Investments – a Profitable and Reliable Source of Your Income!

Market Leader informed

 The modern world is amazingly wide and diverse. It has great prospects and horizons open to focused and talented people for personal development in different areas of professional activity. Investments are one of them.

Rapid economic development in the 20^th century offered a host of very interesting areas and facilities for investment, from exotic investments to large-scale financial and economic projects. However, there is rueful statistics in the forex and other markets: the number of successful investors is negligible as compared to those who lost their lifetime savings in an attempt to make money on different investments. People invest money where and how they like and their decision-making is based only on personal preferences and motives and later lose the invested capital. What the investor needs to make professional investments decisions is not only good awareness but also an ability to independently evaluate the current situation and make forecasts.

Financial literature practically always treats such concepts as ‘investment’ and ‘saving’ inseparably. It means one involves the other. J. Keynes says: ‘savings and investments should be equal as each means that income exceeds consumption’. The investment process inevitably involves these components, i.e. investments are always linked to savings, and one needs to pass savings to the category of investments to keep and multiply them. It is only savings that are used to make profits in the future (a few years later) that can be described as investments.

However, the selection of investment forms and investment instruments at different stages of the investor’s development is condition by certain internal and external factors. Such important factors include functional focus of the investor him or herself. In other words, the investor can either be inclined to a certain investment area (for example, real estate), or be a flexible investor who looks into different investment horizons and areas. One can invest differently, but a professional approach to investing means there is profound analysis of the investment environment and the interrelation of investment areas.

The Investments Faculty was set up to design our own algorithm and approach to investing activities. It is based on the synthesis of dynamics of fundamental macroeconomic indicators, the very indicators that directly affect the investment instrument be it real estate, precious metals, mutual funds or bank deposits, and on technical analysis of the chart of the changing value or yield of the investment instrument itself, for example, the price chart of real estate, precious metal etc. It should be noted that analysis of the graphical representation of an investment instrument is, in turn, based on application of unique technical analysis methods by MF TS developed and used in the Masterforex-V Academy. Our Faculty’s objective is to show the investor how investments can be made more appropriately and professionally, from the stage of planning and determining the entry point for the investment, its further monitoring, to the stage of exiting the investment.

Besides, our research includes such investment areas as countries where investments are made, investments in manufacturing or business, analysis and interdependence of financial and economic crisis phenomena, reasons for emergence of financial bubbles and many other areas. Four Departments of the Faculty are already open to students of the Masterforex-V Academy. Let us have a look at areas of interest of these Departments.

The Investor Psychology and Sentiment Department.

Each trader is aware that the psychological aspect in their work has been, so to say, the major determinant because, as they pass from one level of their professional growth to another it is psychological elements that start coming to the foreground in practice. Whether they become a professional trader depends on how well they manage to overcome these. This is also the case for development of a professional investor. However, huge amounts and, as a rule, the long term of investing make psychological aspects even more significant and important when the investor is learning and after they start their professional activity. This is why the Investments Faculty great emphasis is laid on investment psychology and investor psychology and a separate department was set up to deal with psychological problems that investors inevitably face in their activity.

The Department is concerned with study of different psychological aspect directly or indirectly affecting decisions made by the investor and, respectively, the result of their work. In addition, it deals with issues of applied psychology in everyday life and some issues of economic theory from the psychological viewpoint that the investor might find useful. Special focus is placed on how reasonable it is for an investor to get rid of the influence of different rooted clichés, myths, acquired stereotypes etc. to prevent any ‘interference’ of the kind and give the investor an opportunity to independently analyze the situation based on actual data – this is one of the objectives of psychological preparation to this high-tension but effective activity.

Hopefully, there is no need to explain in great detail how important it is for an investor to successful overcome psychological barriers that come up in their work. Now let us move directly to the overview of Departments intended to teach you how to move your money from the savings to investments category correctly and reliably.

The Venture Investment Department.

Have you ever bought a lottery ticket? An inexpensive, even cheap lottery ticket that may yield a win you could use to buy a car. But most often you simply gave away your money. Now imagine that instead of buying a ticket at random you are offered a beautiful, scientifically substantiated approach according to which the likelihood of having a new car grows multifold if you take this very lottery ticket. Will you buy it? So, by buying it you become one of venture investors. Of course, this is only a rough approximation to venture investment but it gives you an appropriate idea.

