During the last several decades, more and more people have taken heed of advice to “take stock in America.” Questions about the future of social security, scarcity of corporate pensions, favorable tax legislation for capital gains, and the increasingly widespread message that the average American will only be able to afford retirement through gains in the stock market has pushed stock ownership in America to an amazing high.
During the mid-1980s, having worked in the equity research, I remember a button that was worn rather optimistically by some: “5000 by 2000”. There were many who felt that the stocks would never achieve the lofty height of 5000 by the year 2000; how incredibly aggressive that seemed at that time. Now, of course, with levels of the exceeding 10,000, we can course, with levels of the stock exceeding 10,000, we can only wonder at the miracle of liquidity that has driven stock levels to unprecedented highs.
I submit that if a beginner guide to the stock market incorporates the subject of how to analyze a company’s fundamental value (using price/earnings ratios, discounted streams of cash flows, and balance sheet analysis), then an intermediate guide to the stock market analysis), then an intermediate guide to the stock market should deal with the issue of momentum and liquidity that has driven many stocks to abnormally high levels, and how to protect one’s investment portfolio from a flood of capital that goes the other direction: out of the market.
When the economy is basically strong, most investors know how to make money: buy shares and hold them. Thanks to a burgeoning middle class with money to invest, the stock market saw a period of steep upward inflation during the 1980s, 1990s and first several years of 2000. During the last couple of years, however, individuals have seen their liquidity drying up with a sudden reversal in the housing market and increasing inflation. Thus, fewer individuals have savings to invest in the stock market. Momentum has slowed, and a stream of capital has begun to flow away from the market as many individuals have sought to protect their capital by reverting to cash in light of depressing news on economic fronts. the market as many individuals have sought to protect their capital by reverting to cash in light of depressing news on economic fronts. capital by reverting to cash in light of depressing news on economic fronts. economic fronts.
Fortunately, during the last few years, Wall Street has served up the perfect hedge for such investors: **inverse funds. **Inverse funds can be in the form of mutual funds or exchange-traded funds (ETFs). Basically, these funds allow investors to short a whole basket of stocks. Unlike traditional short sales, however, investors in inverse funds can’t lose more than their original investments.
Here’s how it works: say you have a $100,000 portfolio of well-diversified mutual funds, and you are concerned that your investment is vulnerable to short-term losses. You don’t want to sell your entire portfolio or short individual stocks, because, as your broker constantly reminds you, “It’s impossible to time the market.” Besides, if you sold $100,000 worth of stock, you’d probably have enormous tax consequences. Instead of taking a sledgehammer to your portfolio, you research a basket of inverse funds and discover that inverse funds are designed to give the opposite return of an index. For example, an inverse fund on the S&P 500 may go up one percent for each one percent decline in the S&P 500. There are a number of these funds (Ryder, ProFunds, and iShares, to name a few). In fact, some inverse funds are even designed to give daily investment results of TWICE the inverse of the daily performance of a given index. the inverse of the daily performance of a given index. Savvy Investors Look Before They Leap — Few Hard Truths About Hedge Funds Although the high-profile hedge fund industry has grown steadily in mystique and measure over the last two decades, the…medium.com
Alternative funds has become a popular buzzword in the small business sector, with new lending companies evolving out of the chaos of the economic downturn. But where do you go to find these alternative sources of money?
Here are few ideas for fun ding your start-up or growing company that should appeal to a variety of businesses, from traditional bricks and mortar establishments, to e-commerce companies and home-based businesses that are ready to expand. There are approximately 60 CDFIs in the UK at present. These social enterprises help start-up and growing businesses by lending money, offering support, and potentially creating jobs that will boost the local economy. Grants tend to be community-based, so if your business has a local theme such as bringing people back into your town center or using locally grown produce, then you may be eligible.
Business Angel Co-Investment Fund
The Angel Co-Fund invests in SMEs around the UK, alongside angel investor networks. Launched in November 2011, it filled a large gap in the investment market by adding to funds from existing interested business angel syndicates.
Peer-to-peer lending
Possibly the best known organisation in this bracket is Zopa, who describe themselves as a ‘lending and borrowing exchange.’ People who have money to save can lend it to borrowers, and enjoy a higher interest rate than that available on the High Street. Borrowers obtain loans at a lower rate and by-pass the banks completely. Zopa borrowers need to have a good credit rating to be eligible, and go through a stringent application process before a loan is agreed. Available to anyone in England and Northern Ireland between the ages of 18–30, the Start Up Loan Scheme aims to help young entrepreneurs get their ideas off the ground. Although it is a personal loan, it is offered for business purposes. The amount of the loan is usually restricted to GBP 2,500 but this might be just what you need to get a business started. Do not worry if you are already trading as you remain eligible for this type of loan for a period of 12 months from start-up.
Hedge funds
A hedge fund is an investment partnership, a privately owned fund that tries to make large returns for its investors. Hedge funds are run by fund managers who take the pooled investments from the fund members (the investors) and try to maximize returns while reducing risk.
How do they work?
Hedge funds are normally designed with very specific strategies, styles, and goals in mind. They can invest in anything that they want, from stocks, bonds, currencies,and commodities through to much more esoteric investments. The fund manager will use the strategy, style, and approach of the hedge fund to create as much profit as possible for the hedge fund members. What are the risks? **Fees **-The fees associated with investing in a hedge fund are very high and are normally two-fold: a flat management fee levied on the amount invested, and then a cut of any profits generated. **Risk **— Despite their name, hedge funds can be quite risky investments. It is well advised to consult a reputed fund consultants before jumping to make an investment.
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