How Do You Look At Equities?

Just curious....how do you look at investing in equities?

Folks say all kinds of interesting comments when you bring up the subject of investing or saving.....Here are a few unique comments...perhaps you have heard some of them?

"Oh Vey! the Stock market is like gambling....too risky....btw...where is the nearest convenience store because I forgot to buy my lottery tickets ..."

"I prefer to invest in funds that carry a large diversified basket of equities so that I can sleep at night knowing that I am not betting all my eggs on one chicken"

"Investing is for men....so I'll just leave that stuff for the hubby to take care of...."

"Equities only represent perceived value....so I'd rather put my money into solid things that I can hold in my hands.....like gold bullion or real estate."

"I don't understand the tax system, so I'd rather not use banks, and just hide my money in my sock drawer.....the same way Uncle Buck did back in his day..."

"Reading about investing is boring....I don't want to read anything nonfiction....because it just reminds me of school."

"I don't invest in anything because I feel like the world is going to hell, so I might as well just spend everything that I earn and enjoy every day as if it is my last"

"I might be dead by the time I reach retirement age, so I don't think I will save anything for retirement".

"Those investment professionals that handle my retirement account surely know what they are doing....at least they seem to...based on their fancy logo, luxurious office building and those glossy pamphlets they send to me once in a while. Surely they won't squander my wealth with they? Btw...what does -8% mean in average return?"

"I cancelled my life insurance policy because I believe that Jesus is coming back very soon, so I know that my family and I won't need those funds in the near future..."


Ok, enough sample comments for now. But perhaps you have heard or spoken some similar sentiments at one point in your life. Money brings out the crucial issues of life and many folks just prefer  a polite silence when it comes to all things financial. Being too excessively secretive inhibits frank discussion and squelches learning. Remember that bible verse about "iron sharpens iron" ? We sharpen each other's ideas when we are ready and willing to speak and listen to one another. We speak together, we listen together, we learn together....and finally yes, we grow together.
Yes, be careful who you speak to and who you listen to....but don't give up on the positive influence of good healthy discussion and frank conversation.

Public and college libraries and book stores are well supplied with many volumes of books that can help us all boost our financial acumen, not to mention the over abundance of learning tools available in the cloud.

I hope you find that the abundance of available information isn't overwhelming. Feel empowered.

Be curious. Find your answers....


Peace,
Carla.




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I just Don't Get It

There is a finite amount of oil in our earth's crust. Yes, folks may quibble about the actual volume....but there is a good consensus  that there is a REAL and DEFINITE measurable quantity of oil worldwide, which will eventually run out.

So, what I really don't get.....is even with all the haggling of OPEC and other oil producers, why hasn't the price of oil stocks bounced back?
Suncor,  (TSX:SU)    is still stuck at under $36 per common share as of today.....at $35.19 cdn.

Perhaps the stock market has become naively obsessed  with electric vehicles, without realizing that a significant chunk of our electrical grid is still powered by the oil and gas industry.

I've done a post or two about that before. Electric powered "anythings" are not necessarily green. It's all about what is used to create the electricity we will all be using.

As of 2014, 8.7% of Ontario's electrical grid is powered by the oil and gas industry. Yes, tis true.


For a break down of Ontario's Energy Mix....take a gander at this document:
http://www.ontarioenergyboard.ca/oeb/_Documents/Regulatory/2014_Supply_Mix_Data.pdf

Do you have some profound views about the lagging state of oil and gas stocks?

Eager for your feedback,
Thinkfully yours,
Carla.



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How to Write a Covered Call

So you've decided to expand into trading options, instead of just buying or selling stocks.
One of the simplest ways to start out in the options market is through
selling covered calls. So permit me to summarize in really simple language, what the process entails to start
writing covered calls.

When you are "writing" covered calls you are actually "selling to open" a covered call.

A covered call is different than a plain ole "call option" because you actually literally own at least 100 shares of the stock that you are writing the call on.

So the first step to being able to write a covered call is by purchasing at least one hundred shares of a stock that has "options trading" available on it.

Covered calls can only be written on chunks of 100 shares at a time. One hundred shares is considered
"one contract" which you are going to write the covered call option on. There is a fee that your brokerage will charge you based on how many contracts you are going to involve in your covered call option. If you own 500 shares you could potentially write 5 contracts for covered calls.

Next you need to choose a "strike price" at which you are going to sell to open your covered call at.
The "strike price" is the price at which you give your covered call option buyer the right, but not the obligation, to buy your shares at. I suggest you pick a "strike price" that is just a little bit higher than the price that you originally paid for the shares. That is called a "near the money" covered call.
You can ask a higher premium for a covered call that is "near the money" than one that is way priced out of orbit.

You need to also choose an "expiry date" at which the call option will expire. Usually the farther into the future that the expiry date exists, the higher the premium you can ask. Once the expiry date has passed, the buyer of your call option no longer has the right to buy your shares anymore.

