Portfolio tactics

Wow, this'll be a big one!  But since it's so general, we'll probably be changing this over time, and adding more and more stuff.

What the @#$% is a portfolio?

A portfolio is the fancy investor term meaning your collection of investments.  Thus, portfolio tactics are basically tactics to use for general investing; essentially these are rules you might do well to follow when you're buying shares.

Diversification

     Diversification:  (diˈvərsiˌfiˈkā sh ən)  noun.  The act of diversifying a portfolio.  

     Diversify:  (diˈvərsiˌfī) verb.  To purchase a wide range of stocks from different industries and

businesses.

The purpose of diversification is to prevent major losses from plaguing your investments in case of an industry crash.  And trust me, you will definitely lose some money in the stock market.  DEFINITELY.

The good news is that, unless the market is plunging into a recession, significant changes only occur in industries, such as Energy, Healthcare, and Technology.  For example, an oil shortage would mainly only affect the energy sector, since it has less goods to distribute.  Yet that hardly makes any change to the production of Apple's iSoul, but for transportation costs (indirect factors).

If you had been exclusively invested in Energy when the shortage hit, your entire portfolio would have taken a hit.  But if you average in your Conglomerates and Financial sector investments that didn't take a hit, you wouldn't suffer nearly as much!

That said, the same goes for a ridiculous growth in a single company out of the tens that you invest in;  companies with normal growth would bring down profit from your super-company.  Basically what diversification does for your portfolio is to reduce risk of failure.  It can also reduce profit, but that's your choice to make.

NEWS NEWS NEWS

Simply liking a company in general is definitely NOT a good way to invest.  If you're thinking long term, that kind of thinking helps, but you absolutely must pay attention to current events, or else your company will tank (lower in value) before you know it.  Take advantage of major events (like oil spills, maybe?  BP lost a whopping 50% in the two months after the spill!!), and the especially helpful quarterly reports, when companies tell you how much they actually sold and lost in the past three months.

More to come!

Screw order and reason, I'm starting at the middle of the list.

Futures!

This is a pretty fun one, and it stems from your traditional stock investment; it's a Level 2 of sorts (I need to stop playing fallout 3..)  As the name suggests, a future is the same thing as purchasing any old share, BUT you gain ownership of the share in THE FUTURE.

The concept is really quite simple:  You arrange it so that you will buy a specified number of shares at a given time in the future, but you decide the price right now.  All you're doing is making a bet that by the time you gain ownership of the shares, they will be worth more than what you paid.  From then on you can just treat them as normal shares.

     Now of course now you'll ask:  "But, Oh Great and Mighty Dan, in the end this is no different from a normal investment!  You buy cheap and sell high!"  However, foolish mortals, the benefit of futures is that you will usually arrange for a share price much lower than even at the current stock price.  Nevertheless, in a normal investment, you would have had a chance to sell your shares if the company started tanking for a prolonged period of time.  If you had bought a futures contract, you'd have to wait until much later when the listed value is even lower to sell your shares.




That's all there really is to it!  Until I find a fatal flaw in this article; if I do, I'll definitely update it.  Hopefully it's good already, so..  yeah!

Outline: business administration - finance

So, we were going to blog everyday for the rest of summer.  That didn't work. No big deal.  For the last week of summer, we've got a business administration course lined up for you on [drumroll please] finance.  Topics we'll be covering include:

• Corporate Finance
• Capital Structure
• Capital Budgeting
• Mergers and Acquisitions
• Security Analysis
• Investments
• Options and Futures
• Risk Management
• Portfolio Tactics
• Empirical Finance
• Financial Modelling
• International Financial Environment
• International Financial Management

Now who wants to guest post? :)

PS.  We don't actually understand any of these topics... yet.

Stocks: The more-or-less complete guide

I'm afraid that I've been misinforming you on the topic of the stock market, so I'm going to write about it again!

