The Real Impact of Global Crises

The Real Impact of Global Crises

Experienced investors understand how to allocate their money in a way that elicits the best opportunity for appreciation without taking on too much risk. Careful considerations regarding asset allocation, risk tolerance, due diligence, and stock selection are taken into account when designing a portfolio. Long term mindsets mean that sophisticated investors don’t panic during market corrections and they doggedly stick to their plans whether the business cycle is cresting or sinking to a trough. However, when the unexpected happens that sends ripples throughout the global marketplace, even the most steely-eyed investor can find themselves second guessing their entire portfolio and make poor trading decisions.It’s impossible to know when a global crisis will occur, or how it will ultimately affect the marketplace before it happens. Crises have many names and come in the form of natural weather phenomena to man-made conflicts and wars. When breaking news occurs, trading jumps in volatility as traders attempt to manage perceived risks but the real impact of these events is often far removed from how Wall Street acts.The Many Faces of CrisisA crisis, whether small or large, can have far-reaching consequences that may be hard to pinpoint until after they happen. An oil spill in the East China Sea will understandably impact oil prices and energy stocks but could also affect many other industries. Local economies that rely on fishing would be hurt and shipping lanes could be closed down which would impact international trade. The expense of cleaning up the spill would affect multiple countries in the region like China, Japan, Korea, and many others would take money away from other potential uses...
What We Can Learn From Margin Levels in the Stock Market

What We Can Learn From Margin Levels in the Stock Market

Investors with larger risk appetites often use leveraged strategies in their portfolio to amplify potential gains and take advantage of opportunities as soon as they present themselves. Borrowing funds at low interest rates and investing the money in investments that earn a higher rate of return  allows sophisticated traders to enhance long-term performance at an accelerated pace.Utilizing leverage to boost trading performance is commonly used in futures trading and executed by some of the biggest names on Wall Street. Hedge Fund guru Bruce Kovner famously charged $3,000 on his credit card to speculate on soybean futures. He watched as his investment climbed to $40,000 before crashing back down to $23,000, but marveled at how he was able to borrow money and realize triple digit gains over the original amount.Leverage is accomplished by using margin. Investors can borrow money at a predetermined interest rate by using a margin account. The amount that can be loaned is determined by the amount of capital you have and the broker’s margin ceiling. When used correctly, investors can boost returns by a considerable amount.Here’s how it works:Let’s say you have $100,000 and borrow an additional $40,000 at a rate of 6% and invest the combined total of $140,000. You decide to buy 2,800 shares of ABC at $50 a share. After one year, ABC’s stock value is $55 – a 10% gain. However, because you bought on margin, your gain is actually 11.60%. You gained an additional $1,600 after paying back the loan of $40,000 and the interest of $2,400.2800 * $55 = $154,000 – $40,000 – $2,400 = $111,600Margin levels in the stock...
Investing in Gold: 5 Things You Need to Know First

Investing in Gold: 5 Things You Need to Know First

Gold holds a special place in investors’ hearts; coveted for both its value and beauty. The precious metal has been a part of history – not just in the United States, but throughout the world. It has sparked migrations through gold rushes and inspired artists dating back to antiquity who used the shimmering metal to romanticize their works.In modern times, gold is pointed to as a valid monetary base with talks of returning to a gold standard. Until the mid-seventies, the U.S. dollar’s value was directly backed by a reserve of gold and that image of the commodity maintaining its value still drives investment markets today.In many circles, gold is considered its own asset class. Financial advisors recommend that gold be a part of every portfolio with weights ranging from 1% up to 10%. Investor interest in gold even prompted the creation of gold-specific mutual funds and exchange-traded funds (ETF’s) just to meet the public’s demand.A quick glance at any Wall Street headline will show you how the major indices performed and right underneath it, gold prices. Gold is so common that many investors hop into it without really thinking about why gold fits their portfolio. For such a popular commodity, there are a surprising number of mysteries surrounding it.Gold myths abound in the market drifting from investor to investor until they’re taken as actual facts. The truth, however, is that these so-called facts might surprise you.Physical Gold Is Not The Same As Paper GoldThis might be one the biggest misconceptions about gold by investors and can lead to poor investment decisions. There’s a big difference between holding physical...