You are going to have to decide what price of premium you are going to ask buyers to pay for your covered call option. This premium will be estimated upon the most recent "bid and ask" prices posted for covered call options. An example of a covered call option premium might be $1.25 per contract. To discover what your earnings will be from "selling to open" a covered call sold at $1.25 for one contract, you would simply multiply the premium $1.25 by 100 and that will give you the sum of $125.00 which is the total premium that will be paid to you. Be sure to calculate and inquire of your brokerage as to what commissions and/or fees you will incur from selling to open covered calls. There will most likely be higher fees if the buyer chooses to exercise their right to buy your shares at the agreed upon strike price.

Newbie and beginner investors usually face much higher commission fees than investors with larger portfolios. The sad truth is that large portfolios usually have their commission fees waived because of the largess of their account balance. Therefore, if you are going to do an options play, and you are a small time investor, you will want to keep accurate track of all commissions/fees because they will definitely bite a significant chunk out of any profits you earn from writing covered call options.

The "premium" is the price that you are asking buyers to pay you for the privilege of  owning your covered call option. If you are not sure if you are willing to part with your shares, then you are not ready to be selling covered call options. Last I heard, there is about a 25% chance that most covered call options are actually "exercised" or "assigned". When a covered call option is "exercised" or "assigned" it means that the buyer of your covered call option is exercising their right to buy your shares at your agreed upon "per share" price.
Those who sell covered call options are prepared for the possibility that they may be forced to sell their shares. Therefore, selling covered call options are only a good idea for those who are not personally or emotionally attached to permanently owning their shares.

Well, that's about all.... those are the basics, written in my own casual language. The rest of the process is just about waiting to see if a buyer is willing to buy your covered call option, and then waiting for the deal to          "settle". Be blessed and prosperous.

C.


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Let's Discuss Processing Equities

So you wanna be an equity investor...you want to buy/sell stocks.

What are the ideas that you use to screen out the losers and pluck the winners?
Or do you just utilize strategies such as options trading to make money on the
ups and the downs of both the winners and losers?

Well, let's just keep it simple for today. Let's assume we want to pick winners, stocks that aren't going to
lose your hard earned money and have more than a safe bet on earning you some ca-ching.

P/E---Price to Earnings Ratio .Warren Buffet is said to prefer under valued common stocks with a price to earnings ratio under 20. I suppose it depends on how you play.

Market Cap: Is it harder to topple the biggest companies? Does it make sense to screen out the firms that are less than 1 billion in market cap? Or do you prefer to bet on smaller companies that can dodge and weave a little faster than the big wigs? Perhaps it can be compared to whom you prefer to do your banking with. Do you prefer the 5 biggest national banks? Or do you prefer a smaller local credit union, that has an affiliation with your neighborhood? Betting on the bigger players has an appearance of greater safety, but is by no means a guarantee of a fail proof investment terrain....

Does the Stock have Options available. Simply, does the stock have a derivatives market within it? Can you buy/sell puts/calls based on the ups and downs of the stock price? For some, using options is a key component of their income producing strategy. For some investors, they refuse to buy/sell stocks that don't carry an options market with it. They use options as insurance against falling stock prices, as well as  cash flow management strategy.

Dividend. Canadian investment author/inspirational speaker Derek Foster has made more than a pretty penny by advocating a modest investment strategy that focuses on the buy and hold strategy of
owning solely dividend yielding high quality stocks. His advice combined with a very frugal lifestyle permits those who are disciplined investors, to potentially live off their dividend stream once their portfolio has reached a certain saturation point. Huge stock market players such as Warren Buffet doesn't pay out a dividend on his Birkshire Hathaway shares, preferring to use the profits to reinvest back into the development/growth of the company. Even though he doesn't pay dividends...Warren's Birkshire Hathaway stocks never fail to find investors willing to part with their moolah, because he has a proven track record of increasing the innate value of the shares when held over the long term. By the way, if you want to boost your financial education with some good old fashioned stock market basics, just get all of Warren Buffet's books available at any public library or community college. There are more than a few investors who cut their teeth just by following Warren's strategies.

Which Stock Exchange are you going to invest in? Within Canada, the US or overseas?
Conservative investors may tend to prefer to invest within their own country, unless of course they don't trust their own national business climate. Countries with a less than stable political environment may provide a higher than normal level of risk, but also higher potential returns.

Which criteria you use to select your investments will have a huge impact on your returns.
I like to always bet on the D word....that is discipline. Nothing works without it....not even a winning stock.
Respect your assets, and the time it takes to acquire them. Losing them can be done in a millisecond.
Take the common warning..."buyer beware" multiply that by one million and that's how cautious you need to be in investing. Well, on that note...have a brilliant and peacefully productive day.

Carla



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