What are they – ventures? The word ‘venture’ has a few meanings: the noun means ‘a business project that involves taking risks’, the verb means ‘dare, take your chance, take a risk’. Today the phrase ‘venture business’ is defined as business based on investing money in untested scientific ideas high-tech novelties and various practical innovations. Usually it is venture business that plays the main role in promoting the initial innovative idea to mass production. Venture business emerged because ‘know-how’ needs good financing and bold ideas require similar investments as they involve a high risk. But if the idea is worthwhile the profits it can generate will be many times more the initial invested capital.

A peculiar feature of venture investment is that the investor offers their money for implementation of a promising idea without any firm guarantee. The only guarantee they have is a pre-determined stockholding in the venture company. If this company’s business comes off well the investor can sell part of their assets in this company at a certain stage not only to recoup the invested funds but also to make a handsome profit. However, if the venture project fails the investor will have the stockholding in the firm proportionate to their share in the authorized capital. Moreover, the idea of a loss of invested money is admitted ever after the project is started – if the project falls through eventually, the venture investor will assume all financial risks. So, the investor should be very clear that venture investments can both generate super-profits and a loss of the entire investment.

One should be aware that venture investments are subject to a crisis to a lesser degree than direct investments in a business and they have been significantly influencing global economy’s growth since the second half of the previous century. Just remember such projects as personal computers and microprocessors. It is due to venture investments that now the world knows such companies as Microsoft, Google, Intel, Yandex…

One of the first, famous and winning venture investments was made in 1957. Arthur Rock who was then a clerk at an investment bank in New York was asked by a friend to find an investor that could finance production of silicon transistors advanced for that time. Only one person out of more than thirty prospective investors that A. Rock spoke to agreed – it was Sherman Fairchild. Later Fairchild Semiconductor was set up to become the mother of all American semiconductor firms and bring its founders unprecedented earnings literally loading them with money. This story completely changed A. Rock’s life. He took up high-risk investment in innovative companies and, as such, became fully focused on venture investment. It was Arthur Rock who established the first venture fund as early as in 1961. At inception the company’s capital was worth $5 million including $3 million invested in venture projects. Very soon A. Rock managed to give back almost $90 million to investors. By mid 1980s Rock’s name became a synonym of success. Superb, isn’t it?

Venture investments become very attractive once the right investment is selected. This is possible when potential risk becomes absolutely insignificant as compared to final financial profits.

So, having reviewed the very foundations of venture investment you can ask a reasonable question: What does our Department have to offer? Of course, there is no ‘golden’ method for selecting the right and loss-free venture investment. This type of investment is intended not only for investors, but for investors with a hunch. It isn’t about ‘lending money’ – it means being far-sighted in investing it and scrupulous in choosing the enterprise that will yield huge earnings in the future. Then you should work with the enterprise like with a small child helping it to stand on its feet, grow, develop…

We will show you in the Venture Investment Department where major venture investors are looking and what future they see. You will always keep abreast of major innovations that can change the world. We have also launched the Idea Bank where you can set out your business ideas and we can transform a nice idea into a business plan which could be of interest to a prospective investor. The investor, in turn, will find the idea they find appealing in terms of spirit and investment size.

There are different investments so the key is in goals and objectives each investor sets before investing their capital. Unlike high-yield but risky venture investments, capital invested in real estate has always been regarded as one of the most reliable investments but are substantially inferior to ventures in terms of the yield.

The Real Estate Investment Department.

Let’s start with an example of a real estate investment: A hotel in southern Germany.

The facility was purchased on 2001 for €250,000.00 and sold 5 years later for €300,000.00. Profit is €50,000.00 + €87.500,00 (rent for 5 years, 7% per annum of the facility’s value). Total profit for 5 years is €137,500.00 or 55%.

