of a listed company.
In other words, as investors we focus on the medium to long term business characteristics of companies. It is these that drive the share price. Focusing on the short-term aspects of a company including both business and price fluctuations is foolish. Even though we focus on the long-term, the investment is even more profitable if we purchase the stock during one of its drops.
For most people investing in a stock is little more than watching the trail left by the stock symbol as its price wanders along some drunken path. They know that the symbol is associated with a company while not being too sure what is expected of this company to ensure that its share price will rise. It is a case of let�s sit back and hope for the best.
Then there are others who deliberately do not want to know anything about the activities of the company. They want to study the pure movement of the stock price with the belief that they can use this information to make forecasts about the future movements of the price. This is like trying to play bridge without looking at the cards. It just makes no sense to ignore the fact that the stock symbol is attached to a company. And it makes no sense not to apply sound business principles to analyze these companies. The more we know about the company, then the more confident we can be about the price of the stock. Not on a day to day basis, but over time.
So before buying a stock, think of it in terms of buying a whole company, just as if you were buying a store down the street. If you were buying a store you would want to know all about it.
What were its products?
How consistent are the sales?
Do they keep trying new products or do their products stay fairly constant?
What competitors does the store have and what distinguishes it from them?
What would be the most worrying thing about owning such a store?
This leads to the idea of looking for companies that have a strong and durable economic moat. Just as castles have moats to protect them from invaders, so companies can have economic moats to protect them from challenges of competitors and changes in consumer preferences. The moat can be made up of attributes such as brand name, geographical position or patents and licenses.
All these principles about purchasing businesses are equally applicable to purchasing shares. It becomes one of the most enjoyable parts of investing to look into the �business� aspects of any company that you are considering adding to your portfolio.
Don�t invest for ten minutes if you�re not prepared to invest for ten years
When we look at the share price of a company we usually see a wildly fluctuating graph with mighty hills and plunging chasms. For example, on the right is the graph of the daily closing prices of a company over ten years. It would be a brave person who could look at this graph and say what was going to happen in the next 24 hours, let alone the next 5 to 10 years. Yet this is a typical graph of the prices of a listed company.
In other words, as investors we focus on the medium to long term business characteristics of companies. It is these that drive the share price. Focusing on the short-term aspects of a company including both business and price fluctuations is foolish. Even though we focus on the long-term, the investment is even more profitable if we purchase the stock during one of its drops.
Thursday, February 28, 2008
HIGH PRICE / EARNING RATIO AND STOCK MARKET
After some forty years of banking and investments, I retired in 2001. But since I do not golf, I soon found retirement to be very boring. So I decided to return to the investment world after ten months. However, those ten months were not a complete waste of time, for I had spent them in trying to utilize my forty years of investment experience to gain perspective on the most recent stock market "bubble" and subsequent "crash."
There were several people who saw the stock market crash coming, but they had different ideas as to when it would occur. Those who were too early had to suffer the derision of their peers. It was difficult to take a stand when so many were proclaiming that we were in a "new era" of investing and that the old rules no longer applied. Since the beginning of 1998 through the market high of March 2000, among 8,000 stock recommendations by Wall Street analysts, only 29 recommended "sell."
I am on record as having called for a cautious approach to investment two years before the "Crash of 2000." In an in-house investment newsletter dated April 1998, I have a picture of the "Titanic" with the caption: "Does anyone see any icebergs?"
When I resumed employment in 2002, I happened to glance at the chart on the last page of Value Line, which showed the stock market as having topped out, by coincidence, in April 1998, the same date as my "Titanic" newsletter! The Value Line Composite Index reached a high of 508.39 on April 21, 1998 and has been lower EVER SINCE! But on the first page of the same issue, the date of the market high was given as "5-22-01"! When I contacted Value Line about this discrepancy , I was surprised to learn that they had changed their method of computing the index for "market highs" from "geometric" to "arithmetic." They said they would change the name of the Value Line "Composite" Index to the Value Line "Geometric" Index, since that is how it has been computed over the years. Currently Value Line is showing a recent market low on 10-9-02 and the most recent market high, based on this new "arithmetic" index, on 4-5-04,
ANOTHER ALL-TIME HIGH! If they had stayed with the original "geometric" index, the all-time high would still be April 21, 1998!
