The Bull Hunters Guide

Last week in the Bullhunter blog, we discussed the topic of mutual funds, but investing isn’t just about making money. Every good investor knows that it’s about preparing for the future and about having a safety net in place in case things don’t go our way. In order to make the most of this safety net, it pays to know about many different types of investment opportunities that are available.

While most are usually overlooked as being too complex or dangerous, we’re here to dispel those notions and inform the amateur investing community about opportunities that they might be missing out on.

Defining Stock Options

This time, we’re actually going to be discussing something directly related to the stock market: Stock Options. Previously in this blog, we discussed quite a bit about all the various options that are available to investors. Nonetheless, the topic is still worth mentioning in this context. Simply put, stock options are when you buy or sell the right to buy or sell a stock at a specified future date.

Types of Options

Why would anyone do this? It’s usually the result of differing predictions about future market behavior. When you purchase a call option, you then have the right to buy a stock from the seller at a certain price at a certain time. If the value of the stock rises above that price, then you come off well, because you can then buy that commodity for significantly less than market price.

When you purchase a put option, it gives you the right to sell an asset for a certain price at a certain time. If the price of the stock in question falls lower than your put price, you profit because you’re able to sell for more than market value.

As you can see, stock options are kind of risky. However, for those who enjoy the predictive aspects of stock market investing, they are a great way to maximize your profits while at the same time reducing some of the risk of raw investing.

See you next week for part 13 of Investments.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2009

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In last weeks post, we discussed investing in the Money Market and hopefully you’ve been learning a lot from our recent series intended to introduce you to all the other types of investment opportunities out there besides just investing in stocks.

The more options you’re aware of when it comes to investing your money, the wiser the decisions that you can make, and that leads to a happier, more secure future.

Talking Mortgage Backed Securities

Today we’re going to be talking about Mortgage Backed Securities. To put it simply, a mortgage backed security refers to an investment plan whereby you loan money to a homeowner or more frequently, to a corporation, with the promise that you are then entitled to a percentage of the interest that they are obligated to pay on their mortgage.

This is a type of investment that many banks are keen on making, because it allows them to act as a middle man, so to speak, without the responsibility of handling funds directly themselves.

Mortgage Backed Securities are usually secured by government institutions, so there is a minimal risk involved in their buying and selling. They are considered to be a very safe investment for the most part, with a payoff that is actually slightly better than that of treasuries, another popular option.

Monthly Income

Mortgage backed securities are a popular form of investment for those who want to be able to draw a monthly income from their investments, rather than selling for a lump sum of value. The amount of the monthly payment received is usually directly in line with the present interest rates driving the market.

The only drawback to Mortgage Backed Securities is simple: mortgages are expensive. That means that these securities are usually traded in large denominations, sometimes only going as low as 25,000 dollars a share. However, much like money market funds, there are some collaborative efforts available to allow amateur investors to get into mortgage backed securities. If you’re interested, it’s best to start out with these.

See you next week for part 10 of Investments.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2009

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For the past few weeks, this blog has been focusing on different methods of investment that you can engage in besides just the usual stocks and bonds, for instance our last post covered investing in Common Stock. The idea is that by doing so, we’ll be expanding your concept of investing and making you a better, more well rounded investor in the process.

What Is Convertible Security?

This time, we’re going to talk about something known as the convertible security. Simply put, this is a bond that can be converted into a stock. When you purchase a bond in a company, you’re buying the right to later on, at your discretion, concert the value of that bond into a number of shares of stock. Clearly, there are times when doing this would be advantageous and times when it would be better to simply keep the bond itself. This is the purpose of the convertible security: it allows you to make that decision for yourself.

Of course, this option doesn’t come without a cost. Typically speaking, convertible securities offer a lower initial yield than other types of investments, because of their modular nature. At the same time, however, if you’re holding a bond and a company goes bankrupt, you’re among the first in line to be repaid, ahead of those who simply are holding stock.

Buying And Selling Is Easy

One other major risk of convertible securities is that most companies withhold the right to “call” these bonds, which means that they can theoretically at any time convert them all into stock at their discretion. While this is rare, it’s something that everyone investing in convertible securities very much needs to be aware of.

Buying and selling convertible securities is fortunately a very easy matter. Most all brokers deal with them just as they would stocks and bonds, so you should be able to dabble in this type of investment fairly easily. Once you get a taste for it, you can decide whether or not it’s really for you.

See you next week for part 5 of Investments.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2009

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Lately, we’ve been talking a lot about short selling in this blog. In particular, we’ve been talking about the pros and cons of short selling, and last time I mentioned that there was a distinct dark side to the practice that causes many to cringe when they even hear the term. This time, we’re going to talk about exactly that.

Short and Distort

Short selling is a somewhat cryptic process that is rarely understood all that well by the amateur investor. Because of this, it creates a ripe opportunity for unscrupulous traders to take advantage of short selling and twist it into a market-harming “money making machine” that doesn’t respect the true meaning of free commerce and investing.

When this happens, investors resort to using a tactics known as the “short and distort”. The way it works is this. Imagine that you have a bear market. The prices of stocks are almost universally down, and prospects all around aren’t so great. Traders might take this opportunity to buy a bunch of short options in a stock. Of course, that in itself is perfectly normal and ethical. However, what makes the “short and distort” such a terrible practice is that the investors then go on to spread slander and lies about the businesses that they’ve bought shorts in.

Slander Is Believable

Obviously, in a bull market, everyone is already nervous and pessimistic. Slander is thus easily believed, and it’s easy for investors to cripple a company through these means. When that happens, they walk away from the smoking wreckage with a handy profit, purchased at the cost of their integrity as real business people.

Of course short selling has its dark side. So do all forms of investing. It’s the ease with which short selling can be exploited however that makes it a particular target for scepticism.

See you next week for part 8 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Recently, we’ve been discussing a host of stock picking strategies and looking at the applications of each. We’ve dealt with underlying fundamentals such as fundamental analysis, and qualitative analysis, as well as the two immediate offshoots from those: growth investing and value investing. We’ve even looked at a more modern methodology that comprises a fusion of both growth and value investing: GARP investing.

Income Investing

This week, however, we’re going to look at an investment strategy that is arguably the most straightforward of them all. In that the end goal of investing is to ultimately turn a profit and generate income, the stated goal of income investing is right in line with that: to pick the stocks that will provide the most steady income.

This runs counter to what many investors think about income. Typically, they view investments like stocks as being a risk with little to no guarantees outside of certain option spreads. For steady, secure income they look to more traditional alternatives like savings bonds. However, when we’re looking at stocks that pay out dividends, it’s certainly possible to draw a good steady income, just from one’s stocks.

Income investors usually tend to invest in those stocks that are tied to older, established businesses, rather than trying to find the next big thing. The reason for this strategy is that these companies have a very solid foundation in the marketplace and “aren’t going anywhere”. They have no real need to reinvest their earnings into themselves, so very often they tend to pay them out to their shareholders in the form of annual dividends.

The Highest Dividends

However, it isn’t just about picking those companies that pay out the highest yearly dividends. Good income investors will also look at a figure called the dividend yield, which is calculated by dividing the annual dividend paid per share by the price of the share itself. This will give one a percentage figure that determines the dividend yield. Typically, income investors look for a high dividend yield no matter what the actual numbers are – a figure somewhere around 5-8% seems to be the sweet spot that most are looking for.

In the end, income investing can be boiled down to the following summary: finding companies with good, high dividend yields that will allow the investors to receive a steady income in dividends over time without much concern for growth or undervaluing or any of the other principles that make up the other popular strategies.

See you next week for part 7 of Stock Picking Strategies.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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