Real estate has always been an attractive investment because it has always been and will always be highly valued. This investment instrument is interesting in several aspects. The financial aspect – resale or lease has always been a reliable source of income. The consumer aspect is about the human being’s natural been to have a roof above their head and improve their living quarters. Finally, the anti-inflation aspect: real estate helps save capital during financial crises in inflationary conditions. Another thing is that real estate prices have a relatively low volatility. This means the investor will have enough time to conduct a thorough analysis of the real estate market and investments (whether they should buy/sell the investment or still wait a little).

The real estate market is an area where investment decision-making requires that the investor not only have good information but also be able to gather data, evaluate demand and supply indicators, monitor tendencies and make forecasts. It is only based on comprehensive analysis and complete information that effectiveness of real estate investments can be maximized for the investor.

It is no secret that many investors, be they beginners, professionals or those who are only going to become them, ask key questions such as: ‘When should I invest, and when should I fix profits?’ In response to this question, we will show how one of the real estate market’s leading indicators functions. Like in the forex, fundamental analysis also has its indicators which either lag behind or come ahead of (lead) the main chart. The latter include building permits.

See how this indicator started rapidly falling long before house prices plummeted.

After real estate collapsed in 2008, the global financial and economic crisis ensued. The chart shows three specific areas of increased activity and interest of professional investors. Let’s have a more detailed look at each of them.

1. A risky section for entry. The U.S. real estate market started the upward move in 1997 and showed steady growth in the second quarter of 1998. The reasons included a low interest rate and moderate inflation which resulted in aggressive policies of financial organizations in provision of short-term credits. Starting investments in this point is risky because growth was spurred by a number of positive factors and didn’t mean continuation of further growth.

2. A secure section for entry. At this time the state’s policy aimed at stimulating home ownership had a negative side effect: low-income households could buy the majority of mortgage products because of loan affordability. The crediting pattern was based on further growth of real estate and low mortgage interest rates. Late 1999 to second quarter of 2006 saw that largest growth of the real estate market. House prices almost doubled in seven years. A number of legislative acts were adopted to ease the ‘tax burden’ for home owners in case of sale of a property when the mortgage debt hadn’t been repaid in full yet. Another act lowers the capital gains tax for home sales by 8% (from 28% to 20%). This helped increase gains by 250,000 dollars (500,000 for a couple). The Jobs and Growth Tax Relief Reconciliation Act signed into law by US President G. Bush decreased the capital gains tax by another 5%. The above triggered growth in speculative purchase and sale of homes accompanied by increased demand for new construction which heralded the final phase of creation of a bubble.

3. The exit section. However, this couldn’t last endlessly, and in 2007 prices stopped growing and interest rates started rising. This resulted in an unprecedented bubble of defaulters who were no longer able to pay the higher mortgage interest. This period is characterized as a critical level and a specific section for exiting the investment.

People find lots of opportunities to multiply their capitals making money literally out of the thin air in the developing modern world. However, many investors choose lower yield to get security and stability as well as certain guarantee of their capital’s integrity. Real estate belongs to such investments. Residential housing of high-quality workmanship and commercial structures can serve their owners for decades generating profits practically every day.

Many investors count mainly on their intuition and ‘professional hunch’ neglecting a thorough analysis of economic and political situation when choosing the country to be invested in and the investment itself. This often results merely from the investor’s economic illiteracy. This is wrong and leads to grave mistakes and lost opportunities. Specialists of the Real Estate Department within the Investments Faculty have set themselves the task to give the investor all knowledge they need in this area of investing and point to mistakes typical of investors who try to multiply their capitals by investing in real estate. The Department’s analysts conduct continuous monitoring of the real estate market and its indicators in all leading countries of the world pinpointing and analyzing slightest changes in its vastness. So, the Department’s students will always keep abreast of what is happening in this market.

The Portfolio Investments Department.

‘Portfolio’ means a set of assets under an investor’s management. Portfolio investing can look like passive holding or active management with frequent portfolio re-balancing. The portfolio’s main objective is to ensure your investment idea is implemented – integrity of assets is maintained, target yield levels are reached, risks are minimized.

It is meeting your personal investment goals that we recommend focusing on, at the same time maximizing the yield without exceeding risk thresholds. After a brief survey we singled out two regularities: 90% of respondents don’t try to effectively manage their assets in everyday life. They don’t even set this goal. Besides, 95% of investors/traders systematically get less profit which requires virtually no costs.