Later that year, I was pleasantly surprised to read in "Barron's" an interview with Ned Davis, of Ned Davis Research, that said that his indicators had picked up on the bear market's beginnings in April 1998, the same date as my "Titanic" newsletter! So, my instincts were correct! I believe that we are in a "secular" downturn that began in April 1998 and the "Bubble of 2000" was a market rally in what was already a long-term bear market.
Another development transpired soon after I resumed employment in 2002. I happened to notice one day that, in its "Market Laboratory," "Barron's" had inexplicably changed the P/E Ratio of the S&P 500 to 28.57 from 40.03 the previous week! This was due to a change to "operating" earnings of $39.28 from "net" or "reported " earnings of $28.31 the previous week. I and others wrote to "Barron's Mailbag" to complain about this change and to disagree with it, since these new P/E ratios could not be compared with historical P/Es. "Barron's apparently accepted our arguments and, about two months later, changed back to using "reported" earnings instead of "operating" earnings and revised the S&P 500 data to show a P/E Ratio of 45.09 compared to a previous week's 29.64.
But a similar problem occurred the next day in a sister publication to "Barron's." On April 9, 2002, "The Wall Street Journal" came out with a new format that included, for the first time, charts and data for the Nasdaq Composite, S&P 500 Index and Russell 2000, in addition to its own three Dow Jones indices. The P/E Ratio for the S&P 500 was given as 26, instead of the 45.09 now found in "Barron's." I wrote to the WSJ and after much correspondence back and forth, they finally accepted my argument and on July 29, 2002 changed the P/E Ratio for the S&P 500 from 19 to 30! I had given them examples showing where some financial writers had inadvertently confused "apples" with "oranges" by comparing their P/E of 19, based on "operating" earnings, with the long-term average P/E of 16, based on "reported" earnings.
Because I started to be cautious about investing as early as April 1998, since I thought that price/earnings ratios for the stock market were perilously high, I was not hurt personally by the "Crash of 2000" and had tried to get my clients into less aggressive and more liquid positions in their investment portfolios. But the pressures to go along with the market were tremendous!
Price/earnings ratios do not enable us to "time the market." But comparing them to past historical performance does enable us to tell when a stock market is high and vulnerable to eventual correction, even though others around us may have lost their bearings. High P/Es alert us to a need for caution and a conservative approach in our investment decisions, such as a renewed emphasis on dividends. Very high P/Es usually indicate a long-term bear market may ensue for a very long period of time. We are apparently in such a long-term bear market now. But in determining whether the market is high, we must be vigilant with regard to what data mambers of the financial press are reporting to us, so we can compare "apples" with "apples." When the financial information does not appear to be correct, we, as financial analysts, owe it to the investment community to challenge such information. That is what I have concluded from my personal "odyssey" in the investment world.
After three years of the DJIA and the S&P 500 closing below their previous year-end figures, the market finally closed higher at the end of 2003. But the P/E ratio is still high for both indices.
Does anyone see any icebergs?
Henry V. Janoski, MBA, CFA, CSA is a 1955 graduate 'magna cum laude" of Yale University and a member of Phi Beta Kappa. He received his MBA in finance and banking from the Wharton Graduate Business School of the University of Pennsylvania in 1960 and holds the professional designations of Chartered Financial Analyst (CFA) and Certified Senior Advisor (CSA). As a registered investment advisor representative with the title of Senior Investment Officer, he is located in Scranton, PA. His biography is listed in "Who's Who in Finance and Industry" and in "Who's Who in America." E-mail address: HJanoski@aol.com
There were several people who saw the stock market crash coming, but they had different ideas as to when it would occur. Those who were too early had to suffer the derision of their peers. It was difficult to take a stand when so many were proclaiming that we were in a "new era" of investing and that the old rules no longer applied. Since the beginning of 1998 through the market high of March 2000, among 8,000 stock recommendations by Wall Street analysts, only 29 recommended "sell."
I am on record as having called for a cautious approach to investment two years before the "Crash of 2000." In an in-house investment newsletter dated April 1998, I have a picture of the "Titanic" with the caption: "Does anyone see any icebergs?"
