Novel Investor • Page 2 of 13 • Compounding investing wisdom...

Bond Basics: Bond Price And Yield Relationship

May 1, 2012

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Jon

One of the more confusing aspects of bond investing is the relationship of bond price and yield. As bond investors we want high prices and high yields but it’s just not possible. At least not at the same time. This is where the confusion begins. In a time where interest rates are at all time lows, understanding the bond price and yield relationship is important.

Bonds play an important part of every portfolio. The basic asset allocation strategy says to have your age as the percent of bonds in your portfolio. I could argue for more or less based on interest rate risk and current yields, but that’s a post for another day. The bottom line is we should have some bond exposure in our portfolio. For now, lets just stick to the basics of the bond price and yield relationship.

Bond Yield

New bonds are issued at face value (par), with a time to maturity, and a yield (coupon rate) that involves several factors including risk. Bond yield is the return you will receive if you hold the bond till maturity. It’s in annual percentage form. So a bond with a 5% yield, will pay a 5% return each year until the bond matures. Continue Reading…
Happy Hour: The Fed Translation & NFL Draft

April 27, 2012

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Jon

Welcome to the end of the week and Happy Hour! Sit back, relax and enjoy a few things that I’ve read this past week.

The Fed Statement Translation

The Fed released its monthly statement this week without any major surprises. Jack Hough wrote a tongue in cheek translation of it, The Fed in 57 Words, which can give you a gist of the economy at the moment. Basically, unemployment is too high, people are spending more because gas prices are too high, and Europe is still screwed up. Tell me something I didn’t know.

NFL Draft

I have to say the NFL Draft is the ultimate tease for all the football fans out there, myself included. Somehow the fate of your team suddenly boils down to a draft pick. As if a single player will instantly propel your team to Superbowl greatness. Then watch as the analysts and fans scrutinize and criticize each pick. For most of these players, we won’t see an immediate impact, if any, for several years. Yet, I find myself watching anyways, with everyone else. Continue Reading…
Book Review: Millionaire Teacher

April 26, 2012

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Jon

I was recently approached to do a book review. It’s not a rare occurrence and I’ve had my fill of investing books over the years. When the Millionaire Teacher finally showed up in the mail, I honestly wasn’t overly excited about reading it. Despite my misgivings, I gave it a shot and quickly found it was not your typical investment book.

The Millionaire Teacher is an investing autobiography of sorts by the author Andrew Hallam. He is a successful high school English teacher, investor and writer. Did I mention he’s a self-made millionaire on a teacher’s salary?

Hallam breaks down his financial successes and failures into nine simple rules that everyone can use to build wealth. He attacks each rule from an educational perspective, with humor, research, and pure simplicity. Continue Reading…
Shorting A Stock: Profiting On The Way Down

April 24, 2012

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Jon

The Short Trade Of 2011

Shorting a stock is a high risk, high reward strategy. It goes against the market trend. It’s unnatural.

Everyone and their brother wants the market to go up, not the short seller. Shorting a stock is not the popular choice, but there are profits in going against the crowd.

Most of our investments go like this: we buy shares of a stock or ETF. Those shares will rise in value because our research says so. Then we’ll sell, make a cool profit and move to the next investment. That’s the simplified version. Shorting a stock or a short sale is the opposite.

What is a Short Sale?

The SEC defines shorting a stock as:

A short sale is the sale of a stock that an investor does not own or a sale which is consummated by the delivery of a stock borrowed by, or for the account of, the investor. Short sales are normally settled by the delivery of a security borrowed by or on behalf of the investor. The investor later closes out the position by returning the borrowed security to the stock lender, typically by purchasing securities on the open market. Continue Reading…
Happy Hour: Waiting For The Shoe To Drop?

April 20, 2012

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Jon

It’s the end of the week and another edition of Happy Hour. Sit back, relax and browse some of the great topics I came across this week!

Waiting For The Shoe To Drop?

With the glass half empty media mindset on the market and economy of late, it certainly seems like we’re waiting for the shoe to drop. With the impressive first quarter run up, it’s very reminiscent of last year, just without the impending European collapse.

Last year at this time we were seeing good first quarter earnings. Then the European debt crisis and the US debt ceiling hit the news, putting fear back into the markets.

Once again we’re seeing good first quarter earnings. So, we’re holding our breath waiting for a repeat of fear entering the markets. But it’s not happening. The fact is things are good. The US economy has been the little train that could, slowly chugging itself up the mountain. The economic indicators point to a continued slow recovery. Continue Reading…
Be A Green Investor

April 19, 2012

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Jon

Being a green investor is just one area of social responsibility that has taken hold in recent years. Corporations have found it easier, if not necessary, to embrace a more environmentally friendly view on business. Sometimes this comes at the cost to profits, but technology improvements and lower costs have made it a much more practical and stockholder friendly view.

The idea of green investing is pretty simple, you look to invest in companies that are trying to make a positive impact on the environment. From a consumer standpoint this has been going on for years. We’ve seen advertising campaigns built solely around a company’s environmental awareness. Whether a company’s environmental stance is pure marketing or a concerted effort to make a difference, is an argument for another day. The fact that the environment is part of the business plan is what matters.

What Makes A Company Green?

There are two ways a company can be green. A company either maintains a green operation or runs a green business. By a green operation, I mean that the company is trying to carry on its day-to-day operations by using less energy, producing less waste, less carbon emissions, etc.

A green business on the other hand produces products or services that help in the fight against climate change and the destruction of the environment, like solar panels, wind turbines or environmental clean up. Of course, companies can fall into both categories too. Continue Reading…