Operations of the Portfolio Management Department are based on business processes of leading investment companies. The team is made up of experienced traders and successful managers of financial assets. The Department’s goal is to provide traders and private investors with analytical support necessary to make effective investment decisions. The investor can use materials offered by the Department for independent investing. They can also get a consultation from a qualified specialist on any issue of portfolio investing. The Department’s specialists constantly monitor financial markets to discover potential investment instruments. They prepare recommendations based on careful analysis of collected data, make up a trading plan, follow up its execution, and analyze trading results.

The first stage involves analysis of the macro context that includes GDP models, distribution of global capital flows, analysis of the overall direction of the market and many other things. Then the analyst looks at shares historically and with current fundamental figures. Most interesting shares (investment ideas) are selected for the portfolio balanced in a way to maximize the yield and minimize potential risks.

The Department applies a unique system for selection of investment ideas that allows having a list of 8 to 20 most interesting companies at a given time. Investments are selected by a few parameters through consistent analysis of countries and sectors of activity. Most promising shares are chosen as a result.

The fundamental analysis method is primarily based on investor sentiment because it plays a decisive role in forming the asset’s price. Let’s analyze market sentiment in case of Google Inc. (GOOG).

The company:

Google Inc. is a global hi-tech company. It is a leader in web search engines, holds over 60% of the global market and indexes over 8 billion web pages. Google can find information in 191 languages. The corporation owns Google search system. It is the world’s most popular search system that processes over 40 billion searches a month (market share of 62.4 %). Major income is generated by website advertising. 66% of earnings are made by the company’s own websites, about 30% - by network websites and license fees. About 47% earnings are generated by the American market, 13% - Great Britain, 40% - other regions.

Investment idea:

Android, an operating system for smartphones, is among the latest developments of the company. It took over Apple in popularity in September 2010 for the first time. Now both platforms jointly hold 72% of the market. Android has strengthened its positions by increasing its market share from 29% to 37% while Apple’s share contracted from 46% to 37%. In Q3 Google reported 14% more earnings than expected by Wall Street, EPS $7.64. It is obvious that investors underestimated the company even given a one-off tax ease ($0.6 per share).

Google Inc combines stability of ‘blue chips’ and an explosive potential of developing markets. The company’s earnings and sales show stable growth. During the recession Google Inc was among the few companies that managed to maintain earnings and sales growth. Specialists underestimate the company, reports exceed their expectations. Over the past 2 months the company’s earnings forecast was upgraded but the price reacted with a fall. We believe this decrease is corrective in nature and it is a favorable time for buying now because its shares are very likely to grow. 86% of specialists believe that shares should be bought and the average estimated target is at $670 or approximately 13.5% of growth against current levels (the share price reached $590 when this article was being written).

Risks:

The company’s corporate risks are at a minimum due to strong fundamentals. Its recent reports show a tendency of growing staff numbers, by about 1.5 thousand people (or 7%). This will increase fixed costs and reduce operating margin. But we don’t treat this as very risky because Google has always been focused on innovation – talented employees. Besides, currently the company is organically expanding to developing markets. In this context growing staff is not undesirable. Large capital investments at $757 million are also believed reasonable as they are mainly related to the new service, Instant Search, which will become one of the engines of the company’s earnings in our opinion.

Major risks remain systemic in nature – deterioration of the overall economic situation in the U.S. Despite this, however, Google Inc is quite a secure company for investment. Even this risk is believed not so significant for the short term because we expect global GDP growth at 3.3% in 2011 and a continued rising phase of the economic cycle.

Potential trading plan:

One should wait for signs of resumption of the rising trend for an aggressive entry. A position could be opened at $590 because this range has signs of completion of the correction from the corrective movement of $630-$552. Nearest targets are believed to be at $630 and $670.

Probable risks – systemic downturn or sudden deterioration of the company’s fundamental indicators. We recommend putting an analytical stop-loss under the level at $570 after the share gets stabilized. Mathematical expectation on the trade is positive, and yield is within 2-4 for an entry and profit taking option.

A conservative entry should wait for a correction from price movement from $555 to $590. The test level for available buyers - $560-$570.