First of all, if you don't quite know what a stock is, go here.  Now for the good stuff!

Using Stock Price to Value a Company

As you might know, stocks show the value of a company;  multiplying stock value by the total number of shares shows you how much the company is worth if you were to buy it out this very second.

For example, Coca-Cola (NYSE: KO) is listed as $56.91 per share (share = a single piece of stock).  One share of KO is 1 / 2,310,000,000 of the total company.  So naturally, to find the company's total value, we multiply the share price by 2.31 billion, and get an estimated value of $131,000,000,000.  Of course, if you were to buy them out, you'd have to give them a few billion extra to give
them an incentive to sell.  And they don't accept visa.  (you see?  I
made a joke right there! har har har!)

How Stock Price Fluctuates

Okay, this is a biggie:  There are lots and lots (and lots) of ways that stock prices can change, and many of those are completely uncontrollable and

No Chickens Were Harmed In the Making of This Post

I don't care what the cost is, I'm going to post another.. post.. even if it kills me (see figure 1, left)! Okay, maybe not to that extreme.

Let's talk about banks! No no, don't leave, I promise to try making this fun, really! In fact, just for you, I'll make an analogy that might work better. Just for you!

Let's imagine all the times that you gave people money so that they would pay you back. Now imagine, for the sake of argument, that they actually did pay you back. Tough concept I know, but bear with me here. Then imagine that they were even kind enough to give you something extra for the trouble of giving that fat wad of cash over to them at such short notice. That extra is the interest to your loan. And ta-da, you have more money than before!

That's basically what banks try to do as much of as possible, so that they can get as much interest as possible, and make as much extra money (or profit) as possible. But in order to keep giving out money to people and get back a profit, they need lots and lots of cash (or in fancy economics terms, capital). And where do they get that money from? That's right, your savings account. If you want to get technical, they're using your money to loan yourself money. If that didn't make sense to you don't worry, since it barely makes sense to me either.

And so, that tiny little percentage of interest that you get added by the bank to your savings account is actually another tiny percent of the massive amount of interest that that banks get from loaning out your money. Remember, the profit you make from keeping your money with them is waay smaller than that profit they make from giving out your money.

And just for kicks, here's a drawing I just made to show what I just said. You are at the left, the fat one is the banker (I thought a stereotypic view might be more understandable (they're not all fat..)), and the one who is sideways is the borrower (the person that takes the loan from the bank). Oh, and the + means interest, and the one given back to you is smaller than the one given to the bank. It probably doesn't help, but I really wanted to draw it.

Just an update :)

Hey, remember us?  We used to have a blog... So we've kind of fallen behind in posting, no biggie.  "Personal finance" courses will be available as an elective at certain high schools starting 2011-2012 school year! (yeeah!)  We're working on the curriculum right now, so if any of you have suggestions as to what should be on it, feel free to leave it in the comments.  Otherwise, just make sure to choose it next, next year.  Course outline will be posted as soon as we finish it!

And yeah, we'll try to post more often... that might help our cause a bit ;)

This and that...

DUDE.  Is anyone actually still following/reading this blog?  
Probably not... it's all good though :)


So economic news headlines...

• A former Democratic congressman says his party “set him up” after he opposed health care. His claim was dismissed after everyone realized that to set him up, Democrats would have had to work together.
• Two oldest people in the US died.  No one took out stocks on their lives.  No one made money.
• Canada's budget 2010... should not have taken months to finish.  Pretty basic stuff going on; making lives easier for international investors, making life harder for those with bad teeth and mother earth.  $19 billion in new federal stimulus.  Ooh and we now get plastic money! [insert bad joke here]
• Cisco made a faster internet router.  It now has a market cap of 149.67B... 
• Stocks climbed at midsession Tuesday, following a choppy morning, as investors mulled the latest corporate deal and profit news on the one-year anniversary of the bear market bottom.  Stocks now cost more.

Add your own newsworthy links in the comments!  Or not...