When I resumed employment in 2002, I happened to glance at the chart on the last page of Value Line, which showed the stock market as having topped out, by coincidence, in April 1998, the same date as my "Titanic" newsletter! The Value Line Composite Index reached a high of 508.39 on April 21, 1998 and has been lower EVER SINCE! But on the first page of the same issue, the date of the market high was given as "5-22-01"! When I contacted Value Line about this discrepancy , I was surprised to learn that they had changed their method of computing the index for "market highs" from "geometric" to "arithmetic." They said they would change the name of the Value Line "Composite" Index to the Value Line "Geometric" Index, since that is how it has been computed over the years. Currently Value Line is showing a recent market low on 10-9-02 and the most recent market high, based on this new "arithmetic" index, on 4-5-04,
ANOTHER ALL-TIME HIGH! If they had stayed with the original "geometric" index, the all-time high would still be April 21, 1998!
Later that year, I was pleasantly surprised to read in "Barron's" an interview with Ned Davis, of Ned Davis Research, that said that his indicators had picked up on the bear market's beginnings in April 1998, the same date as my "Titanic" newsletter! So, my instincts were correct! I believe that we are in a "secular" downturn that began in April 1998 and the "Bubble of 2000" was a market rally in what was already a long-term bear market.
Another development transpired soon after I resumed employment in 2002. I happened to notice one day that, in its "Market Laboratory," "Barron's" had inexplicably changed the P/E Ratio of the S&P 500 to 28.57 from 40.03 the previous week! This was due to a change to "operating" earnings of $39.28 from "net" or "reported " earnings of $28.31 the previous week. I and others wrote to "Barron's Mailbag" to complain about this change and to disagree with it, since these new P/E ratios could not be compared with historical P/Es. "Barron's apparently accepted our arguments and, about two months later, changed back to using "reported" earnings instead of "operating" earnings and revised the S&P 500 data to show a P/E Ratio of 45.09 compared to a previous week's 29.64.
But a similar problem occurred the next day in a sister publication to "Barron's." On April 9, 2002, "The Wall Street Journal" came out with a new format that included, for the first time, charts and data for the Nasdaq Composite, S&P 500 Index and Russell 2000, in addition to its own three Dow Jones indices. The P/E Ratio for the S&P 500 was given as 26, instead of the 45.09 now found in "Barron's." I wrote to the WSJ and after much correspondence back and forth, they finally accepted my argument and on July 29, 2002 changed the P/E Ratio for the S&P 500 from 19 to 30! I had given them examples showing where some financial writers had inadvertently confused "apples" with "oranges" by comparing their P/E of 19, based on "operating" earnings, with the long-term average P/E of 16, based on "reported" earnings.
Because I started to be cautious about investing as early as April 1998, since I thought that price/earnings ratios for the stock market were perilously high, I was not hurt personally by the "Crash of 2000" and had tried to get my clients into less aggressive and more liquid positions in their investment portfolios. But the pressures to go along with the market were tremendous!
Price/earnings ratios do not enable us to "time the market." But comparing them to past historical performance does enable us to tell when a stock market is high and vulnerable to eventual correction, even though others around us may have lost their bearings. High P/Es alert us to a need for caution and a conservative approach in our investment decisions, such as a renewed emphasis on dividends. Very high P/Es usually indicate a long-term bear market may ensue for a very long period of time. We are apparently in such a long-term bear market now. But in determining whether the market is high, we must be vigilant with regard to what data mambers of the financial press are reporting to us, so we can compare "apples" with "apples." When the financial information does not appear to be correct, we, as financial analysts, owe it to the investment community to challenge such information. That is what I have concluded from my personal "odyssey" in the investment world.
After three years of the DJIA and the S&P 500 closing below their previous year-end figures, the market finally closed higher at the end of 2003. But the P/E ratio is still high for both indices.
Does anyone see any icebergs?
Henry V. Janoski, MBA, CFA, CSA is a 1955 graduate 'magna cum laude" of Yale University and a member of Phi Beta Kappa. He received his MBA in finance and banking from the Wharton Graduate Business School of the University of Pennsylvania in 1960 and holds the professional designations of Chartered Financial Analyst (CFA) and Certified Senior Advisor (CSA). As a registered investment advisor representative with the title of Senior Investment Officer, he is located in Scranton, PA. His biography is listed in "Who's Who in Finance and Industry" and in "Who's Who in America." E-mail address: HJanoski@aol.com
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