Short term growth analysis

During the 2008-2009 recession the company not only maintained but also raised earnings. In Q3 last year earnings per share were $7.64. The positive dynamics of earnings and sales growth is stable. According to forecasts, earnings growth rates will remain intact this year, too.

Long term growth analysis

The company has been steadily gaining grounds in the market for a few years showing sustainable earnings growth year in, year out which is supported by growing sales. End of 2010 the expected earnings growth rate is 41% or $28.82 per share. This year we expect the corporation’s indicators to continue growing.

This is the analysis we apply to the sentiment over all covered companies, most interesting securities are included in the buy-list and worked on in portfolios. Specialists of the Portfolio Investment Department will be happy to teach you how to do this and many other things.

The Investments Faculty is delighted to advise you that the Mutual Fund Investments Department is ready to be opened.

Some might think that investing in funds is the easiest way of multiplying their capital. Just pick the fund with best figures, invest your capital and wait while its managers do the rest for you. And while its managers are working for your own good, you relax and wait for your return. What else would an investor want? But Head of Mutual Fund Investments Department would like to emphasize some important aspects that investors should be aware before multiplying their capital through investing in mutual funds.

Firstly, MF is a managing company which invests members’ money in a variety of assets depending on the investment tactics and strategy it chooses. So, the investor should first learn to correctly choose funds to invest their capital in and, most importantly, learn to choose the least risky but still profitable and suitable investment strategies.

Secondly, note some pitfalls one might not see at a superficial look at MFs:

Profits of the managing company depend on the volume, members’ capital invested in it rather than its yield. When comparing the yield of MFs with average market performance, we can see that most funds are beaten by the market. Many managing companies aren’t especially concerned about their yield. They are primarily interested in the total amount of money invested in their fund. Some might ask, ‘Where’s the logic?’ The better the yield, the more attractive the fund for the investor. That is true. But why should one waste time and energy on increasing the fund’s yield if one can raise investor funds in other ways, for example, by large-scale advertising. By the way, advertising paid for by the existing member investors. Hence, another pitfall.

Costs. Most mutual funds don’t reduce the percent charged for their own costs, even after assets grow substantially. However, it is clear even to an amateur that management costs will be at a minimum when the MF investment portfolio is correctly formed to say nothing of index-based funds.

Schemes for partial withdrawal of money from a MF. Although such cases are practically unpredictable, they are known. There are facts saying that most managing companies aren’t too shy to use it. For example, one manager of a ‘right’ MF that has been showing very good yield figures for a long time was frankly surprised in a private talk why other mutual funds cannot show similar results. ‘I did nothing special…’, he says, ‘probably, some are playing unfairly and withdraw part of profitable assets from their funds’.

Finally, MFs will fall together with the stock market in a downturn. Most managing companies will register a loss in a bearish market because they cannot exit it for a long period due to the rules.

Lots of other dangers lie in wait for the investor that works with mutual funds and main tasks that the MF Investments Department has set to meet are helping and teaching you how to find an honest managing company, select the right investment strategy (the MF), pinpoint the time for entry and exit from MFs which will make money for investors consistently.

The goal that the Investments Faculty has set itself is to create the Club of Investors. It will be, so to say, the end product. Apart from existing Departments, the Faculty is now developing materials on all major investment instruments (over ten investment areas) that relevant Departments within the Faculty are responsible for. It should be noted that traders will find information of the Fundamental Analysis Department useful as it is fundamentals that eventually play a determinant role in all markets. Moreover, later the Fundamental Analysis Department within the Masterforex-V Academy became a springboard for creation of the Investments Faculty.

A new approach to investing, unique technical and fundamental analysis and successful elimination of psychological barriers are intended to solve practically all problems that investors face. The Faculty’s specialists have a goal of helping you become more literate in economy and investment, giving you a clear action plan from criteria for selection of an investment instrument to profit taking. Like in any other activity, one should learn to become a professional in investing activities and apply knowledge in practice. You can find anything you might need to excel as an investor in the Investments Faculty.

Materials provided by Dean of the Investments Faculty and Heads of the Faculty’s Departments.

 

 

You are free to discuss this article here:   forum for traders and investors